In his first public comments since blowing the whistle on a 20 billion real ($3.8 billion) accounting hole on Jan. 11 that led to the collapse of one of Brazil’s most well-known retailing chains, Sergio Rial told senators that he was kept in the dark before taking over and then immediately realized the firm was insolvent.
(Bloomberg) — In his first public comments since blowing the whistle on a 20 billion real ($3.8 billion) accounting hole on Jan. 11 that led to the collapse of one of Brazil’s most well-known retailing chains, Sergio Rial told senators that he was kept in the dark before taking over and then immediately realized the firm was insolvent.
During a hearing in Brasilia to discuss the downfall of Americanas SA, Rial, who was chief executive officer from Jan. 2 to 11, said the previous management team led by Miguel Gutierrez centralized a lot of information and didn’t include him in year-end financial meetings during the transition. It wasn’t until he took over that several directors took him aside to point out huge bank debts that weren’t properly booked on the balance sheet.
“From Jan. 4 to 11 I didn’t get anything in a document, I didn’t get anything like a map. I got all of the information drip-by-drip, day after day, by insisting with the former CFO,” Rial said. “There was no predisposition ‘let me explain everything that happened or how it happened.’ None of that. What I knew was that the company had a lot more bank debt than it reported and what I didn’t know was how they managed to do that and during how long.”
After the issue was raised to the board, including billionaire shareholder Carlos Sicupira, along with external and internal auditors, Rial cross-checked the information with the central bank, and made it public on Jan. 11. He said providing the number of 20 billion reais was questioned by some but was the right thing to do to be as transparent as possible.
The company’s sudden collapse into bankruptcy protection in January, after the revelation of “accounting inconsistencies” linked to supply-chain financing, has rattled Brazil’s markets as banks were caught up as the largest creditors. The biggest shareholders of the company are also the country’s wealthiest business executives — Jorge Paulo Lemann, Marcel Telles and Sicupira — who have pledged to inject at least 10 billion reais into the firm as part of a restructuring offer.
Rial, who was previously head of Banco Santander SA’s local unit, also said that he held some 21 meetings in the second half of 2022 as part of his transition into the new role but that he was never shown the full picture of the financial situation at the firm.
During the hearing Senator Carlos Portinho distributed copies of what he said was a contract signed by Rial in May 2022. The former CEO pushed back against the accusation.
“There was never any contract in May 2022,” said Rial. “In May we agreed on what would be the eventual compensation of the Chief Executive of Americanas on Jan. 1. No CEO embarks on a hiring process without knowing the scope and design of his compensation. This compensation was indeed discussed in May.”
The document will be sent to Brazil’s securities regulator, known as CVM, according to Senator Otto Alencar, who led the session.
Current Americanas CEO Leonardo Coelho also appeared before the committee to explain the restructuring plan, which includes asset sales. He said the firm is recoverable, continuing its operations without mass firings and paying workers on time.
Gutierrez and a representative from PricewaterhouseCoopers, which was the auditor on the company’s financial statements, declined the invitation, according to Alencar. The senator said he understood Gutierrez is “the main villain of this fraud.” He was also tough with PwC, saying “if there was fraud, Price was involved.”
PwC has repeatedly declined to comment on the Americanas issue.
João Pedro Nascimento, president of securities regulator CVM, said in the audience that the case of Americanas is “extremely serious.” CVM will not tolerate illicit acts in the capital markets and those responsible for the crisis must be “severely punished,” he said.
Despite the crisis involving the retailer and its creditors, Isaac Sidney, president of Febraban, the Brazilian association of banks, told the senators that there isn’t a credit crisis in the country.
A request to launch a full-blown congressional probe at the lower house received the support of 205 representatives, but Speaker Arthur Lira still hasn’t decided on whether to begin one, Andre Fufuca, the lawmaker who proposed the investigation, said in an interview.
While much of the details of Americanas’ unraveling remain murky, Bloomberg reported last week on a detailed account compiled by a court-appointed administrator, based on audit reports and other internal materials. The information showed that before Rial became CEO, Americanas executives were giving very different figures for the company’s supply-chain debt than the information that could have been available through the retailer’s bank accounts.
Read more: Americanas Managers Presented Conflicting Debt Information
The federal police and CVM are carrying out separate investigations and have talked with former officials, according to local media reports.
(Adds securities regulator comments in 13th paragraph.)
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