SAO PAULO: Goldman Sachs Group Inc and JPMorgan Chase & Co are among the global banks looking to invest in Brazilian distressed loans, an area some are calling the flavour of the month in Latin America’s largest economy.

With unemployment spiking and inflation eroding disposable income, households are defaulting on their loans at the fastest pace in six years. Toxic debt is also increasing for companies, which are succumbing to flagging sales and rising borrowing costs.

Some funds acquire a large portfolio of credit from a bank at a steep discount and then rework each loan individually, profiting after repackaging them into securities, taking over the collateral or restructuring the debt. For banks, bad-loan sales help them clean up their balance sheets in times of economic hardship.

Industry players estimate sales of toxic loans will exceed 23 billion reais ($7.3bn) this year, up 35 per cent from 2014. State-controlled lender Caixa Econmica Federal, which only entered this market last year, targets the sale of 9bn reais in bad loans this year alone.

Taking advantage of that trend, Goldman, Credit Suisse Group AG and Cerberus Capital Management LP are picking up soured consumer and corporate loans, joining local companies to pay record amounts for distressed assets.

Credit Suisse Hedging-Griffo, the Swiss bank’s private-banking unit in Brazil, and So Paulo-based Jive Investments Holding Ltd are raising money for a bad-credit fund from up to 50 investors, two sources with knowledge of the plan said. Goldman is also teaming up with Jive to invest as much as $200 million in the area, another two sources said.

In May, JPMorgan-controlled Gvea Investimentos paid 100 million reais for 46pc of debt collector Paschoalotto Servios Financeiros Ltda to gain expertise in credit recovery.

A public relations executive working for RK Partners said the So Paulo-based restructuring adviser would help Cerberus find distressed assets in Brazil.

Goldman, Credit Suisse, Jive and JPMorgan declined to comment.

Goldman and Credit Suisse’s bet on Brazilian soured credit should deliver hefty profits for both them and their clients.

Published in Dawn, July 8th, 2015

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