Brazil banks cut head count, focus on efficiency

Updated 07 December 2012
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Brazil banks cut head count, focus on efficiency

SAO PAULO: President Dilma Rousseff’s government has pulled out all the stops to persuade Brazilian banks to lend more — pushing interest rates to an all-time low, leaning on state-run lenders, and even publicly shaming the industry for its high profits.
Yet banks have generally gone in a different direction, slashing costs as a way to protect their bottom lines from Rousseff’s offensive.
Many private-sector banks are cutting jobs and outsourcing services as profitability falls to multi-year lows. Even some state-run banks have indicated they may follow suit. Credit growth, meanwhile, has remained stagnant.
“The sector is naturally focusing on efficiency as part of a ‘new normal’ — banks in Brazil are changing dramatically,” Marcial Portela lvarez, chief executive of Banco Santander Brasil SA, said at a recent event. “Cost efficiency is at the core of those changes.”
Bank sector austerity has stung Latin America’s largest economy. Activity in the financial sector shrank 1.3 percent in the third quarter as banks adjusted to the changes Rousseff has imposed since April.
Bank struggles were a drag on gross domestic product, which grew just 0.6 percent in the third quarter, less than half the pace analysts had expected. That put Brazil on track for second straight year of below-trend growth.
Government officials describe the problems as a painful but necessary transition after years in which they say banks got far too fat because of the highest interest rates among the world’s top 20 economies. Banks’ return on equity, a gauge of how much a bank earns per dollar of shareholder money invested, surpassed those of other sectors by a large margin in the past decade.
For years, bankers paid little attention to efficiency since borrowers were charged average annual lending rates above 40 percent and government debt yielded fabulous returns.
Banks in Brazil face high overhead largely due to the low average maturity of their loan books, rigid labor costs and high taxes.
As a result, they lagged global peers in cost efficiency. Expenses in Brazil represented 6 percent of assets last year, compared with 3 percent in the US and 1.5 percent in Europe, according to Goldman Sachs Group Inc. estimates.
But recent data suggests the status quo is starting to change.
Itau Unibanco Holding SA and Banco Bradesco SA, Brazil’s largest private sector lenders, have reduced payroll in the past year even as they added branches. So far Itau has been the only lender among Brazil’s top five banks that trimmed sales, administrative and general expenses over the past 12 months.
Bradesco’s opening of 1,000 branch openings in the last six months of 2011 has had a limited impact on expense growth. In fact, expense per branch fell thanks to massive investment in information technology, data by Thomson Reuters showed.
In terms of outsourcing, Bradesco has averted boosting its payroll by hiring contractors to sell insurance and other fee-related services and run the bank’s service call centers.
At the same time, record defaults prompted non-government banks to put the brakes on credit origination this year. They grew their loan books 0.2 percent in both September and October, much less than the average jump of 2 percent at state-run banks over the same period.
In recent days, executives at government-controlled Banco do Brasil SA and Caixa EconÙmica Federal SA have endorsed ways to make operations more efficient. But some investors are taking those statements with a grain of salt, believing state banks are more vulnerable to government pressure to retain staff and aggressively seek market share gains.
Eleven of the 18 analysts covering Itau have a “buy“-like recommendation on the stock on optimism over the bank’s efficiency push. In contrast, the 10 “hold“- and “sell“-like ratings in a sample of 19 ratings for Banco do Brasil were critical of the bank’s lack of cost-cutting prowess.
Banco do Brasil, the nation’s largest lender by assets, may decide not to replace some of as many as 16,000 employees nearing retirement, a senior executive said last month. At the end of September, the Brasilia-based bank employed close to 114,500 people.
Payroll represents the heaviest expense for banks after unions bargained for wage hikes that topped inflation for years, according to Carlos Macedo, a senior analyst with Goldman Sachs Group Inc.
Like Itau has done for years, Banco do Brasil may unveil targets for expense growth and efficiency for the first time next year, Sandro Kohler, senior vice president for risk and compliance, told Reuters. The lower the efficiency ratio, which measures expenses as a share of revenue, the more cost-efficient a bank is.
Mortgage lender Caixa hired advisers to help fine-tune its lending practices, Chief Financial Officer Marcio Percival told Reuters. Caixa will spend 700 million reais ($ 333 million) this year to ease technology gaps that lead to higher expenses.
“There’s a long learning curve ahead of us,” Percival said, adding that even job reductions are being considered. “You have to understand that it is not easy firing people.”
In contrast to Bradesco and Itau, Caixa’s expenses per branch are the highest for Brazil’s top five banks, revenue generation per employee lags behind that of rivals and it has twice as many employees per branch than the combined average of Itau, Banco do Brasil and Bradesco.
With demand for credit likely to sag again in 2013, both private- and public-sector banks will increasingly rely on cost-cutting to meet profit goals, Credit Suisse Group analyst Marcelo Telles recently said.


Asian stocks hit as Trump drops Kim summit but losses tempered

A man walks past a bank electronic board showing the Hong Kong share index at Hong Kong Stock Exchange Friday. (AP Photo/Vincent Yu)
Updated 25 May 2018
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Asian stocks hit as Trump drops Kim summit but losses tempered

  • Traders had already been nervous in recent days after the US president warned he could pull out of the June 12 meeting with the North Korean leader, while also voicing his displeasure at a deal to avert a trade war with China.
  • In a letter released by the White House, Trump told Kim he was canceling the summit because of North Korea’s “anger” and “hostility.”

HONG KONG: Asian markets mostly fell on Friday as Donald Trump shocked the world by pulling out of next month’s historic summit with Kim Jong Un, though analysts said the losses were tempered by hopes the talks can be rekindled.
Traders had already been nervous in recent days after the US president warned he could pull out of the June 12 meeting with the North Korean leader, while also voicing his displeasure at a deal to avert a trade war with China and threaten tariffs on car imports.
The news Thursday took many by surprise — including North and South Korean officials — and fueled concerns about the future of a rapprochement that has had many hoping for peace on the divided peninsula.
In a letter released by the White House, Trump told Kim he was canceling the summit because of North Korea’s “anger” and “hostility.” The message came after a key aide to Kim hit out at comments from Vice President Mike Pence, saying they were “ignorant and stupid” and warning the talks could be canceled.
However, Trump’s letter added that the talks could still go ahead “at a later date.”
For its part, Pyongyang said the decision “unexpected” and “regrettable” but added: “We again state to the US our willingness to sit face-to-face at any time in any form to resolve the problem.”
“It looks like we are back to fire and fury as the modus operandi for the White House again after President Trump (threatened) a new 25 percent car import tariff and canceled the summit with North Korea,” said Greg McKenna, chief market strategist at AxiTrader.
“Not only was the summit canceled but it was back to threatening the DPRK with a military response.”Wall Street ended lower, while Asian trading was muted. Tokyo ended the morning slightly higher, while Hong Kong slipped 0.3 percent and Shanghai was barely moved. Sydney and Singapore each fell 0.1 percent while Seoul was 0.2 percent lower.
Manila and Kuala Lumpur also fell but Wellington, Taipei and Jakarta were in positive territory.
While warning the issue remained fragile, analysts said there was still hope the meeting will go ahead.
“As we’ve seen countless times before, the president tends to walk back some of his more boisterous rhetoric time and time again,” said Stephen Innes, head of Asia-Pacific trading at OANDA.
“While the US and their allies have offered a way to prosperity for North Korea, it was never going to come without some significant concession on the nuclear non-proliferation front.”
And Eli Lee, Bank of Singapore’s head of investment strategy, added: “Given the US’ surprising acceptance of the meeting only in March, the cancelation... may simply be due to the fact that both sides need simply more time for preparation and to find a middle ground in terms of their demands.”
On oil markets, both main contracts extended Thursday’s more than one percent losses after Russia said an agreement with OPEC to cap production — which has provided support to prices in recent years — could be up for revision at a meeting next month .
The comments from Energy Minister Alexander Novak dented a rally in the commodity, which has hit three-and-a-half-year highs on the back of improving demand and supply worries from Venezuela and Iran.

Tokyo — Nikkei 225: UP 0.1 percent at 22,457.20 (break)
Hong Kong — Hang Seng: DOWN 0.3 percent at 30,666.38
Shanghai — Composite: FLAT at 3,154.04
Euro/dollar: DOWN at $1.1705 from $1.1725 at 2100 GMT
Pound/dollar: DOWN at $1.3364 from $1.3385
Dollar/yen: UP at 109.53 from 109.30 yen
Oil — West Texas Intermediate: DOWN nine cents at $70.62
Oil — Brent North Sea: DOWN 12 cents at $78.67
New York — Dow: DOWN 0.3 percent at 24,811.76 (close)
London — FTSE 100: DOWN 0.9 percent at 7,716.74 (close)