Brazil’s biggest-ever bank fraud case has left the country’s banking system facing a 52 billion-real ($9.9 billion) bill after Banco Master used funds, asset sales, and other maneuvers to hide major balance-sheet problems from investors and regulators, Bloomberg reported Friday. 

An Audit Court report said the lender, controlled by Daniel Vorcaro, was disguising mounting liquidity stress well before Brazil’s central bank placed it under intense daily oversight in December 2024, the news outlet said. A key warning sign came when a capital raise brought in just 2 billion reais, far short of a 15 billion-real target, while assets including risky corporate credit and court-ordered debts generated too little cash to repay bondholders. 

To cover the shortfall, Banco Master used investment funds and portfolio sales to move bad assets off its books and make its finances look stronger, according to Bloomberg. The central bank had been demanding fixes since 2021, but the gaps widened. Pressure intensified after a 2023 rule change made court-ordered debt more burdensome to hold, even as the bank kept expanding and bought Will Bank in 2024, a deal that later forced a 1.8 billion-real adjustment. 

Banco Master’s troubles deepened when the central bank blocked a proposed partial sale to Banco de Brasilia in September over concerns about alleged links between Master and asset managers cited in an organized-crime investigation, Bloomberg said. By then, Brazil’s deposit insurance fund had been drawn in to support payments to short-term debt investors as officials tried to contain losses. 

Central bank calculations later showed Banco Master needed a 20 billion-real balance-sheet adjustment, about four times its 5.2 billion reais in equity, leaving it quickly insolvent, Bloomberg reported. Vorcaro’s final attempt to sell the bank came too late, and he was arrested the same day regulators voted to liquidate the lender. 

Read more at Bloomberg