Bradesco suffered this Wednesday (9) the biggest daily fall in the value of its shares in more than 20 years, registering a loss of market value of around R$ 31 billion, after the second largest private bank in the country reported a fall surprising in third-quarter earnings and indicate difficulties ahead.
The rapid deterioration in the quality of the loan portfolio led the bank to sharply increase provisions for expected losses with defaults. As a result, return on equity, which measures how a bank remunerates its shareholders’ capital, dropped 5.1 percentage points to 13%.
In a video conference on the balance sheet, bank executives said they expect to emerge throughout 2023 from what they called a “perfect storm” in the third quarter, but that profit should remain under pressure in the coming quarters.
Bradesco’s preferred shares closed down 17.38%, the biggest drop since September 1998, at R$ 15.35, the lowest value since October 2020
The move helped drag down other bank papers. Itaú Unibanco, which publishes results on Thursday, sank 4.8%, and Santander Brasil plummeted almost 6%. The Ibovespa dropped 2.2%.
Bradesco’s loss of market value this Wednesday exceeds the market value of companies such as CCR, Assaí and Braskem, among others.
Analysts at BTG Pactual cut the bank’s stock recommendation to “neutral” and the target price from BRL 25 to BRL 21 after the balance sheet, in addition to reducing earnings forecasts for 2024.
“Some of the problems that affect results are probably cyclical, but it’s hard not to believe that there could be something more structural explaining the difference in performance (compared to peers),” said Eduardo Rosman and team in a report. “The recovery of results and market confidence will not be quick.”
Analysts at Citi said they saw management’s rapidly deteriorating expectations as a point of concern, which should pressure action given the “lack of visibility into future results.”
Rafael Frade and team also cut the stock recommendation to “neutral”, reducing the target price from 23 to 19 reais, as well as estimates for earnings in 2022 and 2023.
“Bradesco’s third quarter results surprised not only with a large increase in provisions, but with an indication that the fourth quarter should be even worse, showing a gradual improvement from there.”
In the view of Safra’s analysts, in general, the results were negative, and the revision of the forecast for provisions points to a weak end of the year.
“Despite the growth in the volume of credit and the expansion of spreads, pressures on the financial margin (NII) with the market and the deterioration of credit quality led to a result below expectations”, said Silvio Doria and Gabriel Pucci in a report to customers.
They added that the balance sheet shows a difficult short-term outlook.
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