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Banco Bradesco expects to raise ex-HSBC Brazil clients profitability

(Recasts with comments on ex-HSBC clients, profitability metrics)

By Carolina Mandl

SAO PAULO, Nov 1 (Reuters) - Banco Bradesco SA, Brazil's second-largest private lender, expects to boost the profitability next year of retail clients acquired in its purchase of the local unit of HSBC Holdings Plc, Chief Executive Octavio de Lazari said on Thursday.

Bradesco bought HSBC's Brazil operations in August 2015 for $5.2 billion reais — as the seller joined a string of foreign lenders departing one of the world's most concentrated banking markets. The deal increased Bradesco's assets by 16 percent and added 5 million clients.

Lazari said the profitability of former HSBC clients is still just 86 percent of legacy Bradesco customers. To close the gap, Bradesco could raise fees next year, after the expiration of an antitrust ruling regarding the acquisition.

By contrast, corporate clients inherited from HSBC already surpass the profitability of their legacy Bradesco peers.

Extracting better returns from the HSBC deal is part of Lazari's strategy to increase the bank's profitability in the coming quarters.

"If loan growth rebounds, Bradesco's return on equity may reach up to 21 percent," he told analysts. The Osasco-based bank posted a return on equity of 19 percent in the third quarter, 0.6 percentage point above the same quarter one year earlier.

By that measure Bradesco trails its two biggest private-sector rivals, Itaú Unibanco Holding SA and Banco Santander Brasil SA.

Preferred shares of Bradesco were up about 5 percent in afternoon trading, one of the biggest gains on the benchmark Bovespa stock index.

Earlier on Thursday, Bradesco reported a 13.7 percent rise in third-quarter profit from a year earlier to 5.47 billion reais ($1.48 billion), roughly in line with analysts' estimates, on lower loan losses with improved asset quality.

"Not only were earnings strong, but the main operating trends also improved: loan growth, margins and asset quality," said Itaú BBA analyst Thiago Batista.

Amid Brazil's gradual economic recovery, Bradesco's default ratio over 90 days is also likely to fall in the coming quarters, Lazari added. The default ratio slipped 0.3 percentage point from the second quarter to 3.63 percent.

Lazari said loan growth is likely to speed up next year.

Bradesco's loan book grew 7.5 percent in the 12 months through September, ahead of a target range of 3 percent to 7 percent for the 2018 calendar year due in part to a weaker Brazilian currency.

($1 = 3.6883 reais) (Reporting by Carolina Mandl; Additional reporting by Paula Laier Editing by Jeffrey Benkoe and Steve Orlofsky)