There is little concern among Britain's banks that Brazil's deteriorating
financial position will spread to other sovereign borrowers.
Brazil's difficulties reflect a failure of its own domestic policies rather than an overall worsening of the international debt crisis, Sir Kit McMahon, chief executive of Midland Bank, said.He described Brazil's decision to suspend interest payments on much of its overseas debt as "a setback - a hitch of significant scale," but one that is unlikely to result in a domino effect.
This view is very much in line with those expressed by other senior London bankers over the past week. Sir Jeremy Morse, chairman of Lloyds Bank, is confident Brazil's move will not trigger similar action by other Latin American countries, since most are successfully pursuing policies supported by the International Monetary Fund.
Tom Frost, deputy group chief executive of the U.K.'s largest bank, National Westminster, argues that a hitch such as the Brazilian moratorium is only to be expected from time to time during the long struggle to return Latin American and other countries to financial health.
But while there is confidence that the Brazilian case is containable and manageable, lenders are not complacent about the serious plight of the world's biggest borrower. Most banks are now well-placed to cope with any deterioration in the sovereign debt crisis, having built up provisions since the shock of Mexico's default in 1982.
Nevertheless, creditor banks are determined to take a very firm stand with Brazil. Sir Timothy Bevan, chairman of Barclays Bank, has warned of tough negotiations ahead and complained that Brazil itself must take action to stop capital flight out of the country.
Speaking during the week that Dilson Funaro, Brazil's finance minister, has been touring European capitals for talks with governments and central banks, Sir Kit described his assessment of the situation as one of ''continuing reason for caution, but not alarm," echoing Sir Jeremy's view that the Brazilian freeze was "neither a little local difficulty nor a global disaster."
Midland Bank, the last of the big four U.K. commercial banks to announce 1986 results, Wednesday disclosed a 24 percent increase in pretax profits to 434 million ($680 million). The results reflect an improved performance since the group disposed of its unprofitable Californian subsidiary, Crocker National Corp., last May and restructured its operations.
Midland's 1986 results compare with a 26 percent rise in pretax profits reported by National Westminster Bank, which became the first British bank to earn more than 1 billion. Barclays, Britain's second largest bank, announced a 7 percent increase to 895 million, while Lloyds Bank's pretax earnings were 25 percent higher at 700 million.