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Banco do Brasil Profit Misses Estimates on Provisions

Banco do Brasil SA, Latin America’s largest bank by assets, said profit fell 24 percent, missing analysts’ estimates, as provisions for bad loans and expenses climbed. The shares declined the most in three months.

Fourth-quarter adjusted net income, which excludes one-time charges, dropped to 2.42 billion reais ($1 billion) from 3.18 billion reais a year earlier, the Brasilia-based company said today in a filing. The results missed the 2.53 billion-real estimate of 11 analysts surveyed by Bloomberg.

President Dilma Rousseff has been pushing state-controlled firms Banco do Brasil and Caixa Economica Federal to expand lending through mortgages and student-loan programs for needy families. Both companies have also been forced by the government to cut interest rates they charge on personal and business loans. Banco do Brasil, led by Chief Executive Officer Aldemir Bendine, 50, said provisions for bad loans rose 15 percent to 4.19 billion reais.

“Investors didn’t like the fourth-quarter results,” Pedro Galdi, the chief analyst at brokerage firm SLW Corretora, said in a phone interview from Sao Paulo. “Delinquency rates may increase if the bank is further used by the government for its strategy of increasing lending in Brazil. And private banks have been much more selective than the state-controlled lenders in giving credit.”

Banco do Brasil declined 5.4 percent to 20.71 reais at 1:54 p.m. in Sao Paulo, the biggest intraday drop since Nov. 12. The benchmark Ibovespa index fell 1.6 percent.

Administrative expenses at the company climbed to 8.43 billion reais from 7.5 billion reais a year earlier.

Interest Income

The federally controlled bank expects net interest income to grow 3 percent to 7 percent this year, while lending will expand 14 percent to 18 percent, according to the filing. The loan book climbed 19 percent to 692.9 billion reais in 2013 from a year earlier, in line with its forecast of an expansion of 17 percent to 21 percent.

Banco Bradesco SA’s brokerage unit cut its recommendation on Banco do Brasil’s stock to the equivalent of hold from buy on a “negative surprise regarding the bank’s guidance.”

Banco do Brasil’s projection of return on average equity represents 2014 earnings of 9 billion reais to 11.2 billion reais, Carlos Firetti and Bruno Chemmer, analysts at Bradesco, wrote in a note to clients. That compares with 2013 earnings of 10.4 billion reais.

Auto Lending

Votorantim, the auto-loan unit in which Banco do Brasil has a stake of about 50 percent, posted net income of 121 million reais, according to the filing. That was the first profit after nine straight quarterly losses through the three months ended Sept. 30.

The unit will “continue posting profits” in 2014 as provisions for bad loans decline, Banco do Brasil Chief Financial Officer Ivan Monteiro told reporters in Sao Paulo today.

This week, the bank’s insurance unit, BB Seguridade Participacoes SA, reported fourth-quarter adjusted net income of 707.4 million reais, beating the 631.8 million-real estimate of four analysts surveyed by Bloomberg.

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