Banco BMG

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					          BCP Securities, LLC                                                            January 19, 2011
          289 Greenwich Ave.                                  James Harper, Director of Corporate Research
          Greenwich, CT 06830                                  Jansen Moura, Brazilian Corporate Research

                                           Banco BMG:
                                           Quarterly Update
Executive Summary
   •   BMG has a conservative credit policy marked by a healthy paycheck-deductible loan portfolio
       (PDL) and significantly low delinquency rates – loan loss provision represented just 2.1% of the
       total credit portfolio in Q3’10 vs. peer average of approximately 6%. Credit risk is mitigated by the
       fact that public service employees in Brazil are generally employed for life, making the credit risk
       essentially government risk.

   •   Brazilian banks have availed themselves of strong economic activity and growing household
       expenditures in 2010. In Q3’10, credit activity grew by 5.6% q/q, reaching a 14.7% year-to-date
       growth. Meanwhile, PDL grew 6.7% q/q, marginally decelerating from previous quarters and
       topping 22.1% YTD growth.

   •   In Q3’10, BMG reported a US$ 4.5 bn loan portfolio, up 4.6% q/q, a US$ 8.9 bn balance of credit
       assignments, up 12.6% q/q, and US$667million in liquid assets. Despite the Panamericano collapse,
       BMG continues to assign credits regularly. The bank’s credit portfolio is a liquidity cushion, as it
       remains ready to be assigned and monetized.

   •    Despite stronger competition, BMG has maintained its leadership position in the payroll deductible
       loan (PDL) segment, with an 18.4% market share as of September 2010. The bank’s competitors
       include smaller niche players, large-cap private retail banks and public institutions.

   •   The bank has a diversified source of funding, being credit assignments the most relevant one. Since
       2004, BMG has signed partnership agreements with several financial institutions, including
       Cetelem, Caixa Economica Federal, Banco Bradesco, Banco do Brasil, Itau e Santander, to sell parts
       of its loan portfolio and share the profit. As of September 30, 2010, total funding reached US$ 12.6
       bn, out of which credits assignments were equivalent to 67%.

   •   Rated ‘Ba2’ Negative / ‘BB-’ Stable / ‘BB-’ Stable (Moody’s / S&P/Fitch).

Financial Highlights

                                               Banco BMG
                                        Financial Highlights in US$ MM
                                                                           Q3'10      Q2'10
               Total Assets                                                6,272      6,033
               Shareholder Equity                                          1,306      1,199
               Total Loan Portfolio*                                      13,385     12,193
               On-Balance Sheet Loans                                      4,481      4,286
               Deposits                                                    2,853      2,698
               Net Income                                                     84        201
               Credit Assignments / Total Portfolio                          67%        65%
               Payroll-Deductible Loans (PDL) / Total Loan Portfolio         89%        89%
               Capitalization (Equity / Total Assets)                      20.8%      19.9%
               BIS Capital Adequacy Ratio                                  15.7%      13.9%
               Loan Loss Provision as % of Total Loans                      2.1%       2.2%
               Gross Margin From Financial Intermediation**                70.2%      69.4%
               ROAE                                                        29.1%      36.1%
               * Includes credit assignments
               ** Includes income from credit assignments

                                                 Page 1 of 8

          Tel: +1 (203) 629- 2181; + 55 (21)2227 4160 ; E-mail:
            BCP Securities, LLC                                                        January 19, 2011
            289 Greenwich Ave.                              James Harper, Director of Corporate Research
            Greenwich, CT 06830                              Jansen Moura, Brazilian Corporate Research

Introduction – Ownership, History and Key Milestones
Banco BMG is a core asset of a diversified group of companies owned by the Guimarães family. The
Guimarães family has been operating in the Brazilian banking sector since 1930 when it established Banco
de Crédito Predial (later renamed Banco de Minas Gerais). In addition to Banco BMG, the Guimarães family
holds investments in the real estate, agricultural, services and food processing sectors, all under the BMG
Group. The bank accounts for approximately 60% of the group’s total equity.

Up until the late ‘90s, vehicle financing was Banco BMG’s primary business, accounting for approximately
78% of its total loan portfolio in 1996. However, in 1998 the bank decided to shift its focus in light of the
following occurrences: 1) a decline in margins as a result of increased competition; 2) the financial crises in
Russia and Asia, and; 3) the devaluation of the Brazilian real in 1998 and 1999. At that point, management
moved away from commercial lending and developed a new, lower-risk strategy of lending to public service
employees via the payroll-deductible mechanism.

In April 2008, Banco BMG’s shareholders approved a capital increase of R$600 million (US$340 million)
through the issuance of common shares. The increase was funded by Banco UBS Pactual through a
syndicated loan facility.

In November 2009 Banco BMG raised US$ 300 million in 10-year tier 2 subordinated notes. The issue pays
a 9.95% coupon. This operation had already been approved by the Central Bank and incorporated into the
capital base in February 2010. Less than a year later, in August 2010, BMG raised an additional US$ 250
million in 10-year in tier 2 subordinated notes. Proceeds were mostly used to fund BMG’s credit expansion
and enhance the bank’s capitalizations.

Services, Products, Markets and Strategy
Banco BMG is a privately-owned full-service retail bank with a 75-year history in Belo Horizonte. The
bank’s core activity is payroll-deductible lending (also known as consigned credit, or ‘crédito consignado’),
although the bank also provides consumer loans, commercial loans, vehicle financing and leasing. Banco
BMG entered the payroll-deductible lending segment in 1999 and has since achieved a leading market
position. According to the Brazilian Central Bank, BMG’s market share in public payroll-deductible loan
was 18.4%in September 2010, up from 15.6% in February 2010. Not surprisingly, most of the bank’s loan
portfolio consists of medium-term loans to employees of municipal, state and federal government agencies,
as well as loans to social security beneficiaries. Under federal statute, the bank can deduct loan payments
owed by borrowers directly from their monthly salary / pension. Because public service employees in Brazil
are employed for life by a government agency, BMG has had very low loan losses on these types of loans.

BMG has benefited during the last decade from great expansion in the Brazilian payroll-deductible lending
sector. Nevertheless, PDL growth rates in Brazil started to slow in 2008 due to: 1) increasing competition
and; 2) declining margins not only as result of aggressive competition, but also as a result of decreasing
interest rates in Brazil, the establishment of ceilings for interest rates charged to INSS retirees and higher
costs as a result of increasing commissions paid to payroll-deductible loan originators (payroll-deductible
loan originators are not bank employees, but rather work on a commission basis). Lehman’s collapse, in
September 2008, curbed these two trends temporarily, as several competitors exited the PDL segment and
shifted their focus in 2009. As of today, however, competition remains a challenge and new entrants,
including large-cap banks, continue to arise attracted by the asset quality and liquidity.

In addition to paycheck-deductible loans, Banco BMG has launched new products and initiatives such as the
BMG Credit Card, expanding the opportunities for paycheck-deductible loans. The BMG credit card is
issued in association with MasterCard and has over 570,000 active accounts up to this date. It is an untapped

                                                 Page 2 of 8

            Tel: +1 (203) 629- 2181; + 55 (21)2227 4160 ; E-mail:
            BCP Securities, LLC                                                            January 19, 2011
            289 Greenwich Ave.                                  James Harper, Director of Corporate Research
            Greenwich, CT 06830                                  Jansen Moura, Brazilian Corporate Research

market with strong growth potential and low risk exposure since payments are deducted directly from

Due to high levels of non-performing loans as a percentage of total loans in the auto loan financing and in
private PDL segments, Banco BMG has been focusing on public PDL, a segment in which they have great
expertise. As of September 30 2010, Banco BMG’s total credit portfolio is 89% exposed to government
credit risk, which has a significantly lower NPL ratio than private PDL and vehicle financing.

Q3’10 - Profitability and Operating Results
In Q3’10, BMG’s financial operations income totaled US$ 509 million and gross profit from financial
intermediation topped US$ 370 million, down, respectively, 9% and 5% q-o-q. Net income totaled US$ 84
million in Q3’10 and US$ 280 million in the nine-month period ended in September 30, 2010. Results
reflected a slightly more competitive environment - BMG reported 29.1% ROAE, down from 44.6% in
Q2’10, and 38.2% NIM, down from 41.3% in the previous quarter. As displayed in the chart below, in the
nine-month period ended in September 30, 2010, ROAE reached 32%, down from 36.1% during the first
semester. We don’t view this main deceleration as a major source of concern. Indeed, BMG continues to
register one of the strongest margins among its peers and, thus, can confront higher funding costs better than
its peers.
                                             BMG - ROAE (%) - YTD Figures
                      30%                                               31.6%               32.0%
                                     18.7%                     26.1%
                      20%                           20.6%

                             1Q09    2Q09       3Q09     4Q09        1Q10      2Q10     3Q10

                                                    BMG - NIM (%)
                      50%                            46.0%                      41.3%
                      40%            34.8%
                      30%                                    36.3%                          38.2%
                             1Q09     2Q09       3Q09    4Q09        1Q10      2Q10     3Q10

Credit assignment is within the nature of BMG’s core business, as it provides adequate, long-term funding
and bolsters asset growth. Moreover, a robust investor demand for low credit risk assets enables BMG to
securitize and assign considerable amounts of assets recurrently. Throughout the nine-month period ended in
September 30, 2010, the bank assigned US$ 6.0 bn in credits, out of which US$ 5.6 bn had partial recourse
obligation. BMG controls its outstanding credit assignments through custom-made IT systems that enable it
to closely follow the individual performance of the assigned portfolios and loans, making it virtually
impossible to misrepresent results or outstanding balances. Additionally, BMG hired PwC to perform an
independent assurance report designed to validate the adequacy and trustworthiness of its credit assignment
controls,. The most recent report – published on December/2010 – confirmed the bank’s compliance, in all
material respects, with its internal control guide and reporting criteria.

                                                   Page 3 of 8

            Tel: +1 (203) 629- 2181; + 55 (21)2227 4160 ; E-mail:
            BCP Securities, LLC                                                                     January 19, 2011
            289 Greenwich Ave.                                           James Harper, Director of Corporate Research
            Greenwich, CT 06830                                           Jansen Moura, Brazilian Corporate Research

Central Bank’s New Macroprudential Measures
In December 2010, the Brazilian Central Bank announced tighter reserve and capital requirement measures,
specifically designed to curb credit expansion - especially in the consumer lending segment - and help tether
inflation. The main changes include: (a) compulsory deposits requirements for large-cap banks were
increased, directly reducing the system’s liquidity. Among the main differences, we highlight the increase in
additional reserve requirements on demand and time deposits, from 8% to 12%, and the hike in reserve
requirements on time deposits, from 15% to 20%; (b) letras financeiras, a domestic funding source for banks,
are now exempt from any reserve requirements. With this change, the Central Bank hopes to stimulate the
issuance of long-term letras financeiras vis-à-vis time deposits; (c) the risk weighting factor of long-term
personal loans was increased from 100% to 150%. This change will only affect personal loans with
maturities above 24 months, pay-check deductible loans longer than 36 months and specific vehicle financing
facilities. Moreover, this new risk factor will be applied solely to new loans and, thus, has no immediate
impact in bank current capital structures. But it should push credit concession downwards; (d) Beginning
January 2012, FGC guaranteed deposits, also known as DPGE, will be gradually cut at a 20% annual rate
until 2016, when it will be finally zeroed-out. Brazilian authorities expect these measures to remove R$ 61 bn
from the economy and, consequently, force local banks to revise their growth projections downwards.
Despite its successful business model, Banco BMG was not immune to these new developments. The
macroprudential measures, however, bring long-term positive developments. Because regulation is now more
conservative, it will both help prevent over-leveraging and support long-term growth, and it will discourage
competition from new entrants or smaller players. Competitors forced to comply with more conservative
capital requirements might shift their production to other niches, benefiting BMG that has a consolidated
market position and adequate capital structure.

Assets and Asset Quality
Banco BMG’s total assets as of September 30, 2010 totaled US$6.3 billion, up 4.0% from US$6.0 billion as
of June 30, 2010. BMG’s assets can be broken down as follows:

                                             Assets Breakdown as of September 30, 2010
                                                      Total Assets - US$ 6.3 bn
                                                  Other Assets, $ 270,         Interbank Accounts
                                                         4%                      and Short-Term
                                                                             Interbank Investments,
                                       Other Rec., $ 697,                          $ 613, 10%
                                Permanent Assets, $                                          Marketable Securities,
                                     39, 1%                                                       $ 457, 7%

                          Credit and Leasing
                          Operations, $ 4,197,

Including credit assignments, the bank’s total loan portfolio as of September 30, 2010 amounted to US$13.4
billion, up from US$12.2 billion as of June 30, 2010, divided as follows: payroll deductible, US$11.9 billion,
vehicle financing and leasing, US$433 million, commercial loans, US$ 1.0 billion and US$ 2.2 million in
other loans to individuals. Overall, paycheck deductible loans represented 89% of BMG’s total loan
portfolio, stable from the previous quarter. Out of the total loan portfolio, 33% of loans were on the balance
sheet, in line with the previous quarter. Despite the growth in credit activities, BMG’s liquid assets balance
remained stable, compared to the previous quarter, totaling US$ 667 million.

                                                               Page 4 of 8

            Tel: +1 (203) 629- 2181; + 55 (21)2227 4160 ; E-mail:
            BCP Securities, LLC                                                                                                          January 19, 2011
            289 Greenwich Ave.                                                                                James Harper, Director of Corporate Research
            Greenwich, CT 06830                                                                                Jansen Moura, Brazilian Corporate Research

                                                                      Total Credit Portfolio as of September 30, 2010
                                                                             Total Loan Portfolio - US$ 13.4 bn

                                                                                       Commercial Loans, $       Personal Credit, $ 2,
                                                                                          1,012, 8%                      0%
                                                        Vehicle Financing and
                                                         Leasing, $ 433, 3%

                                                Private Payroll
                                              Deductible, $ 73, 1%

                                                                                                                                         Social Security Payroll
                                                                                                                                          Deductible, $ 6,449,

                                                     Public Payroll
                                                   Deductible, $ 5,415,

                                                                                   Total Credit Portfolio
                                                        On-Balance Sheet Loans and Off-Balance Sheet Loans - in US$ million

                                                              Off-Balance Sheet Loans
                                                              On-Balance Sheet Loans


                        US$ Millions



                                        4,000                                                          4,195
                                                                     2,815                                                                      4,286           4,482
                                        2,000                                                                         3,761      4,053
                                                       808                                  2,368
                                                                               1,511                   1,838
                                                       892           966
                                                       2004          2005      2006         2007       2008           2009       1Q10           2Q10            3Q10

The bank’s loan loss provision as a percentage of the total loan portfolio (including credit assignments)
totaled 2.1% in Q3’10, after peaking at 3.1% in Q2’09. Average provision is well below the industry average
of 6%. The increase in overall NPLs throughout 2009 has been attributable to the auto loan and private loan
divisions, which are displayed in the second graph below. As a result of the high levels of non-performing
loans as a percentage of the total credit portfolio, Banco BMG is started to reduce its activities in auto and
personal loan, increasing its payroll deductible balance. As a result of this strategy, 2010 financials reflect a
marginal reduction in the NPL Loan / Total Credit Portfolio ratio compared to the previous quarters.
                                                                     Non-Performing Loans / Total Credit Portfolio*

                                  3.5%          3.4%


                                  2.5%                                                                                   2.4%
                                                                                                                                  2.1%        2.1%         2.1%

                                  1.5%                                                              1.4%



                                                2002          2003      2004   2005        2006     2007       2008       2009    1Q10         2Q10         3Q10

                                                                                                                                           *Includes credit assignments

                                                                                         Page 5 of 8

            Tel: +1 (203) 629- 2181; + 55 (21)2227 4160 ; E-mail:
            BCP Securities, LLC                                                                                        January 19, 2011
            289 Greenwich Ave.                                                              James Harper, Director of Corporate Research
            Greenwich, CT 06830                                                              Jansen Moura, Brazilian Corporate Research

                                                       Non Performing Loans by Product (E-H)
                                                            Non Performing as % of Total Credit Portfolio

                        16%                                                                            15.5%








                              Social Security           Government              Private               Vehicles        Commercial

The following graph presents BMG’s credit risk exposure as of September 30, 2010. Essentially, 89% of the
bank’s total credit portfolio is exposed to government credit risk.
                                                                     Credit Risk Exposure

                                                                  Private Companies
                                                Vehicles and Leasing

                                                                                                                 Social Security

                                 Public (State / Federal
                                     / Municipal)

Funding and Liquidity
Since 2004, credit assignments (loans assignments and securitizations) have become particularly important to
Banco BMG’s funding structure. Under such agreements, small and medium-sized banks sell a portion of
their loan portfolio to larger financial institutions in exchange for cash payments. Banco BMG currently has
loan assignment agreements with Cetelem, Banco do Brasil, Caixa Economica Federal, Santander, Bradesco
and Itau.

In the three-month period ended in September 30, 2010, credits amounting to US$2.3 billion (versus US$2.1
billion in 2Q’10) were assigned to financial institutions and receivables securitization funds, out of which
US$ 2.2 billion were assigned with co-obligation (versus US$1.8 billion in 2Q’10). The results of these
assignments were recorded in the line “Income from financial intermediation – credit operations” and
amounted to US$ 293 million in 3Q’10 (versus US$ 292 million in 1Q’10). The contracts for the assigned
credits substantially refer to personal consigned credits.

BMG’s total funding balance as of September 30, 2010 amounted to US$12.6 billion, distributed as follows:
total deposits, US$2.8 billion; term notes, US$497million; credit assignments to financial institutions US$
8.5 billion; subordinated debt, US$ 550 million; credit assignment to receivables fund, US$ 226 million; and
other sources, US$122 million.

                                                                       Page 6 of 8

            Tel: +1 (203) 629- 2181; + 55 (21)2227 4160 ; E-mail:
            BCP Securities, LLC                                                                         January 19, 2011
            289 Greenwich Ave.                                               James Harper, Director of Corporate Research
            Greenwich, CT 06830                                               Jansen Moura, Brazilian Corporate Research

                                   Funding as of September 30, 2010 - in US$ million
                                                 Total Funding - US$ 12.7 billion

                                                              Other Sources, R$ 122, 1%
                                                     FIDCs, R$ 226, 2%
                                                                                          Deposits, R$ 2,768, 22%

                                                                                                  Term Notes, R$ 497, 4%

                                                                                                  Subordinated Debt, R$
                                                                                                        550, 4%

                                  Credit Assignmet, R$
                                      8,483, 67%

Financial Highlights
Income Statement (US$ Millions)
                                                                            Q3'10                       Q2'10              Q3'09
                                                                                                                                    % Change
                                                                         Sept-10                     June-10               Sep-09
Income from Financial Intermediation                                          509                          559               402        27%
Expenses of Financial Intermediation                                         (139)                        (171)              (64)      116%
Gross Profit from Financial Intermediation                                    370                          388               338         9%
Other Operating Income (Expenses)                                            (222)                        (213)             (220)        1%
Operating Income                                                              148                          176               118        25%

Income Before Taxes and Profit Sharing                                         148                         175               118        26%

Net Income Before Minority Interest                                              86                        112                69        25%

Net Income for Period                                                            84                        112                69        22%

                                                          Page 7 of 8

            Tel: +1 (203) 629- 2181; + 55 (21)2227 4160 ; E-mail:
                    BCP Securities, LLC                                                                                       January 19, 2011
                    289 Greenwich Ave.                                                             James Harper, Director of Corporate Research
                    Greenwich, CT 06830                                                             Jansen Moura, Brazilian Corporate Research

       Balance Statement (US$ Millions)
                                                                                             Sep-10                  Jun-10                 Sep-09
         Current Assets
         Cash                                                                                     40                     39                     32
         Short-Term Interbank Investments                                                        538                    617                    538
         Marketable Securities                                                                    70                     92                     57
         Interbank Accounts                                                                       19                     12                      5
         Credit Operations                                                                     1,905                  1,753                  1,406
         Leasing Operations                                                                       39                     42                     47
         Other Short-Term Receivables                                                            355                    298                    309
         Other Short-Term Assets                                                                 187                    173                    189
         Total Current Assets                                                                  3,153                  3,026                  2,584

         Long-Term Assets
         Marketable Securities                                                                   386                    346                    382
         Short-term Interbank Investments                                                         16                    -                        1
         Credit Operations                                                                     2,219                  2,185                  1,777
         Leasing Operations                                                                       34                     41                     56
         Other Long-Term Receivables                                                             342                    325                    305
         Other Assets                                                                             83                     72                     71
         Permanent Assets                                                                         39                     38                     42
         Total Long-Term Assets                                                                3,119                  3,006                  2,633

         Total Assets                                                                          6,272                  6,033                  5,217

         Current Liabilities
         Deposits                                                                              1,419                  1,069                  1,018
         Repurchase Agreements                                                                    11                     55                     46
         Funds from Issues of Securities                                                         223                    222                    385
         Interbank Accounts                                                                       13                     10                      1
         Borrowings and Onlendings                                                                40                     41                     33
         Other Current Liabilities                                                               784                  1,019                    752
         Total Current Liabilities                                                             2,490                  2,416                  2,237

         Long-Term Liabilities
         Deposits                                                                              1,434                  1,629                  1,117
         Funds from Issues of Securities                                                         308                    301                    504
         Borrowings and Onlendings                                                                65                     72                     57
         Other Liabilities                                                                       668                    416                    154
         Total Long-Term Liabilities                                                           2,475                  2,418                  1,833

         Minority Interest                                                                             -                       -                      -

         Shareholders' Equity                                                                  1,306                  1,199                  1,148

         Total Liabilities and Shareholders' Equity                                            6,272                  6,033                  5,217
This document is for information purposes only. Under no circumstances should this document be used or considered as an offer to sell or a solicitation to buy the securities or other
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have long or short positions in the financial instruments of the company mentioned in this document, or may serve in an advisory capacity with respect to such instruments. @2010
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