U.S. banks made spectacular first-half profits in Brazil after a 50% devaluation there, and Brazilians are charging that speculation against their currency was responsible.

Chase Manhattan Corp.'s affiliate in Brazil reported a 200% return on equity in the half, and Citigroup Inc. 92%. The two New York-based banks were the third- and fourth-most-profitable in Brazil, according to rankings compiled by Engenheiros Financeiros & Consultores, a Sao Paulo-based financial consulting firm.

Other U.S. banks operating in Brazil, including BankBoston Corp. and Republic New York Corp., also saw hearty increases in earnings.

Carlos Daniel Coradi, president of Engenheiros Financeiros, attributed the surge in earnings to large bets by U.S. banks against the Brazilian real and to soaring interest rates. Monthly interest charges on some consumer loans were as high as 10%.

Massive increases in earnings earlier this year at both U.S. and Brazilian banks sparked protests in Brazil's Congress. Members of Congress charged that Brazil's central bank had tipped off banks about the planned devaluation, enabling them to rack up extraordinary profits. The central bank governor resigned.

But Brazilian bankers and analysts said it was common knowledge that the real would be devalued and that there was no need for "leaks" from the central bank.

"It was more or less known that Brazil was going to devalue, and banks took large positions in the forward market," Mr. Coradi said. "Anyone who did that got very rich."

One source said, "You had to be brain-dead not to know this thing was coming and position yourself accordingly."

Spokesmen for Citigroup and Chase denied that their institutions had engaged in speculative trading against Brazil's real.

"As a matter of policy, we hedged our capital without speculating against the real and without sending money out of the country," said a spokesman for Citigroup in New York. "We did not participate in putting any downward pressure on the real."

A Chase spokesman similarly attributed the massive increase in profits to moves by the bank to hedge its position in Brazil.

Mr. Coradi and Andre Cappon, president of CBM Group, an international consulting firm in New York, said the explanations did little to explain the steep increase in profits.

First-half earnings at Chase, which has $2.25 billion of assets in Brazil, climbed to $233 million, from $15 million during the same period last year, for that staggering 200% return on equity.

The jump in Brazilian profits for U.S. banks is strikingly similar to their Mexican experience after the peso went into a free fall in the first half of 1995.

Most of those gains came from foreign exchange trading, prompting a reminder from then-Deputy Finance Minister Guillermo Ortiz that Mexico expected U.S. and other foreign banks to do more than just engage in speculative trading.

Analysts asserted that U.S. banks moving into emerging-market countries soon adopt the same strategies as local banks.

Earlier this decade "foreign banks convinced the Brazilian government to let them in, arguing they would compete on lending and other services with local banks, reducing the cost of borrowing and making the market more competitive," Mr. Cappon said.

"Instead, foreign banks went Brazilian, making their money from speculation and by charging outrageously high interest rates."

Brazilian-based Citibank SA, with $5.3 billion of assets, saw profits climb to $189 million, from $21.5 million, yielding a 92% return on equity. New York-based Citibank, which runs the bank's direct branches in Brazil and has $1.6 billion of assets there, also posted a hefty increase in net earnings to $56 million from $6 million a year earlier, yielding an 80.5% return on equity.

Other U.S. banks also came through the period reasonably well. BankBoston, the biggest U.S. bank in Brazil with nearly $10 billion of assets there, saw earnings rise to $61.6 million from $54.8 million last year, yielding a 23% return on equity.

American Express Bank, a much smaller institution with only $10 million of assets in Brazil, saw earnings climb to $835,000, from $144,000, with a 19.7% return on equity.

Republic National Bank of New York, with $805 million of Brazilian assets, saw earnings rise tenfold, to $61 million, from $6 million, yielding a 114% return on equity. Republic recently agreed to be bought by London-based HSBC Holdings PLC.

Still another U.S. bank, Wachovia Corp., also did handsomely by turning a $1.4 million loss in Brazil over the first half of 1998 into a $4.4 million profit, yielding a 49% return on equity.

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