Venezuela's banking regulatory agency has ordered financial institutions holding debt securities through Lehman Brothers or Merrill Lynch to back up those investments by having 50 percent of their value on hand as cash deposits. The banking regulatory agency says it issued the order Tuesday, giving banks 24 hours to have contingency funds in place. It remains unclear how many Venezuelan banks may be affected by the measure.
Some private banks hold structured notes denominated in Venezuelan currency that were offered by Lehman Brothers and Merrill Lynch, which bundled together combinations of debt securities. Lehman Brothers Holdings Inc. filed for bankruptcy protection last week, and Merrill Lynch & Co. later agreed to sell itself to Bank of America Corp.
The government move should help the Venezuelan financial system protect itself from the "eventual loss" they can expect on such investments, said Jose Grasso, director of the Venezuelan financial analysis firm Softline Consultores. He said the measure would mean smaller earnings for some Venezuelan banks in the short-term, but that the measure is "healthy." Losses on the Lehman securities have yet to be determined but could reach nearly 70 percent of their value on paper, Grasso said.
Venezuelan banks have used such debt securities to get around currency controls that limit their ability to access foreign currency.
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