November 21, 2016 / 11:27 AM / 2 years ago

UPDATE 3-Banco do Brasil downsizes to bolster returns, pivots to digital

(Adds share performance, rewrites throughout)

By Guillermo Parra-Bernal

SAO PAULO, Nov 21 (Reuters) - Banco do Brasil SA plans to save up to 3.1 billion reais ($900 million) in coming years by shedding up to 18,000 jobs and shutting hundreds of branches, the latest step by Chief Executive Officer Paulo Caffarelli to bolster profitability.

Over the next year, the state-controlled lender is giving early retirement to employees, many of which have over 15 years of service, closing 402 branches, and reformulating the size of another 379. The bank estimates the branch reduction plan could save as much as 750 million reais annually.

Shares soared the most in almost eight months on optimism about Caffarelli’s steps to cut the size of a payroll which, in some areas, is three times the size of private-sector peers. The early retirement plan could trim the bank’s payroll by 17 percent, fan profitability and enhance Banco do Brasil’s ability to generate capital organically, he said.

“No other big Brazilian bank can improve their general and administrative expense structure to the same magnitude,” said analyst Henrique Navarro of Santander Investment Securities. “This may help Banco do Brasil close the return-on-equity gap” with rivals.

Goldman Sachs expects the plan to boost profit by up to 10 percent within two years.

The stock rose as much as 6.6 percent to 28 reais on Monday, extending gains to 58 percent in the past 12 months.

The reorganization is Banco do Brasil’s most ambitious in two decades. Since he took the job in May, Caffarelli has accelerated a loan book repricing and renegotiated bad credits.

The impact of the early retirement plan could be bigger than initially expected since the targeted employees are entitled to higher salaries, executives said. Employees have until Dec. 9 to take the retirement plan, and their departure will take place throughout the next few months.

Banco do Brasil is also trying to cater more rapidly to more customers going digital. Caffarelli said digital and mobile banking transactions surpassed 1 billion last year.

“We are just adapting the bank to a new era, where digital services and a more challenging competition framework force us to become a more agile player,” Caffarelli said at an event in Brasilia.

Brasilia-based Banco do Brasil had about 110,000 employees at the end of September.

He said the changes will not weaken the business model of insurance unit BB Seguridade Participações SA, which relies heavily on branches to distribute products. ($1 = 3.3769 reais) (Additional reporting by Paula Arend Laier in São Paulo; Editing by Ruth Pitchford and Jeffrey Benkoe)

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