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Executives

Paulo Faustino da Costa - Market Relations Director

Domingos Figueiredo de Abreu - EVP & IRO

Alexandre Rappaport - Planning Director

Analysts

Jorge Kuri - Morgan Stanley

Daniel Abut - Citigroup

Victor Galliano - HSBC

Saul Martinez - JPMorgan

Rafael Fahas - Banco Safra

Larry Batali - Moore Capital

Banco Bradesco S.A. (BBD) Q1 2010 Earnings Call April 29, 2010 10:00 AM ET

Operator

Good morning ladies and gentlemen. We would like to welcome everyone to Banco Bradesco's First Quarter 2010 Earnings Results Conference Call. This call is being broadcasted simultaneously through the Internet and the website www.bradesco.com.br/ir. In the address you can also find a banner through which the presentation will be available for download. We inform that all participants will only be able to listen to the conference call during the company's presentation. After the presentation, there will be a question-and-answer session. And at that time, further instructions will be given. (Operator Instructions).

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Banco Bradesco's management and on information currently available to the company. Forward-looking statements are not guarantee of performance. They involve risks, uncertainties and assumptions, because they relate to future events and therefore depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Banco Bradesco and can cause results to differ materially from those expressed in such forward-looking statements. Now I will turn the conference over to Paulo Faustino da Costa, Market Relation Director. Mr. Paulo you may proceed.

Paulo Faustino da Costa

Good morning everyone. Welcome to Bradesco’s first quarter 2010 conference call. I would like to announce the participation of Mr. Domingos Figueiredo de Abreu, Executive Vice President and Investor Relation Officer. Mr. Marco Antonio Rossi, CEO of Bradesco Insurance Group. Mr. Samuel Monteiro de Santos Jr., Executive Vice President of Bradesco Insurance Group, Mr. Alexandre Rappaport, Director of Planning, Bradescards, and Mr. Luiz Carlos Angelotti, General Accounts Committee Director. Let me now give the floor to Mr. Arbeu who will continue with the presentation.

Domingos Figueiredo de Abreu

Good morning and welcome to our conference call. Brazil maintained its outstanding performance in the global economy, having proved to be remarkably resilient through the crisis. It has now moved into its own growth track. All sectors of the economy are undergoing expansion, even those that did not benefit directly from the government incentives. It has its roots in the strong job market and income growths, leading to a big upturn in industrial investments which are proving to have one of the highest diffusion rates in the recent history.

A 21.4% increase in capital goods production since the beginning of the recovery in March last year shows just how much Brazilian companies are gearing up for the expansion of demand. Bradesco has a positive outlook of the country’s future and believes strongly in this increase in the economic activity. We have therefore been investing strongly in Brazil, expanding its business and its national presence.

In the first quarter of 2010, it add almost 2000 points of service through its distribution network and invested around 717 million in infrastructure and IT. Also, in the first quarter, Bradesco acquired more than 3 million new clients with an impressive total of 57 million customers. Our aim is to always do more and better with a constant focus on improving client service process and quality.

I will now be going into more detail regarding our numbers, results and financial indicators. I would just like to clarify that in order to ensure a better understanding and analysis of the data in line with our press release and reports on economic and financial analysis. All the numbers and financial indicators in this presentation has been calculated based on adjusted net income. In order words, after adjustment for non-recurring items in their respective periods.

In slides two and three, on the following two slides we outline our results and key financial indicators. Specifically, I would like to point out in slide two, adjusted net income which totaled R$2.147 billion in the first quarter of 2010, approximately 10% more than the R$1.956 billion reported in the same period of the last year, and a 70% increase compared to adjusted net income in the first quarter 2009.

In slide three, assets under management totaled R$740 billion, 15% higher than in March 2009. And the delinquency ratio we recorded a substantial reduction compared to the increase in 2009. We will be dealing with the other items in more detail subsequently.

In slide four, this slide shows that non-recurring items which impact our results in their respective periods. We therefore refer to the red line at the bottom as our adjusted net income, our recurring net income if you prefer. In the first quarter, our results were adversely impacted by the constitutional provisions for that contingency and economic plans totaling R$397 million and R$36 billion respectively.

On the other hand, we were able to realize tax credits from previous periods in the amount of R$242 million. I would also like to draw your attention through our first quarter and annual returns on average equity, both in terms of reported and adjusted net income which stood at around 20% to 22%.

Slide five, I’d like to point out our operational efficiency ratio which closed the first quarter 2010 at 21.2%, a substantial improvement over the first three months of 2009 as a result of increase in our fee income and net interest income. And the quarterly comparison, the upturn was caused by the increase in order of (inaudible) and personnel expenses impacted by high organic growth and partially due to incorporation of Banco Ibi.

Slide six, both our assets grew to R$533billion, a 10.5% increase from March 2009. The return on asset stood at 1.7% and return on average equity as we already mentioned was 22.2% in the period. The Basel ratio closed the first quarter at 16.8%, a 100 basis points lower than in the previous quarter as a result of lower import volume growth and the reduced level of subordinate debt due to the deadline for the usage of this debt to calculate the valuation.

In any event with a ratio at this level, we will be in a very comfortable position to sustain and expect growth in the coming year, even in light of the ongoing regulatory change and of these changes, the removal of surplus allowance for lower losses from the capital base, our Basel ratio should reduce to around 50.7% which still keeps us well positioned for the coming year.

Slide seven. In terms of net income breakdown, this slide shows that 33% of net income came from insurance premiums, pension plans and saving bonds. In bank activities, the loan portfolio increased its share of total net income through 29% versus only 18% of the first quarter of 2009 especially due to reduced provision units given the reduction in delinquency as we shall see later on. A relative reduction in the share of the securities line was due to the decline in treasury gains in comparison to the outstanding treasury result in the first three months of the last year.

Slide number eight, realized gain totaled, about R$11 billion in the first quarter 2010, close to R$8000million more than in the last quarter of 2009, mainly due to the appreciation of our investment especially as stake in Cielo and of the security in our insurance and pension plans portfolio.

Without question, these figures underline the strength of our balance sheet. We should also emphasize that these numbers do not include the potential goodwill from our own properties of almost R$2 billion, nor the tax spread of R$736 million for the social contribution rates included.

Slide number nine. On this slide, I would like to highlight the excellent performance of the interest components of our net interest income which climbed by 50.3% of the first quarter of 2009, usually as a result of higher average volumes and improved margins, partially due to the incorporation of Banco Ibi.

Slide 10, net interest margin remained flat over the previous three months at 7.8% after having recorded substantial growth in previous quarters. This performance was fueled by growth of our loans and insurance operations whose sustainability strategy was to focus on the individual and SME segments.

However, we believe a normalized scenario will show a gradual decline in the mid to long terms, similar to historical rates until June 2008 due to increase in lower margin operations and their subsequent relative share gain.

Slide 11 gives a breakdown of net interest income. Then in comparison, they highlighted the performance of net interest income from loan which increased by 23%. As I mentioned in the previous slides, this was mainly due to the growth of the loan portfolio and the change in its mix.

The reduction in funding results reflects the period of decline interest rates, partially offset by the increase in funding volume. A 29% increase in the insurance line was specifically due to the higher returns on asset indexed to IPCA, the customer pricing index and multi-marketed funds.

Slide 12, the highlight on this slide is the 29% increase in the net margin for lower operations. The blue part of the graph, once again the best results of this year is driven by the reduction in provisioning expense from loan operations, at the red part of graph and expansion of the gross margin.

In comparison with the same period of last year, the net margin increase by around 90% reinforcing our belief that the worse is over in terms of provisioning mix.

Slide 13. Bradesco’s total loan portfolio reached R$235 billion, increasing 3.1% in the quarter and 10% in the last 12 months. Growth was particularly driven by loans to individuals which moved up by 4.8%, led by variable deductible loans. And to SMEs which increased by 4.2%. It’s worth noting that the new borrowers, in other words, people or companies who had no loans with Bradesco market in 2009 accounted for around this R$32 billion of the total loan portfolio demonstrating that we had grown with quality while diversifying this.

Slide 14, confirms the trend started in the previous quarter, the delinquency ratio for loans overdue by more than 90 days continued to fall declining to 4.4%. It is also important to note that these reductions and delinquency was observed in all segments. We believe these ratios will continue to improve reaching 4% by the end of the year.

Slide 15, this slide shows the behavior of early stages of delinquencies of between 61 and 90 days. As in the previous slides, we can see a continuous reduction, although I would particularly draw your attention to individual delinquency which is very close to its pre-crisis levels. The property ratio also recorded continuous declines since August 2009 and giving the promising economical outlook for 2010, we believe it will also return to its pre-crisis levels shortly.

Slide 16, this slide, which we always present, shows we are continuing to maintain comfortable credit provisioning levels, with the surplus of R$3 billion in relation to the amount required by the Central Bank or R$5.5 billion in relation to expected gross losses in a year or even R$7.5 billion in relation to expected losses, net of recoveries also for a year.

Slide 17, this slide shows the coverage ratio of the allowance for loan and losses, loans overdue by 90 and 60 days. As you can see, this quarter we recorded our highest ever coverage ratio under both criteria. As a result, we believe that there is no need to constitute additional provisions in the future. Furthermore, we believe we will not have to use the additional provisions we already set aside since as mentioned before we expect delinquency to continue to fall.

Slide 18, the income remained stable over the previous three months which is considered to be an excellent performance given the difficult seasonality of the first quarter. In comparison with the first quarter of 2009, the income increased by close to 15% chiefly driven by charge fees with 16.5% including the including the incorporation of Banco Ibi.

Asset management was 60.3% and underwriting thanks to increased business volume. Excluding the incorporation of Banco Ibi, the income moved up 10.6% when compared to the first quarter of 2009. Slide 19, operating expenses fell by 1.2% in the quarter due to the reduction in administrative expenses as you can see in detail in the next slide. The upturn in personnel expenses was essentially due to the non-structural portion given the higher provisions for profit sharing.

Slide 20. The 3.6 quarterly decline and the administrative expenses was strictly due to reduced expenses on advertising and other variable expenses, given the seasonality of the previous quarter. The 12-month upturn is compatible with a growth of the service network with a consequent increase in business volumes and the incorporation of Banco Ibi. Excluding the incorporation of Banco Ibi, those expenses would have grown around 16%.

Slide 21, this slide shows our income from insurance, premiums, pension plans and saving bonds which fell by 10% in the quarter, especially due to reduced income from life insurance and pension plans given the high level of income from these products in the final part of the year, for seasonal reasons. In relation to the same periods of last year, I point out that there was a significant increase of 30% involving practically all products.

First quarter net income moved up by 17%, reaching R$703 million chiefly due to reduced strength and improved financial results.

Slide 22 present some of the main figures from our insurance activities. Beginning with the combined ratio which remained flat over the previous quarter mainly due to reduced strength despite the heavy rainfall in San Paulo State, partially offset by reduced revenue and increase in personal expense due to the collective gains agreement.

All financial asset as well as technical reserve guarantees at R$87 billion. Technical provisions stood at R$77 billion of which R$67 billion were related to licensed pension profits. And I would like to point out that we worked with actuarial assumptions that give us a very high comfort level in relation to our future commitment with the beneficiaries of our insurance and pension plans. We use as our actuarial table, the [80-2000] model with an improvement of 1.5 per year.

In addition, in terms of expected interest rates for our assets. In 2009 we have adjusted our provisions levels by adopting a real rate of 4% per year versus 4.3% at the end of 2008 which requires just remembering more than R$500 million in new provisions in the last few years.

Slide 23, provides you with an overview of the projections of our economic department for 2010 and 2011 regarding GDP, interest rates, inflation and the US dollar exchange rates. Given that the favorable scenario is likely to continue, we expect 2010 to beat the growth of 6.4%. At this rate it will be well above the average growth for the last 30 years, and one of the highest rates in the world. As economy recovery becomes stronger, inflationary pressures increase, demanding a response from monetary policy. We therefore believe that the selective base rates will increase in 2010 albeit with no adverse impact on economic growth.

Slide 24, as already disclosed we are maintaining our guidance for 2010 with loan portfolio growth between 21% and 25% driven by property loans and certain specific lines in the individual segment, especially payroll deductible loans. We expect to originate around R$6.5 billion in new market, around 50% more than in 2009.

We expect to increase the net interest income, incorporates our expectations often an upturn in the selective base rates and a reduction in gross margins, and we are confident of meeting our fee income guidance mainly thanks to the expansion of the client base. As regards to expecting increasing operating expenses, it's important to note that this includes the expansion of all of our distribution channels especially the operating of around 270 new branches. Given the performance of the first quarter, we are reviewing our projection for insurance premiums from 10% to 12%, to 16% to 20%.

Finally, I would like to finish this presentation by saying that our first quarter results reflect the maintenance of economic growth whose positive impact on our operations has proved to be both solid and consistent. It's worth emphasizing that the healthy economic scenario in addition to enabling substantial asset growth, we will help mitigate the spread with a favorable impact on delinquencies whose improvement is already evidenced in our balance sheet.

Other factors favoring loans in 2010, include a gradual recovery of global activities, prospects of national infrastructure investments and increased employments and family income.

Given all this and in order to meet the health expectations generated by the pace of business growth, we will continue to expand our sales network and invest in technology always searching for the maintenance of service excellence and with the continuing focus on improvement of our operational efficiency. Thank you all for your attention and we are now available to answer any questions you may have.

Question-and-Answer Session

Operator

Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Mr. Jorge Kuri with Morgan Stanley.

Jorge Kuri - Morgan Stanley

I have two questions. The first one is, if the market share targets that you have set for your new credit card venture with Banco do Brasil, Elo are met, meaning 15% market share in five years, what would be the contribution of that business to your bottom line? That's my first question. And the second question is the provisioning effort this quarter had a very sharp decline versus what we've seen over the last two or three quarters.

Provisions on an annualized basis were 4.4% of average loans, even that was down sharply from around 6% in the previous two, three quarters. And if I look back at the last kind of like two, three years, this number is actually the lowest you've made over the last almost three years. It's already well below pre-crisis levels. Is this number sustainable? Were provisions probably a little bit lower than anticipated? What do you think provisions should be for the full year relative to loans? Thank you.

Domingos Figueiredo de Abreu

Its Abreu speaking. I will start from the second question and then I will pass to Alexandre to answer the first one all right? I agree with you this quarter the provision there was the best. If you look at the recently history that we have. But understand that we are optimistic about the year because we are doing a very good job in terms of recoveries, part of the provision that we did last year. I don’t think it’s possible to keep the same level but something is very, very lower than we have been presented at best.

But definitely we don’t have specific guidance to say that should be. And the way that we look for this, we consider this quarter was 38% of the gross margins. If you look at the history, it is very close to 40 to 44. I think towards this year but something close to 44% should be good. For the coming years, that’s going to happen. We have a good space to recover credits that were out last year and then have a different scenario. All right? I will turn it to Alexandre to talk about this remit we took out in Brazil

Alexandre Rappaport

Hi Jorge, this is Alexandre. We are not at this time providing guidance on the yearly financials of Elo Holding. We are just beginning to complete the status to prepare the launch of this company. Just want to clarify the 15% market share we talk about is not a 100% in addition to what Bradesco and Banco do Brazil have today in the market. 15% is in relation to overall market billings.

So some of it comes out of the market share that the banks already have and the financial guidance that we provided is that we expect R$1 billion in synergies over the next five years. That’s the only guidance that we are providing at this time.

Jorge Kuri - Morgan Stanley

Can you tell us what is the level of expenses that you expect to have in order to set up this venture over the next 12 or 24 months? I guess we're probably going to see further expenses and then the profits?

Alexandre Rappaport

The expenses that we have will be related to setting up a new company but a lot of the expenses of the new venture that already exist in one way or another because you are talking about private label deals already have call centers, they have processing fees and they have many other expenses that’s going there. So the incremental expenses are not substantial relative to the size of the businesses that are moving to the venture.

Operator

Our next question comes from Daniel Abut with Citi.

Daniel Abut - Citigroup

Domingos, three questions on your guidance for long growth which you are reiterating in the slide number 24. You are still seeing, according to this slide that the loan portfolio will grow 21% to 25% with the commercial side, both corporate and SMEs, even corporate, growing above the overall level and individuals below. Why is that given the strength that we saw in the individual portfolio in the first quarter. Why is it that what we saw in the first quarter, you don't think it's sustainable as the economy picks up even more strength throughout the rest of this year?

Domingos Figueiredo de Abreu

Daniel, just to clarify, it's important to say that when we gave you guidance at the beginning of this year, we talk about that the large corporate that maybe we want not to be able to see this growth in the credit portfolio. Once we are in a moment where the companies are using more a capital market instrument like debentures and others.

We have being observing a very good growth in this portion. We are trying to step out of this business just to understand, to show in the way that we are feeling that if this is growing a lot, but unfortunately we don’t have specific numbers to say that what comes from the required portfolio, what was the normal growth in this portfolio but we are seeing that it is growing a lot in terms of the last quarters. We are really confident when we see that growth in terms of SME, we are observing a growth. We know that the first quarter normally is not the best in terms of growth in credit in Brazil, but if you consider that, what we are posting in the last two quarter, we are very, very confident about the rest of the growth.

Daniel Abut - Citigroup

And in the individuals, in particular, why do you think that the pace that we saw in the first quarter where they led the overall loan growth will not be sustained?

Domingos Figueiredo de Abreu

Look if you think for example about, it's very normal in terms of cards within the line of the credit cards. Normally when we compare with the last quarter of the year, it's very normal to reduce during this period. Of course once the time is going we observe a growth in this line for example. Just one an example where you see very clearly.

Daniel Abut - Citigroup

Yes but, my point obviously is that we saw close to 5% quarter-on-quarter growth in individuals overall this quarter, the fastest growing segment of your portfolio. Why do you guide for the year as a whole, it will be the lowest growing segment of the portfolio?

Domingos Figueiredo de Abreu

Look, we have specific points like we brought some portfolios, for example that we consider individuals, but to look, for example, in terms. When we buy a portfolio, when post in terms of account numbers, we post these as a individual, for example. We have it is explained why it grows a little bit higher during this period, one point, one part. We have some specific movement about out loan where it has specific movement, very big growth in terms of entire during this month. Even in the less month of March, it was the record of sales in Brazil, so that could explain you this.

Daniel Abut - Citigroup

Okay. That's helpful. Do you have any sense of what the loan growth would have been in individuals if you exclude the portfolio purchases?

Domingos Figueiredo de Abreu

Consider R$1.6 billion in the quarter portfolio.

Daniel Abut - Citigroup

You purchased R$1.6 billion in individual loans during the quarter?

Domingos Figueiredo de Abreu

You have this figure in your slides. (inaudible). It’s like 35, you see the losses. You see that we acquired a portfolio, right?

Operator

Our next question comes from (inaudible).

Unidentified Analyst

My first question is related to the insurance business, you’ve raised the guidance for insurance premium growth to 16% to 20% from 10% to 12%. Can you comment on in which segments you see the growth and in addition we saw Bradesco grow its policy holders in the insurance segment by almost $3 million in the first three months of the year, that’s over 20% year-on-year growth, can you comment on where you saw that growth on what kind of products?

Domingos Figueiredo de Abreu

Okay. Similarly speaking although I would like to clarify your question that in terms of the change overall our guidance for premiums, it relates to the surprise for everybody in Brazil in the first quarter which are very hugely increasing in terms of the premiums all over the markets mainly in our portfolio basically in two kinds of products. The first one was dental which will be hugely increased.

Second, it was pension which combined pension and life and VGBL and the third was in [older] which represented a very huge increase jointly with your home. Home insurances which increases, so a very, very strong increase in the first quarter, which plan, the project was to increase this kind of permanent increase in the rest of the year.

This is the reason why we change our guidance for premiums in this year. The same of the insurance federation which all companies in our federation, they have the same projection for the rest of the year. About the 3 millions of policies is really related to the polices for very few tickets like R$88 or R$90 is related to the progress for a Class C, the classwise movement now from the class D to class C. As you know everybody knows in Brazil about 30 million people moving from the class B to class C really is a very a strong challenge for us to present a product, to offer products for these kind of people. It's very successful for us when the first moment we had to offer for all these kind of people. That's the reason why we have really changed our guidance for previously in the rest of this year.

Unidentified Analyst

Just a follow-up there quickly, these policy holders, these are individuals, these aren’t the number of policies. This is distinct individuals, so if a policy holder has two separate policies that would show up only as one in this data correct?

Domingos Figueiredo de Abreu

Really the individual, the policy is issued to one. It's not a group policy over here.

Unidentified Analyst

And the second question is related to your credit card business, you are now showing in your release that Bradesco has 135.6 million credit and debit cards and that's almost a 60% increase year-on-year, can you tell us what portion is credit and what portion is debit? And also give us a sense of what you anticipate in this business particularly given some of the press reports and that will see more regulation on card fees and what your expectation in that space is?

Alexandre Rappaport

The first question, we have 54.6 million debit cards and 81 million credit cards. The [auxiliaries], it’s about 37 million and a lot of the growth or a part of the growth in credit cards came from the acquisition of Banco Ibi. So it's not all organic growth and going to your second question the market will for sure change after July 1 at the end the exclusivity agreements between Cielo and Visanet and there are a number of reports on what the impact should be and as far as we know this should be for now the big impact that we have. It is true that ABECS, the card entity association is doing discussions with the Central Bank on whether or not there will be other measures, but we still don't have a clear indication if that's going to happen or not.

Unidentified Analyst

But is that related to some of the articles that we've been seeing or some of the comments about regulating let's say card fees, annual fees, inactivity fees, are you expecting those fees to be reduced going forward that are charging the card by the bank, not at the acquiring subsidiaries?

Alexandre Rappaport

Those are still preliminary discussions. None of them are yet to become a law and the card and entity association is really in discussions with the Central Bank about what the impacts could be out of any regulation that's going to prevent this market from continuing to grow and to provide the benefits to the country that we have seen. So for now the big impact that we should expect in the market is the end of exclusivity. Our other articles that we've seen are still preliminary discussions and it's too early to say if they were going to have any impact or not.

Operator

Our next question comes from Mr. Victor Galliano with HSBC.

Victor Galliano - HSBC

Firstly on the sort of guidance you were giving us in terms of interests, interest margin. And I just wanted to confirm what Domingos said earlier, which you're saying that he was expecting a gradual decline on the margin, looking ahead. Is this because of the interest rate environment? Are you guiding in this way because rates are rising, because of the changing mix? Or is it just increasing competition that you're seeing across the board in terms of credit?

And my other question is about your level of comfort with the capital adequacy ratio when you adjust for the two impacts that you spoke about, which is the end of excess credit provisions being included in tier one and the takeout of that subordinated bond as well. That brings you down below 16%. What would your tier one ratio be after those adjustments? Thank you.

Domingos Figueiredo de Abreu

When I said that the net interest income is 14% to 18%, we consider whatever I said in the speech that we are considering everything. When I gave this guidance, we already have in mind that we could have increasing interest rate in Brazil that was to happen yesterday. And we will have to consider that we understood at the time and we understand yes that the spread stands to reduce during this time. We both know that what happened the last year that we are having a jump in the spreads in the worst of the crisis, when there is more risk in the market.

And now at the moment to go back to then the previous level. We both expect to reduce the spreads in the level that was before the crisis. But it is very fair to expect this stance to reduce in the level that was before. That’s why we mentioned that.

I was just saying that we are just to the normal question is what's going to happen with the increased interest rate to just to make sure that it is understandable for everyone. But we have to consider that in our projections. So about the base level that the -- the reduction would be when they will consider for it, the big reduction, we would not be able to consider the excess provision. To be honest, now, we are not able to use that. The reduction, we said that it could be reduced something around 15% to 0.9% should be in tier one.

It should be going through around 13.4%. That's it.

Victor Galliano - HSBC

You’re comfortable, you are happy with that?

Domingos Figueiredo de Abreu

We are not happy but we are comfortable.

Victor Galliano - HSBC

You are comfortable with that in terms of the growth rate, the growth portfolio you are seeing.

Domingos Figueiredo de Abreu

Of course that we understand that we have space to grow portfolio, but we don't grow just one shot. We arrive at this space to -- their own generation of result would be enough to increase our capital going forward, it is one thing. But we understand that we will have space to grow in terms of subordinated debt. We are just using for example less than a half of the capacity we have. Of course, we just don't want to test the marketing approach that we consider that’s not necessary. But once you have a opportunity to increase subordinated debt, of course, we would be awake in order to do so.

Operator

Our next call comes from Saul Martinez from JPMorgan.

Saul Martinez - JPMorgan

I have a couple of questions as well. First one here, can you talk a little bit about your expense revolution? You mentioned that the efficiency ratio did improve a bit year-on-year, but we’re still seeing a fair resizable growth in expenses if you look at it year-on-year and the decline in the first quarter was only 1% although you had some impacts on ED there. Can you talk a little bit about whether you’re comfortable with the expense level that you’re generating, whether you expect to see some efficiency improvements going forward?

Obviously you continue to want to grow, but are you comfortable with your levels of expenses? You think there's room for improvements there? Secondly, in terms of your market share, can you talk a little bit about the competitive situation? You lost market share, loan market share, last year, obviously to the public banks. And I think your loan share is about 12.5% roughly, currently. Can you talk a little bit about your plans to expand your share? Do you think you have room, given the fact that you're one of the few large private banks who's not going through a merger integration process, to expand share? And what do you think your ultimate market share could trend to in the coming years?

Domingos Figueiredo de Abreu

Okay. So, let’s start for the efficiency ratio. We are running something around 41% 41.2% nowadays, so we have a small deterioration this quarter in order to incorporate the Banco Ibi one point, but not towards the necessary, but in fact that the big change here was that when we have considered this on an annualized basis to be considered a 12 month insight, I think this is a big difference is that we are taking out a very, very good quarter that was the first quarter 2009. It remains that we are not considering these efficiency ratio, the provision for credit. If you consider the first quarter 2009 and if you don’t want to have a very good performance in treasury and this time we don’t have the same performance. So it should be the big difference in this time. But in common sense let’s say that we will be running around 41, if you are able to get these during at least the next two or three years, I think it would be very, very happy.

I think we are familiar about our project in terms of IT and where we really expect to have condition to improve more this efficiency ratio that we can be from our terms may be three or four years, from now but so until there I think we are looking very carefully about expenses and when you see these growth in expenses that we are sure that it’s necessary because we are expanding the operations. We are growing it organically so there are no ways to grow with no expense, not investing. So with this is explained why but if you are able to get these around 41. So, we will be more than very happy.

About the market share I think we just finished, saw that the number for the last data for the bank, Central bank. We understand that we gain a little bit portion, we used to have in December 12.6%, and now we are posting 12.7. Though it’s not a good gain, but we are at least we are recovering a part of the market share that we used to have.

And the newest thing that the public banks, they keep the same share that they used to have. So I think we understand that we have space to gain the market share, not something substantial but once we are working in terms of growing organically I think we have space to gain, but don’t expect for us to have a big change in a way. And I think if one looks at the history about the market share, the public banks is happy, they just recovered the common market that they used to have. In the past they used to have the same movement as they had.

Saul Martinez - JPMorgan

That's helpful. If you could just talk, obviously about the Board meeting yesterday, raising 75 basis points, could you just talk a little bit about how you're positioned for that? What you think the impact will be on your financial markets going forward and what you expect for your NIMs and throughout the rest of the year?

Can you just talk a little bit about the impact of a higher solidity on your financial margins during the rest of the year? (inaudible)?

Domingos Figueiredo de Abreu

Look I think this is something that you already expect for almost everyone all right. When I gave this guidance of growth on our economy seeing, they gave the guidance of growing 6.4% with GDP. They had in mind that the Central Bank should increase their rate in order to give that. If they don’t do that, you should have it growing much higher. I don’t think the impact should be substantial in the sense. For example in our guidance when we gave our guidance we already had this in mind. So to be honest I don’t think should be something very important. For us I can tell in our case, it’s inside in our project and so unless we have a big change in the direction or something like this we don’t expect to change.

Operator

Our next question comes from Mr. Rafael Fahas with Banco Safra.

Rafael Fahas - Banco Safra

My question is regarding your new brand Elo, if you see another bank adopting the same strategy of launching its own brand and if it makes sense for you someday to sign a partnership or acquire a local brand, such as (inaudible) or other brands?

Alexandre Rappaport

Like we said in the conference call Elo is going to be open for many other banks to issue it. On the acquired front, it’s going to begin with Cielo, but as it becomes more relevant other networks, other acquiring networks could also work with Elo and we are still beginning to set up the company. So it is possible that in the future we could go for acquisitions. But for now the big force behind it will be the distribution channels of both banks working together to make it a success.

Rafael Fahas - Banco Safra

Is it possible for you to guarantee that only Cielo will process and do the acquiring in the beginning, considering that all exclusivity should end as of 1st of July?

Alexandre Rappaport

For technology reasons, we will begin with one acquire and there are lot of efforts that go into the launching of this operation. As it becomes sizeable, then we could be looking into adding other acquirers, but to your question, yes in the beginning, we intend to begin with Cielo only.

Operator

Our next question comes from Mr. Larry Batali with Moore Capital.

Larry Batali - Moore Capital

You were talking earlier about subordinated debt and I just wanted to ask you how you, at this point anyway, intend to fund the loan growth that you expect this year?

Domingos Figueiredo de Abreu

Let me say about subordinated debt, it's just a matter of capital. All right, we are not using subordinated debt for funding liquidation. We expect to fund our operation in the traditional way that we have. We can use internal fund. We use more internal fund like time deposits. I think we have space to continue to expand debt and we are looking for some external funding when it’s proved that is compatible with the same cost that we have internally. We can issue some bonds that like we had last couple, a few weeks ago in a way that we can use this fund in our internal operation when it is proved that is lower than the cost that we had inside, but in normal term, we use more time deposit.

Larry Batali - Moore Capital

Okay. Do you have any intent? Maybe, you've already done this and I missed it but do you have any intention to issue [finance status] The new vehicles that have recently been approved?

Domingos Figueiredo de Abreu

We’ve had some issues like the two different government bonds that we launched. We launched a recent R$750 million bond for five years. It’s just to use this fund for our external operation and we just launched a recent R$250 million, that this we are using in our internal operation. We have space to launch these bonds, we don’t have any intention nowadays, but once you have opportunities that the cost is good, we can use the same instruments but we don’t have, I don’t know that we have now something in the movement. But normally, we can use that.

Operator

(Operator Instructions). Excuse me, ladies and gentlemen since there are no further questions, I’d like to invite Mr. Domingos to proceed with his closing statements. Please go ahead sir.

Domingos Figueiredo de Abreu

Okay, I’d like to thank the participation of each and everyone in this call and our Investor Relation, IR will be more than happy to respond to any further questions you may have. Thank you very much.

Operator

That does conclude the Banco Bradesco’s audio conference. Thank you very much for participation and have a good day.

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Source: Banco Bradesco S.A. Q1 2010 Earnings Call Transcript
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