Brazil banks reach agreement in savings account dispute

Brazilian banks and their clients have reached a long-awaited agreement in a dispute regarding the monetary correction of savings accounts, which was applied during the implementation of economic stabilization plans in the 1980s and 1990s.

Consumer protection institute IDEC and the Brazilian savers' front (Febrapo) have reached a consensus with the Brazilian banking federation (Febraban) regarding the financial conditions of the issue, the federal attorney general's office (AGU) said in a press release.

"Our initial take is positive, as a coordinated and agreed solution is less risky for the financial system than a potential judicial decision," said JPMorgan in a note about the news of an agreement.

"Relevant points of conciliation are still pending. The final text will be submitted to the federal supreme court, which will have the final say on the matter," said AGU.

Banks will pay a total of 10bn reais (US$3.10bn) as part of the agreement, according to local media. Although high, the agreed settlement is not expected to generate any relevant impact on banks' results since they have already created provisions related to the dispute, media reported.

The most exposed banks are Caixa, Bradesco, Banco do Brasil and Itaú, according to JPMorgan

When the long-running dispute grabbed headlines in recent years, banking sector representatives warned the government that it could end up costing 150bn reais - and damage the financial system.

The dispute was under evaluation by the supreme court, who kept delaying its ruling due to the high complexity of the issue.