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, 2019
Business Overview: Bradesco is a private-sector, publicly traded universal bank and the leading institution of the Prudential Conglomerate in Brazil. Its operations include commercial banking, foreign exchange, consumer financing, housing loans, leasing, investment banking, brokerage, insurance, and pension plans. The financial statements are prepared in accordance with Brazilian Central Bank (Bacen) Resolution No. 4,280/13.
Key Financial Metrics (Year Ended Dec 31, 2019)
| Metric | 2019 (R$ thousands) | 2018 (R$ thousands) |
|---|---|---|
| Net Income | 22,582,615 | 19,084,953 |
| Revenue from Financial Intermediation | 109,113,429 | 102,366,983 |
| Fee and Commission Income | 26,960,835 | 25,387,276 |
| Gross Income from Financial Intermediation | 41,367,271 | 29,612,364 |
| Total Assets | 1,130,064,897 | 1,061,352,037 |
| Total Loans (Gross) | 542,595,258 | 485,318,154 |
| Allowance for Loan Losses | (36,663,729) | (35,007,179) |
| Total Deposits | 371,741,114 | 344,049,574 |
| Shareholders' Equity | 133,723,221 | 121,120,869 |
| Basel Ratio (Capital Adequacy) | 16.5% | 17.9% |
Material Changes vs. Prior Period
- Profitability: Net income increased by approximately 18.3% to R$22.6 billion, driven by higher gross income from financial intermediation (up 39.7%) and improved equity earnings from affiliates.
- Asset Growth: Total assets grew by 6.5% to R$1.13 trillion. The loan portfolio expanded by 11.8% to R$542.6 billion, with significant growth in the private sector.
- Provisions: The allowance for loan losses increased to R$36.7 billion. The expense for allowance for loan losses (net of recoveries) was R$10.8 billion in 2019, compared to R$11.1 billion in 2018.
- Capital Structure: Shareholders' equity increased by 10.4% to R$133.7 billion, supported by net income and a capital increase via bonus shares (20% bonus) in March 2019.
- Dividends: The company paid extraordinary dividends of R$8.0 billion in October 2019 and complementary interest on shareholders' equity totaling R$4.2 billion in December 2019.
Guidance, Outlook, Risks, and Unusual Items
- COVID-19 Impact: As of the filing date (March 2020), management stated it was not possible to measure or anticipate the specific future economic and financial impacts of the COVID-19 pandemic. The company is monitoring the situation closely.
- Regulatory Changes: Constitutional Amendment No. 103, enacted in November 2019, increased the social contribution rate on banks' net profit from 15% to 20%, effective March 2020. This resulted in a deferred tax impact of R$6.4 billion recognized in 2019.
- Legal Contingencies:
- Operation Zelotes: A class action in New York regarding alleged improper performance was settled for US$14.5 million in November 2019. An administrative investigation by the Brazilian Ministry of Finance concluded in February 2020 with no evidence of wrongdoing by Bradesco.
- Provisions: Significant provisions exist for labor claims (R$6.8 billion), civil claims (R$7.4 billion), and tax risks (R$7.1 billion).
- Acquisitions: Bradesco announced the acquisition of BAC Florida Bank (US) for approximately US$500 million to expand services for high-net-worth clients. The transaction is subject to regulatory approvals.
- Voluntary Severance: A Voluntary Severance Program (PDV 2019) was launched, with total costs of R$1.8 billion for 3,418 employees as of year-end.
Key Facts for Investor Verification
- Capital Adequacy: Verify the Basel Ratio of 16.5% and the composition of Tier I and Tier II capital to ensure compliance with regulatory requirements amidst economic uncertainty.
- Non-Performing Loans (NPLs): Review the NPL ratio and the adequacy of the R$36.7 billion allowance for loan losses, particularly given the potential impact of the pandemic on credit quality.
- Tax Provisions: Assess the R$7.1 billion provision for tax risks and the impact of the increased social contribution rate (20%) effective March 2020 on future profitability.
- Dividend Policy: Confirm the sustainability of the high payout ratio (68.79% of net income distributed in 2019) in the context of potential future earnings volatility.
- Foreign Exposure: Monitor the net foreign exchange position (passive R$65.3 billion) and the status of the BAC Florida Bank acquisition.