(Recasts to add details on guidance, context, comments
By Guillermo Parra-Bernal and Paula Arend Laier
SAO PAULO Jan 9 Shares in Banco do Brasil SA
suffered their biggest drop in almost a month on Monday after
the country's No. 1 bank by assets cut profitability targets and
raised loan-loss provision estimates for 2016.
On Saturday, the state-controlled bank said loan-loss
provisions probably ended last year between 4.5 percent and 4.6
percent of average outstanding loans, from 4 percent to 4.4
Return on equity, or ROE, is seen between 7 percent and 8
percent, compared with a prior range of 8 percent to 10 percent.
Banco do Brasil's decision to trim the estimates likely will
prompt analysts to revise their estimates of fourth-quarter and
full-year results, which are expected to be released next month.
Under the revised guidance, fourth-quarter net income could
slump about 20 percent from the same period in 2015.
The move highlights the challenge facing Chief Executive
Officer Paulo Caffarelli in bringing profitability and
operational performance closer to that of the Brasilia-based
bank's private-sector peers. Banco do Brasil's cost of capital
is currently outpacing ROE, which investors blame on years of
heavy state meddling in the bank's strategy.
Banco do Brasil's stock fell as much as 4.3
percent to 27.63 reais in early morning trading before paring
some of the losses. It was the biggest loser on Brazil's
benchmark Bovespa stock index.
Analysts surveyed by Thomson Reuters currently expect Banco
do Brasil's fourth-quarter net income to be around 2.408 billion
reais ($750 million). Ten analysts rate the stock a "buy," six a
"hold" and only three rate it a "sell," according to Thomson
"After big improvements in the third quarter, these
revisions are definitively disappointing, heading into a weak
fourth quarter," said Rafael Frade, an analyst with Bradesco
Caffarelli has tried to downsize a lender that grew too much
and too fast since the end of the last decade. He pushed forward
with voluntary worker retirement programs and branch closures
last year to cut costs, while raising borrowing costs on certain
types of loans.
Apart from the revisions in provisioning metrics and return
on equity, a key gauge of profitability for banks, Banco do
Brasil also cut the target for growth in fee income, or revenues
from services outside lending, to 6 percent to 7 percent for
2016. The previous guidance was for fee income growth of 7
percent to 11 percent.
($1 = 3.2097 reais)
(Additional reporting by Bruno Federowski in São Paulo; Editing
by Paul Simao)