(Updates annual consensus data, share performance )
By Guillermo Parra-Bernal and Aluísio Alves
SAO PAULO Feb 16 Brazilian state-controlled
Banco do Brasil SA will put profitability above
market share to reduce a return-on-equity gap with
private-sector peers, Chief Executive Officer Paulo Rogêrio
Caffarelli said on Thursday.
At an event to discuss fourth-quarter results, Caffarelli
said management targets this year aimed to pursue
"profitability, efficiency and capital resilience" at Brazil's
No. 2 bank by assets.
Steps to reprice older loans and toughen risk standards will
be accompanied by some asset sales to sharpen Banco do Brasil's
profitability focus, he said.
Earlier, Banco do Brasil announced 2017 targets with two new
indicators - recurring net income, which excludes special items,
and net loan-loss provisions - that domestic rivals use in their
The bank's shares gained as much as 3.1 percent to an
all-time high of 32.86 reais on Thursday as new guidance
presented a brighter picture for a lender long hobbled by
Brazil's harshest recession ever and years of state involvement.
The stock had fallen at the open as quarterly profit missed
estimates because unexpectedly high loan-loss provisions offset
resilient interest and fee income.
Banco do Brasil projects recurring profit of 9.5 billion
reais to 12.5 billion reais ($3.11 billion to $4.09 billion)
this year, an increase of up to 74 percent based on some
adjusted numbers. Provisions could fall as much as 24 percent to
between 20.5 billion reais and 23.5 billion reais.
The average estimate compiled by Thomson Reuters for
recurring net income is 11.246 billion reais this year, slightly
above the forecast's midpoint.
Goldman Sachs analyst Carlos Macedo said the outlook
"appeared conservative and achievable."
Return on equity at Banco do Brasil, which has remained at
single-digit numbers for an entire year, was one-third of larger
rival Itaú Unibanco Holding SA's 21 percent last
quarter and a fraction of smaller peer Banco Bradesco SA's
Itaú unseated Banco do Brasil as Brazil's largest bank by
assets last quarter, partly reflecting Caffarelli's bid to
downsize the lender.
"Our steps are putting us on track to generate return on
equity readings in line with those of our private-sector
competitors," Caffarelli said. "That's why we're more concerned
about profitability than market share trends."
The bank's shares have doubled since May, when he was tapped
as CEO to revamp the overstretched lender.
Recurring profit in the fourth quarter fell 25 percent from
the third quarter to 1.747 billion reais, below the analysts'
average estimate of 1.927 billion reais.
Recurring return on equity slumped to 7.2 percent, the
lowest in at least seven years, and missed the consensus
estimate of 8.2 percent.
While most analysts expected a profit miss, investors
including Azimut Brasil's Ivan Kraiser instead looked to
Caffarelli's turnaround to improve the bank's balance sheet.
With its regulatory capital ratio at a one-year high of 18.5
percent, Banco do Brasil has no need to request more funds from
the National Treasury, its largest shareholder, executives said.
At the event, Caffarelli reiterated plans to sell
unessential assets while keeping those that generate fee income.
He does not see the need for another round of voluntary worker
retirement plans, which last year helped reduce payroll by more
than 10 percent.
Caffarelli's efforts to reverse a deficit at pension fund
Previ and his insistence not to hedge a mismatch between loans
and deposits helped bolster Banco do Brasil's bottom line and
propped up interest income.
Interest income rose 2 percent from the third quarter,
slightly below expectations. Fee income gained 6 percent, in
line with estimates.
Provisions rose 13 percent on a quarterly basis, in line
with consensus estimates, as Banco do Brasil had to write off
loans for an unspecified corporate client in the oil and gas
The increased provisions came after Banco do Brasil ramped
up complementary loan reserves by 1.5 billion reais on a
recurring basis, because of credit problems with specific
The 90-day default ratio, a benchmark for delinquencies,
came in below expectations, ending the year at 3.3 percent of
outstanding credit. Banco do Brasil expects its consolidated
internal loan book, which shrank 8.5 percent last year, to grow
between 1 percent and 4 percent in 2017.
($1 = 3.0565 reais)
(Editing by Bill Trott and Lisa Von Ahn)