Link: http://online.wsj.com/article/SB126014717684079367.html

CARACAS, Venezuela – President Hugo Chávez scrambled to distance his government from a brewing banking and corruption scandal that claimed one of his closest collaborators on Sunday and could claim other top officials.
Speaking on his weekly television show, Mr. Chávez announced the resignation of Jesse Chacón, one of the government’s most powerful officials, who was serving as science and technology minister. The announcement came a day after the arrest of Mr. Chacón’s brother, Arné Chacón, president of Banco Real and Baninvest, two of seven small banks taken over by the Venezuelan government last week.
“I respect and love Jesse very much, and I know he understands,” said Mr. Chávez. He said Mr. Chacón’s resignation freed the official from suspicion in the banking scandal.
Mr. Chávez said he had spoken directly to the government’s top prosecutor, Luisa Ortega, and requested that she move quickly to punish the people responsible for the failed banks. Mr. Chávez also said he told the Venezuelan secret police to swiftly imprison Arné Chacón.
“I’m very sorry that he is the brother of a minister, but we’re showing that no one here is untouchable,” Mr. Chávez said.
The scandal, which broke last week when the government took over the banks and Mr. Chávez threatened to nationalize all of Venezuela’s private banks, has sparked fears of a financial meltdown. The moves provoked a wide selloff of the Venezuelan currency, the bolivar, on Thursday, and slammed the value of Venezuelan government bonds. The bolivar, officially pegged at 2.15 to the dollar, sells at about six to the dollar in the country’s black market.
Many analysts say the bank takeovers aren’t a reflection of a larger banking crisis, since most of the financial system’s assets are held by a handful of big banks that are seen as sound. Pointing to Friday’s recovery in Venezuela’s dollar-denominated bonds and the bolivar, these analysts say investors appear to believe Mr. Chávez is targeting a limited group of banks.
Mr. Chávez took control of between 8% and 12% of the banking system last week, according to Royal Bank of Scotland economist Boris Segura. Analysts say Mr. Chávez could likely target as many as a dozen banks that together represent around 20% of the banking system.
Many Venezuelans are jittery about the state of their financial system. Last week, Mr. Chávez said he would closely examine brokerage houses as well as insurance companies. Reacting to the uncertainty, Moody’s downgraded the ratings of two big Venezuelan banks, privately owned Banco Mercantil CA, and state-owned Banco de Venezuela, which the Venezuelan government acquired for $1.05 billion earlier this year from Spain’s Banco Santander. The two banks are among Venezuela’s top five by size of deposits, and are considered to be among the most solid financial institutions in the country.
The brewing scandal has been a political blow to Mr. Chávez. Critics say the scandal has laid bare the emergence of a new class of businessmen who in some cases have made billions of dollars from their contacts with the government.
The crisis was sparked by last Monday’s takeover of four banks owned by Ricardo Fernández, a billionaire businessman whose companies are the major suppliers to Mercal, a government-owned chain of markets that provide subsidized food to most poor Venezuelans. Mr. Fernández has been detained by Venezuela’s military intelligence agency.
On Friday, the government took over three more banks owned by Pedro Torres, another well-connected businessman who people close to him say is in Miami.
Government officials have accused the banks of irregularities, including making enormous loans to companies belonging to the owners. Antonio Guerrero, a lawyer representing Mr. Fernández, says his client is innocent and that his legal problems stem from a faulty audit of his three banks. It wasn’t possible to reach Arné Chacón or Jesse Chacón.
The attorney general’s office said Sunday it had ordered the arrest of 27 people linked to the failure of the banks. Many of them are bank directors who are believed to have fled the country. Venezuela has asked Interpol to issue arrest warrants for nine bank officials.
For many in Caracas, the rapid rise of Arné Chacón is an example of the new class of Venezuelan capitalists. A former navy lieutenant, Mr. Chacón took part, along with his brother Jesse, in Mr. Chávez’s unsuccessful 1992 coup attempt, for which Mr. Chacón was jailed until 1994.
In a 2002 interview in the Caracas newspaper La Razón, Arné Chacón said that although he knew little about banking, Mr. Torres gave him 49% of the shares of the bank and named him president because he was too busy to take care of the bank himself.
“I had no money to pay him,” Mr. Chacón said. At the time Mr. Chacón’s brother, Jesse, was interior minister, the third-ranking post in Venezuela’s government.
In the interview, Mr. Chacón said he was brought up in a cardboard-and-tin shack in a Caracas slum where his mother worked as a maid and his father as a policeman.
By the time of the interview, Mr. Chacón was the owner of several racehorses. “It’s my passion,” he told La Razón.

Write to Darcy Crowe at darcy.crowe@dowjones.com

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