Two Venezuela banks go to state for under $1-paper

Anxieties over the health of Venezuela's financial system eased on Friday, with bonds rising after heavy losses this week as a paper reported a businessman agreed to hand over two institutions to the state.

The report followed five tumultuous days for Venezuela's financial system, in which the government closed four small banks and bond prices plunged.

Analysts said there was relief among investors that President Hugo Chavez did not appear to be carrying out sweeping bank nationalizations he threatened earlier in the week.

Caracas financial daily El Mundo said Pedro Torres Ciliberto, who has close links to the government, would transfer three banks and an insurance company bought for more than $380 million to the state and to previous owners.

Two would go to the state and two would go to past owners, all for the symbolic price of one bolivar (47 U.S. cents), it said. El Mundo named the institutions as Central Banco Universal, Banco Real, Baninvest and insurance company Seguros La Previsora, but did not say which were going to the state.

"This accord forms part of the actions taken to clean up the local financial system," a source told El Mundo.

Spokesmen for the companies mentioned by El Mundo could not be immediately reached or declined to comment. "These are sensitive subjects, and as such the only authorized spokesman is the minister," a Finance Ministry spokesman said.

Markets Calmer

A banking source told Reuters Banco Central Universal's board, acting on behalf of all four institutions, on Thursday night dissolved the agreement under which Torres Ciliberto had bought them.

Since the weekend, Chavez, who has nationalized large swathes of Venezuela's economy during a decade in power, has twice said he would not hesitate to take over private banks that breach the law or fail to lend to the poor.

But on Thursday, he softened his tone, saying the government was only intent on "fixing" some problem banks in moves that would safeguard the system overall. Analysts say Venezuela's major banks are in a healthy state.

While Chavez may want to nationalize the bank system, he is wary that such a step could cause widespread instability and a run on funds, analysts say. He may also wonder if his official have the skills to run the system efficiently.

Government critics say Chavez is to blame for letting cronies mismanage banks, he accuses wealthy political foes of trying to spark a bank run and has set up a 24-hour "situation room" to monitor financial institutions.

On Monday, the government shut four banks -- owned by a wealthy businessman with close ties to the state and representing about 6 percent of Venezuela's deposits -- for concerns over solvency and unexplained capital increases.

Two of the banks are being "liquidated", while the state will take over two: Banco Confederado and bolivar Banco.

On international markets, Venezuela's benchmark global bond maturing in 2027 VENGLB27=RR firmed 1.000 point on Friday to bid 66.250 after two straight days of heavy losses. The bond, one of the most traded emerging market bonds, has fallen 9.1 percent this week, its steepest weekly fall this year.

The bolivar currency's official rate has been fixed at 2.15 to the dollar since 2005. In parallel nonofficial trade, the bolivar stabilized at about 5.8 bolivars on Friday, after shooting up to 6.0 on Thursday compared with about 5.5 bolivars at the end of last week.

With memories of Venezuela's 1994 bank crisis raw for many still in the nation of 28 million, there were lines in some banks on Friday as depositors sought to check or withdraw funds. One group of workers protested outside the headquarters of Banco Canarias, one of the four banks shut on Monday.

But there was none of the panic seen here in the past.

Wall Street and local financial analysts said that fears had been exaggerated this week, with a sweeping nationalization of Venezuela's bank system highly unlikely.

"There is currently 'flight to quality' into the stronger banks in the system," said RBS analyst Boris Segura. "Unless authorities manage the situation poorly, the panic is likely to eventually subside. A full-fledged nationalization of the banking sector is not in the authorities' best interests."

The only major private bank, foreign or Venezuelan, to fall into state hands under Chavez was Spain's Banco Santander unit Banco de Venezuela, sold in July for $1.05 billion.

[Source: By Walker Simon and Eyanir Chinea, Reuters, Caracas, 04Dec09]

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