Latin Finance - November 2008 - 22

of the 2008 protection, as well as hedging for raw materials providers. “We understand how all of these products work, but we won’t always offer them if there’s an undesirable risk for the company, because that risk eventually becomes ours,” says Moura. Bradesco’s conservatism may be held up as a flaw by competitors. But major financial institutions are failing because of careless involvement in complex structures. Top Brazilian names like Aracruz and Sadia are writing down billions of reais thanks to speculative bets on the currency using derivatives. None of those products came from Bradesco, claims Moura. Sustainability Matters Bradesco’s sustainability and corporate governance is seen as one the most advanced in the region by Madrid-based analysts Management & Excellence (M&E). This year’s M&E banks survey rates Bank Branches by Region, September 2008 Bradesco covers evenly financial institutions’ corporate governance (CG) and social % of % of responsibility (CSR) using a Itau Total Bradesco Total series of qualitative and Brazilian Region quantitative metrics. Center West 237 17% 267 19% In 2008, Bradesco and Itaú Northeast 142 5% 509 19% tied for first place in the North 48 7% 154 21% ranking of the region’s most Southeast 1,720 17% 1,803 17% sustainable banks, achieving South 499 14% 471 13% an identical score down to a Total 2,646 14% 3,204 17% hundredth of a point. Notably, Source: Febraban however, Bradesco is seen as having the best momentum to brunt of the sharpest EM selloff in over a stay on top, says M&E managing director decade. Cypriano adds that the central William Cox. bank has demonstrated fast, responsible “Bradesco is probably the most action in hiking rates 150 basis points sustainable bank,” says Cox. “Itaú is going between June and September to stifle to slip next year – they are just too slow.” inflationary pressures. Cox adds that Bradesco has made The CEO goes on to stress that Bradesco sustainability a key priority at all levels of has not changed its outlook for portfolio its operations as well as technical growth in 2008, keeping it at a range of sophistication and a culture of quality 24%-29%, though its 2009 forecast is lower control. The banks’ managerial culture, owing to a previously expected drop in GDP centered on fast decision-making and transparency across different business lines to 3.5%-3.7%. The bank’s real funding base and hierarchies has been passed down – 174 billion reais in deposits and local throughout the organization. bond issues – provide ample protection from shrinking liquidity, says Cypriano. Its local funding base rose 45% in the 12Withstanding Pressure months to June. Bradesco’s CEO, like most of the bank’s As of early October, the main senior executives, is a lifetime employee. At 65, he is close to wrapping up his tenure at operational impact of the crisis on Bradesco and competitors was a reduced ability to the helm of a bank he has worked at since renew dollar-denominated lines used to 1973. Having experienced repeated crises in Brazil – formerly a marginal economy with little to keep it from catching a cold every time developed markets sneezed – Cypriano says he is confident in Brazil’s vitality and ability to ward off infection. “Brazil will get a few scratches here and there, but it will be nothing compared to what would have happened if this crisis took place 15 years ago,” he says in a late September interview. Analysts agree Brazil is better fortified than it ever has been to face a slowdown, but they worry that a combination of lower world growth, weaker commodities and continued market turmoil could spill over, possibly causing a hard landing. To this, Cypriano responds almost passionately. “There’s isn’t the smallest chance this crisis will affect Brazil,” exclaimed the executive just days before Brazil bore the fund exporters, says Cypriano. He notes that refinancing for these lines has occurred at a reduced pace, with many being refreshed at just 60%-75% of previous levels. Like most other corporates, however, stock prices for Brazilian banks have been severely hit, increasing their vulnerability. Rising to the Challenge Cypriano’s conviction is encouraging, though potentially unsettling for more skeptical and seasoned market watchers, especially when global financial markets are under such intense pressure. This unflinching optimism may come from the fact that Bradesco has an array of solid business lines and a proven track record in responding to shifting markets. “Even as they’ve been growing, they continue making adjustments,” says Shaw. “When there was a spike in defaults in 2006, they tightened up their approval process and the figures showed improvements,” he notes, Banking calling Bradesco an active System manager of credit portfolios. Faced with higher funding 1,409 costs in external markets, 2,657 Brazil’s top banks are trimming 735 dollar-denominated credit 10,314 lines, raising the question of 3,695 how they will continue to grow 18,810 loan portfolios if the mess abroad continues. In today’s brave new world, a bank’s ability to manage pressures on credit and portfolio expansion set it apart. Time will tell if Bradesco emerges from this ever-worsening rout unscathed. For now, its investors can take solace in the fact that it is one of the best run financial institutions in the world operating in an economy that still has solid fundamentals. And Bradesco’s platform has delivered robust results quarter on quarter without fail. A dark cloud hovers over LatAm banks. Borrowing costs are surging, risk is being pared back, and the focus for Brazil, whose banks have so far managed to remain functional and healthy, turns to credit growth and portfolio quality. The benefits of putting a gradual and sustainable franchise ahead of short term and unreliable windfalls are set to become painfully clear. LF 22 LATINFINANCE November 2008

Latin Finance - November 2008

Table of Contents for the Digital Edition of Latin Finance - November 2008