Americanas effect: Santander now looks at the balance sheet ‘with a magnifying glass’ – 02/02/2023 – Market

“Subsequent Event in the Wholesale Segment”. This was the expression chosen by Santander to refer to the Americanas accounting scandal, mentioned eight times in its balance sheet for the fourth quarter of 2022. The retailer, one of the largest in the country, which entered into judicial recovery on the last 19th BRL 43 billion, was one of the biggest clients of the Brazilian branch of the Spanish bank, with whom it has debts of BRL 3.65 billion.

Americanas was responsible for impacting the bank’s expenses in the wholesale segment in the last quarter of the year. In the period, the provision for doubtful debts jumped 72.7% compared to the same period in 2021. Between October and December, the bank recorded a net profit of R$ 1.69 billion, down 46% in the annual comparison, below the analyst expectations. In the accumulated of 2022, Santander Brasil’s net profit fell 21.1%, to R$ 12.9 billion.

In the presentation of the last quarter’s results, this Thursday (2), the president of the bank, Mário Leão, avoided mentioning the name of Americanas. He also did not mention the name of Oi, which, on Wednesday night (1st), filed a request for an urgent precautionary measure to prevent its assets from being blocked at the request of creditors, to whom it owes BRL 29 billion. The application is a preparation for judicial recovery.

The path taken by the telecom operator was the same as Americanas, which even filed for guardianship on January 12th. The law firm that defends the two companies is the same, by the way: Basilio Advogados and Salomão Kaiuca Abrahão Raposo Cotta Advogados.

Santander did not say, however, it lent to Oi. In view of two consecutive events involving astronomical debts by Brazilian companies, the bank has already turned on the alert.

“We are looking with a magnifying glass at the balance sheets, the balance sheets, talking to the companies, to feel the trend of the balance sheets”, said Leão, in an interview with journalists at the bank’s headquarters, in São Paulo. “We don’t just look at the cost of debt, but how much they are making, sales, what margin they want to borrow, etc.”

Even so, the executive claims that he does not see, on the radar, new names of companies with a chance of filing for bankruptcy. “I am not yet seeing, among medium and large companies, a deterioration of balance sheets, in leverage ratios and other indicators”, he stated.

According to him, in the wholesale segment, where the bank’s large clients are located, credit analysis is “name by name”. “We’re not going to make advance provisions by portfolio,” he said.

Asked about Oi, which would be about to file for the second judicial recovery in its history (the first had ended in December last year), Leão said that “there are cases and cases”. “The best known [de empresas inadimplentes] been provisioned by financial institutions over the years,” he said.

In the executive’s opinion, if the Selic rate (today at 13.75% and a year ago at two digits) remains at a high level for longer, this could deteriorate the balance sheets. “This carrying cost is the great limiting factor for companies’ financial resources”, he says. “The longer it lasts [a Selic alta]the risk for companies that are more leveraged will be greater.”

The bank’s last quarter balance brought some yellow signs.

While Santander Brasil managed to maintain the 90-day default rate for individuals at 4.3% between the third and fourth quarter of last year, thanks to a policy of greater credit restriction, the rate for companies grew from 1.3% to 1.4% in the range. The increase occurred even with the sale of credit portfolios – when the bank transfers customer debt to third parties.

Urged several times to comment on the effect of Americanas on granting credit to legal entities from now on, Leão backed down. “We don’t cite specific cases. Partly because of elegance,” he said. “But yes, there is an aftereffect [no balanço]because it happened in 2023. Obviously you can infer who we’re talking about,” he told reporters.

“This event has and will be monitored throughout the year. But the wholesale segment has had a very good performance and will continue to do so, we are going to quickly expand our corporate business. We have excellent relationships with medium and large companies in the Brazil, including multinationals,” he said.

In any case, according to Leão, in 2023, credit selectivity will continue. “We make a provision with the materiality of what we have. But the scenario associated with this case or any other is very difficult to predict. We do not know how the negotiation process will evolve.”

“One Name” Problems

In the world, the bank had net profit in the fourth quarter of € 2.29 billion (R$ 12.6 billion), up about 1% in relation to the same period of the previous year and above the € 2.07 billion predicted by analysts.

Santander raised provisions for bad debts at its investment bank by €257 million (R$1.43 billion), largely due to problems with a client in Brazil, which is the financial institution’s biggest market.

According to the bank, the performance of revenue and financial margin in Brazil was overshadowed by greater provisions linked, in part, to “a single name” –undisclosed– in the corporate and investment banking portfolio.