Finance giants bled in the ring – 02/11/2024 – Marcos de Vasconcellos

The last few days have been marked by the release of bank balance sheets, always essential for understanding the path of money. And we saw two giants bleeding.

Bradesco and Santander recorded brutal drops in their profits, leading to questions about the financial sector’s next steps.

If you haven’t checked the accounts, Santander’s profit in 2023 fell by more than 27% compared to the previous year. In the case of Bradesco, the drop in the period was 21%. To make matters worse, this is the second year in a row that both have seen profits run out of coffers.

This is not something widespread in the sector. The giant Itaú profited more, as did BTG Pactual. But the blow to its competitors was such that, adding the results of the four, the profit of the largest private banks in the country fell 9.4%, as reported by the consultancy Etos Ayta.

The fall surprised (a lot) analysts who closely follow the market. Mainly in the case of Bradesco. The bank’s shares melted the day after the results were released: they fell more than 15% in a single trading session.

In the case of Santander, even though the annualized drop in profits was even worse, experts were already expecting a result like this. And, as the market is made up more of expectations than of realities, the shares even rose a little after the release of the balance sheet.

But the truth is that the blood of Bradesco and Santander dripped onto the canvas and showed warriors having difficulty understanding the ways to return to fighting as before.

At these times, when we want to measure the ability to react to a blow, we look at the ROE, the measure of how much the bank can earn from the equity it has (the acronym is for return on equity, in English). The higher the indicator, the more profitable the operation and, therefore, the more likely it is to return to the ring faster.

Bradesco’s ROE is 9.4%, Santander’s is 10.3%. Both look terrible next to their competitors Itaú (18.3%) and BTG Pactual (20.1%).

In addition to the shock with the Americanas case, which forced banks to provision billions more for defaults, Brazil continues in its process called “financial deepening” — financial deepening. In short, it is the increase in the supply of financial services and products to the population.

Competition for banks increases with each new startup in the sector, or fintech. And their response has often been excessively expensive or time-consuming. As the jargon says: changing the direction of an ocean liner is more difficult than turning a kayak. Few giants have known how to remodel themselves, while others have agencies that hark back to the 1990s.

Those who have money in the bank seek the path of consolidation. This week, for example, Safra bought Guide Investimentos, an independent brokerage, which ranked fourth among the largest in Brazil. Just before that, in December, Empiricus, which was already part of the BTG ecosystem, handed over the operation of its brokerage once and for all to the bank’s hands.

When the independents are finding it more advantageous to sell (or pass on the key) and the traditional ones are struggling to find profitability, it is clear that the sector is undergoing a significant transformation, with few certainties and a lot of money changing hands.

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