Bradesco Fourth-Quarter Profit Misses Estimates on Expenses

Banco Bradesco SA, Latin America’s second-largest lender by market value, said profit rose 5.4 percent, missing analysts’ estimates as costs increased for wages and advertising.

Fourth-quarter adjusted net income, which excludes one-time items, climbed to 2.92 billion reais ($1.44 billion) from 2.77 billion reais a year earlier, the Osasco, Brazil-based bank said today in a statement. That compares with the 2.96 billion-real median estimate of eight analysts surveyed by Bloomberg.

Bradesco, led by Chief Executive Officer Luiz Carlos Trabuco Cappi, said personnel expenses jumped as workers in Brazil received a 7.5 percent annual pay increase in September as part of their collective-bargaining agreement. Consumer prices rose 5.3 percent in the South American nation in the 12 months through September. The bank also said its advertising spending boosted administrative expenses, while it increased operating provisions on “tax and civil contingencies.”

“Our challenge is to gain productivity and efficiency to reduce costs,” Cappi, 61, said on a conference call with journalists after the results were released.

The bank fell 3.1 percent to 36.59 reais in Sao Paulo at 5:40 p.m., the biggest decline in more than month. It compared with a fall of 2.6 percent for Itau Unibanco Holding SA, Latin America’s biggest lender by market value. The benchmark Bovespa index dropped 1.9 percent.

Personnel Costs

Structural personnel expenses such as payroll rose 6.3 percent to 2.57 billion reais from a year earlier, according to the statement. Administrative costs including advertising increased 5.6 percent to 3.76 billion reais. The bank boosted operating provisions by 40 percent to 1.13 billion reais.

Bradesco set aside 3.2 billion reais to cover bad loans in the fourth quarter, down from 3.3 billion reais in the previous three months and up from 2.66 billion reais a year earlier, according to the statement. Defaults reached 4.1 percent in the last three months of 2012, the same as in the third quarter and up from 3.9 percent a year earlier.

“Despite our view that the credit cycle is improving, we believe that the pace has been somewhat slower than we anticipated,” Eduardo Nishio and Felipe Salomao, analysts at brokerage Brasil Plural SA in Sao Paulo, wrote in a report to clients today.

Bradesco’s portfolio of loans expanded 12 percent to 385.5 billion reais from a year earlier, below the bank’s 14 percent to 18 percent credit-growth guidance for 2012. Total assets reached 879.1 billion reais, an expansion of 15 percent from 2011. Bradesco expects its loan-book expansion to accelerate 13 percent to 17 percent this year, according to the statement.

Target Midpoint

Cappi said there are several signs indicating the bank’s portfolio of loans will expand 15 percent this year, at the midpoint of the target.

“2013 is the year of Brazilian economy recovery,” he said.

The net interest margin was 7.6 percent in the fourth quarter, compared with 7.8 percent in the same period of 2011 and unchanged from the previous three months, according to the statement. The indicator is a measure of profitability represented by the gap between what banks pay depositors and what they earn on loans.

Bradesco expects operating expenses to grow 4 percent to 8 percent this year, while fee and commission income will climb 9 percent to 13 percent in the same period, according to the statement. The bank sees its interest income expanding 7 percent to 11 percent in 2013.

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