Girish Gupta



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Banks Are Brazil's Big Winners for 2010
Feb. 25, 2011

Published by Minyanville

Brazil’s banks were 2010’s big winners, some seeing net income rocket more than 20% from the previous year. Banco do Brasil -- Latin America’s biggest bank in terms of assets and owned by the government -- brought in a record $7 billion last year, while seeing its credit portfolio grow 20.8%.

The private sector followed suit with Bradesco (BBD) reporting net income of $6 billion, up more than 25% from the previous year. The biggest player in the private field, Banco Itau (ITUB), is expected to follow Banco do Brasil’s lead. The company expects to expand its credit portfolios by up to 20% in 2011.

The bank’s president, Roberto Setubal, said on Tuesday that he expects GDP to increase 4.5% in 2011. "I don't foresee any risk of a credit bubble in Brazil. The expansion of lending volume is under control,” he said, allaying fears that the bubble may soon burst.

The growth in lending appears to be due to the huge increase in credit given to all sectors of society. The Financial Times illustrates this nicely with Silvana, a maid from one of São Paulo’s most dangerous favelas: “My boyfriend said he can get me lipo if he pays [the surgeon] in 10 installments,” she said. “I buy almost everything on credit now: clothes, sandals, school stuff for my daughter.”

News from Libya has turned investors’ eyes to oil, already noting its increasing prices. Wednesday saw a barrel of crude top $100. This will be welcome news for Petrobras, the state-owned oil company, which plans to invest $224 billion between 2010 and 2014.

However, analysts are not so positive about the news for the country as a whole: “This situation creates a lot of worries for Brazil because a fall in prices of other commodities would have a direct impact on our exports,” said José Augusto de Castro, head of Brazil’s exporters’ association. “Our surplus could turn into a deficit.”

The current account deficit continues to deteriorate with swiftly rising imports. The deficit widened to 2.35% of GDP at the end of January, up 2.28% from the previous month. This tallies with a $5.41 billion deficit for January. The 12-month deficit reached $49.1 billion, up from $47.5 billion in December.

The surge in oil prices buoyed up shares in Petrobras 3.38% to $17.19. That, coupled with a 1.97% rise in mining company Vale (VALE), contributed to the 0.71% jump in the IBOVESPA that day.

All was not positive, however. Notably, steelmaker Usiminas lost 5.18% after it reported a 38% fall in fourth-quarter profits compared to 2009. Analysts blame competition and rising costs. The company recently struck a joint venture with MMX Mineracao e Metalicos (MMXMY.PK), another mining company, which lost 2.21%.

Airline GOL (GOL) announced that its profits were 66.8% down in its fourth quarter compared to the same period in 2009. This pushed shares in the company down 4.78%.

There were equally large rises though, with the country’s leading cellular operator, Vivo (VIV), announcing that its fourth-quarter net profits rose 325% from 2009. The huge success, it says, is due to heavy investment of $1.5 billion.

Vale is set to invest another $20 billion in Africa over the next five years, primarily in Mozambique, Zambia, Guinea and Liberia. The $2.5 billion spent on current projects is mainly in exploration.

A number of Brazilian companies are looking to Africa. Part of Petrobras’s investment plan includes $3 billion into the continent. Experts believe huge reserves of oil may exist in very deep water off the coast, as was discovered off Brazil’s own coast in 2009.

In Other News

Corruption: In political circles, ex-President Luiz Inacio Lula da Silva is being investigated by federal prosecutors for alleged misuse of public funds. The popular former president is reported to have sent out 10.6 million letters -- at a cost of $3.5 million -- to elderly Brazilians promising low-interest loans in 2004. The bank that would have benefited is thought to be involved in a separate corruption scandal.

Internet Sharing: Brazil’s Anatel came under fire this week as it fined an Internet user $1,800 for sharing his wireless connection with three neighbors. The National Telecommunications Agency claimed that the man was acting as an ISP. The news has angered consumers who claim that the company has bigger fish to fry, such as pricing, access and competition issues.

Sport: Brazilians are to have three major sporting tournaments three years in a row with the World Cup in 2014, the Copa America in 2015 and, to top it off, the Olympics in 2016. The announcement of the Copa America came on Wednesday. Analysts had predicated the country would not win the tournament as officials would be concerned about the infrastructure issues involved in hosting so many major events in just three years.


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© Girish Gupta