Exactly. There have been some Macro problems which is why all Brazillian banks have gotten much cheaper over the last year. Those negative factors should start to stabilize by Q2 and improve by year end from what i've read by Goldman/etc though.
Out of the Brazillian banks, Banco do Brazil is the cheapest right now. As your friend said, they are the most conservative (ie: Government controlled), have great underwriting, and have arguably the best asset quality of them all (lowest NPL %). BBAS3's discount to peers ITAU/Bradesco is currently much larger than historically as well.
One thing to be aware is that the government is pushing through some 'cost/spread reductions' in the banking sector through its government controlled banks. That means BBAS3 will be cheaper in making loans than the private banks, which will have two impacts going forward:
1) Slightly lower ROE compared to private banks, which is why I expect 18-19% versus the 20%+ we have seen before
2) Significantly higher loan growth than private banks as borrowers flock to the cheaper alternative. If they qualify through BBAS3's underwriting that is.
I expect private banks will be forced to follow this path of slowly reducing fees/spreads over time -- By not leading the initiative though they will lack the boost from loan growth but will have higher ROE from a constantly higher 'cost'.
The question for BBAS3 becomes: How much will loan growth offset returns from the lower cost/spreads? Goldman thinks it mostly will, Credit Suisse is a bit more bearish in its views. Goldman has a 36+ price target, Credit Suisse has a 28+ price target. Their differences seem to stem from a slight disagreement on what the sustainable ROE % will be going forward (Roughly 1% difference in their views). The stock is at 22.5 right now, so either one is fine with me.
-Fernando
