Itau Unibanco Holding S.A.
) reported third-quarter 2013 recurring earnings of R$4.0 billion
($1.75 billion), up 11.1% sequentially. Including non-recurring
items, Itau Unibanco's third-quarter 2013 net income came in at
R$3.99 billion ($1.74 billion), up 11.5% sequentially.
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The sequential increase was primarily attributed to reduced
expenses for allowance of loan and lease losses and increased
managerial financial margin along with higher banking service
fees and income from banking charges. However, elevated
non-interest expenses were the headwinds.
Operating revenues of R$19.6 billion ($8.6 billion) at Itau
Unibanco in the reported quarter surged 2.1% sequentially.
Managerial financial margin jumped 1.7% sequentially to R$11.8
billion ($5.1 billion). Annualized net interest margin with
clients decreased 30 basis points sequentially to 9.1% in the
Banking Service Fees and Income from Banking Charges moved up
3.7% sequentially to R$5.6 billion ($2.4 billion). Revenues from
insurance, pension plans and capitalization operations remained
almost in line with the prior quarter at R$1.4 billion ($0.6
Itau Unibanco's non-interest expenses came in at R$8.7 billion
($3.8 billion), up 1.2% sequentially. Notably, the company
experienced a 2.7% rise in personnel expenses while
administrative expenses decreased slightly from the prior
In the quarter under review, the efficiency ratio reached 48.2%,
reflecting a decrease of 90 basis points from the prior quarter.
A decrease in the efficiency ratio reflects an upswing in
profitability. However, expenses for provisions for loan and
lease losses at Itau Unibanco decreased 8.2% on a sequential
basis to R$4.5 billion ($2.0 billion).
The nonperforming loan ratio (loan transactions more than 90 days
overdue) was 3.9% in the reported quarter, decreasing 30 basis
points sequentially. Moreover, nonperforming loans declined 5.6%
sequentially to R$15.1 billion ($6.6 billion).
Itau Unibanco's credit portfolio, including endorsements and
sureties, reached R$481.0 billion ($213.0 billion) as of Sep 30,
2013, up 2.9% from the prior quarter.
As of Sep 30, 2013, Itau Unibanco's total assets amounted to
R$1.08 trillion ($0.5 trillion), up 1.9% from the end of the
prior quarter. Assets under administration stood at R$622.4
billion ($275.6 billion), up 2.3% sequentially.
Moreover, annualized recurring return on average equity increased
to 20.9% in the reported quarter from 19.3% in the prior quarter.
The Bank for International Settlements (BIS) capital ratio was
17.5%, in line with the prior quarter.
For the year 2013, the company expects expenses for provision for
loan losses to range from R$19 billion ($9.0 billion) - R$22
billion ($10.4 billion). Moreover, non-interest expenses are
expected to increase in the range of 4% - 6%, with total credit
portfolio in the range of 8% - 11%.
Further, banking service fees and revenue of insurance, pension
plan and capitalization are expected to elevate in the range of
15% - 18%. Risk-adjusted efficiency ratio is expected to improve
200 to 400 basis points.
Itau Unibanco's diversified product mix, increasing operating
revenues and expanded credit portfolio are encouraging.
Additionally, we believe that improving asset quality remains a
positive catalyst for Itau Unibanco. However, increasing
competition, elevated expenses and the stressed conditions in the
Brazilian economy pose risks.
Itau Unibanco currently carries a Zacks Rank #3 (Hold). Some
foreign banks that are worth considering include
Deutsche Bank AG
Banco Bilbao Vizcaya Argentaria, S.A.
Credit Suisse Group AG
), all carrying a Zacks Rank #1 (Strong Buy).