UPDATE 1-Banco do Brasil may reduce staff to help cut costs

Wed Nov 21, 2012 4:14pm EST

* Sees Votorantim unit returning to profit by June

* May opt not to fill retirees' slots, official says

By Aluísio Alves

SAO PAULO, Nov 21 (Reuters) - Banco do Brasil SA, Brazil's worst-performing large bank stock this year, may reduce staff in order to cut costs and bolster its share price, an executive said on Wednesday.

The Brasilia-based bank, which is controlled by the federal government, may opt not to fill some of the slots left vacant by as many as 16,000 employees that are on the verge of retirement, Gustavo Sousa, the lender's head of investor relations, told investors at an event.

At the end of September, Banco do Brasil employed close to 114,500 people. Sousa said no decision on the matter has been made yet, but noted that it could be a way "to gain some operational efficiency."

Sousa's remarks come a few weeks after rampant credit-related losses at a unit hurt third-quarter earnings at Brazil's largest lender. Its shares have shed 8.6 percent since Nov. 8, when executives told analysts on an earnings conference call that expenses and provisions for bad loans would not decline until next year.

Quarterly results and pressure from the government to boost loan disbursements and cut borrowing costs are stoking worries that profitability at Banco do Brasil will fall further in coming months. Investors have also balked at Banco do Brasil's timid pledges to lower expenses, unlike private sector rivals.

Expenses fell to the equivalent of 42.1 percent of interest income last year, compared with a so-called efficiency ratio of 42.6 percent in 2010. The lower the ratio, the more cost-efficient a bank is.

"DESTROYING VALUE"

Asked by an analyst at the event whether management is "destroying value" as shares are trading below book value, Sousa said investors "have in the past made erroneous bets against Banco do Brasil." He also highlighted a stock buyback plan that should help prop up share prices.

Shares of Banco do Brasil are down 6.7 percent so far this year, more than any other peer. The stock is down 7.7 percent over the past 12 months.

Higher-than-expected provisions and expenses, coupled with lower revenue after an aggressive reduction in borrowing costs, led to an 11 percent drop in profit at the bank in the quarter.

Banco Votorantim SA, the unit behind the decline in profit, will return to profit by June as tighter credit standards and rising provisions will help write off bad loans more rapidly, Sousa added.

Banco do Brasil holds a 49.99 percent stake in Votorantim, which lost money for the fourth straight quarter as delinquencies in its auto loan book spiked.

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