Brazil audit court chief says only Supreme Court can reverse Banco Master liquidation

By Ricardo Brito

BRASILIA, Jan 7 (Reuters) - Brazil's federal audit court does not have authority to overturn a central bank decision to liquidate lender Banco Master and needs more time to assess whether the move was justified, the court's head Judge Vital do Rego said on Wednesday.

The court, known as the TCU, is reviewing the central bank's November decision to ?liquidate the mid-sized lender over liquidity problems and regulatory breaches, but only the Supreme Court could reverse the decision, Rego told Reuters.

"The process of ?undoing the liquidation is up to the Supreme Court, because there is an open case there," ?he said in an interview. "What TCU can offer, as it has been doing, ?are elements on the ?legality of the operation."

The Supreme Court did not immediately respond to a request for comment.

Markets have been monitoring the TCU and Supreme Court ?work on the case, seen as unusual for a ?bank liquidation in Brazil, as uncertainty grows over investor compensation.

Rego said it was not yet clear whether the liquidation was justified, adding that TCU technicians would need to ?review central bank documents before reaching a conclusion. He ?estimated the ?work would take about 30 days.

CENTRAL BANK CHALLENGES AUDIT COURT RULING

On Monday, TCU Judge Jonathan de Jesus warned he may consider measures to prevent asset sales during Banco Master's liquidation "to preserve ?the value of the estate and the usefulness of external oversight."

Jesus also ordered an inspection of central bank documents underpinning the decision to wind down Master. Later that day, the central bank challenged the ruling, saying such decisions must be made by the court's panels.

Any unilateral move by a single judge would likely be temporary, as it would need confirmation by the court's nine members.

Asked if he would back ?Jesus' stance ?to potentially block the liquidation, Rego said: "The only thing I'm doing now is defending the court's prerogative, nothing else."

LIQUIDITY ISSUES, POLITICAL TIES

The central bank ordered Banco Master's liquidation on the same ?day federal police arrested controlling shareholder Daniel Vorcaro in a probe into fraudulent credit securities.

Vorcaro, a banker with strong political ties, was later released with an ankle monitor.

Though Banco Master accounts for less than 1% of bank assets in Latin America's largest economy, its collapse has drawn scrutiny because the lender fueled its rapid growth by issuing high-yield debt marketed as covered by Brazil's private deposit guarantee fund (FGC).

Investors who financed that expansion are awaiting potential FGC payouts totaling ?about 41 billion reais ($7.6 billion).

Rego defended the TCU's role, saying the court "is rigorously fulfilling its responsibilities as a second-tier watchdog" and that this "should be treated without unnecessary alarm."

He also stressed that TCU supports the central bank's autonomy and has often worked jointly with ?the monetary authority.

(Reporting by Ricardo Brito. Additional reporting by Marcela Ayres. Editing by Barbara Lewis and Mark Potter)