Smaller regional U.S. banks and some foreign banks are making it extremely difficult to assemble a financial rescue package for Brazil, whose foreign debts are approaching $90 billion, sources said yesterday.
Major banks, scrambling to arrange a loan package with the financially strapped nation, are being forced to put up about $1.3 billion a day to make up a shortfall of loans from smaller banks, the sources said. Several deadlines already have passed for reaching agreement on a loan package, and it may be necessary for big banks to put up more money for Brazil than initially agreed, sources close to the banking negotiations said yesterday.
Figures obtained yesterday showed that many small local and regional banks had cut back drastically on the money they were lending to Brazil through deposits and loans with Brazilian banks. Banking sources said that among the banks that have pulled cash out are:
* Riggs National Bank, which cut interbank deposits with Brazilian institutions from $43 million last June to $8 million earlier this month.
* First Minneapolis, from $32 million to $5 million.
* National Bank of Detroit, from $75 million to $8 million.
* National City Bank of Cleveland, from $33 million to $7 million.
* First Interstate of Los Angles, from $81 million to $43 million.
* Rainier Bank in the Pacific Northwest, from $14.5 million to zero.
Brazil and a group of its larger creditors, led by Bankers Trust Co., have asked the banks that had lent to Brazilian banks to put back most of the cash they have drawn out since June 1982, as one element in a four-part financial plan Brazil is negotiating with commercial banks.
However, the response so far has been disappointing, leaving big banks in New York and Chicago regularly forced to put up money at short notice to carry the Brazilians through the night, sources said.
Among those who sources say have increased their outstanding loans and deposits at Brazilian institutions between June of last year and this month are:
* Citibank, up $88 million.
* Bank of America, up $100 million.
* Chase Manhattan, up $96 million.
* Bankers Trust, up $47 million.
* American Express, up $38 million.
* Continental Illinois, up $13 million.
One banker warned yesterday that the impasse caused by smaller banks could force Brazil to freeze all its loans and force an agreement, instead of working for a voluntary settlement with its creditors. "If that happens, it won't be Brazil's fault. It will be the fault of the international financial system," the banker said.
However, in one piece of welcome news, the IMF apparently has decided to go ahead with a $4.9 billion loan to Brazil, despite the disarray in the negotiations with commercial banks. The credit--which is conditional on Brazil sticking to an austere economic program--already has been agreed to with the fund's staff and will go to the IMF board for formal approval next Monday as scheduled, a source said yesterday.
The IMF apparently believes that the Brazilians are doing what they can to put their economy in order, and that Brazil eventually will make a deal with its private creditors, an observer said. Fund Managing Director Jacques de Larosiere had warned banks that, unless they reached agreement with Brazil on the four-part plan, the IMF would not approve its loan.
Meanwhile, Brazil has sent urgent appeals to foreign governments to put pressure on their banks to step up lending. It has asked bank regulators not to penalize banks that keep on lending to it, sources said.
Banking sources said Italian money market lines to Brazil dropped by $185 million between last June 30 and this Feb. 9; those of West German banks, $228 million; Japanese, $151 million; and Spanish, $178 million. The Swiss Banking Corp. pulled out $107 million.
The interbank market, where the problem with the Brazilian loan package has arisen, is "cloaked in secrecy" and viewed by many international experts as the weakest link in the world financial system. Thousands of banks lend money to each other on a short-term basis, out of the full view of bank regulators.
As soon as the debt crisis began last summer, U.S. and other banks started to pull out money they had on loan to Brazilian and other Latin American banks. Several billion dollars drained out of the Brazilian banks through this back door while Brazil was negotiating through the front door for the IMF loan and for a stretch-out of its commercial bank debt.