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Former Brazilian President Temer Arrested in Corruption Probe--Update

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03/21/2019 | 02:23pm EDT

By Luciana Magalhães and Jeffrey T. Lewis

SÃO PAULO -- Brazilian police arrested former President Michel Temer as part of the Car Wash corruption investigation, advancing the country's crusade against graft but distracting lawmakers from the new government's overhaul agenda.

Mr. Temer, who was elected as Dilma Rousseff's vice president in 2010 and 2014, was arrested Thursday morning in São Paulo and will be taken to jail in Rio de Janeiro. Prosecutors requested the arrest as part of an investigation into alleged illegal payments made in 2014 related to construction contracts for a nuclear power plant in Rio de Janeiro state.

Mr. Temer's lawyer, Eduardo Pizarro Carnelós, said in an email there is no legal basis for his client's arrest, and he charged prosecutors with wanting to display Mr. Temer "like a trophy."

Mr. Temer, a constitutional lawyer by training, took office in 2016 after Ms. Rousseff was impeached and removed from office less than halfway through her term.

The 78-year-old center-right leader, from the Brazilian Democratic Movement Party and one of the most unpopular politicians in Brazil's history, is the second president to be jailed in the Car Wash scandal, after leftist icon Luiz Inácio Lula da Silva was locked up last year for money laundering and accepting bribes.

Mr. Temer's arrest comes at a key moment in the five-year Car Wash investigation, countering critics who have called the probe a politically motivated witch hunt against Brazil's left and Mr. da Silva's Workers' Party, or PT.

The arrest "takes away the PT's argument that they're being persecuted," said Carlos Melo, a political-science professor at São Paulo's Insper business school.

But it could also complicate the new government of President Jair Bolsonaro's efforts to get vital changes, especially to the country's insolvent pension system, through Congress, Mr. Melo added.

Many legislators in Congress have also been accused of wrongdoing in the graft scandal, and fear they may face a similar fate to Mr. Temer once out of office. "It moves lawmakers' focus from the reforms to their own potential problems" with Car Wash, he said.

Some Brazilians celebrated the arrest of Mr. Temer, a leader nicknamed the "vampire" for his ghostly appearance and known for his amateur poetry.

"What great news!" said Higor Botelho, a 24-year-old cosmetics store attendant in São Paulo. "One more politician in jail, one less politician to rob us!"

The Car Wash investigation came under criticism this year when Mr. Bolsonaro named as his justice minister Sergio Moro, the investigation's star judge who had convicted Mr. da Silva. If Mr. da Silva hadn't been in jail, polls show he may have won October's elections against Mr. Bolsonaro -- a sequence of events that Brazil's left has labeled a right-wing coup.

Mr. Moro has said he accepted the ministerial post to further the country's fight against corruption, and in February he sent a legal-overhaul package to Congress intended to crack down on the root causes of the country's endemic graft. The package includes tougher sentencing rules for corruption and other types of crimes, and allows authorities to confiscate convicts' assets in some cases, among other measures.

Mr. Temer's arrest might increase resistance to that legislation among lawmakers also implicated in the Car Wash scandal, as well as resistance to the administration's high-stakes proposal to overhaul Brazil's insolvent pension system, analysts said.

The arrest "throws gasoline on the tensions between the political class and the forces of Car Wash, and could make an agreement on reforms even more complex," said André Perfeito, chief economist of the Necton brokerage in São Paulo.

Brazil's benchmark stock index Bovespa was down more than 2% after news of the arrest.

Since Brazil's return to democracy in 1985 after a military dictatorship, four of the eight presidents who took office have fallen foul of the country's laws, either impeached for misconduct or arrested after leaving office.

Mr. Temer's arrest is further evidence of a crisis in Brazilian democracy, according to Marcelo Freixo, a member of Congress belonging to the left-wing Socialism and Liberty party.

"We can't celebrate the arrest of another former president," he said. "Corruption is structural and is embedded in the relationship between our institutions."

Allegations of corruption have hounded Mr. Temer for years. In 2017, he was charged by Brazil's attorney general with accepting bribes from Brazilian meatpacking giant JBS SA. But he avoided a trial in the country's Supreme Court after the lower house of Congress voted to reject the charges, angering ordinary Brazilians who viewed the vote as corrupt politicians protecting their own.

Brazil's constitution protects most of the country's elected officials from prosecution while they are in office, and even if they face trial, it can only be before the high court. While Mr. Temer was still president, he could have been tried only with the permission of the lower house of Congress.

Mr. da Silva had already been out of office for years when he was arrested, tried, convicted and sentenced to 12 years in jail.

Launched in 2014, Operation Car Wash has expanded from a narrow money-laundering probe into Brazil's most significant anticorruption push ever.

The investigation, which originally focused on bribes paid by construction companies eager to win inflated contracts to executives at state-controlled oil company Petróleo Brasileiro SA, or Petrobas, has sent dozens of executives from those builders to jail.

The construction companies also channeled some of the money they received from overcharging Petrobras to politicians for use in their political campaigns.

So far, few politicians have been tried or convicted because of their constitutional protections, but after the 2018 general election resulted in many of them losing office, they could now face legal consequences.

--Samantha Pearson and Paulo Trevisani contributed to this article.

Write to Luciana Magalhães at Luciana.Magalhaes@wsj.com and Jeffrey T. Lewis at jeffrey.lewis@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
EURO / BRAZILIAN REAL (EUR/BRL) 0.03% 4.5173 Delayed Quote.0.04%
IBOVESPA -0.34% 99468.67 Delayed Quote.12.71%
JBS SA -0.69% 28.9 End-of-day quote.149.35%
PETROLEO BRASILEIRO SA PETROBRAS 0.50% 24.03 End-of-day quote.5.42%
WTI 0.48% 56.19 Delayed Quote.20.64%
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Financials (BRL)
Sales 2019 197 B
EBIT 2019 11 887 M
Net income 2019 6 588 M
Debt 2019 41 847 M
Yield 2019 2,26%
P/E ratio 2019 12,0x
P/E ratio 2020 11,1x
EV / Sales2019 0,60x
EV / Sales2020 0,56x
Capitalization 77 020 M
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Mean consensus OUTPERFORM
Number of Analysts 15
Average target price 27,07  BRL
Last Close Price 28,90  BRL
Spread / Highest target 21,1%
Spread / Average Target -6,34%
Spread / Lowest Target -29,1%
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Gilberto Tomazoni Chief Executive & Operating Officer
Jeremiah Alphonsus O'Callaghan Chairman
Guilherme Perboyre Cavalcanti Chief Financial Officer
José Batista Sobrinho Vice Chairman
Sérgio Roberto Waldrich Independent Director
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