Brazil's BicBanco lambastes 'market hubbub' that hammered bonds
SAO PAULO Aug 14 (Reuters) - Brazilian mid-sized lender Banco Industrial e Comercial SA said on Wednesday "baseless market hubbub" triggered a slump in the price of its U.S. dollar-denominated debt, dismissing recent speculation of an eroding financial position.
Prices for the bank's $400 million senior bonds due in 2015 and the $300 million subordinated notes due in 2020 tumbled 35 percent in the 30 days through Friday, when the lender announced a bond buyback. Concern mounted recently that the São Paulo-based bank was grappling with a souring credit market, a weakening economy and rising borrowing costs.
In a securities filing due to the release of second-quarter earnings, BicBanco, as the bank is known, dismissed speculation of an eroding capital position. Non-performing loans showed a decline on a quarter-on-quarter basis, cash holdings rose 34 percent from the prior three months and expenses declined as part of a cost-efficiency effort, the filing said.
"Amid baseless market hubbub, in recent weeks the erratic behavior of market prices laid bare the pretentious rationality of certain market participants," Milto Bardini, a senior executive vice president and head of investor relations for BicBanco, was quoted in the filing as saying.
He said speculators had provoked "the intended explosion of nervous and sudden price moves from which they took advantage."
The speculation haunting BicBanco, which saw shares shed 46 percent this year and the price of its 2020 bond halving to 55 cents on the dollar since early June, reflects scant confidence in small- and mid-sized lenders in Brazil after a series of failures in recent years. The central bank has seized nine SMLs, as those lenders are known, over the past four years.
Years of rapid credit expansion in Brazil have resulted in tougher funding and liquidity conditions, as well as a relaxation of risk assessment and auditing controls among smaller lenders. Problems have been more evident at lenders specializing in consumer credit such as payroll-deductible and auto loans - markets in which BicBanco does not operate.
Recurring net income, a measure of profit that excludes one-time items, tumbled 28 percent to 28.5 million reais ($12.3 million) in the second quarter from the prior three months. Return on equity, a gauge of profitability for banks, slipped to 6.1 percent from 8.4 percent in the prior quarter.
According to Bardini, BicBanco's earnings were limited by a decline in the value of government bond holdings, which had to be marked-to-market, charges related to the bank's ongoing cost-cutting program and an increase in tax provisions. Cash holdings in the form of cash and highly liquid assets reached 2.3 billion reais.
BicBanco's regulatory capital ratio rose to 18.5 percent, about 2 percentage points above the first quarter's result, and well above the banking system's 12 percent average, the filing said.
Management will discuss results at a conference call with investors on Thursday.
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