Itau Unibanco Holding S.A.
) reported second-quarter 2013 recurring earnings of R$3.6
billion ($1.74 billion), up 2.9% sequentially. Including
non-recurring items, Itau Unibanco's second-quarter 2013 net
income came in at R$3.58 billion ($1.73 billion), marginally
higher than the prior-quarter earnings of R$3.47 billion ($1.73
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The sequential increase was primarily attributed to stable
expenses for allowance of loan and lease losses and increased
managerial financial margin with clients along with higher
banking service fees and income from banking charges. However,
decreased financial margin with market and elevated non-interest
expenses were the headwinds.
Operating revenues of R$19.2 billion ($9.3 billion) at Itau
Unibanco in the reported quarter surged 2.1% sequentially.
Managerial financial margin jumped 0.9% sequentially to R$11.6
billion ($5.6 billion). Net interest margin with clients
increased 30 basis points sequentially to 9.4% in the reported
Banking Service Fees and Income from Banking Charges moved up
5.9% sequentially to R$5.4 billion ($2.6 billion). Revenues from
insurance, pension plans and capitalization operations increased
5.7% sequentially to R$1.4 billion ($0.7 billion).
Itau Unibanco's non-interest expenses came in at R$8.6 billion
($4.2 billion), up 3.6% sequentially. Notably, the company
experienced a 2.4% rise in personnel expenses and administrative
expenses surged 6.9% from the prior quarter, primarily impacted
by elevated marketing expenses and higher expenses with
In the quarter under review, the efficiency ratio reached 49.1%,
reflecting an increase of 110 basis points from the prior
quarter. An increase in the efficiency ratio reflects a decline
in profitability. However, expenses for provisions for loan and
lease losses at Itau Unibanco decreased slightly on a sequential
basis to R$4.9 billion ($2.4 billion).
The nonperforming loan ratio (loan transactions more than 90 days
overdue) was 4.2% in the reported quarter, decreasing 30 basis
points sequentially. Moreover, nonperforming loans declined 5.3%
sequentially to R$16.0 billion ($7.7 billion).
Itau Unibanco's credit portfolio, including endorsements and
sureties, reached R$445.1 billion ($215.3 billion) as of Jun 30,
2013, inching up 2.5% from the prior quarter.
As of Jun 30, 2013, Itau Unibanco's total assets amounted to
R$1.06 trillion ($0.5 trillion), up 2.9% from the end of the
prior quarter. Assets under administration stood at R$608.5
billion ($294.4 billion), up 4.6% sequentially.
Moreover, annualized recurring return on average equity increased
to 19.3% in the reported quarter from 19.1% in the prior quarter.
The Bank for International Settlements (BIS) capital ratio was
17.5%, down 20 basis points sequentially.
For the year 2013, the company expects expenses for provision for
loan losses to range from R$19 billion ($9.2 billion) - R$22
billion ($10.7 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
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
BBVA Banco Franc
Sumitomo Mitsui Financial Group Inc.
) with a Zacks Rank #1 (Strong Buy) while
Mitsubishi UFJ Financial Group, Inc.
) with a Zacks Rank #2 (Buy).