Good morning, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to Bradesco's Fourth Quarter 2019 Earnings Conference Call. This call is being broadcasted simultaneously through the Internet in the Investor Relations website, banco.bradesco/ir-en. In that address, you can also find the presentation available for download. [Operator Instructions] Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Banco Bradesco's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to the 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 could cause results to differ materially from those expressed in such forward-looking statements. Now I'll turn the conference over to Mr. Carlos Firetti, Market Relations Director and Head of IR.

Hi, everyone. Welcome to our conference call for discussions of our fourth quarter '19 results and also the discussion of our guidance for 2020. We have today with us our CEO, Mr. Octavio de Lazari; our CFO and Executive Vice President, André Cano; Vinicius De Albernaz, Chief Executive Officer of Bradesco Seguros; and our Executive Director and Investor Relations Officer, Leandro de Miranda. To start with the presentation, I turn the floor to Leandro.

Thank you very much for that. Hello, everyone. First of all, I'd like to thank you for your participation in our conference call this time for the release and disclosure of our fourth quarter 2019 results as well as our guidance for the year. 2019, as you have realized in reading our financial statements, were very positive for us. The signs of improvement in the economy we had seen at the end of the third quarter was [indiscernible]. We saw the pace of the economic recovery consolidating, mainly with the boost in consumption, with strong retail sales volume, both in Black Friday and in Christmas. We also see initial signs of companies will be finally entering an investment cycle, and we see it in our day-by-day in our credit committees. And with the increase in the number of public investment announcements, as well as the intention to invest, that we hear directly from the owners of the firms. We live in a scenario of historically low interest rates, but with inflation under control, that's good for the country, and we are still able to navigate in a very good way. With the possibility that the interest rates will remain at low levels for a long period, we see space for the continued increase in card penetration in Brazil, with emphasis on real estate financing. The year also ended positively in the field of economic reforms. We have the approval of the most important of our reforms with social security, with the magnitude of those initial expectations. This alone brings conditions for a balance of bank accounts in the medium term. New reforms such as the fiscal administrative reforms will be approved in 2020, which further raises of our optimism and for the market as a whole. We also see deceleration…

Our first question is coming from Thiago Batista of Banco UBS. Thiago Batista was disconnected. Our next question comes from Mario Pierry from Bank of America.

Congratulations on your results. Let me ask you two questions primarily related to your guidance. First of all is on your net interest income growth guidance of 4% to 8%, roughly half of the growth that you're expecting on your loan portfolio. Can you break down this growth for us between growth between market-related and client-related income? And what is the impact that is embedded here from the caps on the overdraft? So if you didn't have the overdraft cap, how much do you think that your margin of clients would have grown? And then I'll ask my second question later.

Okay. We're -- as you know, we provide the guidance for the full NII, not for the parts. But I would say we -- considering the scenario of interest rates, probably the market NII would be a little bit smaller than what we achieved this year. But -- and basically, the most important driver for the NII as a whole is the client NII. If you break down the 2 portions roughly, the client NII makes for 85% of the total NII. So this is really the most important driver. In terms of, as you said, the NII this year is negatively impacted by the new rules for the overdraft product. Probably if we didn't have these rules, the growth in NII probably would be closer to the growth of the average loan book. That is the main driver, considering we have spreads under pressure but a positive impact from mix. I wouldn't say it will be growing in line but probably more closer to the loan growth level for the average book.

Mario, this is Leandro complementing here Firetti's answer. How are you doing, man? Well, pretty much as you have seen, we have a much more significant decrease in interest rates in 2019 than is expected to 2020, right? So if in 2019, we are able to grow the market by 4.4%, it's very likely that we shall have a lower number on this figure this year. But on the other hand, the client NII, that is the healthiest one, right, grew 9.2% in 2019. And pretty much the way we see it is that we are accelerating in this portion. So we shall see the NII keeping the level. But on the other hand, we see the healthiest portion growing much, much faster than the market one. That's good news.

Okay. No, that's very clear. My second question then is related to your guidance for provision charges because your -- if we take the bottom of your guidance, you could actually consider like a decline in provisions in 2020. But then when you talk about your loan growth, right, of 9% to 13% driven by the consumer primarily, where I think you said it could grow as much as 20%. So I wanted to reconcile that. Why do you think that your provisions could actually decline when your consumer loan book should be growing close to 20%?

We think, basically, the main driver -- if you break down these provisions, I would say, the provisions for the retail products basically are growing more, driven by the average loan growth base. And we have very low provisions for the corporate loss. Basically, this is the main driver. As you -- as you saw this quarter, we also strengthened our balance sheet with provisions. Part of that relates to, as we mentioned, revision in the criterias for letters of credit and guarantees, impairments of bonds and also strengthening some provisions. So basically, considering we already had a very healthy position provisions and topped with this strengthening of provision, we believe the flow of new provisions coming from the remaining of the portfolio should be much reduced. And this is the main driver for keeping provisions in the level we are indicating. We can say we are very confident with the range of this guidance.

Mario, just let me give you my two cents here. Besides everything that Firetti said that pretty much reflects our view as a whole, I would like to add that we are growing very fast in individuals, especially in personal loans, that allow us to have incredible spreads but with a much riskier portfolio. So that's the reason why, together with the other items that Firetti has pointed out, that we are also increasing our provisions, despite of the ones that we have put in the fourth quarter. The second thing is that we did not expect to have such a growth in the large corporate. As Octavio was previously mentioning, the capital markets may play an important role this year. So we do not know if we are going to keep the same -- we're going to have the same growth in corporate names such as we had in the last quarter.

Okay. No, no, that's clear. So -- but does it mean that your reserve coverage the next year or in 2020 should be lower? Is that how we should read it? Like you boosted your reserve coverage with this excess gain that you had now in the fourth quarter, and then your coverage should be declining throughout the year?

Coverage, as we always say, is not a reference for us. Basically, it's much more kind of a product of the process of provisioning. Basically, we expect NPLs relatively under control, probably already close to the bottom of NPLs. And basically, we're not going to touch next year on the additional provisions. Probably, these provisions will be integrated in the provisioning process when we migrate for IFRS 9, that's probably going to happen in 2021. But basically, I would say provisions, the coverage maybe will reduce a little bit. But again, it's not really even something we look at. It doesn't really connect to our provisioning process.

I guess it's too early to say, but let's work on.

Our next question is coming from Thiago Batista of UBS.

Sorry for the problem I had in the beginning. But just 1 question on the insurance business. The midpoint of the guidance implies an expansion of something close to 6%. How much is the top line growth that we're expecting in the insurance business in '20? And which type of segment should lead this expansion? So to try and to understand which of your business will lead to this expansion. And also, if you are expecting an acceleration in the number -- in the growth of the number of clients in insurance company?

Thiago, this is Vinicius here. Yes. I mean, indeed, we are expecting that the operational results will be able to counterpoint the expected fall in the financial results. As a matter of fact, if you take into account both the last quarter as well as 12 months 2019, we already had a very healthy growth in the operational results, even higher than the growth in the financial results. In the full 12 months, we had 14% growth in the operational results and 10.8% growth in the financial results. And of course, we don't expect the same kind of scenario that allowed us to have such a strong growth in the financial results next year. And we are counting on that strong trend of operational results to continue growing into 2020. In terms of client base, yes, we are expecting a continuation of growth within our client base. If you take into account, for instance, the auto segment, even though we had a -- if you take into account P&C as a whole, we had a growth of 2.2%, the auto segment more close to 3.5%. If you take into account, our premium growth was actually 6.5% in the auto sector. We did, in fact, had a very healthy growth in terms of items insured and as well as in the health sector, as you know. We are not disclosing our expectation of top line growth, but we are definitely expecting that the rebound in the economy, the return of the growth in jobs will allow us to deliver the kind of operational results that we need to deliver. Just to finish here, we are very well positioned in terms of our distribution platform to capture those opportunities, and we are actually investing a lot as well as in our digital platforms to be able to leverage those opportunities.

Our next question is from Tito Labarta of Goldman Sachs.

A couple of questions. I guess, first, on your loan growth guidance, just to understand, you kept it pretty stable compared to 2019. And I think you mentioned you don't expect large corporates to grow as much. But just wanted to get a sense here, given GDP growth should be accelerating this year, why you don't expect an acceleration there? If you can maybe give some color by segment in terms of how you expect retail loans to grow and corporate loans to grow this year. And then second question in terms of fees, you also kept the guidance similar to 2019. But if you could maybe give some color by line, right? Because we saw some pressure in some segments in 2019 such as cards, asset management, but offset by big growth like brokerage and underwriting. So if you can give some color on your fee income guidance by the different segments and where you could see pressure and where that could be offset.

Okay. Tito, that's Leandro speaking. I'm going to start here with our guidance regarding fee portfolio, making some views regarding to the GDP as you have requested. And then Firetti and I, we're going to touch base here regarding to the evolution of each line in terms of service, okay? First of all, we had a very important growth because of the wholesale in the last quarter. We do not really feel if it's going to come along in the way to us or if it's going to be absorbed by the local debt capital markets. So we prefer to be a little bit more cautious and conservative here. Nevertheless, as we are growing in SMEs and especially individuals, where we see very much higher margins and the delinquency is very under controlled, the new vintages are pretty much healthy, we believe that we shall see our margins growing despite of the portfolio being on the same growth. But on the other hand, we shall have to see the year, how it's going to evolve. Regarding to the fee side, basically, we have seen an acceleration in the fourth quarter. We have had new clients. We have made adjustments in every single line of business. And Firetti has here some notes in which he can pass it to you our view in the main lines.

Okay. Tito, just complementing Leandro. As we said, we have seen a very important growth in the base of clients. But if we go line by line, we also have very interesting drivers. If you look to the credit card line, I remind you, last year, we had, most of the year, the impact of the cap of that card interchange that was capped at 50 bps from 80. That was the average before. This year is a year where we don't have this impact in the comparison. We also had, last year, the very important impact in the acquiring business. Maybe that may continue somehow but probably less -- in a lower degree than in the past. But overall in cards, we should benefit from very strong volumes of credit card and the card transactions, as probably you know the estimates, for instance, from the Credit Card Association that points for a very high growth for this year. In checking accounts, we have been growing the number of clients. We believe we grew, last year, 7.5% year-on-year. We think we're going to grow again maybe not the same level, but we believe, given the increase in base, we may grow something in this line. In asset management, we have been doing a very good job in terms of accelerating the growth in the assets under management from clients, retail clients and high net worth clients.

And we have adjusted the mix.

Yes, we adjusted the mix, moving more and more to products with higher management fees and higher returns as the market strives. So we should do better. Actually, if you look at the growth pace for this line Q-on-Q, you're going to see that we were -- the drop in year-over-year much more than we are right now. And the last quarter, which ranked only [indiscernible] during -- the 2020, we believe, will go to positive territory.

Yes. It's an inflection point here.

Yes. So cred -- actually the cred or credit operations, you have there fees on some credit operations like the mortgage, where we are growing very well, and the negative performance of this line came much more from the reduction in fees, in letters of credits and guarantees for which we believe we may see a better performance this year. Consortiums is a line that we've recognized revenues on accrual basis, so we grow the number of clients, the management fees and accrue. So it's not volatile at all. So I'm not going to go -- investment bank should potentially be a very good year. So I -- as you can see, the dynamics for each line seems better for this year. And considering the mix, we think the 5% in the middle should be okay.

Very helpful, very thorough. Just 1 follow-up, if I may. Just on the -- going back on the loan growth. So do you think that the loan growth can accelerate for SMEs and individuals and that's probably offset by the conservativeness of the large wholesale, but -- or do you think those stay around at 19%, 20% or is it able to accelerate there?

I think it should stay probably something around that level. If you look to the pro forma numbers, we report that adjust for some change in the segmentation we made in the past. We are growing, as an instance, 17%.

Yes.

It is very strong. We are growing the individuals as a whole and 19% is super strong. So probably, it should be something like around those levels. And the number is not -- the total number is not better because the growth in corporate is more like single digits, low single digits with today's point of view. Again, as we said in the presentation, we have appetite and capital. If there are good opportunities with good spreads, we might grow more.

Our next question is coming from Mr. Jason Mollin with Scotiabank.

My first question is related to the nonrecurring charges that you showed in the quarter and you classify as nonrecurring. You had the large tax credit generating a gain of over BRL 6 billion. And that was offset, as you clearly show, by BRL 3.4 billion in provisions for, contingent liabilities, BRL 2.5 billion in loan provisions and asset impairment charge over BRL 1 billion and provisions of about BRL 800 million for your voluntary severance program. And then, of course, you have the goodwill, which is around the level that you have been reporting, a little higher. But can you talk about these items in a bit more detail? Particularly, what's the timing here? Was the timing for these provisions because of the tax credit? Is that why you decided to make these changes to the loan provisions now and then that will strengthen the balance sheet, and over time, maybe you won't have to make as much? If you can give us some color on the timing and the nature of these -- each of these charges, that would be helpful. And then the second question is related again on loan growth. You are showing, on Slide 11 of the presentation, some really interesting numbers on loan origination per business day. And we really -- we did see a dramatic increase in companies that you show. I guess this is on the base of 4Q '18. But it is interesting that the base for individuals remain the same in the fourth quarter and the third quarter. Is this the kind of origination that you're expecting? And then the growth, if you maintain this kind of origination, just with the higher base, your growth should be a little bit lower in lending to individuals? Or can you really sustain the kind of growth that you've been showing -- that you showed in the fourth quarter?

Okay. Regarding the nonrecurring charge, basically, we clearly took the opportunity of the revaluation of tax credits to run through our models and assumptions for some different lines and took a more conservative approach. I think if you go back in history, it's not the first time we have done that. When the tax rate was increased from 34% to 40%, then when it went from 40% to 45% -- so basically, how we differentiate what is recurring from nonrecurring. What we call the recurring is basically when we have a change in methodology, a change in assumptions, not really something that comes from the ongoing flow of provisions from the operations. And basically, I think that's the way we can explain it. Regarding loan growth, we believe when you look in loan growth, you have everything. You have companies, you have small companies, large companies in the company segment. Basically, SMEs, the level of loan growth is really -- our origination is even stronger than what you can see in the mix for companies as a whole. And for individuals, if you look to year-on-year, it is growing at 20%, 24%. We believe this is enough to keep growing our books probably high teens for individuals and mid-teens or something for SMEs. I think that's the view.

But regarding to your question if we see a deceleration in the individuals portion and if we believe it's going to reduce? No, we do not. Basically, we shall keep the same pace or grow because pretty much, we are adjusting more and more this platform. So we are still very positive on individuals and SMEs, special individuals.

That's helpful. And maybe just a comment on the goodwill amortization that we see -- we've been seeing every quarter and that does have the implications for book value. What should we expect run rate for goodwill amortization should be similar in 2020 versus 2019?

Yes. Basically, you can take -- you can consider in 2020 something BRL 1.5 billion in goodwill amortization. We have on schedule. Actually, we report that. You can see the schedule, so BRL 1.5 billion for 2020.

But just in case you don't have it, we can send it to you afterwards.

Our next question is coming from Tiago Binsfeld of Itaú BBA.

I have just one question about asset quality. We saw a pickup in NPL for retail segment this quarter. So now that you've had expanded this book more aggressively, do you believe this could be an inflection point in terms of asset quality for this book? And also, what would be your base case in terms of delinquency rates for this year?

We can say that for individuals, probably we are in the bottom. Probably, we don't expect a big acceleration but considering we are growing to some line -- we are growing very fast in some lines that have higher delinquency, for instance, personal loans, that really puts some pressure in this line. But looking to the new vintage, we don't see any acceleration in any individual line that really tell us we're going to see a big acceleration. It's much more due to mix than actually a more consistent increase in NPLs.

But of course, it depends on the GDP. If we have the employment rate getting better, we shall have more individuals in the system to be banked, and we can increase even more those individual lines.

Our next question is coming from Carlos Gomez of HSBC.

Congratulations on the result. Question is on provisions. If you mentioned in the Portuguese conference call that you have not provided for IFRS 9, can you remind us how much you expect the impact of IFRS 9 to be and whether you can confirm that it will be applied starting next year? And also, as part of your extra provisions, did you include anything for economic plans?

For IFRS 9, we said we didn't make provisions for specifically for IFRS 9 because considering our level of provisions, we believe we are already covered for the requirement -- for the adjustments we have to make for IFRS 9. We expect -- we are still waiting for the regulation for IFRS 9. Probably, it's going to be released this year, independent -- if officially, it starts in 2021 or maybe 2022, probably -- we're going to be starting -- if we even start to use IFRS 9 for ongoing provisions already in 2021 anyway. So that -- and we think we are, in terms of provisions, it's already covered.

So basically, we do not expect to have any negative impact on the adoption of IFRS 9.

Yes. And regarding economic plans, we -- as part of the revision of assumptions we made in the quarter, we also made some provisions strengthening our position for economic plans.

And if I may follow up on economic plans, how long do you expect the problem to continue because there seem to be new cases beyond what was expected last year?

We are under a process of agreements where people go to the courts and accept the agreement reached by the banks with the government and with supported by the Supreme Court. So this is an ongoing process. We are -- we have -- there are some discussions on which they will elongate the period only people can go into these agreements. So basically, that's where we are right now.

But in terms of this expansion that Firetti just made in reference, we just want to know it by March.

Excuse me, ladies and gentlemen. Since there are no further questions, I would like to invite the speakers for the closing remarks.

Thank you very much for participating in our conference call. The Investor Relations Department is available for any further questions you may have. Thank you very much.

That does conclude Bradesco's conference call for today. Thank you very much for your participation. Have a good day.