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Brazil’s federal government will demand concessions if it’s required to step in and rescue Banco de Brasília SA, the Brazilian lender struggling because of its connections to Banco Master SA’s record-breaking collapse, according to a government official with knowledge of the matter.A bailout isn’t the administration’s planned outcome, and would only come if it sees systemic risk starting to appear, the official said, asking for anonymity to discuss private deliberations. But officials in President Luiz Inacio Lula da Silva’s administration are prepared to condition any such assistance on trade-offs from the capital city’s government, which controls the bank.One such demand would be adjustments to rules governing a fund that channels federal transfers into the regional economy. That fund is projected to disburse as much as 30bn reais ($5.8bn) to the local government this year.Fernando Haddad, a candidate for Sao Paulo governor and former finance minister, previously made unsuccessful attempts to revise the formula for how much is directed into the fund, a proposal that could return to the table as part of any support package for BRB, as the bank is known.The bank is trying to cover a hole left on its balance sheet by transactions it made with Banco Master, which collapsed in November. BRB sees federal aid as essential given that state-owned banks would be needed to purchase some of BRB’s assets as well as participate on potential loans, according to a person involved in the negotiations.BRB last month called for an extraordinary shareholders’ meeting on April 22 to vote for a capital increase that would help it solve the problem, and expects the capitalisation to be concluded by May 30, according to this person. The bank will seek as much as 8.8bn reais, it said in a statement.BRB’s capital plan includes a potential loan from Brazil’s deposit insurance fund, known as FGC, of 4bn reais, and a real estate fund with Distrito Federal buildings that could raise the same amount. The bank is also weighing potential sales of share participations in some of its companies and some portfolios it got from Banco Master.The Finance Ministry told the federal banks, Banco do Brasil SA and Caixa Economica Federal, not to look into BRB, people familiar with the matter said, and to look at purchasing some of the bank’s portfolios using the same criteria that privately owned banks would do, according to one of the people.Caixa analysed BRB’s payroll-loan portfolio, which is considered healthy and liquid, but talks collapsed after the Brasilia-based lender missed deadlines to send documents, according to another person involved in the negotiations. Banco do Brasil didn’t look at BRB’s assets, a third person involved in the negotiations said.BRB estimates it got 21.9bn reais in portfolios from Banco Master, and around 15bn of those are seen as having good quality, according to one of the people involved in the negotiations. Some 2.6bn reais will probably become an outright loss.Banco do Brasil confirmed that it didn’t participate in talks with BRB, and that potential deals are always evaluated based on its business strategy. Caixa said it wasn’t studying a deal with BRB but noted that it constantly analyses business opportunities that are advantageous for the bank.Representatives for BRB, the Finance Ministry and Brasilia government didn’t reply to requests for comment.Within the government, officials also see a potential rescue of BRB as politically costly. Aiding the bank would mean addressing a problem created under Lula’s predecessors while also linking the Master scandal closer to the government — a dynamic that could further weigh on the Lula’s approval ratings and affect his reelection campaign, according to people familiar with the matter.The government’s broader strategy has been to blame the Master crisis on former President Jair Bolsonaro’s administration and his central bank president, Roberto Campos Neto. Speaking at an event to launch Haddad’s bid for governor of Sao Paulo, Lula said Master was “the serpent’s egg” of Bolsonaro and Campos Neto, and argued that the firm was authorized to operate in 2019, under his predecessor’s watch. Neither Bolsonaro nor Campos Neto have been implicated in the ongoing investigation.The hole in BRB’s finances is due to credit portfolios the bank bought from Banco Master starting 2024. The bank purchased almost 13bn reais of assets that authorities said were fraudulent, and replaced most of those with other assets from Master, seen as less liquid.Unlike Banco Master, an eventual BRB failure could create systemic risk. The bank holds more than 30bn reais in legal deposits and is an important lever used to help the economy of Distrito Federal, which comprises Brazil’s capital and is among the top 10 richest Brazilian states. 

Brazil's President Luiz Inacio Lula da Silva warned Tuesday that "anti-democratic forces" were seeking to subjugate institutions after he was targeted by an alleged coup plot orchestrated by his predecessor.Former president Jair Bolsonaro was sentenced to 27 years imprisonment earlier this month for his role in a botched coup bid after his 2022 election loss to leftist Lula.US President Donald Trump, who was to speak after Lula, has viciously attacked Brazil for pursuing far-right Bolsonaro and his son, ramping up economic sanctions and visa bans in retaliation."Throughout the world, anti-democratic forces are trying to subjugate institutions and stifle freedoms," he said at the UN's signature diplomatic week.Trump has heaped pressure on Brazil over what he termed a "witch hunt" against his longtime ally, imposing a 50 percent tariff in July on a variety of Brazilian products that took effect last month."Brazil sent a message to all aspiring autocrats and those who support them -- our democracy, our sovereignty, are non-negotiable," Lula told the UN General Assembly just before Trump addressed the assembly.Brazil's chief prosecutor charged Eduardo Bolsonaro on Monday over his lobbying for US sanctions in a bid to sway the outcome of the coup trial against his father.US Secretary of State Marco Rubio last week vowed further action to pressure Brazil over the conviction.On Monday, the Treasury Department announced it was freezing the assets and visa of Moraes's wife Viviane Barci de Moraes and Lex, a firm linked to the family.Rubio accused de Moraes of acting to "weaponize courts, authorize arbitrary pre-trial detentions, and suppress freedom of expression."The Brazilian government previously condemned an "undue interference in Brazilian internal affairs," saying the measures had been justified by "falsehoods.""Brazil will not bow to this further aggression."De Moraes said the sanctions against his wife were "illegal and deplorable."Also on Monday, Attorney General Jorge Messias said he had been the target of "unjust aggression," responding to media reports his US visa had been revoked.Messias said the latest measures "exacerbate an unreasonable set of unilateral actions, completely incompatible with the peaceful and harmonious conduct of diplomatic and economic relations built over 200 years between the two countries."