Business Context and Reporting Period
Company: Banco Bradesco S.A. (Bank Bradesco)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Year ended December 31, 2011
Accounting Standards: International Financial Reporting Standards (IFRS)
Auditor: KPMG Auditores Independentes (Unqualified Opinion)
Business Overview: Bradesco operates primarily in banking and insurance segments in Brazil, offering retail, corporate, and investment banking services, as well as insurance, pension plans, and capitalization bonds.
Key Financial Metrics
| Metric (R$ thousand) | 2011 | 2010 |
|---|---|---|
| Net Interest Income | 35,611,286 | 32,771,291 |
| Net Fee and Commission Income | 10,834,333 | 9,394,538 |
| Net Income (Total) | 11,089,442 | 10,052,193 |
| Net Income (Controlling Shareholders) | 10,958,054 | 9,939,575 |
| Basic EPS (Ordinary) | R$ 2.74 | R$ 2.52 |
| Basic EPS (Preferred) | R$ 3.01 | R$ 2.77 |
| Total Assets | 722,086,892 | 602,954,024 |
| Total Liabilities | 662,704,798 | 551,795,459 |
| Total Equity | 59,382,094 | 51,158,565 |
| Loans and Advances to Customers (Net) | 245,874,949 | 210,280,182 |
| Impairment of Loans and Advances | (8,296,151) | (5,756,125) |
| Cash and Cash Equivalents | 36,853,126 | 36,265,611 |
| Subordinated Debt | 26,910,091 | 26,314,946 |
Material Changes vs. Prior Period
- Profitability Growth: Net income attributable to controlling shareholders increased by approximately 10.2% to R$ 10.96 billion, driven by higher net interest income and fee income.
- Asset Expansion: Total assets grew by 19.8% to R$ 722.1 billion. Loans and advances to customers increased by 16.8% to R$ 245.9 billion (net of impairment).
- Impairment Costs: Impairment of loans and advances rose significantly by 44.1% to R$ 8.3 billion, reflecting a larger loan portfolio and economic conditions.
- Trading Losses: The bank recorded a net loss of R$ 608 million on financial instruments held for trading in 2011, compared to a gain of R$ 2.2 billion in 2010.
- Foreign Exchange: Net gains on foreign currency transactions improved to R$ 2.6 billion in 2011 from a loss of R$ 683 million in 2010.
- Capital Adequacy: The Capital Adequacy Ratio for the Consolidated Economic and Financial conglomerate was 15.07% as of December 31, 2011, exceeding the regulatory minimum of 11%.
Guidance, Outlook, Risks, and Unusual Items
- Acquisitions: In November 2011, Bradesco acquired a controlling interest (96.23%) in Banco do Estado do Rio de Janeiro (BERJ). This resulted in a bargain purchase gain of R$ 406 million recognized in "Other operating income/(expenses)" for 2011.
- Capital Management: The bank maintained a strong capital position with a margin of R$ 19.3 billion above required levels, allowing for significant loan growth capacity.
- Risk Management:
- Credit Risk: Maximum credit risk exposure increased 19.2% to R$ 848.9 billion. Impaired loans represented 10.0% of the total customer loan portfolio.
- Market Risk: Value at Risk (VaR) for the trading portfolio increased due to higher exposure and volatility. Stress testing indicated a maximum estimated loss of R$ 2.27 billion in 2011.
- Liquidity Risk: The bank maintains a Minimum Liquidity Reserve (RML) and manages cash flows through a centralized treasury process.
- Contingencies: Significant provisions exist for tax and social security obligations (R$ 12.3 billion) and civil proceedings (R$ 3.3 billion), primarily related to inflation adjustments on savings accounts and tax disputes.
- Accounting Policy Change: The bank reclassified dividends received from associated companies from operating to investing activities in the cash flow statement, revising prior periods for consistency.
Investor Verification Checklist
- Impairment Trends: Verify the sustainability of the 44% increase in loan impairment charges and the quality of the loan portfolio (10% impaired ratio).
- BERJ Integration: Assess the financial impact and integration progress of the Banco do Estado do Rio de Janeiro (BERJ) acquisition.
- Trading Volatility: Monitor the reversal from trading gains in 2010 to trading losses in 2011 and the associated market risk exposure.
- Tax Contingencies: Review the status of major tax disputes (Cofins, INSS, PIS) totaling over R$ 6 billion in potential claims.
- Capital Adequacy: Confirm the maintenance of the Capital Adequacy Ratio above the 11% regulatory threshold amidst asset growth.
- Dividend Policy: Note the distribution of R$ 3.74 billion in dividends and interest on equity in 2011.