BB impresses with outsized Q4 earnings report, as Previ steps up, provisions fall

Thursday, February 17, 2011

Brazil's federally controlled Banco do Brasil (BB) chalked up 4bn reais (US$2.39bn) in net income in 4Q10, dwarfing analyst projections and previous quarters in 2010, with mark-to-market gains from its employees' closed pension fund Previ and provisions dropping in line with delinquencies.

The net income was actually down 4% from 4Q09, but BB's accounting of recurring net income, which came to 3.7bn reais in the quarter, showed gains of 104% from the year-ago period.

Despite the Previ gains, Roberto Attuch and Fabio Zagatti of Barclays Capital were impressed, noting that "even if we were to exclude the income from Previ (from both the income statement and book value), we estimate the 'core' ROE would have been 29% in 4Q, and 24% in 2010."

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Moreover, guidance for ROE in 2011 was 21-24%.


Previ was the center of the story for Deutsche Bank (NYSE: DB), which put out a research note indicating that the main drivers were the income sheet gains from the fund coupled with lower provisions, stemming from a 90-day non-performing loan (NPL) ratio of 2.3% in 4Q10, down from 3.% in 4Q09.

"[There were] several positive trends: costs under control/solid fee income growth, improved asset quality/lower provision charges, and strong book value growth/improved BIS ratio," wrote analyst Mario Pierry, who also noted that the loan portfolio was little slower than the overall market, as the net interest margin (NIM) also showed some contraction.

BB posted a loan book worth 358bn reais at end-December, growing 19.1% in 12 months, slightly lower than the 20.5% system growth, "due to weak growth in the agricultural portfolio," according to Pierry. BB management is going for 17-20% expansion in loans in 2011.

For Mariana Taddeo of Link Investimentos, the results mixed positive aspects, such as the strong Previ results and better asset quality, with slightly negative news, including the slower-than-average loan growth. She kept her rating at market perform for BB's stock.

To read the full financial statements in English, go to this link

To read the full financial statements in Portuguese, go to this link