Company Reports

As pandemic conditions eased, Bradesco was able to generate impressive loan growth during much of 2021 and 2022, with commercial loans and mortgages in particular leading the way. With a slew of government guarantee programs for small and midsize enterprises and fiscal stimulus spending, the bank's credit costs during the pandemic were surprisingly low. However, credit costs rose in 2023 and the bank is underperforming its peers, with the bank's more-than 90-day nonperforming loan ratio reaching 5.1% at the end of 2023. While Banco Bradesco had been enjoying a period of high profitability, deteriorating credit conditions have put an end to that as the bank's loan loss provisions have ballooned.

No-moat-rated Banco Bradesco reported weak fourth-quarter earnings as surprisingly high credit costs led to a decline in earnings. The bank’s net revenue decreased 1.2% from last year to BRL 29.9 billion. Meanwhile, recurring net income rose 80% from last year but fell 37.7% from last quarter to BRL 2.88 billion. These results translate to a return on average equity of 6.9%, well below the firm’s historical average. Despite these weak results, our thesis for the bank remains largely unchanged, and as we incorporate these results, we do not plan to materially alter our fair value estimate of $3.70 per ADR share for Banco Bradesco. Following the market’s negative reaction to earnings, we see the shares as undervalued.

No-moat-rated Banco Bradesco reported weak third-quarter earnings that were roughly in line with our expectations even as as weak net interest income was offset by better credit costs than we had excepted. The bank's net revenue decreased 2.0% from last year to BRL 29.6 billion. Recurring net income fell 11.5% from last year but increased 2.3% from last quarter to BRL 4.6 billion. This translates to a return on equity of 11.3%, which is below the firm's historical levels. As we incorporate these results, we do not plan to materially alter our $3.70 per ADR fair value estimate for Banco Bradesco, and we see the shares as modestly undervalued.

As pandemic conditions eased, Bradesco was able to generate impressive loan growth during much of 2021 and 2022, with commercial loans and mortgages in particular leading the way. With a slew of government guarantee programs for small and midsize enterprises and fiscal stimulus spending, the bank's credit costs during the pandemic were surprisingly low. However, credit costs have risen in 2023 and the bank is underperforming its peers, with the bank's more-than 90-day nonperforming loan ratio reaching 5.9% at the end of June 2023. While Banco Bradesco had been enjoying a period of high profitability, deteriorating credit conditions have put an end to that as the bank's loan loss provisions have ballooned.

No-moat-rated Banco Bradesco reported weak second-quarter results as strong performance from its insurance business was offset by lower net interest income and higher credit costs in its lending arm. Net revenue decreased 16.5% from last year to BRL 19.8 billion. Recurring net income decreased 35.8% from last year but increased 5.6% from last quarter, to BRL 4.5 billion. This translates to a return on average equity of 11.1%, below the bank's historical average. As we incorporate these results, we do not expect to materially alter our fair value estimate of $3.70 per ADR share.

No-moat-rated Banco Bradesco reported first-quarter results that, while not impressive, were a significant improvement from a dismal fourth-quarter 2022. Banco Bradesco's recurring net income fell 37.3% from last year but increased 168% from last quarter to BRL 4.28 billion. This translates to a return on average equity of 10.6%, below the bank's historical average. As we incorporate these results, we do not plan to materially alter our fair value estimate for Banco Bradesco of $3.70 per ADR share. We view the shares as currently undervalued, though we note that the bank is clearly being affected by difficult economic conditions in Brazil.

As pandemic conditions have eased, Bradesco has been able to generate impressive loan growth during much of 2021 and 2022, with commercial loans and mortgages in particular leading the way. With a slew of government guarantee programs for small and midsize enterprises and fiscal stimulus spending, the bank's credit costs during the pandemic were surprisingly low. However, credit conditions have begun to normalize in earnest and the bank has underperformed its peers in recent quarters, with the bank's more than 90-day nonperforming loan ratio rising to 4.3% at the end of December 2022. While Banco Bradesco had been enjoying a period of high profitability, deteriorating credit conditions have put an end to that as the bank's loan loss provisions have ballooned.

No-moat-rated Banco Bradesco reported weak fourth-quarter results as the bank suffered from a significant increase in credit costs while net interest income underperformed our expectations. Banco Bradesco's recurring net income fell 72.4% from last year to BRL 1.44 billion, which translates to a dismal return on average equity of 3.9% for the quarter. As we incorporate these results, we are lowering our fair value estimate for Banco Bradesco to $3.70 per ADR from $4.00. Approximately $0.20 of the decrease comes from higher credit costs projections for 2023 while the remainder comes from lower net interest income expectations, partially offset by earnings accumulated since our last update.

As pandemic conditions have eased, Bradesco has been able to generate impressive loan growth during much of 2021 and 2022, with commercial loans and mortgages in particular leading the way. With a slew of government guarantee programs for small and midsize enterprises and fiscal stimulus spending, the bank's credit costs during the pandemic were surprisingly low. However, credit conditions have begun to normalize in earnest and the bank has underperformed its peers in recent quarters, with the bank's more than 90-day nonperforming loan ratio rising to 4.3% at the end of December 2022. While Banco Bradesco had been enjoying a period of high profitability, deteriorating credit conditions have put an end to that as the bank's loan loss provisions have ballooned.

No-moat-rated Banco Bradesco reported weak results during the third quarter, with high interest rates impacting the bank’s credit results. The bank’s recurring net income of BRL 5.22 billion fell 26% quarter over quarter and 23% year over year. The drop in net income was primarily driven by higher provisioning for future credit losses that rose to BRL 7.27 billion from last year’s BRL 3.36 billion. With the release, the bank also increased its guidance for 2022 provision for loan losses to between BRL 22.5 billion and BRL 27.5 billion from BRL 17 billion to BRL 21 billion, a dramatic revision. Growth in the bank’s fee-based income also stagnated during the quarter, rising 1.1% from last quarter and 4.8% from last year, less than the rate of inflation in Brazil, to BRL 8.86 billion.

As pandemic conditions have eased, Bradesco has been able to generate impressive loan growth during much of 2021 and 2022, with commercial loans and mortgages in particular leading the way. With a slew of government guarantee programs for small and midsize enterprises and fiscal stimulus spending, the bank's credit costs during the pandemic were surprisingly low. However, credit conditions have begun to normalize in earnest with the bank's more than 60-day nonperforming loan ratio rising to 4.6% at the end of September 2022. While Banco Bradesco has been enjoying a period of high profitability, driven by below average credit costs, deteriorating credit conditions will likely put an end to that.

Headline numbers for Banco Bradesco’s second-quarter results were mostly positive, with recurring net income of BRL $7.4 billion showing growth of 3.2% quarter over quarter and 11.4% year over year. The bank’s fee-based income and insurance segments put up modest quarterly growth (4.2% and 12.8%, respectively) and even stronger year-over-year growth (6.7% and 135.5%, respectively). However, when taken in the context of nearly 12% inflation in Brazil, these numbers are less impressive. Nonetheless, this quarter translated to a return on equity of 18.1%, well above the bank’s historical average. As we incorporate these results, we don't expect to materially alter our fair value estimate for Banco Bradesco of $4.10 per ADR.

We believe macroeconomic and geopolitical uncertainty cast a shadow on Banco Bradesco and the entire Brazilian banking industry. While the largest problem facing Brazil has historically been its ballooning pension obligations, which represented 13% of its GDP in 2019 and nearly half of the government's budget, the Bolsonaro government was finally able to pass a bipartisan reform in the back half of 2019. While the reform is encouraging, much of the benefit has already been undone through heavy government spending in 2020 and 2021. The residual drag from bloated pension obligations and coronavirus stimulus measures will be acutely felt moving forward, with gross public debt/GDP rising from 52% in 2013 to 99% by the end of 2020.

No-moat-rated Banco Bradesco reported strong first-quarter earnings that continued the loan growth momentum from the fourth quarter but without the high operating expense growth seen in fourth-quarter 2021. The bank recorded recurring net income of BRL 6.8 billion, 4.7% higher than last year. This translates to a return on equity of 18%, while strong cost management brought the bank’s efficiency ratio down to 43.5%, some of the best numbers in the bank’s history. While there are lingering macroeconomic concerns in Brazil, this quarter’s results highlight a strong start to the year. As we incorporate these results, we are increasing our fair value estimate to $4.30 per ADR shares. The increase is primarily due to higher estimated net interest income as Bank Bradesco enjoys both the effects of rising interest rates and better loan growth then we had initially expected.

We believe macroeconomic and geopolitical uncertainty cast a shadow on Banco Bradesco and the entire Brazilian banking industry. While the largest problem facing Brazil has historically been its ballooning pension obligations, which represented 13% of its GDP in 2019 and nearly half of the government's budget, the Bolsonaro government was finally able to pass a bipartisan reform in the back half of 2019. While the reform is encouraging, much of the benefit has already been undone through heavy government spending in 2020 and 2021. The residual drag from bloated pension obligations and coronavirus stimulus measures will be acutely felt moving forward, with gross public debt/GDP rising from 52% in 2013 to 99% by the end of 2020.

We believe macroeconomic and geopolitical uncertainty cast a shadow on Banco Bradesco and the entire Brazilian banking industry. While the largest problem facing Brazil has historically been its ballooning pension obligations, which represented 13% of its GDP in 2019 and nearly half of the government's budget, the Bolsonaro government was finally able to pass a bipartisan reform in the back half of 2019. While the reform is encouraging, much of the benefit has already been undone through heavy government spending in 2020 and 2021. The residual drag from bloated pension obligations and coronavirus stimulus measures will be acutely felt moving forward, with gross public debt/GDP rising from 52% in 2013 to 99% by the end of 2020.

No-moat Banco Bradesco reported weak fourth-quarter earnings as good loan growth was offset by signs of inflationary pressure on the bank’s cost structure and poor performance in its market portfolio. Recurring net income during the quarter decreased 2.8% year over year and 2.3% sequentially to BRL 6.6 billion. Excluding provisions for credit losses, the bank's revenue grew 3.1% from the prior year’s quarter and these results translate to a return on average equity of 18.1% in the fourth quarter. As we incorporate these results, we will maintain our fair value estimate of $4.20 per ADR share.

We believe macroeconomic and geopolitical uncertainty cast a shadow on Banco Bradesco and the entire Brazilian banking industry. While the largest problem facing Brazil has historically been its ballooning pension obligations, which represented 13% of its GDP in 2019 and nearly half of the government's budget, the Bolsonaro government was finally able to pass a bipartisan reform in the back half of 2019. The agreement raises the minimum retirement age by nine years and could save nearly 800 billion reais over the next decade. While the reform is encouraging, much of the benefit has already been undone through heavy government spending in 2020 and 2021. The residual drag from bloated pension obligations and coronavirus stimulus measures will be acutely felt moving forward, with gross public debt/GDP rising from 52% in 2013 to 99% by the end of 2020.

We believe macroeconomic and geopolitical uncertainty cast a shadow on Banco Bradesco and the entire Brazilian banking industry. Given Brazil’s current political and economic instability, we believe the risks require a substantial discount before investing.

No-moat rated Banco Bradesco reported strong third-quarter results, with net income of BRL 6.8 billion growing 7.1% quarter over quarter and 34.5% year over year. Bradesco enjoyed another quarter of strong loan growth with its loan portfolio growing 6.5% sequentially. While these results are impressive, they are overshadowed by increasing economic uncertainty for Brazil. Inflation has been an ongoing concern for Brazil during 2021, a consequence of fiscal stimulus and external supply shocks, and pressure has intensified in recent months. Inflation in Brazil is now running above 10%, rising from just 4.5% in January. As we incorporate a higher probability of economic fallout from inflationary pressure on the Brazilian economy, we are lowering our fair value estimate for Bradesco from $4.80 to $4.50. Roughly $0.10 of the decrease comes from lower loan growth estimates, $0.20 from higher credit loss assumptions, and $0.20 from a weaker Brazilian real since our last update. These adjustments were offset by higher projected net interest margins.