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, 2015 (Prudential Conglomerate)
Business Overview: Bradesco is a universal bank operating in Brazil through a diversified conglomerate structure. Activities include commercial banking, foreign exchange, consumer financing, housing loans, leasing, investment banking, brokerage, consortium management, credit cards, insurance, and pension plans. The financial statements are prepared in Brazilian Reais (BRL) in accordance with Brazilian Central Bank (Bacen) Resolution No. 4,280/13.
Key Financial Metrics
| Metric (in thousands of BRL) | 2015 | 2014 |
|---|---|---|
| Total Assets | 882,814,165 | 862,756,008 |
| Total Liabilities | 793,907,521 | 781,247,758 |
| Shareholders' Equity | 88,906,644 | 81,508,250 |
| Net Profit (Full Year) | 17,189,635 | 15,088,818 |
| Net Profit (2nd Semester) | 8,472,281 | 17,189,635 (Full Year 2014) |
| Revenue from Financial Intermediation (Full Year) | 113,312,114 | 101,351,804 |
| Fee and Commission Income (Full Year) | 22,446,224 | 18,626,754 |
| Allowance for Loan Losses Expense (Net) | 16,835,053 | 10,529,443 |
| Cash and Cash Equivalents | 147,275,456 | 204,669,143 |
| Basel Capital Ratio | 16.8% | 16.5% |
Material Changes vs. Prior Period
- Profitability: Full-year net profit increased by approximately 14% to R$17.19 billion from R$15.09 billion in 2014. However, the second semester of 2015 showed a net profit of R$8.47 billion, significantly lower than the full-year 2014 figure, indicating a slowdown in the latter half of the year.
- Loan Portfolio: Total loans and leasing grew to R$341.5 billion in 2015 from R$323.9 billion in 2014. Non-performing loans increased to R$27.27 billion (7.4% of the portfolio) from R$22.44 billion (6.5%) in 2014.
- Provisions: The allowance for loan losses expense (net of recoveries) rose sharply to R$16.84 billion in 2015 from R$10.53 billion in 2014, reflecting increased credit risk provisioning.
- Liquidity: Cash and cash equivalents decreased by roughly 28% to R$147.3 billion, driven by a reduction in interbank investments and securities sold under repurchase agreements.
- Capital Structure: Shareholders' equity grew by 9% to R$88.9 billion. The Basel capital ratio improved slightly to 16.8%.
Outlook, Risks, and Unusual Items
- HSBC Acquisition: In August 2015, Bradesco signed an agreement to acquire 100% of HSBC Bank Brasil for approximately US$5.2 billion. The Brazilian Central Bank approved the acquisition in January 2016, subject to other regulatory approvals. This is a major strategic expansion.
- Capital Increase Cancellation: A planned capital increase of R$3 billion via private subscription, approved in December 2015, was cancelled in February 2016 due to stock market volatility and share price impacts.
- Tax and Legal Provisions: Total provisions for labor, civil, and tax risks increased to R$12.57 billion. Significant tax disputes involve PIS/Cofins calculations and pension contributions. The company maintains that provisions are sufficient to cover probable losses.
- Regulatory Changes: The social contribution tax rate for financial companies increased to 20% from September 2015 to December 2018 (previously 15%), impacting tax calculations and deferred tax assets.
- Credit Intelligence: In January 2016, Bradesco signed a non-binding MOU with major Brazilian banks to create a credit intelligence holding company (GIC) to manage shared credit databases.
Investor Verification Checklist
- HSBC Integration: Verify the final closing date and integration costs associated with the HSBC Brasil acquisition.
- Credit Quality Trends: Monitor the trajectory of non-performing loans (NPLs) and the adequacy of the allowance for loan losses given the sharp increase in provisioning expenses in 2015.
- Capital Markets: Assess the impact of the cancelled R$3 billion capital increase on future funding strategies and capital adequacy.
- Tax Litigation: Review the status of major tax disputes (PIS/Cofins, pension contributions) which represent significant contingent liabilities.
- Dividend Policy: Confirm the payout of the supplementary interest on shareholders' equity approved for payment in March 2016 (R$4.05 billion).