(Adds comments from analyst in paragraphs 5-7)
By Guillermo Parra-Bernal and Aluísio Alves
SAO PAULO May 7 State-run Banco do Brasil SA
missed first-quarter profit estimates on Wednesday
after fee income fell short of expectations despite stringent
expense controls and stable loan-loss provisions at the nation's
largest bank by assets.
Recurring net income, or profit excluding one-time items,
was 2.436 billion reais ($1.1 billion) in the quarter, up 0.5
percent from the prior three months and down 9.3 percent from a
year ago, according to a securities filing. Analysts in a
Reuters poll expected recurring profit of 2.512 billion reais
for the quarter.
Interest income slipped as a shift towards less risky credit
drove lending rates down in the quarter. Fee income, or revenue
from financial services, sank 7.1 percent reflecting a seasonal
pattern in which borrowers cut demand for cards and financial
advisory. Expenses fell 8.1 percent amid Chief Executive Aldemir
Bendine's efforts to make branches more cost-efficient.
Recurring return on equity slipped to 14 percent from 14.2
percent in the fourth quarter and 17.4 percent a year earlier.
ROE, as the gauge of profitability among banks is commonly
known, was expected at 13.6 percent in the poll. This was well
below private sector peers Itaú Unibanco Holding SA's
and Banco Bradesco SA's, which are above and close to
20 percent, respectively.
Shares shed as much as 1.5 percent on Wednesday.
"We see lackluster earnings evolution, a limited capital
cushion, and a current return on equity that stands below what
we consider to be the cost of equity," of about 17 percent, Saúl
Martínez, a senior banking analyst with JPMorgan Chase & Co in
New York, said in a client note. "At a high level, we think the
results support our cautious stock view."
The company plans to discuss first-quarter results at a news
conference later on Wednesday.
Gross interest income, or revenue from loan-related and
securities trading-related transactions, fell 0.2 percent to
11.83 billion reais on a quarterly basis, but still above the
poll's 11.70 billion estimate. Fee income was 5.74 billion
reais, below the poll's estimate of 6.06 billion reais.
Sales, general and administrative expenses fell to 7.75
billion reais in the quarter after Banco do Brasil reworked
third-party contracts with suppliers that resulted in cost
savings. In the poll, the estimate was for expenses, which
include payroll costs, of 8.41 billion reais.
Loan-loss provisions were stable as the 90-day default ratio
fell slightly in the quarter, the bank said.
The bank's loan book reached 631.347 billion reais at the
end of the quarter, below the poll's estimate of 634.428 billion
reais. Consumer loans rose a meager 1 percent, while those to
corporations and institutions rose 1.2 percent on a quarterly
basis, fueled by loans to the government. Agribusiness lending
rose 3.6 percent in the quarter.
The phase-in of deductions for the implementation of new
Basel III capital rules began in the first quarter, with Banco
do Brasil's Tier 1 capital ratio falling to 9.9 percent from
10.5 percent in the prior quarter. According to JPMorgan's
Martínez, core Tier 1 ratio - which strips out hybrid capital
instruments - fell to 7.8 percent from 8.2 percent in the same
($1 = 2.23 Brazilian reais)
(Reporting by Guillermo Parra-Bernal; Editing by Chizu