Rate cuts raise concern over R$28bn pension fund deficit

Nearly a fifth of employer-sponsored plans show shortfall as bond-heavy portfolios face test

 

 

 

Billion-real deficits at Brazilian pension funds are drawing scrutiny and raising concern as interest rates are expected to decline this year. Data from the Ministry of Social Security show that 233 of the country’s 1,129 pension plans had accumulated a combined deficit of R$28 billion as of September 2025, the latest available figure.

The most problematic are defined benefit (DB) plans, the oldest and often structurally flawed. They account for 55% of the pension funds’ total assets and posted a deficit of R$2.7 billion through September last year. However, cyclical issues in variable contribution (VC) and defined contribution (DC) plans have also fueled concern and weighed on overall sector results.

A survey by the National Superintendence for Supplementary Pensions (Previc), requested by Valor, shows 199 deficit equalization plans are under way at 89 closed supplementary pension entities (EFPCs). These are entities sponsored by public or private companies, or with multiple sponsors, that have been charging additional contributions to rebalance assets and liabilities, most of them implemented through 2024.

Alcinei Rodrigues, Previc’s director of regulation, said the concentration of 86% of pension funds’ portfolios in fixed income, almost entirely in federal government bonds, “is an aberration” that worries the regulator.

“With real interest rates over the next two years, it will still be comfortable to meet the actuarial target,” he said. “But markets anticipate events, so the best investment opportunities arise early, and you have to move ahead with the correct diagnosis.”

Slow portfolio shift

Rodrigues said the regulator’s concern is that to remain solvent and secure in 2028 and 2029, funds must begin preparing this year. “I am worried about this migration. Pension funds do not make U-turns. They are like ocean liners moving slowly.”

He added that pension funds have lost the expertise to manage risk assets and need to rebuild that capacity. In 2010, equities accounted for 33% of sector assets; by 2025, that share had fallen to 8%. Globally, he noted, pension fund portfolios tend to be roughly evenly split among equities, private fixed income and alternatives such as private equity, structured products and real estate. “There is no allocation to government bonds. But in Brazil, pension funds rushed into the easy returns of high interest rates, which mask performance by delivering high yields on risk-free assets such as sovereign bonds. Now, with the market expecting the start of monetary easing, we will return to normality,” he said.

In 2025, high interest rates helped funds move from a R$9.8 billion deficit in December 2024 to a small surplus of R$10 million as of September, Ministry of Social Security data show. The R$2.7 billion deficit in DB plans, while still significant, marked a sharp improvement from the R$11.2 billion shortfall in December 2024.

Only variable contribution plans posted a surplus last year, totaling R$3.2 billion. Defined contribution plans posted a deficit of R$558 million through September 2025.

More vulnerable

Rodrigues said smaller pension funds with DC plans require closer monitoring, as their exposure to government bonds is even higher. DB plans, by contrast, are larger, have greater allocations to risk assets and maintain bigger, more qualified teams. “Conventional wisdom says DC plans outperform DB plans, but in terms of returns the reality is the opposite.”

He cited data showing that over the past 15 years, cumulative returns reached 397% for DB plans, compared with 337% for DC plans and 370% for VC plans. Of the 4.1 million participants in pension funds today, 887,000 are in DB plans, 1.9 million in DC plans and 1.3 million in VC plans.

Rodrigues said the concentration of actuarial deficits in DB plans often stems from rising liabilities triggered by decisions beyond plan management, such as changes in career and salary structures or increases in life expectancy.

Governance disputes

One example is Fapes, the pension fund for employees of the Brazilian Development Bank (BNDES). In 2002 and 2004, BNDES, its investment arm BNDESPar and its financing unit Finame signed debt acknowledgment agreements and later injected R$5.8 billion, in updated values, into Fapes’ defined benefit Basic Benefits Plan (PBB) in 2009 and 2010.

The amount unilaterally covered actuarial deficits caused, among other factors, by a 1989 reduction in the contribution ceiling for Brazil’s National Social Security Institute (INSS), which increased supplementary benefit payments, as well as job reclassifications and position unifications.

In addition, a change in employees’ contracts increased the daily work schedule by one hour, which, a Federal Court of Accounts (TCU) report said, “required the establishment of an actuarial counterpart corresponding to the increase in Fapes’ mathematical reserves, in the total amount of R$337,833,460.58.”

The Secretariat for Coordination and Governance of State-Owned Enterprises (Sest), formerly known as Dest, opposed the injections and said “what exists in the PBB [Basic Benefits Plan] is an actuarial deficit, originating from insufficient funding of the plan and from recent negative investment results that failed to meet the actuarial target, and which must be funded by the sponsor and participants in proportion to their contributions.”

The TCU also ruled the injections were irregular because they were unilateral, without matching contributions from employees.

After a decade-long legal dispute, a 2024 agreement between Fapes and the BNDES set the terms for reimbursement. The pension fund will repay up to R$1.55 billion over 30 years.

Plan participants may migrate to a defined contribution plan. Those who switch will have their share deducted from the R$1.55 billion established in the agreement.

Migration deadline

Fapes declined to comment, but on a dedicated website created for the issue it says that “after the migration, the final amount to be repaid by the PBB to the sponsors will be determined and a specific Deficit Equalization Plan (PED) will be implemented for that repayment.” Participants have until midyear to decide whether to migrate.

Another high-profile case is Petros, the pension fund for employees of state-owned oil giant Petrobras. Its defined benefit Petrobras System Plans (PPSP), which cover 52,000 participants, have a R$42 billion deficit.

Sponsors, participants and retirees already receiving benefits are currently paying additional contributions ranging from 17% to 20% of their gross monthly income and 30% of their 13th salary to cover deficits from 2018, 2021 and 2022.

The company, the pension fund and participants are negotiating a migration to a defined contribution plan, in talks mediated by Previc and Sest and monitored by the Federal Court of Accounts (TCU). Discussions now center on ending lawsuits seeking coverage of the deficit.

Petrobras said it “values open dialogue with labor unions” regarding the PEDs (Deficit Equalization Plans). “The search for a solution to the issue remains under study by a multidisciplinary group, which includes representative entities of participants, and the work is ongoing.”

Petros said it “is sensitive to the impact of equalizing the PPSP-R [Petrobras System Plan] and PPSP-NR plans for participants and treats the matter as a priority. The search for a solution is being conducted within the Quadripartite Commission, which includes representatives of participants, the sponsor and supervisory bodies.”

The pension fund added that it has adopted an investment management approach with “greater predictability of returns and consistently contributes to delivering solid results.”

Stable despite deficits

Devanir Silva, president of the Brazilian Association of Closed Supplementary Pension Entities (Abrapp), stressed the distinction between structural and cyclical deficits in the sector, the latter caused, for example, by declines in equities.

In his view, roughly R$28 billion in both types of deficits does not endanger the system, which has total net assets of R$1.4 trillion. “There is no alternative but to equalize, and a solution cannot be postponed when it exceeds the limits set by CNPC Resolution 30/2018 [which establishes criteria for calculating and allocating results], but it is not something that undermines the system’s stability.”

Brazil currently has 264 closed supplementary pension entities and 1,129 plans, Ministry of Social Security data show.

Last year, Previc proposed to the National Supplementary Pension Council (CNPC) changes to the current model for calculating results to determine whether deficit equalization plans should be implemented and how surpluses should be allocated.

The proposal creates a tolerance period of up to three years for pension funds to resolve problems and return to target without charging extra contributions to participants. The idea is to give pension entities time to absorb temporary fluctuations in their solvency ratio. It also recommends that the combined normal and extraordinary contributions be capped at 35% of salary or pension benefits.

In addition, the regulator revised the parameters of its Annual Supervision and Monitoring Program (PAF) and, since 2024, has expanded oversight of funds to prevent problems.

Longevity risk

Giancarlo Germany, president of the Brazilian Institute of Actuaries (IBA), also said the system is balanced and benefits from predictable returns due to the large share invested in government bonds.

He noted that rising life expectancy is a risk not yet fully priced into pension fund accounts and will require measures to avoid future deficits. The pace at which longevity will increase, however, remains uncertain.

“In the late 1990s and early 2000s, there was a migration from DB plans to individual plans, DCs and VCs, which were not well designed,” he recalled. “Those participants are now reaching retirement without sufficient savings, lacking adequate pension coverage.”

Germany said other countries are seeking a new sustainable model, but few have reached firm conclusions. The idea is to find a middle ground between DB and DC plans, with risk shared between companies and employees.

In Brazil, there is also debate over hiring reinsurers, with risk premiums paid collectively to provide coverage in the event of deficits caused by increased longevity.

Another option would be to use surpluses to build reserves for future shortfalls instead of returning money to participants. “It is a challenge to be faced, but the new models are still being tested around the world and we do not know whether they will succeed,” he said.

*By Liane Thedim — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/

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Goiás advances critical minerals deal with U.S.

State expects to sign agreement by March after governor’s trip to Washington

 

 

 

The state government of Goiás expects to sign a critical minerals agreement with the United States by March, after advancing discussions this month during Governor Ronaldo Caiado’s visit to Washington. The deal would precede any potential negotiations between Brazil’s federal government and the U.S. administration on the issue, which have yet to take place.

According to Adriano da Rocha Lima, Goiás’ chief of staff, who accompanied Caiado to the U.S., the state also plans to sign a similar agreement with Japan. “Both agreements should be signed by the first week of March at the latest,” he said.

The governor’s agenda included a meeting with the U.S. International Development Finance Corporation (DFC), the American counterpart to the Brazilian Development Bank (BNDES), which approved $565 million (R$2.9 billion) in financing for Mineração Serra Verde. The company operates Brazil’s only commercially active rare earth mine, located in Goiás.

The most significant meeting, Rocha Lima said, was with Christopher Landau, U.S. Deputy Secretary of State and a close aide to Secretary of State Marco Rubio. “In that meeting, we broadly discussed the partnership between Goiás and the U.S., and they expressed full support for cooperation,” he said.

On the U.S. side, the agreement is expected to involve the Bureau of Economic and Business Affairs at the State Department. On the Brazilian side, it would include the Goiás State Authority for Critical Minerals (Amic-GO). The deal would serve as a framework for more specific future agreements and would provide for technological and commercial cooperation, as well as financial contributions, though no initial amount has been specified.

“According to them, without this agreement they face difficulties in making financial contributions, allocating resources, and forming partnerships with companies and research centers,” Rocha Lima said.

Goiás has moved ahead at the state level by approving legislation in 2025 establishing Amic-GO, which will coordinate state policy on critical minerals. At the federal level, Brazil does not yet have comparable legislation.

Based on conversations in Washington, the Goiás government said it sensed a lack of urgency on the part of Brazil’s federal administration. “I recall a comment along the lines of, ‘We are trying to negotiate with the Brazilian government, but we haven’t received a response,’” Rocha Lima said, adding that this may have prompted the U.S. to accelerate talks directly with the state.

Brazil’s Mines and Energy Ministry said in a statement that it “remains open to dialogue and cooperation with international initiatives that contribute to a more resilient, transparent, and sustainable global critical minerals supply chain.” The ministry added that Brazil’s approach is guided, among other principles, by integration into global value chains “in dialogue with different partners, including the U.S., the European Union, China, and other strategic actors.”

A source familiar with the sector expressed concern about a lack of alignment between state and federal authorities, warning that the federal government could eventually seek to annul or invalidate the state-level agreement with the U.S. on constitutional grounds.

The Brazilian Mining Institute (Ibram) views the potential agreement positively. According to Julio Nery, the institute’s mining affairs director, the initiative should not hinder possible negotiations between Brazil and the U.S. at the federal level. “The Brazilian government can also sign a similar agreement,” he said. “It is very positive to see different levels of government engaged in this process.”

Rocha Lima said Goiás made clear its intention to move up the value chain in critical minerals. “We do not want to simply extract the mineral and ship it abroad in raw form. They understood and agreed,” he said.

Under the planned agreement with Japan—expected to involve Amic-GO and the Japan Organization for Metals and Energy Security (Jogmec)—the parties would carry out detailed geological mapping of Goiás’ subsoil. “This mapping should cost around R$300 million, and Japan is willing to finance it,” Rocha Lima said.

*By Michael Esquer — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Rare earth projects in Brazil total R$13.2bn in investments

Country draws global attention amid race for strategic minerals used in energy transition, technology and defense

 

 

Cabo Verde Mineração identifies new rare earth area in Minas Gerais — Foto: Divulgação
Cabo Verde Mineração identifies new rare earth area in Minas Gerais — Photo: Divulgação
 

Seven rare earth mining projects in the pre-operational stage represent up to R$13.2 billion in planned investments in Brazil. The country has entered the radar of foreign governments as well as domestic and international investors amid the global race for the group of materials, considered strategic for areas such as the energy transition, technology and defense.

Interest in Brazil’s rare earth reserves, located mainly in the states of Minas Gerais, Goiás, Amazonas, Bahia and Sergipe, stems from the fact that they are the largest outside China. They could help reduce Western dependence on Chinese rare earths, as China accounts for 69% of global production and 91% of refining.

The group comprises 17 metals, including lanthanum, samarium, terbium and lutetium. While abundant worldwide, they involve costly and complex extraction and refining processes.

Regulatory uncertainty

Among the pre-operational initiatives are projects led by mining companies listed on foreign exchanges as well as privately held and publicly traded Brazilian companies, most of them concentrated in Minas Gerais.

Specialists interviewed by Valor said, however, that turning projected investments into actual capital inflows will depend on regulatory and financial advances.

Projects by Viridis Mining & Minerals and Meteoric Resources, both listed on the Sydney Stock Exchange in Australia, Aclara Resources, listed in Toronto, Canada, and Atlas Critical Minerals, listed on the Nasdaq in the U.S., are expected to begin operations in 2028.

“Following the schedule, we estimate reaching the final investment decision in the second half of this year,” said Klaus Petersen, Viridis’s country manager in Brazil.

Meteoric plans to begin construction in the third quarter, if it secures an installation license. “Construction will take 24 months, which could be reduced to 18,” said Marcelo Carvalho, the company’s chief executive.

Aclara noted that the multiplicity of agencies involved in environmental licensing and the lack of domestic customers to purchase future mine output pose challenges to securing financing. “Establishing offtake contracts [advance purchase agreements for production] is a key factor for obtaining financing,” said José Augusto Palma, the miner’s executive vice president.

Marc Fogassa, CEO of Atlas, said the company’s areas are currently “in the stage of geological studies, laboratory testing and definition of processing routes.”

Projects by St. George Mining, also listed in Sydney, and privately held Brazilian company Terra Brasil are expected to begin operations in 2029.

“Studies are under way to confirm the project’s technical and economic potential,” said St. George executive chairman, John Prineas. The project also foresees additional investments in niobium.

Both initiatives are located in Araxá, a city in Minas Gerais where Companhia Brasileira de Metalurgia e Mineração (CBMM), controlled by the Moreira Salles family, operates.

Terra Brasil’s initiative also targets investments in fertilizers. “We have adopted a differentiated strategy, with an integrated project combining rare earths with phosphate and potash fertilizers,” said Eduardo Duarte, the company’s chief executive.

Brazilian Critical Minerals (BCM) did not disclose when it expects to start operations, but chief executive Andrew Reid said the main steps to be completed this year include obtaining “all necessary licenses.”

The investment volume in the segment is likely to be higher, since the projects compiled by Valor represent only part of those in the pre-operational stage, and others have yet to disclose public estimates of capital expenditures.

“This investment forecast is an excellent indication that the world is looking at the country,” said Patricia Seoane, mining and steel leader at PwC Brasil. She noted, however, that uncertainty over the regulatory framework for rare earths and other critical minerals, a policy Brazil still lacks, creates insecurity for investors, banks and lenders.

Financing gap

GIN Capital estimates that at most 35% of the R$13 billion projected will actually be raised and disbursed by 2028. “The most technically advanced projects, with more robust feasibility studies and some engagement with potential offtakers, have a 60% to 70% probability of reaching a final investment decision,” said Roberta Dalla, co-founder and partner at the platform. The others face lower odds absent structural changes in the business environment.

A bill under consideration in the Lower House, under the rapporteurship of lawmaker Arnaldo Jardim, of the Citizenship Party, is seen as the most advanced proposal to establish a National Policy for Critical and Strategic Minerals and boost the segment.

Companies across the critical minerals chain are advocating for the inclusion of a guarantee fund in the framework to unlock capital flows. The Critical Minerals Association (AMC) said the proposal would bring together development banks and the private sector to dilute financing risks and allow junior mining companies, which lead many initiatives and lack active production to offer as collateral, to access funding under more competitive terms.

“We need another guarantee mechanism so that the entire package of projects can be covered,” said Marisa Cesar, chair of the association’s board.

Lawmaker Arnaldo Jardim confirmed to Valor that the draft under his report includes such an instrument.

The Brazilian Mining Institute (Ibram) said the high risk of mineral exploration, where roughly two out of every 100 surveyed areas become viable projects, limits access to credit. As a result, said Julio Nery, the institute’s mining affairs director, junior companies seek capital on exchanges in countries such as Australia and Canada.

“They are not necessarily Australian or Canadian projects. They may even be Brazilian, but they seek risk capital abroad because there are financial incentives there that do not exist here.”

The AMC also pointed to “legal uncertainty” generated by interventions from bodies such as the Federal Prosecutor’s Office (MPF) in environmental licensing. AMC’s Cesar cited cases involving Viridis and Meteoric, which faced legal action before receiving preliminary licenses last year. “This affects the attraction of more investors.”

The MPF said that, “as a precaution,” potential environmental risks should be assessed through complementary studies.

Shigueo Watanabe Junior, a researcher at the ClimaInfo Institute, said the agency acts because environmental protection tools and safeguards for communities affected by projects have failed in Brazil. “In an ideal world, the Public Prosecutor’s Office would not need to intervene, because licensing and monitoring mechanisms would be sufficient.”

The lack of structured long-term offtake contracts, still faced by some projects, and the technical complexity of refining the elements were also cited by GIN as obstacles.

“Without long-term offtake agreements with end manufacturers or intermediaries, these projects cannot secure traditional project finance,” GIN’s Dalla said, referring to a model in which credit is granted primarily based on future cash-flow generation capacity.

Global race

In the global race to reduce dependence on China, she said Brazil could capture 15% to 20% of the global rare earth market, projected at up to $12 billion annually by 2030, but “the window is 18 to 24 months.”

If Brazil misses the opportunity, the risk is that refining infrastructure and offtake agreements will already have been established in other countries. “And it will be exponentially more difficult and more expensive to attract large-scale capital,” she said.

Currently, the only commercially operating mine in the country is Serra Verde Mineração in Goiás, which announced it secured $565 million in financing from the U.S. International Development Finance Corporation (DFC), the U.S. development bank.

The search for international investors, including development institutions and public and private banks, is a strategy already used by pre-operational mining companies.

In September 2025, Aclara announced it had received a commitment of up to $5 million from the DFC to fund a feasibility study. Viridis and Meteoric have also announced letters of support and interest in financing from export credit agencies in countries including Australia, Canada, France and the United States.

Domestically, Brazil also has initiatives aimed at unlocking investments in critical minerals. The federal government has been working to attract international investors to the segment.

In November, the Brazilian Trade and Investment Promotion Agency (ApexBrasil) held meetings in the European Union, and in March this year expects at least five mining companies to receive announcements of investments linked to the bloc.

“The work initiated by the government needs to quickly translate into operational instruments that allow Brazilian projects to compete on equal terms,” Dalla said.

*By Michael Esquer and Vitória Nascimento — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Supreme Court flags illegal access to justices’ tax data

Information on relatives was also allegedly accessed and leaked by the Federal Revenue staff

 

 

02/18/2026 

Brazil’s Supreme Federal Court (STF) said in a statement released Tuesday (17) that confidential tax data of its justices and their relatives were improperly accessed by employees of the Federal Revenue, the country’s tax authority, and later leaked to third parties.

Four suspects were targeted in a search-and-seizure operation carried out by the Federal Police at the order of Justice Alexandre de Moraes. The move split the court because it stems from the so-called “fake news” inquiry and ultimately involves all sitting justices.

The STF did not identify the owners of the leaked data. Valor learned, however, that the illegally collected information allegedly concerned lawyer Viviane Barci, Justice Moraes’s wife, whose professional activities drew attention due to her law firm’s contract with Master bank, and a son of another justice.

Search warrants were executed in the states of São Paulo, Rio de Janeiro and Bahia. Investigators and the Federal Revenue are still examining the motive, including whether it was political or part of a data-selling scheme.

Search operation

Those targeted by the Federal Police were Luiz Antônio Martins Nunes, a technician at the Federal Data Processing Service (Serpro) in Rio de Janeiro who was seconded to the Federal Revenue; Ricardo Mansano de Moraes, a tax auditor at the Federal Revenue since 2007; Ruth Machado dos Santos, a Social Security technician since 1994 who works at the Federal Revenue office in Guarujá, on the coast of São Paulo; and Luciano Pery dos Santos, also a Social Security technician, working at a Federal Revenue office in Salvador.

Justice Moraes ordered precautionary measures against the employees. These include lifting their bank, tax and telecommunications secrecy; house arrest at night and on weekends with electronic ankle monitoring; a ban on leaving the judicial district where they live; immediate suspension from public duties, including prohibition from entering Federal Revenue and Serpro premises and accessing systems; among others.

Valor was unable to reach the defense lawyers for the four employees before publication.

“Various and multiple unlawful accesses to the Brazilian Federal Revenue system were identified, followed by the subsequent leaking of confidential information. Initial investigations demonstrate, as shown in a report sent by the Federal Revenue to the STF, the existence of a ‘block of accesses whose analysis, by the responsible departments, identified no functional justification [for the accesses],’” the Supreme Court said.

Revenue audit

The information on the leaks was sent to Moraes by the Federal Revenue after he ordered the agency to track in its systems whether justices, their relatives and the attorney general, Paulo Gonet, had their data accessed improperly.

The Federal Revenue checked whether information had been accessed on the ten Supreme Court justices and on relatives such as parents, children, siblings and spouses. The audit covered about 100 individuals who may have had their information accessed unlawfully, Folha de S.Paulo reported.

Tuesday’s searches followed a request from the Office of the Prosecutor General (PGR). The agency said the conduct of the Federal Revenue employees may constitute the crime of breach of official secrecy. It added that other offenses may have been committed, since the tax information was allegedly used to create “artificial suspicions” against STF members.

“The case goes beyond individual breach of tax secrecy, since the fragmented and selective exploitation of confidential information of public authorities, disclosed without context and without judicial oversight, has been instrumentalized to produce artificial suspicions that are difficult to dispel,” the PGR said in requesting the searches.

The Federal Revenue issued two statements on the investigation. In the first, it said it does not “tolerate misconduct,” especially involving tax secrecy, and noted it had already been investigating irregular access to data of justices and their relatives.

“On January 12 this year, the STF requested that the Federal Revenue conduct an audit of its systems to identify irregularities in access to data of the Court’s justices, relatives and others over the past three years. The work was included in a procedure that had already been opened the previous day by the Federal Revenue’s Internal Affairs Office based on reports published in the press,” one statement said.

In a second note, the Federal Revenue clarified that no irregular access was identified to the confidential tax data of Attorney General Paulo Gonet and his relatives. “The Federal Revenue was asked to provide access data for all STF justices, the attorney general and their relatives. In other words, an audit of all was requested, but this does not mean that there was access to the tax data of all,” it said.

Internal backlash

The tracking of potential unlawful breaches of secrecy comes amid the crisis triggered by the liquidation of Banco Master and investigations into an alleged multibillion-real fraud scheme at the bank, which are being handled by the Supreme Court.

During the probe, O Globo reported that Master hired the law firm of lawyer Viviane Barci, Justice Moraes’s wife, for monthly payments of R$3.6 million. The total amount, about R$130 million, was allegedly not paid due to the bank’s liquidation.

Behind the scenes, amid criticism in Congress that the case should not be used to overshadow the crisis facing the STF, members of the court disagreed over Moraes’s order. Some said the decision lacks legal basis. “This is the same as breaching secrecy in one’s own cause and rummaging through the lives of countless people,” one justice said.

Another justice said the order makes “no legal sense.” In his view, the decision is broad and covers all ten members of the current composition of the court. “If that is the case, who would be competent [to issue the order]? The Pope?” he quipped.

A third justice said Moraes is merely seeking to determine whether there were unlawful breaches of secrecy against justices, which is not the same as accessing colleagues’ tax data.

He noted, however, that the timing is far from ideal, as the STF has been in the headlines weekly and has not yet recovered from an internal crisis sparked by the possible recording of a secret meeting that discussed the rapporteurship of the Master case.

Contacted, Justice Moraes did not comment on the remarks before publication.

In a statement, the National Association of Federal Tax Auditors of the Brazilian Federal Revenue (Unafisco) expressed “concern” over the precautionary measures imposed on the suspects, arguing that the investigation remains at an early stage.

“The entity defends that any irregularities be rigorously investigated, but with observance of due process of law, the presumption of innocence and proportionality. Extreme precautionary sanctions require robust grounds and consistent evidentiary support, especially when there is not yet a definitive technical conclusion,” it said.

*By Tiago Angelo, Beatriz Olivon, Gabriel Shinohara, Estevão Taiar and Mariana Andrade, Valor — Brasília

Source: Valor International

https://valorinternational.globo.com/

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Brazil’s major banks raise provisions, adopt cautious tone for 2026

Combined profit of Itaú, Bradesco, Santander and Banco do Brasil fell 4.4% to R$107.8bn, dragged down by BB’s agriculture losses

 

 

 

02/13/2026 

Brazil’s largest banks are entering 2026 with a more cautious stance after a slower 2025, marked by a modest credit expansion, higher loan-loss provisions, partly due to regulatory changes, and relatively stable default levels. With interest rates still high and presidential elections on the horizon, financial institutions see challenges ahead.

Itaú Unibanco, Bradesco, Santander, and state-controlled Banco do Brasil (BB) ended last year with a combined profit of R$107.8 billion, down 4.4% from 2024. However, the consolidated figure masks stark differences.

BB was the main drag on performance, with its profit plummeting 45.5% due to losses in agribusiness. If only private-sector banks are considered, the combined profit would have grown 16.4%.

Gross financial margin for the four institutions rose 6.4% to R$362.6 billion. But provisions for bad loans surged 22.7% to R$170.2 billion, driven by two main factors. There was a deterioration in asset quality, requiring banks to beef up their loss reserves.

In addition, a regulatory change played a role. Under Resolution 4,966, the Central Bank mandated a new accounting model based on expected credit losses, forcing banks to increase their cushions as they anticipate credit deterioration.

BB’s defaults

Last year, delinquency rates among the country’s largest banks remained mostly stable, except at BB. While the market average rose from 3% at the end of 2024 to 4.1% in late 2025, the large banks saw little change.

Itaú’s rate fell 0.1 percentage point, Bradesco’s rose 0.1 point, and Santander’s increased 0.5 point. BB stood out, with its delinquency rate jumping 2 points to 5.17%. The bank posted deterioration across all segments, but was hit especially hard by agribusiness losses and a specific corporate case.

The four publicly listed banks also slowed credit growth. Their combined loan portfolio reached R$4.58 trillion in 2025, a 5.8% increase, well below the national financial system’s average growth of 10.2%.

For 2026, a similar scenario is expected, with major banks maintaining a more conservative approach than the broader market. This trend is reflected both in their forecasts and in statements from executives.

Election-year caution

The Central Bank projects 8.6% credit growth in 2026. Itaú’s guidance ranges from 5.5% to 9.5% (7.5% at the midpoint); Bradesco expects between 8.5% and 10.5% (9.5% midpoint); BB forecasts just 0.5% to 4.5% (2.5% midpoint). Santander does not provide public guidance but has adopted a more cautious tone than its peers.

Itaú expects higher profit and sustained strong return on equity in 2026. Asked whether the bank’s guidance was too conservative, CEO Milton Maluhy Filho said it was not defensive, but rather “realistic,” especially in an election year, which tends to bring heightened uncertainty. “It wouldn’t make sense to aggressively expand credit and later have to pull back. But if we see opportunities and can deliver more, we will,” he said.

Santander CEO Mario Leão said the key is to grow in the segments the bank has prioritized, even if it means losing share in others. “I chose to grow in high-income clients and small and midsize companies. In those two segments, I need to grow disproportionately,” he noted.

Santander’s CFO, Gustavo Alejo, said the bank expects more pressure on provisions in portfolios like agribusiness and small businesses. These sectors are more sensitive to the base interest rate, which is expected to remain high even as the rate-cutting cycle begins.

“Given that we’re still in a high-Selic [base rate] environment, it’s only natural to see pressure,” Alejo said. “Obviously we’re working to reduce that pressure, and we’re preparing for it.”

Bradesco sees traction; BB to focus on retail

Recovering and executing its strategic plan, Bradesco appears more “geared up,” as CEO Marcelo Noronha put it. “We’re seeing commercial traction, important credit growth, and potential for market share gains in specific segments.”

MNoronha is optimistic about the macroeconomic outlook. With inflation under control, he said, the Selic rate could fall to 12% by year-end. “That’s our horizon. I see Brazil moving forward, unemployment is under control, and we’re still optimistic, not pessimistic.”

At Banco do Brasil, the plan is to expand its retail portfolio, which has better risk-adjusted returns, while corporate and agribusiness lending is expected to remain flat. Overall credit growth at BB will be less than a third of the market average.

BB CEO Tarciana Medeiros said Thursday (12) that 2025 was the most challenging year in her 26-year career at the bank, largely due to agribusiness losses stemming from Resolution 4,966 and a wave of bankruptcy filings.

Still, she noted that even with nearly R$80 billion in provisions, BB posted a profit of R$20.7 billion and delivered on its guidance, which was revised twice during the year.

“[The year] 2026 will also be challenging,” Medeiros said. “But it will be a challenge we’ve already learned how to manage.”

*By Álvaro Campos and Lais Godinho — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Administrative reform back on agenda after perks get suspended

Suspension of salary add-ons by Supreme Court justice puts controversial issue back on radar in election yea

 

 

 

02/13/2026

Seen as off the table in this election year, the administrative reform bill reported by Federal Deputy Pedro Paulo (Social Democratic Party, PSD, Rio de Janeiro) gained political momentum after Justice Flávio Dino suspended the payment of salary add-ons across the three branches of government. The decision also set a 60-day deadline for drafting a general law, applicable to all branches and levels of government, to regulate indemnity payments.

Many of these indemnities, some not provided for by law, have been used to pay compensation above the constitutional cap of R$46,366.19. Administrative reform is considered an important measure to curb “supersalaries” and increase public sector efficiency.

The implicit message of the ruling is that if Congress does not decide on the issue, the Supreme Court will, Paulo told Valor. “Then it makes no sense to complain that the Supreme Court is encroaching on legislative powers,” he said. According to the congressman, the Legislature will be forced to address civil service pay twice this year: first, to comply with Dino’s injunction; then, to review possible vetoes by President Lula (Workers’ Party, PT) to bills approved this month granting raises to legislative staff and establishing a compensatory leave that allows employees to exceed the civil service pay cap.

Lula is considering vetoing the new perks, according to sources. Ten civil society organizations sent a joint letter urging the president to block the compensatory leave for the Legislature and similar benefits approved last December for the Federal Court of Accounts (TCU).

“My proposal largely contains what is in Justice Dino’s ruling,” Paulo said. “The definition of indemnity payments he calls for is basically the same as in my proposal.”

Politically, Dino’s decision “removed the biggest obstacle” in the administrative reform, the congressman said. Regulating payments above the salary cap had generated the strongest resistance in Congress. Now, that discussion has shifted to the Supreme Court.

With that, the remaining, less controversial aspects of the reform have a better chance of advancing, he said. The proposal reduces the number of civil service career tracks, sets a minimum of 20 pay progression levels, and establishes that entry-level pay in a career cannot exceed 50% of the top salary. For states and municipalities, it limits the growth of spending by the Legislative and Judicial branches and autonomous bodies (Public Prosecutor’s Office, Courts of Accounts and Public Defender’s Office). The mechanism would be inspired by the federal fiscal framework. The reform reported by Paulo includes 70 measures distributed across a proposed constitutional amendment (PEC), a complementary bill and an ordinary bill.

Carlos Ari Sundfeld, a professor at the São Paulo Law School of the Getulio Vargas Foundation (FGV) and an expert on the subject, takes a different view. He argues that Dino’s decision addresses only one point of Pedro Paulo’s proposal—indemnities—and does not affect the rest of what he calls an “immense” package.

Regarding indemnities, the issue’s history in Congress makes him pessimistic. Bills already under consideration list which indemnities should be paid. They are criticized for effectively legitimizing many of them. In complying with Dino’s order and drafting a general law on indemnities, Congress could follow the same path. “The progress so far has not been positive,” he said. “We have not managed to produce a list that reduces indemnities, which may suggest this is not a very good approach.”

Sundfeld and Paulo agree it is important to see what the full bench of the Supreme Court decides regarding Dino’s ruling. A session is scheduled for February 25.

“They could, for example, adjust or extend the 60-day deadline,” the congressman said. The deadline applies not only to legislative regulation of indemnities but also to all bodies that pay them, which must disclose the type of payment and its recipients. The data have “nuclear war potential,” he said.

Sundfeld says it is difficult to predict what other justices will decide. They could, for example, rule that the Judiciary should be excluded from the new rules. The São Paulo Court of Justice has already filed an appeal in that direction, he noted.

“We will keep pushing,” Guilherme Cezar Coelho, founder of Republica.org, told Valor regarding administrative reform. The organization is one of the signatories of the letter to Lula requesting a veto of the new perks.

In partnership with the Movimento Pessoas à Frente, Republica.org released a study last November pointing to Brazil as a global champion of supersalaries. It shows that 0.6% of civil servants earn above the salary cap. The phenomenon is concentrated in the Judiciary, where 93% of judges and 91.5% of members of the Public Prosecutor’s Office exceeded the limit in 2023, at a cost of R$11.1 billion. By contrast, 70% of public servants earn up to R$5,000 per month.

“Legal careers concentrate supersalaries but deliver poor public services,” Coelho said. He cited a survey by think tank Instituto Sou da Paz, released last October, showing that only 36% of homicides in the country result in charges filed by prosecutors. “Two-thirds of homicides, of murders, lead nowhere,” he stressed. In Rio de Janeiro, the situation is even worse, he added. Of the 20 highest salaries paid in the country, 15 are in the building of that state’s Public Prosecutor’s Office. There, only 23% of homicides are brought before the courts.

The figures reflect an inefficient Judiciary system, he argued. Brazil scores 40 points on the World Bank’s Regulatory Quality Index, compared with 100 for Australia and Singapore, 77 for Chile and 91 for the United States. On another measure, Brazil scores 35 out of 100 on the Legal Certainty Index (Insejur).

“These two indicators, regulatory quality and legal certainty, are the responsibility of legal careers in Brazil,” he said. “Brazil is a bad place to do business because of these careers, which benefit from public service; supersalaries generate inefficiency.”

Higher wages can boost productivity when tied to measurable results or when they attract productive workers, explained Sergio Firpo, coordinator of the Insper Observatory of Public Spending Quality. “If you increase wages without either condition, if you raise pay for those already working, it is neither a recruitment effect nor linked to productivity gains,” he said. “It is just more money for those already receiving a salary.”

Civil service exams are highly competitive and bring productive individuals into public service, he noted. What is missing is linking pay to performance, as proposed by Paulo.

However, the proposal lacks support from the Ministry of Management and Innovation in Public Services. “The PEC is huge; they put a lot of things into the Constitution,” a government official told Valor. “It makes no sense to include controversial points.”

The government believes the chances of the proposal advancing are slim. Therefore, it intends to include in another bill, dealing with career restructuring, a provision establishing new criteria for career progression. This is one of the aspects of Pedro Paulo’s proposal that most interests the executive branch.

Administrative reform championed by Management Minister Esther Dweck is already under way and flying below the radar. Without proposing constitutional changes or new laws, the ministry has adopted more than 50 measures, such as lowering entry-level pay, extending career paths and implementing a more robust evaluation system that has already led to dismissals. “No constitutional amendment is needed; what is needed is action,” the minister often says.

“My criticism of the government is that it does not take a political decision on reform,” Paulo said. It seeks to avoid friction with civil service unions, part of its electoral base. “By not carrying out the reform, the government misses the opportunity to reach voters the president struggles to attract,” he said. “Imagine Lula being able to say he carried out two reforms in four years, tax and administrative.”

As previously reported by Valor, in the view of Arminio Fraga, founding partner of Gávea Investimentos and former Central Bank president, administrative reform would not have an immediate impact on public accounts. It could reduce spending by about 2 to 3 percentage points of GDP over five to ten years, provided it includes states and municipalities.

“If we look at recent years, personnel spending has been relatively controlled,” said Rafaela Vitoria, chief economist at Banco Inter. The expense stands at around 3% of GDP. “We were concerned when the Lula administration announced raises and new civil service exams.” However, spending remains at the same level. In her view, reducing this expenditure is not urgent. Instead, reform should focus on improving productivity and tightening rules on salary add-ons.

The spending item that most demands attention is social security. On this front, she notes that much of the civil service no longer retires with full pay, as in the past, but under general pension rules. Progress is still needed on pensions for military personnel and other categories left out of previous reforms.

“Administrative reform has a growing fiscal impact over time,” Paulo said. Gains would stem from disciplining supersalaries, defining spending limits by branch and constitutionalizing spending reviews. However, fiscal gains are not the proposal’s main focus, he stressed.

“When we set spending growth rules by branch, it will become a surplus for the executive, which will have more resources to invest in education and health instead of handing them over to grant raises to the judiciary, increase perks, or boost office budgets for lawmakers,” he said. “It is not necessarily an accounting surplus.”

The negative reaction to the approval of salary benefits for the Legislature “spooked politicians somewhat” and may change perceptions about administrative reform, the congressman said. “What they thought would be political wear and tear may become an asset,” he said. “Approving a measure that disciplines spending has popular appeal.”

(Edna Simão contributed reporting.)

*By Lu Aiko Otta — Brasília

Source: Valor International

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Justice exits Master case after link to owner emerges

Police cite Dias Toffoli in probe tied to Daniel Vorcaro, founder of failed bank; Supreme Court reassigns inquiry to Justice André Mendonça

 

 

 

 

02/13/2026 

After weeks of intense pressure, Supreme Court Justice Dias Toffoli stepped down on Thursday (12) from overseeing the criminal investigations involving Banco Master.

The decision came after a meeting of all 11 justices, called by Chief Justice Edson Fachin, who had opened a proceeding questioning Toffoli’s impartiality following the discovery of references to him in the phone of Daniel Vorcaro, the bank’s owner, by the Federal Police.

The matter had already been submitted to the Office of the Attorney General (PGR).

Toffoli’s departure was announced in a statement released after the meeting. The investigations into Banco Master and Vorcaro will now be handled by Justice André Mendonça, chosen through a random draw.

During the meeting, Fachin shared the findings of a report by Federal Police Director Andrei Rodrigues, which included references to Toffoli found in Vorcaro’s phone.

The meeting also addressed Toffoli’s defense. Earlier in the day, he acknowledged being a partner in Maridt, a company that sold part of its stake in the Tayayá resort to a fund connected to Fabiano Zettel, Vorcaro’s brother-in-law.

Under pressure

Valor learned that during the meeting Toffoli argued he should remain in charge of the investigation but decided to step aside after pressure from colleagues. The overall atmosphere was tense. The justice also defended himself over the issues raised in the Federal Police report. Afterward, fellow justices began presenting arguments against his continued oversight.

Once the justices supported replacing the rapporteur as a way to contain criticism of the Court, Toffoli agreed to relinquish control of the investigation. After hearing his colleagues, he no longer “dug in” to remain in charge of the proceedings.

“At the request of Justice Dias Toffoli, taking into account his prerogative to submit matters to the court’s president to ensure the proper handling of proceedings, and in view of the high institutional interests at stake, the Supreme Court presidency, after hearing all justices, accepts his communication to transfer the cases under his rapporteurship so they may be freely reassigned,” said the statement signed by all ten other justices, including Toffoli himself.

The justices unanimously agreed there were no grounds to proceed with the motion questioning Toffoli’s impartiality. The statement also said the court recognized “the full validity of the actions” taken by Toffoli in the case and expressed their “personal support” for him.

Before stepping away from the case, Toffoli took a measure investigators described as “doubling down”: on Thursday, he ordered the Federal Police to submit to the Supreme Court the full contents extracted from the phones and computers of those under investigation in the Banco Master probe, including Daniel Vorcaro.

The order called for the delivery of forensic reports on “the material in question, including telematic, digital, and telephone data.” It also included other “evidentiary elements” that had already been documented but not yet sent to the inquiry overseen by Toffoli.

The meeting was announced at the start of Thursday’s plenary session. The session ended early, and the meeting began around 4:30 p.m., paused at 7 p.m., and resumed at 8 p.m. The statement was released shortly after.

On Monday (9), Federal Police Director Andrei Rodrigues personally delivered to Fachin the report citing Toffoli. The material was based on data extracted from phones belonging to individuals under investigation in the Master case, including Vorcaro. According to a report by journalist Malu Gaspar in O Globo, the document includes phone calls between the two, an invitation to Toffoli’s birthday party, and conversations with others about payments related to the Tayayá resort.

The police did not formally request the justice’s recusal. As they are not a party to the case, they cannot do so. However, the information raised doubts about Toffoli’s continued role as rapporteur, given potential conflicts of interest and questions about impartiality.

Toffoli’s defense

Since the revelations surfaced, Toffoli issued two statements in his defense. The first, sent to reporters on Wednesday night (11), claimed the police report was based on “speculation.” In the second, issued Thursday morning, he admitted being a shareholder in Maridt, the family company that sold part of its stake in the Tayayá resort to a fund linked to Vorcaro’s brother-in-law, Fabiano Zettel. The justice denied receiving any money directly from Vorcaro or Zettel.

“Justice Dias Toffoli is part of Maridt’s shareholder structure. The company is managed by the justice’s relatives. Under the Organic Law of the Judiciary, Article 36 of Complementary Law 35/1979, a judge may be a shareholder in a company and receive dividends, but is prohibited from performing managerial duties,” said the second statement released by Toffoli’s office.

He also acknowledged that Maridt’s stake in Tayayá was sold to Zettel’s Arllen Fund on September 27, 2021. The remaining shares were sold to PHD Holding on February 21, 2025. Toffoli said in the statement he was not familiar with Arllen’s fund manager.

“The justice does not know the manager of the Arllen Fund and has never had any friendship, let alone a close friendship, with the defendant Daniel Vorcaro. Finally, the justice clarifies that he has never received any money from Daniel Vorcaro or his brother-in-law Fabiano Zettel,” the statement read.

Toffoli also said the entire transaction was “properly declared to the Federal Revenue Service” and that “all sales were made at market value.” As for the Master case, he said he only took over as rapporteur in November 2025. “By then, Maridt had long ceased to be part of the Tayayá Ribeirão Claro group,” he added.

Internal crisis

Justices said the recent revelations involving Toffoli had created a new kind of crisis within the Supreme Court.

Court members and close observers noted that the tribunal is accustomed to external pressure—such as criticism of rulings and accusations of interference in other branches—but Toffoli’s connection to the Tayayá resort and the mentions found on Vorcaro’s phone triggered an internal crisis, casting doubt on one justice’s impartiality.

Had Toffoli not stepped aside, one alternative under consideration was sending the case to a lower court. That’s because a formal ruling of bias could lead to the annulment of the justice’s decisions, delaying the conclusion of the investigation into the fraudulent credit scheme at Banco Master. The Supreme Court’s internal rules state that if bias is alleged or declared, all acts performed by the justice in question are rendered null.

In a private conversation with Valor, one justice said that while Toffoli enjoys the goodwill of his peers, “there are limits.” “He has the sympathy of the majority, but not for just anything,” the source said.

One source described the moment as “a unique situation,” saying they could not recall a similar episode involving the head of the Federal Police personally delivering evidence of a possible conflict of interest between a justice and a person under investigation.

The rise of pro-impeachment rhetoric has unsettled members of the Court. But one of them said it was too early to tell whether the situation had reached that level of severity.

Since taking over the Banco Master inquiries, Toffoli had insisted he would not step aside, even as scrutiny over his actions grew. Initially, he maintained that stance even after reports surfaced that his relatives had ties to the funds mentioned in the investigation.

*By Tiago Angelo and Giullia Colombo, Valor — Brasília

Source: Valor International

https://valorinternational.globo.com/

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Investment banking revenue hits five-year low in Brazil

Higher rates and volatility dragged revenue down 12% in 2025, but banks expect a rebound with rate cuts and IPO pipeline in 2026

 

 

02/09/2026 

Amid market volatility and weak equity activity, investment banking revenue in Brazil dropped again in 2025, falling to its lowest level in at least five years, according to data compiled for Valor by global consultancy Dealogic. Still, expectations for 2026 are more upbeat, as interest rate cuts are expected to revive activity and reopen the equity offering window.

Total investment banking revenue reached $651 million in 2025, a 12% decline from the previous year and less than half the record $1.5 billion booked in 2021.

Dealogic’s data covers mergers and acquisitions, debt, equity, and syndicated loan activity. However, investment bankers caution that the consultancy—widely used in industry rankings—does not capture all transactions. Cross-border deal fees, for example, may be booked in bank subsidiaries outside Brazil.

M&A deals generated $248 million in revenue last year, while debt transactions accounted for $325 million. Equity deals brought in $71 million, and syndicated loans added $8 million.

2026 outlook

Looking ahead, bankers are more optimistic about 2026, helped by renewed foreign capital inflows. Business owners have shown more willingness to engage, and many companies are expected to raise capital for investment.

In contrast, 2025 was marked by more structured transactions, particularly in the equity space, as highly leveraged companies sought to rebalance their finances. These deals replaced more traditional follow-on offerings.

Examples include Cosan’s share offering and Azul’s debt-to-equity conversion. Equity revenue data also includes block trades, which reached record levels last year.

With the expected start of the rate-cutting cycle, sentiment has shifted. André Moor, head of investment banking at Bradesco BBI, described 2025 as a “lean” year for capital markets in Brazil, dominated by structured deals.

He expects a more active 2026, especially in the first quarter, with a rebound in equity offerings and even initial public offerings, which have been absent from the B3 exchange for four years.

“The mindset now is to take advantage of favorable stock market conditions and fuel up for the second half of the year,” he said.

Resilient bond market

Cristiano Guimarães, head of investment banking at Itaú BBA, said 2025 turned out better than expected, thanks to a still-strong fixed-income market following a record year in 2024. “Issuance levels in the local market remained quite high,” he said. For 2026, he believes that even with the volatility of an election year, lower interest rates will help stimulate markets.

“The positive angle is that the rate-cutting cycle will likely begin. By nature, that should foster overall market development, make investments easier, and restore some business confidence. That, of course, drives both debt and equity activity,” he said.

Even with improving conditions, election years typically bring volatility, which could prompt companies to rush deals into the first half of the year.

IPO pipeline

Among IPO-ready candidates are sanitation companies such as BRK and Aegea. Other deals are heading to the U.S., where PicPay has already completed its offering to strong demand in New York, a path that Agibank is also expected to follow.

Leonardo Cabral, head of investment banking at Santander Brasil, said 2026 has started on a more optimistic note, driven by the return of equity deals and the anticipation of lower interest rates.

“There’s strong demand for Brazilian assets from a range of geographies,” he said, noting that Santander will also benefit from fees booked in 2026 from deals closed at the end of 2025.

Anderson Brito, head of investment banking at UBS BB, noted that recent years were nowhere near the levels seen during the pandemic, when liquidity was abundant and rates were at rock bottom.

But in 2026, he sees improvements across all business lines and believes risk appetite will increase after the elections. “The election removes a major uncertainty and reopens the market,” he said.

Alessandro Farkuh, head of M&A at BTG Pactual, said Brazil benefited in the second half of 2025 from a reallocation of foreign capital. BTG is entering the new year with a “robust pipeline,” he said.

On the equity side, partner Fabio Nazari said companies are pursuing IPOs both domestically and abroad. “It’s all happening in the wake of rate cuts here and overseas,” he said. “The willingness to take on risk is much higher.”

At Bank of America, Bruno Saraiva, co-head of investment banking in Brazil, said the bank is taking a more constructive view, particularly on the outlook for equity offerings both in Brazil and the U.S., especially from technology companies.

His counterpart Hans Lin added that 2026 will be a shorter year in terms of deal activity because of the elections. As a result, equity placements are expected to continue primarily via block trades, which hit a record in 2025.

At Citi in Brazil, investment banking head Antonio Coutinho said the environment turned more positive in early 2026 thanks to foreign capital flows. “Infrastructure transactions will keep coming,” he said.

*By Fernanda Guimarães — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Q4 earnings mark a turning point for Brazilian companies

Analysts expect gradual profit recovery in 2026, helped by lower interest rates and operational resilience despite a sluggish economy

 

 

02/09/2026

The fourth-quarter 2025 earnings season may mark a turning point for Brazilian companies. Despite clear signs of economic slowdown, analysts expect operational resilience, combined with an anticipated interest rate cut starting in March, to fuel a gradual recovery in earnings throughout 2026.

“The third quarter likely marked the bottom for earnings comparisons, and now we’re starting to see that bottom line accelerate,” said Daniel Gewehr, chief strategist at Itaú BBA. The bank estimates that, excluding the commodity sector, companies listed on the Ibovespa will post 5% annual growth in net income.

Still, macroeconomic conditions remain a drag. A proprietary activity indicator from Itaú BBA points to a 0.3% contraction in GDP during the fourth quarter, led by the services sector. “It’s still a challenging macro and interest rate environment, but companies are managing to deliver solid operating performance,” Gewehr noted.

XP Investimentos shares a similar view of a “slightly positive” quarter, driven more by efficiency gains than revenue expansion. For the firms under its coverage, XP projects modest 1.4% revenue growth in the fourth quarter but a robust 12.8% increase in operating profit.

“Companies have low leverage and strong cash generation, and many paid record dividends,” said Fernando Ferreira, XP’s chief strategist, noting that retail and consumer companies are more vulnerable to the economic slowdown and the still-high benchmark interest rate of 15%.

“If I had to sum it up, I’d say this will be a season of divergent results,” said Ricardo Peretti, equity strategist at Santander Brasil. “That’s a sign that companies are still operating efficiently. The results are coming less from revenue growth and more from cost reductions.”

Santander forecasts a 3% drop in aggregate net revenue and a 19% decline in total net income for companies under its coverage, driven by tough comparisons and volatility in the commodity sector. But domestic-oriented sectors paint a better picture, with the bank expecting a 12% rise in EBITDA and 4% growth in net profit.

Analysts expect a wide dispersion of results across sectors. There is broad consensus that low-income housing construction, utilities (energy and sanitation), and telecommunications will be among the top performers this earnings season.

On the downside, retail continues to suffer from high interest rates and the migration to e-commerce. Bank of America warned that the fourth quarter looks “challenging” for most retail names, with online competition, adverse weather, and aggressive pricing by e-commerce players weighing on physical stores.

Steelmakers are also likely to post weak results. Both XP and Santander flagged companies like Usiminas and CSN as underperformers due to seasonal weakness and lower domestic prices.

Mining, however—especially Vale—is expected to fare better thanks to iron ore prices holding above $100 per tonne and a rebound in copper.

Monetary easing

Beyond fourth-quarter results, markets will focus on guidance for 2026. The expected start of Brazil’s monetary easing cycle at the March meeting of the Central Bank’s Monetary Policy Committee (COPOM) is a key trigger for the stock market.

“The ideal scenario would be a ‘not too hot, not too cold’ environment, allowing for rate cuts without hitting corporate results too hard,” said Julia Nogueira, vice president of equity research at Morgan Stanley.

“Companies will highlight positive tailwinds like tame inflation and rate cuts, but they’ll also acknowledge uncertainties tied to the elections in the second half,” said Peretti of Santander. “Many will likely frontload deals into the coming months. I believe telecom firms will strike a more cautious tone rather than express full-blown optimism.”

Looking ahead to 2026, Gewehr of Itaú BBA forecasts a 20% increase in profits, driven by lower interest rates, continued GDP resilience, and stable corporate balance sheets.

XP is even more bullish, projecting 23% profit growth next year, driven by a decline in financial expenses. “Operationally, it won’t be a very strong year, but earnings should rise sharply due to the impact of lower rates on financial results,” Ferreira said.

Despite the optimism, earnings-related stock volatility could remain high, just as in recent quarters. Analysts noted that the record foreign capital inflow of R$26.3 billion could amplify such swings.

“We saw an increase in quantitative foreign funds raising their exposure to Brazilian stocks,” Ferreira said. “They tend to focus less on company fundamentals and more on whether earnings beat or missed expectations, which adds to volatility.”

Gewehr said international investors are still upbeat, attracted by global diversification and cheap valuations in Brazil in dollar terms, while domestic investors remain cautious. “The farther away geographically, the more attractive the valuation looks,” he joked, adding that emerging market investors no longer see Brazilian equities as deeply discounted.

*By Felipe Laurence — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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