By trying to endear itself to retail investors, Brazilian state bank Caixa Economica Federal has irritated bankers. Caixa officials have been talking to the local press about securitizing mortgages to low-income borrowers. As a vehicle, Caixa is eyeing the receivables investment fund (FIDC), the SPV of choice for tax reasons. After the bank made its intentions public, the National Securities Commission passed a rule allowing retail investors to directly and indirectly purchase funds backed by mortgages to low-income borrowers. The connection did not pass unnoticed. "It was a very specific authorization for Caixa," said one Sao Paulo-based lawyer. "It didn't seem like a nice thing for a lot of players."

Bankers have been pressing the CVM to allow the retail sector to buy into FIDCs, regardless of asset class. An email to Caixa was unanswered as of press time.

While many doubt that small investors would directly make much of a dent in a typical fund, the consensus is that indirectly - through mutual funds and the like - they could have a sizable impact. "The boost would come from these funds, which right now are not eligible," said a Sao Paulo-based banker. Asset managers, pension funds and high net worth individuals are the current audience for FIDCs. Other instruments in the local capitals do not face the same restrictions.

While peeved by the apparently special treatment - even though it is designed to stimulate housing finance in poorer sectors - bankers say that allowing retail investors into Caixa's fund could mark the first step in expanding the FIDC investor base for every asset class.

Caixa has told the press that it would sell each share at R$100 (US$34). Proceeds from the fund will go to a particular housing project in the eastern limits of Sao Paulo. Austin Rating is apparently rating the transaction, as analysts at the other four agencies active in Brazil said they were not involved.

While details of the transaction are sketchy, several sources said that Caixa had, at least initially, envisioned a future flows structure, in which most of the receivables had not been generated yet. The performance risk of such a deal, however, would probably make it untenable.

Created in 1969, Caixa is Brazil's third largest commercial bank in terms of assets. Its chief mandate is to promote housing and urban development, particularly among socio-economically disadvantaged sectors. As of June 30, 2003, total assets stood at R$126 billion (US$43 billion).

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