Brazil's two largest private-sector banks reported strong third-quarter earnings on Monday and said they would continue to take advantage of the current market turmoil to snap up loan portfolios from smaller rivals in distress.
Banco Bradesco and Banco Itau sought to allay concerns that they might be vulnerable to the recent devaluation of the Brazilian real BRBY against the U.S. dollar by disclosing their exposure to foreign currency derivatives.
Both banks have benefited from surging demand for consumer loans in Brazil's fast-growing economy at a time when the global credit crunch has pummelled financial firms from the United States to Europe.
Strong loan growth helped Bradesco, the top private-sector bank in Brazil, post a 3.2 percent increase in third-quarter net profit to 1.91 billion reais ($823.3 million).
Itau was not scheduled to report earnings until Nov. 4 but rushed out its results because of the turmoil in financial markets. It posted a quarterly profit of 1.8 billion reais ($775.9 million), up 14.6 percent from a year earlier.
Brazilian banks have taken a pounding on the stock market in recent weeks, at times plunging more than 10 percent in a single session. On Monday, Bradesco shares were up 1.55 percent at 20.32 reais and Itau was up nearly 3 percent at 18.02 reais, compared with a nearly 4 percent drop by the broader market.
"Judging by their shares, they were successful in conveying the message that they haven't been contaminated by the crisis," said Marco Aurelio Barbosa, a bank analyst at Coinvalores, a Sao Paulo brokerage.
NO 'EXOTIC DERIVATIVES'
The Brazilian real has shed about a third of its value since early August, battering a handful of major companies with exposure to foreign currency derivatives. Last week, fears that banks might be the next to unveil derivatives losses hammered shares of Unibanco, forcing it to publish its third-quarter results two weeks ahead of time.
Unibanco reported a net profit of 704 million reais, up 5.6 percent from a year earlier, and stressed strongly that its derivatives exposure is limited.
Bradesco and Itau followed suit on Monday by disclosing their exposure to derivatives contracts, which are tied to the value of the U.S. dollar.
Bradesco said it does not trade in "exotic derivatives or conduct any kind of target forward operations," adding that it only "structures traditional operations for clients that wish to manage foreign currency positions."
"If I don't understand the operation, I'm not going to do it," Marcio Cypriano, the bank's chief executive, said on a conference call.
As of Oct. 23, Bradesco said it had 973 million reais in receivables from 206 clients and owed 655 million reais to 100 clients.
Itau disclosed that its investment banking arm, Itau BBA, had 2.4 billion reais in derivatives exposure with 96 clients as of Oct. 24. It stressed that the amount represents less than 1.5 percent of its loan portfolio and just 0.6 percent of its total assets.
SHOPPING FOR LOAN PORTFOLIOS
Both Bradesco and Itau said they would continue to take advantage of recent central bank measures aimed at encouraging large banks to acquire loan portfolios from smaller financial firms getting squeezed by the global credit crunch.
Cypriano said Bradesco would buy portfolios from nine financial firms for 1.4 billion reais on Tuesday. Overall, the bank has set aside 5.4 billion reais for portfolio acquisitions, he said.
Itau, whose loan portfolio has jumped 44.2 percent in the last 12 months to 164.5 billion reais, also said it was on the hunt for more portfolios.
"We're studying some other portfolios. Something could be announced soon," Silvio de Carvalho, a director at the bank, told Reuters.
Bradesco is slightly more bullish than Itau on the credit outlook in Brazil. Cypriano said Bradesco expects its loan portfolio, which grew 40.8 percent over the last year to 197.25 billion reais, to expand 20 percent in 2009.
Itau, by contrast, predicts its portfolio will expand between 10 percent and 15 percent next year, slowing from a forecast of 30 percent growth in 2008
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