For years, investors have debated why Bradesco earns less than Itaú. BTG Pactual’s latest report offers a sharper answer — and a potential path to unlock value. Digitalization, efficiency and competition all matter. But they are not the core issue.
The problem sits on the balance sheet. While roughly 60% of Itaú’s capital generates returns, Bradesco’s figure barely reaches 30%. The gap is not about lending or funding. It is about deferred tax assets (DTAs) — capital that exists, but does not work.
In absolute terms, Bradesco carries around R$111 billion in DTAs against total equity of R$179 billion. More than half of its capital is tied up in an asset that generates no return.
DTAs are, in essence, future tax credits. They arise from past losses or temporary accounting differences and can be used to offset taxes once profits are generated. Until then, they produce no cash and no income. They simply sit on the balance sheet.
That has consequences. In a high interest rate environment like Brazil’s, capital should be deployed into assets that track the country’s benchmark rate (Selic). When a large portion is locked in DTAs, the cost of capital rises while returns do not. The result is straightforward: lower ROE.
BTG sees a way out. The reorganization of the bank’s healthcare assets — including a potential listing of BradSaúde, its health insurance platform — could accelerate the use of these tax credits. By generating capital gains, additional earnings or asset revaluation, the transaction may help convert DTAs into capital that actually generates returns.
The market has noticed — to a point. Bradesco shares are up 63% over the past 12 months, valuing the bank at around R$220 billion. Itaú has risen 48% and is worth R$517 billion. The difference is not direction, but scale — and perhaps the quality of capital behind it.
Bradesco may still surprise in the near term. But the core issue is now clearer: the problem was never just low earnings. It was too much capital that did not earn. If that capital starts to work, there is room for re-rating.
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