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If Santander Brasil’s ((SANB11) result, which caused the bank’s units to jump more than 11% on Tuesday (28), was not as good as it might seem at first glance due to the low provision, Bradesco (BBDC4) was in the opposite direction and presented figures considered more realistic in the midst of the coronavirus pandemic scenario, after the balance sheet, the documents fell by more than 7% in this Thursday’s session (30).
The second largest private bank in the country saw its recurring net profit decrease by 39.8% in the first quarter of this year amid Covid-19 due to higher provisions, which brought the figure in the period to R $ 3,753 billion compared to the same period. 2019. Compared to the previous three months, the drop was even greater, at 43.5%.
There was a R $ 2.7 billion increase in provisions for bad debts, called PDDs, made in the first quarter due to the pandemic. This amount, added to the pre-existing portion of R $ 2.4 billion, totals a complementary provision for the “adverse economic scenario” of R $ 5.1 billion.
As a result, the return on average net worth (ROE) decreased almost half, to 11.7% in the first quarter versus 21.2% in the previous three months.
However, it was not these figures that caused discomfort in relation to the bank’s numbers, which analysts considered consistent after the data of the provisions that Santander did not like.
What did not please were the data showing that asset quality deteriorated faster than expected. Therefore, if the provisions sought to track an impact on the outlook for the loan portfolio, the effective data for the first quarter was not positive.
All credit segments had an increase in defaults, which grew 40 basis points quarterly, to 3.7%, while defaults in the segments increased by: i) 40 bp to 1.2% in the portfolio of large companies; ii) 80 bp for 4.5% in small and medium-sized companies; and iii) 40 bps at 4.8% for individuals.
Therefore, to strengthen possible future increases in defaults, Bradesco increased the cost of credit by 86% annually, to a figure of R $ 6.7 billion. However, as the balance of defaulters increased by almost R $ 4 billion, the bank’s coverage ratio, the ratio of non-performing loans to provisions, decreased 41 percentage points annually, to 228%. “The result was unexpected, since we only had about 15 days of isolation [por conta da pandemia do coronavírus] in the first quarter and deferrals should have smoothed default, “says Marcel Campos, analyst at XP.
On the other hand, at this point, Morgan Stanley estimates that, excluding the effects of the provisions, “the results do not look too bad, with a slight drop in earnings compared to the fourth quarter of last year, a very normal effect in the last quarter step. ” from one year to the first of a new year. “
Itaú BBA and Credit Suisse also highlighted a drop in the result in the insurance segment, from 23.4% annually, to R $ 2.9 billion. “We see the result as negative due to the faster than expected deterioration in the asset quality indicators. Insurance results were also disappointing. Management profit reached 38% below market expectations. On the positive side, there was growth in loans to companies ”, evaluates Credit.
XP also notes that administrative, operational, and personnel expenses were higher than expected, as the expectation was for lower non-personnel expenses in this period of isolation. Management pointed out that investment spending hurts the result, as its depreciation is increasing.
In general, expenses in the quarter were R $ 7,359 billion, 17% more than in the same quarter of 2019 and 59.2% more than in the fourth quarter. The number was partially offset by credit recovery income of R $ 1,420 billion, 52.8% less than the first quarter of last year and 7.9% below the fourth quarter.
On the positive side, the XP analyst points out that, although 3% below XP’s estimates, the financial margin showed a solid result of R $ 14.6 billion. “We also note that the overdraft interest limit and fewer business days affected the quarter,” Campos says.
In addition, Bradesco’s expanded loan portfolio totaled R $ 655,094 billion at the end of March, a volume 5.1% higher than that registered in December. In one year, loans increased 17.0%. The highlight was corporate loans, which grew 6.6% in the first quarter compared to the fourth, to R $ 415,880 million, amid liquidity demand from companies and the debt market does not have adequate demand . In individuals, the increase was 2.6%, to R $ 239,214 billion. Last year, these portfolios increased 15.6% and 19.5%, respectively.
Octavio de Lazari, president of the bank, said in a conference call for the presentation of results that, although the volume of resources allocated to large companies has increased, the trend is towards stabilization.
The highlight, in turn, was the income from services rendered, which was R $ 8,283 billion, a drop of 6.2% compared to the fourth quarter of 2019, but 2.6% more. in the annual comparison. “Especially highlight revenue with a broker, who should have benefited from increased volumes on the stock exchange,” says XP.
Next steps
During the conference call, the CEO of Bradesco also reinforced the analysis that he does not yet know the size or scope of the crisis. But he pointed out: it will be long-term and may lead the institution to make additional provisions, if deemed necessary, depending on the scenario.
In this scenario, the CEO pointed out, the new credit operations carried out during the coronavirus, with the exception of the emergency lines that were created specifically for the moment, may have interest and differentials (difference between the financing rate and the interest at that the bank makes larger loans) because of the higher risk.
Lazari said that while the interest in transactions negotiated with clients and alternative lines will not change, the demand for new resources will go through a greater sieve by the bank, which should put pressure on rates in the environment of greater risk. “We have also mapped some sectors that will suffer the most and, especially in this scenario, companies should also be more aware of how much they can take advantage of,” he emphasized.
As a consequence of the new environment amid the coronavirus, Bradesco will close more branches than expected for this year, between 320 and 330, in view of the initial plan to close 300 branches.
“We must be aware that the way people work and the way they relate to the bank must change. In light of this, we will have more employees in the home office and fewer clients going through physical agencies. This will be part of the reprogramming of the agencies and it is a new way of thinking that we are going to develop, either to change or to close physical structures ”. According to Lazari, one of the legacies of the pandemic crisis will be that Bradesco will have room for more adjustments in the branch network and the physical structure.
Bradesco also decided to suspend its performance guidelines for 2020, noting that the uncertainties caused by the pandemic changed the scenario and reduced the predictability of business performance.
With so many changes on the radar and the expectation that the financial institution will present its estimates for the year only when there is less uncertainty, the opinion of most analysts for the bank remains positive, mainly highlighting the institution’s resilience and the attractive valuation in the middle to the sharp drop (of approximately 40%) of the shares in 2020.
Credit Suisse, XP, UBS and Itaú BBA continue with the purchase recommendation or equivalent to the purchase of BBDC4 assets, with respective target prices of R $ 41.82, R $ 28, R $ 27 and R $ 38 (which establishes potentials respective valuation of 107%, 35%, 31% and 84% compared to the closing of the shares the previous day). Morgan Stanley has a recommendation for ADR with a price target of $ 6.82. According to Bloomberg, of the 20 houses that cover the newspaper, 19 recommend buying and only one recommends maintenance.
The scenario that is being drawn is considered quite challenging due to the coronavirus and may deteriorate further in the second quarter. However, the sector is still seen as quite resilient amid crisis scenarios, with Bradesco as one of the highlights. Therefore, although the result was not positive, the fall in this session can also be attributed much more to the strong increase in assets in the last two sessions, which led to a correction movement in a risk aversion session. market.
(With information from Agência Estado)
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