Brazil's Caixa reverses accounting move after accusation it seized funds

SAO PAULO Mon Jan 13, 2014 1:59pm EST

SAO PAULO Jan 13 (Reuters) - Caixa Econômica Federal will reverse an accounting step after a magazine report accused the Brazilian state-owned lender of seizing 721 million reais ($308 million) worth of inactive savings accounts to inflate profits.

Caixa will follow central bank orders to correct procedures for how it books such accounts on its balance sheet, executives told Reuters on Monday. Caixa said the accounts in question have flawed or inaccurate documentation.

Over the weekend, magazine Istoé reported that Caixa violated financial regulations by taking control of proceeds from about 496,000 inactive accounts in 2012.

The Istoé report accompanies growing distrust of public-sector accounts and fanned concern that Caixa, Brazil's largest mortgage lender, had turned to accounting tricks to boost profit and increase payouts to the federal government, its sole shareholder.

Chief Financial Officer Márcio Percival denied any wrongdoing. He called the Istoé report, which suggested that Caixa had "confiscated" the money of the accounts in question, "reckless and flawed."

The confusion followed a Caixa decision to move the balance of these accounts from the liabilities line of its balance sheet to that of shareholders' equity. Caixa took the decision, said Marcos Vasconcellos, senior vice president for asset management, because it saw a "void in accounting rules" for such accounts, which the banks calls "irregular accounts."

With the move, Caixa's net income rose by 420 million reais in 2012, to 6.1 billion reais.

According to Istoé, Brazil's central bank found the irregularities and ordered Caixa to fix the problems. The central bank, for its part, in a statement said that Caixa is working to address its concerns.

Vasconcellos and Percival both denied the decision had anything to do with boosting dividend payouts. Depositors with irregular accounts can get their money back anytime, both executives said.

Vasconcellos said irregular accounts will again be booked as a liability in the 2013 statements, which could be published at the start of next month. As a result, the bank's capital base, which had gone up in the wake of the accounting move in 2012, will decline by the same amount, both executives said.

According to Brazil's Comprtroller General Office, known as CGU, there are currently no laws allowing banks to take control of balances in irregular accounts. According to CGU, the Brazilian law gives depositors with an irregular account as many as 25 years to claim their money back. The National Treasury can only get hold of that money after an additional five years.