Bradesco's return on average equity spread over cost of equity has turned positive for the first time in two years, signaling a structural recovery. Alpha Score 59.
Bradesco's return on average equity spread over its cost of equity has turned positive for the first time in two years, a shift that changes the risk calculus for the Brazilian lender. The metric, which measures how much the bank earns on its equity relative to what it costs to fund that equity, had been negative since 2022 as loan-loss provisions and a weaker economy ate into profits.
The turn matters because it signals that the core earnings engine is recovering, not just that one-time items are flattering the bottom line. Bradesco's ROAE has been climbing from a trough of around 9% in 2023 to near 13% in the latest quarter, while its cost of equity has stayed roughly flat. The spread, now about 1.5 percentage points positive, gives the bank room to absorb shocks without slipping back into value destruction.
Bradesco has spent the past two years cleaning up a commercial loan book that soured faster than peers. Provisions peaked in 2023 and have been declining since. The bank also cut costs, closed branches, and shifted toward higher-margin retail and agribusiness lending. The ROAE spread turning positive is the clearest sign yet that those changes are sticking.
The recovery is not guaranteed. Brazil's interest rate cycle remains a wildcard. The central bank has held the Selic at 10.5% and may need to hike if inflation picks up. Higher rates would raise Bradesco's cost of equity and squeeze the spread again. Loan growth also needs to accelerate to sustain the improvement. Bradesco's loan book shrank in real terms over the past year as the bank prioritized quality over volume.
AlphaScala's proprietary model rates BBD at 59 out of 100, a Moderate score that reflects the improving fundamentals but also the macro risks. Among Brazilian bank peers, Itau Unibanco (ITUB) scores 52 and Santander Brasil (BSBR) scores 37, placing Bradesco at the higher end of the group. The model flags the ROAE spread as the single most important driver of the score.
The next catalyst is the second-quarter earnings report, due in August. If Bradesco can show the spread widening further, the stock's valuation discount to Itau could narrow. BBD trades at 0.8 times book value, versus ITUB at 1.3 times. A sustained positive spread would justify a re-rating.
Bradesco's board meets in July to set the dividend payout for the first half. A higher payout would signal confidence in the recovery.
Prepared with AlphaScala research tooling and grounded in primary market data: live prices, fundamentals, SEC filings, hedge-fund holdings, and insider activity. Each story is checked against AlphaScala publishing rules before release. Educational coverage, not personalized advice.