Bradesco’s Profit Misses Estimates on Bad-Loan Provisions

Updated on
  • Shares slump after earnings and amid new accusations in probe
  • Bank also cut its forecast for loan book growth in 2016

Banco Bradesco SA, Latin America’s second-largest lender by market value, slumped after profit missed analysts’ estimates and the bank set aside more funds to cover souring loans.

The shares dropped as much as 4.8 percent in Sao Paulo, contributing most to the decline of the benchmark stock gauge. The stock also fell as Brazilian prosecutors presented new accusations against the bank’s executives in a tax-fraud probe this morning -- the bank has repeatedly denied wrongdoing on the case.

Second-quarter adjusted net income, which excludes one-time items, declined to 4.16 billion reais ($1.27 billion) from 4.47 billion reais a year earlier, the Osasco, Brazil-based lender said Thursday in a statement. That fell short of the average estimate of 4.25 billion reais by eight analysts surveyed by Bloomberg. Net income fell 7.6 percent to 4.13 billion reais.

Bradesco raised its estimates for bad-loan provisions and is now predicting its loan portfolio may decrease as several companies and consumers struggle to pay off their debts on time as the South American nation faces its worst recession in more than a century. Total provisions in the Brazilian banking industry reached 6.3 percent of the nation’s total bank loans in June, a five-year high that was up from 5 percent a year earlier, according to the central bank.

Bradesco set aside 5.02 billion reais to cover souring loans in the second quarter, compared with 5.45 billion reais in the first three months of this year and 3.55 billion reais a year earlier.

“The provisions dropped compared to the previous quarter, but they are still at high levels,” Rodrigo Martin, a bank analyst at Porto Alegre, Brazil-based Quantitas Gestao de Recursos, said in a telephone interview Thursday. “The overall result was weaker than I expected.”

Bradesco said it booked an additional 365 million reais in provisions related a specific corporate case that led it to set aside 836 million reais in the first quarter. The measure represents 100 percent of the bank’s exposure to the company, which it didn’t name. At the time, a person with direct knowledge of the matter said the provision was related to oil-rig supplier Sete Brasil Participacoes SA, which filed for bankruptcy protection in April with about 18 billion reais in liabilities.

Last month, telephone operator Oi SA filed for bankruptcy protection, with a record 65 billion reais in debt.

Loan Book

The bank raised its estimates for bad-loan provisions in 2016 to between 18 billion reais and 20 billion reais, up from the January forecast that ranged between 16.5 billion reais to 18.5 billion reais. The estimate doesn’t include the HSBC Holding Plc’s Brazil unit that Bradesco has received antitrust regulator approval to buy last month.

Bradesco has a "very comfortable" level of provisions, Carlos Firetti, the bank’s investors relations officer, told reporters on a conference call Thursday, adding that its delinquencies rates will peak in the fourth quarter this year.

The lender expects no growth in its loan book this year, saying lending will range between a 4 percent decrease to no change -- a forecast Quantitas’s Martin called negative as it signals the bank has less conditions to generate earnings this year.

Brazilian federal prosecutors in charge of an investigation into tax fraud issued new accusations against 10 people, including Bradesco executives, for allegedly trying to influence the nation’s tax authority in order to evade levies. A Brazilian judge was said to accept accusations against Bradesco CEO Luiz Carlos Trabuco Cappi, O Estado de S. Paulo reported. Bradesco said in a statement that it reiterates its conviction that executives didn’t commit any wrongdoing.

(Updates with shares starting in first paragraph.)
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