* Recurring profit at 2.978 bln reais misses estimates
* Guidance cut suggests cautious take on Brazil economy
* Shares reverse early losses despite equity adjustment
* Return on equity slumps to lowest in over four years
(Adds comments from executives, financial details, updates
By Guillermo Parra-Bernal and Natalia Gomez
SAO PAULO, July 22 Banco Bradesco SA
on Monday cut projections for lending and interest
income growth for this year as an economic slowdown in Brazil
and flagging trading-related results led the bank to miss
second-quarter profit estimates.
Brazil's No. 2 private-sector bank, based in Osasco,
forecasts growth on its loan book between 11 and 15 percent this
year, down from a prior range of 13 to 17 percent. It also
signaled efforts to boost revenue in areas other than credit.
The revision underscores growing caution among
private-sector banks as Brazil enters a third year of
below-trend economic growth. Bradesco's results, which fell
short of expectations, reinforced the view that profitability
trends in Brazil's banking industry remain fragile, with
performance increasingly hinging on expense cuts as credit
"Overall we still find management's guidance optimistic,
particularly with regards to net interest income and loan
growth," said Marcelo Telles, a senior banking analyst with
Credit Suisse Securities in São Paulo.
Net income excluding one-time items, a widely used gauge of
earnings known as recurring profit, totaled 2.978 billion reais
($1.33 billion), below the average profit estimate of 3.021
billion reais in a Thomson Reuters poll of eight analysts.
The profit miss came mostly in the wake of a slump in gains
from trading of securities, which totaled 18 million reais - the
lowest quarterly level since the start of 2009. Trading-related
income plummeted from 197 million reais in the first quarter.
Dismal performance in the trading line, which affected
Bradesco's banking and insurance operations equally as the value
of the bank's government debt holdings fell by about 9 billion
reais in the quarter alone, brought down shareholders' equity to
66 billion reais from 69.4 billion reais in the prior quarter.
"This won't impose any significant economic loss on the bank
in coming quarters - this is not a trend," Chief Executive Luiz
Carlos Trabuco told reporters on a conference call.
Shares reversed early losses, and were up 2 percent at 28.32
reais in early afternoon. Bradesco's preferred shares, the
bank's most widely traded class of stock, are down 12 percent
Trabuco and Chief Financial Officer Luiz Carlos Angelotti
said trading-related income is expected to return to "normal
levels" between 200 million reais and 300 million reais a
quarter in "the near future."
Recurring profit rose 1.2 percent on a quarter-on-quarter
basis as an 8.3 percent rise in fee income helped offset the
weak interest and trading income trends and provisions for bad
loans, which did not decline. Recurring profit rose 3.9 percent
from the same period a year earlier.
Net interest income fell to the lowest level in six
quarters, while Bradesco's loan book rose 2.8 percent to 402.52
billion reais - slightly above the poll's 2.6 percent estimate.
Management trimmed estimates for net interest income growth this
year to a range between 4 and 8 percent, from a prior range
between 7 and 11 percent.
The central bank's decision to raise the benchmark interest
Selic rate twice in the quarter probably propped up Bradesco's
net interest margin - or the average rate earned on loans -
after four straight quarterly declines. The indicator, known as
NIM among analysts, stood at 7.2 percent in the second quarter.
Still, Angelotti said that NIM faces "some downward pressure
through the end of the year," adding that the indicator could
fall to 7 percent.
For more than a year, Bradesco has reined in disbursements
in riskier segments like auto loans and focused on mortgages and
paycheck-deductible lending - two segments that charge lower
rates but where defaults are less common.
Despite those efforts, return on equity - a measure of
profitability in the banking industry known as ROE - fell to
18.8 percent on a recurring basis. While the result beat the
poll's forecast of 17.4 percent, ROE slipped to its lowest level
since at least the end of 2008.
Bradesco's loan book ended the quarter at 402.52 billion
reais, up 2.6 percent on a quarterly basis. On an annual basis,
lending rose 10.1 percent, below revamped guidance for credit
growth between 11 and 15 percent this year.
Loan defaults for 90 days or more, the industry's benchmark
for delinquencies, posted a steeper-than-expected decline in the
second quarter to 3.7 percent of outstanding credit. In the
first quarter, the so-called default ratio stood at 4 percent.
Analysts in the poll expected the default ratio at 3.9
percent at the end of June. Trabuco and Angelotti expect
defaults to stabilize or even decline in coming months.
In spite of the lower loan delinquencies, Bradesco set aside
3.09 billion reais in provisions for bad loans, or 0.5 percent
less than in the prior quarter, reflecting a cautious outlook
for Brazil's economy in coming months.
($1 = 2.25 Brazilian reais)
(Editing by Chizu Nomiyama and Matthew Lewis)