May 7, 2020 / 3:33 PM / a month ago

UPDATE 2-Banco do Brasil profit falls 20%, planned asset sales on ice

(Adds Banco do Brasil CEO comments)

By Carolina Mandl and Aluisio Alves

SAO PAULO, May 7 (Reuters) - Brazilian state-controlled lender Banco do Brasil SA on Thursday posted a 20% drop in first-quarter profit and the bank announced the suspension of all its planned asset sales due to the coronavirus crisis.

As Banco do Brasil set aside an additional 2 billion reais ($350 million) for potential loan losses, recurring net income, which excludes one-time items, came in at 3.40 billion reais against 4.25 billion reais a year earlier, nearly 25% below a Refinitiv estimate.

Total first-quarter loan-loss provisions jumped 63% year-on-year. As a result, return on equity plunged to 12.5%, down more than five percentage points from the previous quarter.

In a conference call, Chief Executive Officer Rubem Novaes said the bank decided to suspend all its planned asset sales due to "lack of reference for prices" amid the crisis.

That includes the sale of its asset manager BB DTVM, that had interested large asset managers such as BlackRock and Franklin Templeton before the pandemic.

The investment banking joint venture with UBS AG has not been affected and will begin operations in the second half of the year, Novaes added.

Due to the COVID-19 outbreak, Banco do Brasil also decided to scrap its 2020 outlook. In February, the lender estimated that net income this year would rise as much as 20.5%.

By some measures, the results show the first quarter was shaping up pretty well until the crisis started to take hold in March. Fee income was up 4% to 7.1 billion reais, although gains with credit and debit cards had already dropped.

Its loan book in Brazil also went up 4.2% from the previous quarter, mainly driven by disbursements to large companies, which sought credit lines to brace for the pandemic.

Banco do Brasil's 90-day default ratio remained roughly stable at 3.2% in the first quarter.

"Earnings quality was good, with good revenue and costs performance, better than peers asset quality performance," analysts at Credit Suisse said in a note to clients.

Still, shares in Banco do Brasil were down 2.74% in the early afternoon, following a downward trend for listed banks on the Sao Paulo stock exchange.

$1 = 5.7140 reais Reporting by Carolina Mandl; Additional reporting by Paula Laier; Editing by Steve Orlofsky and Chris Reese

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