Barclays Capital downgrades rating, price target on BicBanco

Tuesday, September 13, 2011

Barclays Capital has downgraded its rating on Brazilian midsize lender BicBanco to 2-equal weight from 1-overweight, on concerns over the bank's asset quality, the firm said in a note to investors.

Barclays also lowered its price target on BicBanco's stock to 16 reais from 20 reais a share.

Analysts Roberto Attuch and Fabio Zagatti said that BicBanco has been their top pick among midsize banks since Barclays initiated coverage a year ago, but that "it has significantly missed our estimates so far this year, mostly reflecting a specific asset quality situation (involving renegotiated credits from 2008-09, essentially behind the earnings miss)."

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Barclays added that management's more conservative stance in terms of credit origination, implemented in the second quarter, "may have a negative impact on BicBanco's ability to expand its profitability," as its loan portfolio shrank 4.4% quarter-on-quarter versus a 3.4% increase for the industry average.

"In all, we think it is crucial that management is able to provide market participants with greater clarity on the bank's overall strategy, so BicBanco's shares can ultimately reflect its fundamentals," Attuch and Zagatti wrote.