August 7, 2017 / 12:09 PM / 3 years ago

UPDATE 1-Brazil's BB Seguridade cuts profit guidance after quarterly miss

(Recasts to add details on quarter throughout)

SAO PAULO, Aug 7 (Reuters) - BB Seguridade Participações SA trimmed estimates for profit growth this year, after the insurance unit of state-controlled Banco do Brasil SA missed second-quarter net income estimates amid a slow recovery and rising unemployment.

In a Monday securities filing, BB Seguridade said recurring profit could shrink between 1 percent and 5 percent this year, down from prior guidance of 1 percent-to-5 percent growth. The revision could drive annual profit down to 3.902 billion reais ($1.3 billion) this year from 4.107 billion reais last year.

A slow recovery in Brazil’s economy after almost three years of recession and weak first-half operational performance led to the cut in guidance. Parent Banco do Brasil’s sale of a stake in reinsurer IRB Brasil Resseguros SA last month should also hurt annual results, the filing said.

“The degree of uncertainty related to the economic recovery has augmented considerably,” the filing said.

The decision comes as BB Seguridade’s profitability kept suffering last quarter as proceeds from insurance distribution activities slumped and a rapid decline in interest rates weighs down investment income.

Recurring profit came in at 956.3 million reais ($305 million) last quarter, down from a consensus estimate of 1.025 billion reais compiled by Thomson Reuters. The result fell 4 percent and 12 percent on a quarterly and annual bases, respectively.

Recurring return on equity, a widely used measure of profitability for financial companies, fell to the lowest level in almost four years. Adjusted ROE, as the indicator is known, sank to 44.5 percent last quarter from 47.3 percent in the first three months.

Revenue from BB Seguridade’s annuity and risk insurance rose 2 percent, while insurance distribution activities saw proceeds tumbling 15 percent amid higher taxes on the segment. Investment income dropped 17 percent as successive interest-rate cuts drove down returns on floating-rate government debt and declining prices for long-termed fixed-rate securities.

Management will discuss second-quarter results at a Tuesday conference call with investors.

$1 = 3.1307 reais Reporting by Guillermo Parra-Bernal; Editing by Chizu Nomiyama, Bernard Orr

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