In the release of its results for 2011, Banco do Brasil publishes the recurring net income, that is the net income adjusted by one-off items, such as Additional Allowance for Loan Losses, Contingent Liabilities, Reversal of Labor Liabilities...
So far so good. But as they say, the devil is in the details. In this case, it's in the notes to the financial statements: adjustments of actuarial assets/liabilities.
So if we exclude this "earnings" under Other Operating Income, real adjusted net income would be:
| BRL Millions | 2010 | 2011 | Avrg |
| Account Net Income | 11.703 | 12.126 | 11.915 |
| (-) One-Off Items | 1.039 | 375 | 707 |
| Recurring Net Income Published | 10.664 | 11.751 | 11.208 |
| (-) Adjustment of actuarial assets/liabilities | 4.299 | 2.981 | 3.640 |
| Real Recurring Net Income | 6.365 | 8.770 | 7.568 |
(click to enlarge)
- They increase the real discount rate, so money in the future would be worth much more.
- They use a biometric table of 1983! That is, at that time people died earlier, so if you assume this same tendency to the fund, benefits payment is calculated to last less than probably they will!
This two subjective changes in the actuarial parameters make a huge difference over time! I don't know if I'm misunderstanding something here, and I haven't a clue why they're doing that. But I will not consider this "earnings", because it is not related to the bank activities, and probably not a cash.
Or, putting it in other words, I can reasonably argue that, as real rate in Brazil is falling, real rate used in the long term should be 4%. And as people lives more now, biometric table that should be used would be IBGE 2000. In doing so, that surplus could simple vanish in the air and a probably deficit would emerge.
If I do the comparisons with Brasdesco and Itau with this real adjusted net income, that is more than 30% down of the adjusted net income published (and advertised as a record), we can see that Banco do Brasil is really worse than its competitors:
| Bank | P/E | ROE |
| Banco do Brasil (BBAS3) | 9,1 | 15.0% |
| Bradesco (BBDC3) | 8,8 | 21.3% |
| Itau (ITUB3) | 9,9 | 22.3% |
4 comments:
I didn't understand either. Banco do Brasil uses a different criterias for calculating the assets/liabilities of its pension funds. More favorable criterias, of course.
That's why I demand a 100% upside before buying anything.
Did you understand "Conciliação do Plano 1 Valores apurados Previ/Banco" on page 131?
Basel III will also reduce banks ROE.
Not if the Banks are already capitalized above the Basel 3 limits. I think that's the case for most brazilian banks. The most risky is BBAS, wich may sell new stocks or reduce the payout to comply to the new rules.
Disputa política paralisa Banco do Brasil e Previ
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