BRB, a Brazilian state-run lender, is considering a new proposal for Banco Master’s assets after the central bank rejected their initial bid. BRB shares fell 5.6% on Thursday. The deal would have given BRB a 58% stake in Master, but the regulator had concerns about the transaction.

BRB may seek a structure to protect itself from liabilities associated with parts of Master not included in the purchase. However, the central bank’s worries extend beyond this issue, as Master requires significant capital to stabilize its balance sheet. BRB and Master have not commented, and the central bank declined to provide a statement.

Initially, BRB planned to acquire 24 billion reais in assets from Master, excluding 51.2 billion reais’ worth of assets. This reduced the deal’s value to 1.8 billion reais from 2 billion reais. Master’s funding relied heavily on high-yield debt, with proceeds invested in illiquid or hard-to-price assets, including court-ordered receivables and troubled company stakes.

The deal’s collapse highlights the challenges in the Brazilian banking sector, with BRB facing obstacles in acquiring Master’s assets. The central bank’s decision to reject the initial proposal underscores the need for thorough due diligence and regulatory compliance in such transactions. The fallout from this failed deal may have broader implications for the financial stability of both institutions involved.

Read more at Yahoo Finance: BRB weighs new bid for Master after Brazil central bank blocks deal, source says