| Copyright: | CCBN, Inc. and FDCH e-Media, Inc. | | Source: | FD (FAIR DISCLOSURE) WIRE | | Wordcount: | 9346 |
OPERATOR: Good morning, ladies and gentlemen. We would like to
welcome everyone to Banco Bradesco's First Quarter 2008 Earnings
Results Conference Call. This call will be conducted by Mr. Marcio
Artur Laurelli Cypriano, Chief Executive Officer, Mr. Milton Vargas,
Executive Vice-President and Investor Relations Officer, Mr. Domingos
Figueiredo de Abreu, Managing Director, Mr. Samuel Monteiro dos
Santos Junior, Chief Financial Officer of Bradesco Seguros Insurance
and Mr. Jean Philippe Leroy, Department Director.
This call is being webcasted simultaneously through the Internet in
the website, www.bradesco.com.br/ir. In that address, you can also
find a banner through which the presentation will be available for
download. We inform that all participants will only be able to listen
to the conference call during the Company's presentation. After the
presentation, there will be a question and answer session.
(OPERATOR INSTRUCTIONS)
Before proceeding, let me mention that forward-looking statements are
being made under the Safe Harbor of the Securities Litigation Reform
Act of 1996. Forward-looking statements are based on the beliefs and
assumptions of Banco Bradesco's management and on information
currently available to the Company. Forward-looking statements are
not guarantees of performance.
They involve risks, uncertainties and assumptions, because they
relates to future events, and therefore depend on circumstances that
may or may not occur in the future. Investors should understand that
general economic conditions, industry conditions and other operating
factors could also affect the future results of Banco Bradesco and
could cause results differ materially from those expressed in such
forward-looking statements.
Now, I'll turn the conference to Mr. Jean Leroy, Department Director.
Mr. Leroy, you may proceed.
JEAN PHILIPPE LEROY, DEPARTMENT DIRECTOR, BANCO BRADESCO, S.A.: Thank
you. Good morning, and welcome to Bradesco's first quarter 2008
earnings conference call. Let me now transfer the floor to Mr. Milton
Vargas for his opening remarks.
MILTON VARGAS, EXECUTIVE VICE-PRESIDENT AND IRO, BANCO BRADESCO,
S.A.: Good morning, everyone, and welcome to our conference call. The
first quarter of 2008 was marked by strong international turbulence
in the markets, derived by the subprime crisis. International players
had to recognize it -- had losses in the amount of $240 billion. In
our opinion, defects of this turmoil will take some more time to be
dissipate, especially in United States.
But we believe that the balancing sheet of global banks will begin to
show some improvement in the second half of this year. It's important
to note that the timing and interventions of the Fed and the U.S.
Treasury has mitigated substantial risk, as well as further and more
stability problems in major financial institutions.
In addition, China and other emerging markets, which are growing at a
much faster pace than the developed economies are [smoothing the
impact] of the banking crisis on the global economy.
In this context, Brazil is experiencing a strong demand for its
export products, especially commodities, which already accounts for
more than 60% of our exports. We can also assure that the foreign
crisis has had very little impact on the Brazilian economy, which
continues to show financial strong vitality. Price investments in
family consumption are growing strongly, and more consistently than
in the past.
All in the all, we expect that the GDP growth of around 4.8% this
year, vis-a-vis 5.4% in 2007. The exchange rate should stay close to
R1.75 per dollar at the yearend, which we believe is compatible with
an expected trading surplus of around $27 billion. Although the
concerns of the Central Bank with inflation are correct, we believe
that its intervention will be essentially indifferent from the ones
in 2004 and 2005. Therefore, we continue to expect annual inflation
lower than 5%.
The base rate, the Selic, is likely to increase further before end of
the year standing at 13.00%, although thorough research is to be
conducted with companies that should be a real impact on their will
to continue to invest. We believe corporate loans will continue to
expand with low delinquencies. While growth in the volumes of
individual loans should slow down marginally.
The creation of the new jobs remain strong, being an additional
guarantees against future delinquencies. According to our estimates,
this year, total credit in Brazil should increase by 22%, vis-a-vis
at least 28% in 2007. Relative to this scenario, Bradesco records a
net income of more than R$2.1 billion in the first quarter, a 23.3%
jump in our year-over-year analysis.
Stockholders' equity exceeded R$32.9 billion, a 26.4% year-over-year
growth. The efficiency ratio accumulate over 12 months also improved,
reaching 41.7%, vis-a-vis 42.1% in March 2007. In our analysis, the
return of stockholder average reached 32.0% in this quarter.
On the operational front, insurance, pension plans and savings bonds
contributed with R$746 million, ranging 35% of Bradesco's net income.
Premiums reached R$5.4 billion equivalent to a market share of 24.1%
according to the last available data. Our combined ratio of 83.9%
reflected our performance comparable to the best insurance companies
in the world.
Bradesco's loan portfolio grew by 37% over the last 12 months and by
59% in the first quarter, higher than the market as a whole according
to the recent data. If we include sureties, guarantees and credit
card receivables, the loan portfolio surpasses R$169 billion, 5%
higher than in the last quarter, and 38.5% than the last 12 months.
This strong growth was backed by better assets quality as
"AA" to "C" rate operations represented 93.4% of
our book, vis-a-vis 92.2% in March of 2007. We are continuing to
foster our credit card operation, turning this more competitive
commercially in this profitability.
Summarizing, we are proceeding in three ways. One, to the mix of
products for high and low income individuals and corporate users with
the combination of the three leading backs, Visa, American Express,
and MasterCard. Two, by consolidating the division for checking and
no-checking account holders. And, three, by integrating Bradesco's
cards area resulting synergies in revenues extends into better
practice.
These profits will be boosted by the creation of the new Bradesco
through this year through [subsidiaries], fully dedicated to managing
this business. In moderate, we would [like] to highlight our
quarterly origination of R$1.5 billion in operation, a massive 126.3%
jump, vis-a-vis the first quarter of 2007. Just in the first three
months of 2008, we provide financing for more than [13,000] homes,
representing a 27.8% market share.
We continue to foster operation [efforts agriculture] and we have
recently launched a specific website, which contains -- is addressed
to the needs of this sector. Our investment bank also did a very good
job. In the first quarter, we reached the leadership in Latin America
for financial advising in M&A lower than $500 million. We also
led in operation of fixed income.
Overall, our investment bank was ranked as the Best Financial Advisor
with R$2 billion in deals. The Best [Investor] with R$2.8 billion in
operations, and we closed 2007 bank first in projects financed,
(inaudible) brokerage, Bradesco acquired Agora Corretora, the leader
of the Brazilian sales segment with 29,000 active clients.
In asset management, we surpassed R$183 billion under management. In
March, Bradesco was elected the best manager in equities, foreign
exchanges, and loan charge funds by consistent investment magazines.
Speaking to meeting investor growing interest in equities, we
launched two funds focused on companies listed in the Bradesco
Corporate Governance Index.
Increased financing in foreign exchange operation, it is worth to
mention our market share of 21.1% in exports and 15.2% in imports.
Together with this performance, Bradesco financing just in this
quarter, Latin exporters in a volume of $4.1 billion and imported in
a volume of $560 million.
Over the last 12 months, export and import financing jumped by 53.2%
and 52.7%, respectively. Regarding IT, we are in the final stage of
upgrading our hardware, software and data communication network with
the most modern technology. This massive operational, but the massive
operation will benefit range in customer service points as well as
our more than 36 million customers.
In the early hours of Sunday, April 20, we integrated all the kind
service systems, which accounts for 60% of Bradesco processing
operation to our new information technology site. Risk management is
considered a top priority for Bradesco due to the gradual increasing
complexity of the financial markets.
We undertook a remarkable step with the consolidation with the
structure of governor, which accounts now with four elected
co-managers and four statutory co-managers, in addition to an
independent structure focusing exclusively on risk management and
internal compliance activities.
The risk management process comprehend are due to (inaudible) which
involve education, analysis and mitigation of risk, properly
controlling and monitoring by the Board sent regularly to the senior
management.
The compliance with the Basel II requirement is in a development
stage and we believe that we should not have any problems within to
the Brazilian Central Bank agenda deadlines. In terms of
sustainability and in line with Bradesco's Bank of the Planet
campaign, we would like to have some initiative in the first quarter.
Have one, the creation of two specific funds that will generate
revenues for the Amazonas Sustentavel Fundacao, a foundation Bradesco
is co-funded, which is focused to preserve the rain forest in the
state of Amazon. Two, through the partnership Bradesco has with the
Fundacao SOS Mata Atlantica, a forest seedling production center was
in operating in the center of Piracicaba in the interior of the state
of Sao Paulo.
And, three, the [subject] of the Bradesco volunteer program portal,
which became the biggest corporate volunteer Internet network in
Brazil. And, four, the release of our 2007 Sustainability Report,
which contains the annual summary of Bradesco's initiatives and
activities in corporate social responsibility, complying with the
third version of the Global Reporting Initiative.
All in all, and in our understanding, Bradesco did a good job in the
first quarter of this year, given the cyclicity, and therefore the
strong the volatility in the markets. We remain optimistic regarding
2008 and the prospects for Brazil as a whole. In fact, Brazil
deserves to receive the long awaiting investment grade status up to
the end of this year. As a result of this scenario, we are strongly
investing in the expansion of our distribution, IT and [expense
planning]. We believe that all these process will benefit our future
results.
In 2008, we expect to our extend our second accounts basis by further
1.7 million clients, and we will step up integration of our various
segments in associate company. In this context, we have taken and are
still taking important measures to integrate our databases with our
front office operations.
Nevertheless, competition in the banking sector is becoming tougher
year after year, implying pressure on this playing field. Bradesco
benefits some important competitive advantages in this operations in
client space. We aim to maximize all of this, and in this context, we
would like to have a very important sector the quality and the
dedication of our employees.
This [way] Bradesco could reach and surpass its challenges goals. As
a result, we had a much lower turnover of staff than the market, not
being at surprised at the fact that Bradesco is usually considered as
one of the best companies to work for.
We could summarize [things]. [With our] strategic approach taking
into account an expected growth in the Brazilian economy over the
coming years, we think really demand of bank and insurance products
to other translating to a very attractive domestic market. Bradesco
leadership and quality of service are key to making us benefit of
this process. This is the reason why, and not forgetting about the
quality of the present results, we had focused on effective actions
to boost future earnings and increase our market share.
Thank you for your attention, and after Jean's presentation, we will
be available to answer any further questions you may have.
JEAN PHILIPPE LEROY: Slide number one. Initially and before
commending our performance, it is worth to mention that there would
be two important changes in the fiscal and corporate installation,
which could impact the coming periods.
On the fiscal side, the increase of financial institutions of the
social contribution moving from 9% to 15%, still pending on the
provisional measure no. 413 by the Congress, could impact the banking
sector from May on.
The impact on the measures introduced by the Law number 11638, which
changes the accounting principles in Brazil putting them more in line
with the IFRS depends also on the complimentary rules to be issued by
the Brazil Central Bank and by the CBM, which is equivalent to the
Brazilian SEC, which are likely to be approved in the next coming
months.
Moving to slide number two, as one can see, we are including this
slide, Bradesco's main drivers as previously highlighted by Milton in
his remark. Slide number three, Bradesco reported a R$2.1 billion net
income a 23.3% evolution, vis-a-vis the same period of 2007,
equivalent to approximately $1.2 billion. An undercurrent events that
affected the net income in this quarter as well as in the comparative
EBIT are listed here as one can see.
In the first quarter of 2008 as already disclosed to the markets, we
recorded a gain of R$352 million derived from the partial sale of our
stake in Visa Internationals and amortized the [mediservice] goodwill
in the amount of R$53 million. As of yesterday, our remaining stake
at Visa International was worth R$464 million. As a result, our
adjusted net income surpassed R$1.9 billion in the first three months
of 2008.
We would like to inform that other operating expenses increased in
this quarter, because of approximately R$86 million expenses, which
are not expected to be repeated going forward. These expenses are
composed by one, R$56 million provisioned for fees we use to charge
customers when and if they pre-paid their loans and, two, R$30
million provisioned for labor. Therefore, the recurring net results
of operating revenues and expenses could be ranging around R$900
million.
Please note that all the comparatives analysis and ratios used in
this presentation, in the press release and in the fact book take
into consideration the net income adjusted by non-recurring events.
This is the way we will be now on analyzing Bradesco's performance.
Slide number four. We can see in this slide the evolution of EPS, the
cost-to-income ratio and net income on a quarterly basis. The annual
EPS evolved by 10.6% over the last 12 months, closing at R$2.41.
Efficiency improved as our cost-to-income ratio moved from 42.1% by
the end of March 2007 to the actual 41.7%.
We believe the efficiency ratio will remain stable over the next two
to three years due to the expansion in distribution, client space and
IT investment focused on the replacement and renewal of Bradesco's
whole IT architecture. After that, we are confident that the
efficiency ratio will improve even further.
Slide number five. Bradesco reached total assets of R$355.5 billion,
26.1% higher than in March 2007. The variation was mainly due to the
R$38 billion jump in the loan portfolio and the R$17 billion increase
in income bank investments.
Considering the adjusted net income, analyze reached on average
stockholders equity stood at 28.7%, while the return on average asset
stood at 2.2%, standing at 13.9% -- sorry, standing at 13.9% the
capital at equity ratio is almost 300 basis points higher than the
minimum requirement by the Brazilian Central Bank, which is 11%.
In a simulation with the figures of March 2008 should be adopt the
terms of the Central Bank (inaudible) number 3,367 relative of hedges
of investment abroad, which could not be included in the BIS ratio
calculation, Bradesco's ratio would be standing at 16.7%, 12.6% of
which is tier one.
In this case, it would allow Bradesco to increase it's loan book by
approximately R$130 billion. By the way, simulations under the
expected Basell II rules to be implemented in the second half of 2008
give us confidence of Bradesco's operating leverage.
Slide number six. Bradesco's unrealized gains reached R$4.1 billion
in March 2008. The quarterly decline is basically driven by the
higher volatility, which affected the mark to market of available for
sale and held to maturity securities, as well as the stocks Bradesco
still holds at BM&F and Bovespa.
Once again, it is important that these figures do not include our
participation in not publicly traded companies such as [Heraza] and
VisaNet.
Slide number seven. On this slide, we present Bradesco's net income
breakdown. In the quarter, the relative participation of insurance
increased strongly, thanks to the reduced claims and better sales
ratios and the return of technical provisions for individual health
insurance plans to normal levels. The higher decrease on services was
due to the impact in changes in individuals' checking accounts fees,
which were expected and incorporated in our guidance since disclosing
our fourth quarter 2007 earnings.
Slide number eight. This slide lists a summary of our income
statement showing the main variation in the results. I would like to
draw your attention to the quality variation in the insurance
operations due to factors already mentioned.
Slide number nine. The strong increase of 38.5% of loans over the
last 12 months was fundamental to boost the next interest income. The
year-over-year adjusted net interest income evolved by 20.5%, all by
more than R$1 billion nominal terms. We highlight the
interest-bearing assets, which increased in volume offsetting the
impact of lower spreads.
We would like to add that the non-interest income line of the last
quarter of 2007 was one of the highest of the last three years. On
the top of that, it was impacted by R$56 million of recoveries of
loans, which happen every year in the last quarter. This quarters is
more in line with Bradesco's fiscal average.
Slide number ten. On this slide, we present the nominal evolution of
net interest margins and net interest income, only of the
interest-bearing assets. As one can see, we experience a 20.4%
year-over-year evolution in the net interest income, despite a
decline in the base rate depicted in the blue line. In our
understanding, it is key to verifying this performance in order to
better predict the trends for the coming quarters. The information
included in this slide do not take into consideration neither trading
gains and potential of these investments gained, nor the affect of
mark to market.
Slide number 11. This slide gives a breakdown of the adjusted net
interest income. As you can see, loan operations have been increasing
their relative participation quarter after quarter. The drop in
participation in the margin of funding and insurance in the period
was due to the reduction in the average base rate, which moved from
12.8% to 11.3%.
Slide number 12. This slide gives the summary of the financial margin
gains in loans. The blue line depicts the performance of the gross
gains deducted by the cost of opportunity the Selic. The red line
shows the evolution of the allowance for loans losses, net of
recovery.
As one can see, from the behavior of the blue line, the increased
volume of loans has been key to offset the impact of lower interest
rates. As the line in the middle, is concerned the net margin has
been recording consistent nominal growth, climbing by 17.4%,
comparing the first quarters of 2007 and 2008.
Slide number 13. Bradesco's total loan portfolio, including sureties,
and guarantees and receivables of credit cards, stood at R$169
billion by end of March, 5% higher than in the fourth quarter of
2007, and 38.5% higher than in March of last year. When we analyze
the loan portfolio's breakdown by segment, we noticed the balanced
growth between all the business segments, SMEs, individuals, and
large corporates.
Slide number 14 and 15. In these slides, one can see the breakdown of
the main credit lines for companies and individuals. Beginning with
the corporate segment, we would like to highlight the growth of the
falling credit line, leasing, working capital and mortgage. It is
worth noticing the sound performance of sureties and guarantees,
especially in the large corporate segment, which recorded a 58%
year-over-year growth.
As for individuals, the credit line of leasing mainly focused on new
cars, agriculture, based on the growth in this sector, and mortgage
expanded the most. It is worth to mention that if exclude sureties
and guarantees, the individual loan portfolio already represents 23%
of the total book.
Slide number 16. This slide shows the level of provisioning coverage,
vis-a-vis the level of expected loses. As one can see, we have a
R$1.2 billion excessive provision based on the requirements of the
Brazilian Central Bank, represented by the difference between the
lines in red and grey. And if one compares our total provisions to
the expected losses for the next 12 months, depicted in the line in
grey -- in green, Bradesco's actual excess of provision stands at a
very comfortable level of R$2.6 billion.
Slide number 17. As we have already mentioned in our fact book, the
compilations by tier of the more than 90 days past have been
improved. Up to last quarter, we were using the right criteria of the
Brazilian Central Bank for past due operations, which obliged for the
more than 36 month operation to double count the period for the mean
of the establishment of rating criteria of past due operations.
This means that long-term operations were included in the 90 days
past due ratios only after 180 days. It is important to emphasize
that this improvement in calculation did not change the need of
provision.
After this comment, and after adjusting through the previous periods,
we can observe that the more than 90 days delinquency ratio for
individuals is standing flat at 6.4%. The delinquency ratio for SMEs
has been declining, and is now standing at one of its lowest levels
over the last two years. Finally, we expect a slight improvement in
delinquency in 2008 for all the same.
Slide number 18. Regarding payroll deductible loans, we can see that
Bradesco's own origination grew by 78.1% over the last 12 months, and
by 6.3%, vis-a-vis the previous quarter. The acquisition of BMC, and
integration of payroll deductible loans with Bradesco's branch net
worth, should enhance the origination even more. Our estimates point
out to a close to 100% increase in this portfolio during the year of
2008.
Slide number 19. [This slide] how to finance credit cards and payroll
deductible loans. The expected perspective for mortgage are also very
positive for the coming years. Last year, Bradesco originated R$4
billion in mortgage financing, the acquisition of approximately
30,000 properties, representing a 22% market share.
For 2008, our target of origination stands at R$5.3 billion, and we
have no doubt to meet this goal, because we already originated more
than R$1.5 billion in the first quarter, financing more than 13,000
properties, representing a 27% market share allowing Bradesco to
maintain its leadership amongst private banks.
Slide number 20. As one can see fees increased by 9.5% on a
year-over-year basis, driven by asset management, cost and loan
operation fees. The slight decline in the quarter was mainly due to
the restructuring of fees to individuals, smaller number of capital
market deals, and higher number of credit and debit card
transactions, which seasonally happen at the end of very year.
Slide number 21. In comparison with the previous quarter, we can see
a reduction in the expenses, mainly due to seasonal reasons. In the
year-over-year comparison, the structural personal expenses grew by
10.9% due to, one) the annual negotiation for wage increase, two) the
incorporation of BMC, and three) the expansion in distribution.
The increase in administrative expenses is derived by -- one, organic
growth; two, increase in volumes of transactions; three, readjustment
in price of procurement contract; and four, more investments in IT.
It is worth to highlight that we still continue to be focused on cost
control and on maximizing operational efficiency despite an increase
in CapEx and enhancements in quality.
Slide number 22. The coverage ratio obtained by comparing fees and
operating expenses got slightly worse due to the process of
restructuring of fees on individuals we already mentioned before.
Considering that the coverage ratio is accommodated in 12 months, its
improvement tends to be felt only after this period. However, we
count on the growth in volume of operations and client base to try to
improve the coverage ratio.
Slide number 23. In this slide, one can see the evolution of our
funding. With an outstanding performance in demand and savings
deposits, which climbed by 29% and 21%, respectively, over the last
12 months. The decline in demand deposits in the quarter was already
expected because of the effect of the end of the [CTM] effect, which
artificially increased the demand deposits by the end of 2007.
The strong expansion in timed deposits is explained by the needs of
funding for loan book growth and the consequence of the legal
measure, which statutory requirements up to 25% on the funding
derived by leaving company. In the asset management segment, equities
were the best performers growing by 10% in the quarter and by 163%
over the last 12 months.
Slide number 24. In order to provide a better understanding of our
insurance, pension plan and savings bond operations, we are
presenting a summary of our insurance group income statement on this
slide.
In the quarter, net income from these operations grew by 28% or by
41% over the last 12 months, reaching R$746 million, compared to
R$529 million in the first quarter of 2007, with annualized return on
equity of around 38%. Based on February 2008 data, this bottom line
represented a 45% market share.
The significant increase in net income in the quarter is explained by
-- one, the improvement of the claims ratio and, consequently, of the
combined ratio as well as by, two, the conclusion of the process of
building individual health insurance provisions.
Slide number 25. Revenues from insurance premiums, pension plans and
savings bonds totaled R$5.4 billion in the first quarter of 2008, a
11.8% year-over-year growth, equivalent to a 24% market share as of
February 2008 available data. As a result, Bradesco remains leader in
the pension plan, property and life insurance segments.
Slide number 26 and 27. Guaranteeing assets of technical reserves
reached R$68 billion, equivalent to a 33.6% market share. It is worth
remembering that 79% of these assets correspond to the pension plan
and VGBL investment portfolios. Total assets grew by 18%
year-over-year. Technical provisions totaled R$59.7 percent billion
or a 35.1% market share as of February 2008.
We would like to draw your attention to the volume of technical
provision in the health segment, which amounted to around R$8.3
billion, R$1.4 billion of which built over the last five quarters.
By the way, as for Bradesco's health provision, I would also like to
point out that if we maintain current market condition, especially
regarding the level of playing and the capacity of premiums being
readjusted in line with the increase in the medical inflation, that
we believe our health provisions to be appropriate to the needs we
identified in our assumptions.
Slide number 28. As you can see on this slide, personnel and
administrative expenses remain virtually flat. Slide 29, the combined
ratio measures the real operation of efficiency of the insurance
group regarding claims control and if the underwriting is correct. We
would like to highlight improvement in this ratio over the last 12
months.
Slide number 30. We maintain Bradesco's guidance for 2008 and I would
particularly like to draw your attention to the loan portfolio's
guidance, which is broken down by segments and products. I would also
like to point out that the expected increase in operational expenses
that you can see on this slide is derived by Bradesco's plans to
expand distribution.
Slide number 31. We are here inviting each and everyone for
Bradesco's investor day in London, which will take place next month.
Slide number 32. Here you can see our economic forecast for 2008 and
2009, regarding GDP, base rate, inflation and Fx rate. The highlight
here is the interest rates outlook, which is expected to reach 13% up
to the end of this year.
In conclusion. First, I would like to emphasize the words said by our
CFO, Mr. Milton, concerning the efforts Bradesco is undertaking to
maximize recurring net income along with a strategy of expansion and
distribution and client base. We are proceeding strong investments in
human resources and IT, which will benefit our future results.
And two, last but not least, although we faced high volatility in the
international financial system in this quarter, which generated high
uncertainty, Bradesco's senior management considers that the results
we presented yesterday are very good and characterized by very high
quality. Thank you for your attention. And let us move to the
question and answer session. Thank you.
OPERATOR: (OPERATOR INSTRUCTIONS)
Our first question comes from Mr. Jorge Kuri with Morgan Stanley.
JORGE KURI, ANALYST, MORGAN STANLEY: Hi, good morning, everyone.
Quick question. Your guidance for net interest income for 2008 of
growth of 16% to 20%, is that different from what you had in the
previous quarter? I'm sorry, I don't have the previous presentation
in handy, but I'm assuming that with the expectation of higher
interest rates that number should be more positive for you. Was that
number revised up? And what's your view about the likelihood of
upward earnings revision on that number given that the Central Bank
now is on a hiking mode? Thank you.
JEAN PHILIPPE LEROY: Hello, Jorge. Actually, the guidance is the very
same we presented last quarter. Obviously, the first quarter's not
always the best measure, because it's in theory a weaker quarter than
the other ones. And, we are going to continue to verify if there is a
need in the future for changing the guidance. But up to now, we
maintain positive and about this guidance we are providing here. But
it's exactly the same guidance.
JORGE KURI: So, and -- if I may, just a follow-up. Was the guidance
in the previous quarter already contemplating that the Central Bank
was going to hike interest rates? Or this is a new event and this
number potentially has some upside potential as a result of that?
JEAN PHILIPPE LEROY: Actually, it was not contemplating the increase
in the interest rates, because when we disclosed the numbers, it was
on January 28th. And, if you remember, when we gave the forecast --
the outlook for the economy, it was a little bit different. In
general terms, what happens is that we feel comfortable with this
guidance, but sometimes, depending on what happens, for example,
interest rates moving up, you could continue to be in the same range,
but being closer to the upper range than to the lower range. But up
to now, we continue to believe in this guidance.
JORGE KURI: Okay. Great. Thank you, Jean. Thanks a lot.
JEAN PHILIPPE LEROY: You're welcome.
OPERATOR: Our next question comes Mr. Jason Mollin with Goldman
Sachs.
JASON MOLLIN, ANALYST, GOLDMAN SACHS: Hello, everyone. My question is
related to the, let's say, the sensitivity of Bradesco's balance
sheet to interest rates. And without looking forward, but actually
looking at where we stand at the end -- where we stood at the end of
the first quarter 2008, can you help us understand the, let's say,
the asset sensitivity, or the net sensitivity of Bradesco to 100
basis point increase in interest rates if we look at where we are
today all else equal. Are your assets -- how fast are your assets
repricing than your liabilities? And, therefore, rising interest rate
environment, assuming all else equal would actually produce higher
earnings for Bradesco or not?
JEAN PHILIPPE LEROY: Hi, Jason. Actually, maintaining everything
equal, supposing that there is no change in the longer growth,
theoretically speaking, we would say that Bradesco have a free fund
and working capital in the amount of approximately R$35 billion. By
saying that, actually, for every 1% increase or decline in the rate,
you have an impact of gross of tax is approximately R$350 million.
After taxes, going down to around R$200 million. So, theoretically
speaking, if everything is equal, the sensitivity analysis is around
this range.
JASON MOLLIN: I mean, but should we also consider -- I mean that's
what's free today and I understand that. Or that's the impact now.
But should we think about -- how do we think about the assets
repricing going forward? Right. We have assets repricing and
liabilities repricing going forward. And you've been growing --
you've been growing longer duration assets -- payroll loans,
mortgages, auto loans. Can you help us understand. Is this, I mean,
theoretically, Bradesco should be less asset sensitive today than it
was two years ago. Is there a way to quantify that? I mean, how --
what's the average duration of the loan book today versus what it was
a year or two ago, for example?
MILTON VARGAS: Look, you have in effect in the footnotes of Bradesco,
we disclose exactly the detainer of assets and liabilities. And,
actually, as you can see, they are roughly similar in terms of
previous. We always are analyzing what is going on in the market. If
we reprice. If the interest rates we charge are correct. But I would
say, over the last one or two years, there was no huge increase in
the average spanner of the loan book. Actually, although some price
lines like mortgage are growing very fast, this still represents a
very small participation, vis-a-vis the overall book of Bradesco.
So, in theoretically speaking, although the treasury is always
analyzing what is going on in the market and has been doing actually
a very good job if you analyze the performance of the non-interest
income part of the net interest income, you can see that actually, we
are analyzing what is going in the market. Nothing is changing
dramatically over the last maybe one or two years. The pan is
expanding, but naturally, and you have in the footnotes, we disclose
assets and liabilities. So, in general terms, we are always looking,
but it's difficult to give a precise answer for that question.
JASON MOLLIN: That's been helpful. Thank you very much.
MILTON VARGAS: You're welcome.
OPERATOR: Our next question comes form Mr. Saul Martinez with Bear
Stearns.
SAUL MARTINEZ, ANALYST, BEAR STEARNS: Hello, good morning. If I strip
out the health insurance earnings, where you obviously benefited from
the absence of additional provisions, your earnings were down 3%
quarter-over-quarter. They were only up 5% year-over-year. Your
recurring earnings when I stripped that out. I know you mentioned
that you thought it was a good quarter given the market volatility,
but is this number a bit disappointing to you given the balance sheet
growth that you had over the last year? And should we expect a more
meaningful up tick in recurring earnings growth in the coming
quarters?
Samuel Monteiro dos Santos Junior Saul?
SAUL MARTINEZ: Yes.
Samuel Monteiro dos Santos Junior Samuel speaking. Saul, the way to
do the health, we are earning a lot of things in other line of
business relates to the health. Not only in the line of the health,
really. So, there are a lot of cost or so between, for instance on in
dental, in the life, most of the business relates to the health,
relates to the patient plans and life also.
SAUL MARTINEZ: No, I understand. My question really wasn't related to
the performance of the insurance business, which would -- which even
normalizing for health seemed strong this quarter. My question was
really about the other businesses. In other words, if you made $117
million in earnings this quarter in the health insurance business.
You had virtually nothing in previous quarters. If I strip that out
or normalize your consolidating recurring earnings this quarter and
subtract out the health insurance earnings from that number, your
earnings this quarter -- recurring earnings for Bradesco as a whole
fell 3%. They were only up 5% year-over-year. And I was just
wondering how you viewed that kind of growth?
Samuel Monteiro dos Santos Junior Saul, I would like to mention to
you that the effect of the reserve of insurance, our insurance
business are related to a lot of the assets relate to technical
provisions writing.
SAUL MARTINEZ: Okay.
Samuel Monteiro dos Santos Junior As you know, six months and the
basically, six month, and the equities -- market equities. And in the
last quarter, what happened, you know the performance of the
submarket would be very good. And, we took an opportunity to realize
some gains in that time. But I can't points to you, I can project for
any sure, the same performance of the stock market. No. That fact
that our reserves are represents a very important amount that
represents in the equities.
That's our have returns, you can see in the slide 25. After tax, we
decide to post 8. I think that this is the highest in the mark.
SAUL MARTINEZ: No. And I understand though the results in the
insurance business were strong. My question is really for Milton and
Jean. And, it seems that given the very good earnings in the
insurance business, it seems to me that the R$1.9 billion of
recurring earnings for Bradesco as whole seem a little bit
disappointing. If I strip out -- like I said, if strip out health
insurance earnings this quarter from total earnings for all of
Bradesco, not just the insurance business, the earnings -- the
recurring earnings only grew 5% year-over-year. And I kind of wanted
to get a better sense for how the Company feels about that number and
if it's really happy with the kind of earnings that they generated
this quarter? Does that make sense?
JEAN PHILIPPE LEROY: Actually, we, in the presentation, and Milton
file this at the end of his opening remarks, it was stated about the
quality of the earnings and we are happy to disclose these numbers
even in a period with much higher volatility, changes in legislation
and every year higher and growing competition. So, at the end of the
day, you can consider that this Bradesco management is happy with
current things that we have been posting in the quarter.
SAUL MARTINEZ: Okay. Just one clarification, Jean, sorry to take up
so much time. You said, the operating expense line was adversely
impacted by -- was it R$86 million in expenses that were not
recurring?
JEAN PHILIPPE LEROY: Actually, yes, R$86 million. Actually,
recurring, but should not be repeated going forward.
SAUL MARTINEZ: Okay. Got it. Okay. Thanks a lot.
OPERATOR: Our next question comes from Mr. [Oscar Streata] with
[Banco Real].
OSCAR STREATA, ANALYST, BANCO REAL: Yes, hello. I have a question
referring to the 2008 perspective on page 30 on the breakdown of the
. Seems to me that the prospective for 2008 are very similar as to
last year. I was just wondering, when I compare this projections for
2008 with quarterly growth rates, what's pretty interesting to see is
that some of these products are actually at much lower growth rates.
At the same time, [cosignaro] payroll loans, which is expected to
grow 90% to 110% grew 3.4% first quarter and 49% at last 12 the
month, so that suggest a very big jump of the rest of the year. At
the same time, leaving, which is a non-recurred year grew 59% of last
quarter. How do you see this as the portfolio mix developing, because
it seems to be a big variation between products?
MILTON VARGAS: Oscar, I would say and we recommend always the analyst
to confirm the 12 months EBIT, although you might be using the
numbers of the quarter and projecting them for the year. Obviously,
it's very difficult to analyze numbers that's usually the first
quarter is the weakest in terms of economy. You live in Brazil, so, I
believe so, so, actually you know that the economy is so steady as it
is in maybe in other countries quarter-after-quarter. But at the end
of the day, when you look at the numbers that we have, for example,
in terms of the net interest income, net interest income that we are
projecting in the range of 16% to 20% is close to the one that we
disclosed over the last 12 months. So, again, you might not agree,
but we strongly recommend people to analyze the 12-month numbers much
more than just taking a quarter and projecting annually for the year.
OSCAR STREATA: But still, payroll loans was 49% and the projected for
2008 are 90% to 110%. That is a very big -- that's almost double the
current month rate. Whereas, I understand the markets are growth rate
is reducing. So, does that imply some surging?
MILTON VARGAS: Look, the line, we are not hearing 100%. You could
repeat. 49% would be what?
OSCAR STREATA: 49% is the 12-month growth rate for the payroll loans,
consignaros. That's a very -- that's a rate significantly below the
guidance for 2008.
MILTON VARGAS: Look, in the slides that we are disclosing this
operation, on slide number 18, now I was not hearing very well, but
49% takes into account the whole portfolio. But, as you can see, we
have been very dedicated to expand the operations of [BMC] and
Bradesco together. And what we are giving up guidance is actually
much more taking into account that the relative participation of the
product portfolio should be moving down. And that contribute the most
important part of the growth will be the loan origination of
Bradesco. So, this is the reason why you should look more in 78%.
OSCAR STREATA: Thank you very much.
OPERATOR: Our next question comes from Mr. Victor Galliano with HSBC
Bank.
VICTOR GALLIANO, ANALYST, HSBC: Hi. My main question has been asked
already. But just one question if I may on asset quality and also
what we've seen in terms of the trend in the quarter in terms of
write-offs, charge-offs of loans. As I can see on a year-on-year
basis, and if you look back over the last four quarters, this number
seems to have gone up quite a lot. I mean, on a year-on-year basis,
it's gone up about 35%. I mean, do you expect it going forward to
stay at these sorts of levels? So, shall we say, a higher plane of
charge-off. Or is this -- are there any kind of one-off items
included in here?
JEAN PHILIPPE LEROY: No, it's actually, the recurring number. But I
would say that the best thing would be for you to try to analyze the
slide number 16, where we are basically the evolution and obviously
that sometimes, you should be looking at percentages. And sometimes,
it could be better to look at the evolution in numbers and the
volume. You see the number growing very strongly, but we have a long
book of more than R$160 billion and the balance of provisions that's
close to R$8 billion.
But I would say, recurring numbers, where the best thing would be to
look at the numbers that we are showing on the slide number 16. As
you can see, the losses during 360 days compared with one year before
are now standing close to 4.7%. And, the understanding that we have
is that this number should be moving down, closer to the green line
that you see. So, moving from the four and a half something percent,
closer to 4%. So, in one from year now, the level of losses should be
closer to 4% than the 4.7%, 4.6%, 4.5% we are showing now.
VICTOR GALLIANO: Okay. Thanks, Jean.
JEAN PHILIPPE LEROY: You're welcome.
OPERATOR: Our next question comes from Mr. Roberto Attuch with Credit
Suisse.
ROBERTO ATTUCH, ANALYST, CREDIT SUISSE: Hi. Good afternoon, everyone.
My question is just about interest rates. It's from what level on
interest rates and our rising interest rates are starting to affect
loan demand and delinquencies, especially. I think what's concerns us
now is the inflationary rates, and that's what all the banks are
saying. If rates raise 2 to 100 basis from now. And a loan demand and
delinquencies do get changed. So, according to your (inaudible), what
is the level from when it starts to affect loan demand and again in
builds?
MILTON VARGAS: Roberto, basically, what we are seeing is an economy
growing very strongly in Brazil and affecting very positively
individuals and companies. And there is a very huge pent up demand
that we see for individuals in the terms of buying cars, in terms of
buying houses, and white goods and others. When we look at the
companies, the level of leverage of the companies is also very low.
When you compare Brazil's level with levels of comparable economies.
So, there is no specific percentage that we believe is going to
affect. We believe that at the end of the day, the economy is growing
close to 5% basically is something that would not affect the desire
for growth.
There are two additional information that are important to pass to
you would be that at point that do those, if is there is a sentiment
that you can buy, because installment fits inside of your salary, you
feel confident about your job that your job is not on the line. And
we see the unemployment rate moving down and the level of wages
moving up in Brazil, this affects positively individuals.
And on the side of the companies, we have done researches from our
chief economist team, [Otavodigavos], which analyzes 1,600 companies
and what happened is there is a change in the interest rate growing
like 300 basis points. And, what we see in this -- through this
researches is that the companies should not be effecting their
expectations of investments.
So, these two are the pillars of growth in loans over the coming
years and we basically also have a very strong distribution. We have
a huge client base, more than 36.6 million customers, that we should
be benefiting obviously more than anyone else.
ROBERTO ATTUCH: Okay. That's great. Thanks very much.
MILTON VARGAS: You're welcome.
OPERATOR: Our next question comes from Ms. [Daniella Avelland] with
Credit Suisse.
DANIELLA AVELLAND, ANALYST, CREDIT SUISSE: Hi. You mentioned that
your fees were lower because of decreasing transactions in the
capital markets. And I was wondering if your seeing some pick up now?
And what is your outlook for 2008? And if that will affect your fee
income? Thank you very much.
JEAN PHILIPPE LEROY: We saw a first quarter, which was obviously much
weaker than the last quarter of last year, but we are beginning to
see a number of deals coming to the market. And, obviously, the
leadership that Milton mentioned in the beginning of the conference
call will be key for Bradesco to grow on the top of that. The
customers that are making IPOs, they usually are now are more of
higher quality, because of investors flights to quality prospects.
So, we are seeing right now an increase in the number of deals.
Obviously, not so high that what it was last year, but giving us good
perspectives for the year of 2008.
DANIELLA AVELLAND: Thank you.
JEAN PHILIPPE LEROY: You're welcome.
OPERATOR: Our next question comes from Mr. [Alejandro Bulmusia] with
CAF.
ALEJANDRO BULMUSIA, ANALYST, CAF: Hi, hello. We have a question
regarding your BIS ratio. The BIS ratio has declined from 15.7% a
year ago to 13.9% at the end of the quarter. And you are projecting
further declines on that ratio too, I think. So, we would appreciate
it if you could let us know what your strategy is for managing the
equity of the bank?
JEAN PHILIPPE LEROY: Hi, Alejandro. I would say in general terms, as
you can slide number five, although there was a decline in the BIS
ratio, we are not using the instruments that the Central Bank of
Brazil would be allowing to strip out of the calculation the hedge
positions on the CapEx investments we have abroad -- on the equity we
have abroad, which actually would be helping us to raise converting
13.9% to 16.7%. We are not using this cost that we could use. It
doesn't mean that we will. We feel that the 13.9% BIS ratio that we
have is much higher than the 11% minimum ratio we have in Brazil. We
also have a space to issue more tier two.
So, you can issue up to 50% of what you have in tier one. So, we
could be using this way to boost even more the BIS ratio. But,
forgetting about that, 13.9% gives us the possibility to expand a
longer pipe R$80 billion. And, we are expecting a long book that you
see a growing, as you can see on slide number 30, in the range of 20%
to 25%. We have kept going up, everything being equal, to continue to
expand our loan book for the next coming years without any problem.
So, the strategy should be roughly to use maybe the instrument of
tier two, but we definitely believe that the 13.9% BIS ratio is
enough for Bradesco.
ALEJANDRO BULMUSIA: Okay. Thank you.
JEAN PHILIPPE LEROY: You're welcome.
OPERATOR: Our next question comes from Mr. Ian Smith with [Nestea
Capital].
IAN SMITH, ANALYST, NESTEA CAPITAL: Hi, good morning. I just wanted
to back onto to fees, just very quickly, one of the other reasons why
you explained fees were done was a readjustment. And with the new
regulations becoming effective, I think it's coming up now the 30th
of April, do you feel that that readjustment is absolutely complete
and we won't see further readjustments through the year?
MILTON VARGAS: Hi, Ian. Good afternoon. Actually, these changes that
are going to begin to affect banks from May on, actually are not so
easy for us to anticipate the movements during the year. For the
guidance sake, we are using a fee income expectation of gross between
5% to 10%. From the calculations that we have up to now that already
we have to certify over the coming quarters, because we adjust
calculations, we might have fees growing closer to 5% than growing
closer to 10%.
We are still looking at that and in June, obviously, if we see that
we could be or we should be changing the guidance, obviously, we are
going to do that. As last year, you had to remember that when we saw
that the guidance could be -- should be changed, we also changed
that. But we are always looking at ways to compensate fees and we are
still analyzing and will be analyzing very deeply what is going to
occur from May on.
IAN SMITH: Thank you. If you don't mind, kind I just ask a slightly
different additional question. It's relating to this sort of the
sensitivity of your assets to a rate increase, particularly your
securities portfolio. An apology if this is already in the notes, but
what proportion of the securities are variable rates? And how quickly
do you think the securities portfolio will reprice in line with a
rate increase? But on top of that, how do sensitive do you think your
securities portfolio are to the mark to market hit from rate
increases at the same time?
JEAN PHILIPPE LEROY: Just a second. Can you hear me? I don't have the
precise information of the percentage, but I can guarantee that the
bulk of the securities portfolio is invested in variable rates in
cities. So, if there is an increase in the interest rates, obviously,
you could have a positive impact from related in the income
statement.
IAN SMITH: Thank you very much.
JEAN PHILIPPE LEROY: You're welcome.
OPERATOR: Our next question comes Mr. Victor Galliano with HSBC.
VICTOR GALLIANO: Yes. Just a follow-up here on operating expenses.
And what I wanted to focus on, was really, you talked about
investment in IT. I mean, can you give us some idea of that -- those
total operating expenses of R$3.55 billion. I mean, what percent of
that is investment in IT? And can we expect that to tail off going
forward into the year or has it yet to -- are you going to account
for that pretty evenly over the course of the year?
JEAN PHILIPPE LEROY: We invest roughly speaking a billion dollars a
year in IT and infrastructure. The IT improvement program, which is
underway, still has approximately R$700 million of expenses that we
should be undertaking over the next two to three years.
VICTOR GALLIANO: Okay. So, you will have a count -- R$700 million
over the next two to three years, including this year?
JEAN PHILIPPE LEROY: Exactly.
VICTOR GALLIANO: Thanks.
JEAN PHILIPPE LEROY: You're welcome.
Thank you. I would say, because of the time, we have to end the
conference call. It was a pleasure to have so many people attending.
Obviously, the investor relations area is open for any further
questions. Mr. Milton Vargas, Domingos Figueiredo de Abreu are all
open to any particular needs that you have. Thank you very much for
attending the first quarter (inaudible) results and see you. Bye.
OPERATOR: That does conclude Banco Bradesco's conference for today.
Thank you very much for your participation and have a good day.
[Thomson Financial reserves the right to make changes to documents,
content, or other information on this web site without obligation to
notify any person of such changes.
In the conference calls upon which Event Transcripts are based,
companies may make projections or other forward-looking statements
regarding a variety of items. Such forward-looking statements are
based upon current expectations and involve risks and uncertainties.
Actual results may differ materially from those stated in any
forward-looking statement based on a number of important factors and
risks, which are more specifically identified in the companies' most
recent SEC filings. Although the companies may indicate and believe
that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate or
incorrect and, therefore, there can be no assurance that the results
contemplated in the forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL
REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE
EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE
MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE
SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES THOMSON FINANCIAL
OR THE APPLICABLE COMPANY OR THE APPLICABLE COMPANY ASSUME ANY
RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON
THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT.
USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL
ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY
INVESTMENT OR OTHER DECISIONS.]
[Copyright: Content copyright 2008 Thomson Financial. ALL RIGHTS
RESERVED. Electronic format, layout and metadata, copyright 2008
Voxant, Inc. (www.voxant.com) ALL RIGHTS RESERVED. No license is
granted to the user of this material other than for research. User
may not reproduce or redistribute the material except for user's
personal or internal use and, in such case, only one copy may be
printed, nor shall user use any material for commercial purposes or
in any fashion that may infringe upon Thomson Financial's or Voxant's
copyright or other proprietary rights or interests in the material;
provided, however, that members of the news media may redistribute
limited portions (less than 250 words) of this material without a
specific license from Thomson Financial and Voxant so long as they
provide conspicuous attribution to Thomson Financial and Voxant as
the originators and copyright holders of such material. This is not a
legal transcript for purposes of litigation.]
This is a news service of Thomson Business Intelligence Service ©2006. This content is for your personal use only, subject to Terms and Conditions. No redistribution allowed.
|
