Bradesco Q4 earnings rise 37.0%, NPLs improve, but management misses mark on costs

Monday, January 31, 2011

Brazilian banking group Bradesco (NYSE: BBD) saw earnings of 2.99bn reais (US1.80bn) in 4Q10, up 18.2% from 3Q10 and 37.0% from 4Q09, as non-performing loan ratios continued to fall although a key issue for management will be personnel and administrative costs, which surpassed guidance.

Without 303mn reais in one-time gains, which were connected to accounting changes in provisioning, the recurring earnings were 2.68bn reais in the quarter.

ROE was 22.8% in 4Q10, which Deutsche Bank's (NYSE: DB) Mario Pierry noted was the highest it has been in the last 10 quarters.

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"Net interest income was 4% above our expectations [up 9% quarter-over-quarter and 20% year-over-year], mainly driven by solid loan growth of 6% quarter-over-quarter," Pierry wrote in a report, also crediting better than expected net interest margins (NIM).

However, personnel and administrative costs were up 20.0% in 4Q10 from 4Q09 and drove worries for some analysts.

"The bank's expenses not only missed management's guidance by a wide margin in 2010 - 9-13% growth was the guidance - but also we sense guidance introduced for 2011 is likely to come as a negative surprise to market participants," wrote Roberto Attuch and Fabio Zagatti of Barclays Capital.


Bradesco also released its guidance for 2011, pointing to 15-19% loan growth, net interest income (NII) growth of 18-22%, fee income expansion of 6-10% and operating expense growth of 11-15%.

"We read this [guidance on NII] as a signal of confidence higher spreads will more than offset slower credit growth," the Barclays report reads.

Luciana Leocadio, chief analyst at Ativa brokerage, called the results overall neutral in terms of the bottom line, but said that the projections pointed to a solid 2011.

Mariana Taddeo of Link Investimentos kept her outperform rating on Bradesco's stock, noting that credit growth with falling NPL ratios should help it keep up earnings.

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

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