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this declaration, some U.S. banks, including petitioner, announced
that they would place a portion of their Brazilian loans on
nonaccrual status, recording interest income on such loans only as
payments were received. By November 1987, Brazil resumed partial
interest payments on its external indebtedness.
B. Petitioner's Blocked Deposits
Petitioner's subsidiary, Norwest Bank Minneapolis, N.A. (NBM),
owned blocked deposits at the Central Bank in 1986 and 1987.20 As
described above, these deposits consisted of principal repayments
of dollar-denominated loans previously made to Brazil in the
ordinary course of NBM's banking business. The Central Bank
prevented petitioner from repatriating these deposits because Brazil
had insufficient hard currency (U.S. dollars) to make payments on
the loans. At petitioner's election, the blocked deposits accrued
interest at the U.S. domestic rate.
In late 1986, petitioner began investigating the possibility
of using some of its Brazilian blocked deposits to make an equity
investment in a Brazilian company. Darin P. Narayana managed
international banking for Norwest at this time and was in charge of
petitioner's Brazilian blocked deposits. A debt-equity conversion
became attractive to petitioner because it would: (1) Allow
petitioner to regain control over some assets by placing them
20 Because NBM was a subsidiary of petitioner, for
convenience we sometimes refer to petitioner as owner of the
blocked deposits.
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