Banco Bradesco S.A. (BVMF:BBDC4) saw its preferred shares climb 4.0% to R$18.72 in afternoon trading on Friday, while common shares (BVMF:BBDC3) advanced 4.6% to R$16.42. The R$0.72 gains for both stock classes added approximately R$7.6 billion to the bank's total market capitalization, based on outstanding shares.
The rally far exceeded what could be attributed to the recent payout adjustment. Bradesco's gross intermediate interest-on-equity payment of R$0.3469 per preferred share went ex-dividend on July 6, making the share price move roughly 2.1 times that amount. Interest on equity is a common form of cash distribution to shareholders in Brazil.
Inflation Data Fuels Rate-Cut Hopes
Traders shifted their outlook on Brazil's interest rate trajectory following the release of softer-than-expected inflation figures. The IPCA consumer price index rose just 0.16% in June, significantly below the market consensus of 0.31% and down from 0.58% in May. On an annual basis, inflation slowed to 4.64%, reinforcing expectations for another reduction in the Selic policy rate.
The market reaction was swift. According to Mirae Asset, interest rate futures now imply a 90% probability of a 25-basis-point Selic cut in August, up from 68% just two days earlier. Brazil's fixed-rate 2029 Treasury bond yield fell 19 basis points to 14.04%. Gabriel Pestana, senior economist at Genial Investimentos, described the inflation data as “good news for monetary policy.”
Matheus Pizzani, economist at PicPay, noted that the report “reinforces our expectation of another cut” of 25 basis points, with the easing cycle potentially bringing the Selic to 13.50%. The central bank reduced the benchmark rate to 14.25% on June 17.
Bradesco Outperforms Peers
Bradesco’s gains outpaced both the broader Ibovespa index and its main domestic rivals. The bank’s preferred shares added 1.35 percentage points over the Ibovespa, compared to Itaú Unibanco’s (BVMF:ITUB4) 0.78 percentage point lead and Banco do Brasil’s (BVMF:BBAS3) 0.25 percentage point advantage.
Despite the strong performance, Bradesco still trades at a significant discount to Itaú. Its trailing price-to-earnings ratio of 8.33 times is about 23% below Itaú’s 10.85 times. However, Bradesco’s operating metrics also lag: first-quarter recurring return on average equity (ROAE) stood at 15.8%, compared to Itaú’s 24.8%, while loans more than 90 days past due were 4.2% versus Itaú’s 1.9%.
Earnings Momentum and Upcoming Test
Bradesco reported a recurring profit of R$6.81 billion for the first quarter, up 16.1% year-over-year, marking the ninth consecutive quarter of earnings growth. Its loan book expanded to R$1.09 trillion, an 8.4% increase. However, credit costs rose to 3.5%, driven by specific wholesale issues and higher retail costs. The bank is scheduled to release second-quarter results on August 5, providing a near-term check on the current rally.
Risks Remain
The lower-rate trade is not without risks. Annual inflation at 4.64% remains above the central bank’s 4.5% upper limit, and the June figures do not account for the recent rise in oil prices to nearly $80 per barrel. Natalie Victal, chief economist at SulAmérica Investimentos, urged “maximum caution” given ongoing fiscal pressures and the approaching election cycle. A new energy price shock or a weaker real could delay rate cuts and keep Bradesco’s loan losses elevated.
Bulls are hoping Friday’s rally delivers two things simultaneously: lower interest rates in Brazil and continued progress in Bradesco’s turnaround. With shares still trading at a discount to peers, there is potential for further upside if the August rate decision and second-quarter credit metrics align favorably.
