Itau Unibanco Holding S.A.
) reported fourth-quarter 2012 recurring earnings of R$3.5
billion ($1.7 billion), up 2.9% sequentially but down 5.4% year
over year. The company continued to experience elevated levels of
provisions for loan losses.
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Including non-recurring items, Itau Unibanco's fourth-quarter
2012 net income came in at R$3.49 billion ($1.7 billion),
slightly above the prior-quarter earnings of R$3.37 billion ($1.7
billion) but below the year-ago earnings of R$3.68 billion ($2.0
For full year 2012, recurring earnings were R$14.0 billion ($7.2
billion), down 4.1% year over year. Moreover, net income stood at
R$13.6 billion ($7.0 billion), down 6.8% year over year.
Operating revenues of R$19.9 billion ($9.7 billion) at Itau
Unibanco in the reported quarter were up 2.1% sequentially and
1.5% year over year. The sequential decline primarily reflected a
fall in the financial margin, impacted by a drop in the SELIC
Moreover, the company experienced reduced growth of higher risks
and spread portfolios. Yet, the declines were partly mitigated by
a sequential drop in provisions for loan losses, though
non-interest expenses recorded a sequential upsurge.
Managerial financial margin slipped 3.1% sequentially and 4.6%
year over year to R$12.4 billion ($6.0 billion). Net interest
margin with clients dipped 110 basis points sequentially and 150
basis points year over year to 9.5% in the reported quarter,
mainly due to the decrease in the SELIC rate, reduction in cash
due to the acquisition of a minority interest in Redecard and
higher growth in the loan portfolio of lower risk and spread.
Banking Service Fees and Income from Banking Charges moved up 10%
sequentially to R$5.5 billion ($2.7 billion). Moreover, it
advanced 7.8% year over year. Revenue from insurance, pension
plans and capitalization operations rose 6.7% sequentially and
14.3% year over year to R$1.6 billion ($0.8 billion).
Itau Unibanco's non-interest expenses were R$8.5 billion ($4.1
billion) in the reported quarter, up 4.9% sequentially but down
slightly on a year-over-year basis. Notably, the company
experienced a 4.7% increase in administrative expenses though
personnel expenses dropped 2.2% from the prior quarter.
In the quarter under review, the efficiency ratio reached 46.6%,
reflecting an increase of 110 basis points from the prior
quarter. The expenses for provisions for loan losses at Itau
Unibanco decreased 3.4% sequentially but moved up 3.6% year over
year to R$5.7 billion ($2.8 billion).
The nonperforming loan ratio (loan transactions more than 90 days
overdue) was 4.8% in the reported quarter, decreasing 30 basis
points sequentially and 10 basis points year over year.
Itau Unibanco's credit portfolio, including endorsements and
sureties, reached R$426.6 billion ($206.9 billion) as of Dec 31,
2012, inching up 2.2% from the prior quarter and 7.5% from the
As of Dec 31, 2012, Itau Unibanco's total assets amounted to
R$1.0 trillion ($0.5 trillion), up 5.6% from the end of the prior
quarter and 19.1% from the comparable prior-year period.
Moreover, annualized recurring return on average equity increased
to 19.3% in the reported quarter from 18.5% in the prior quarter
and 21.8% in the year-ago quarter. The Bank for International
Settlements (BIS) capital ratio was 16.7%, down 80 basic points
sequentially but up 30 basis points year over year.
For the year 2013, the company expects expenses for provision for
loan and lease losses to range between R$19 billion ($9.4
billion) and R$22 billion ($10.8 billion). Moreover, non-interest
expenses are expected to improve in the range of 4% to 6%, while
total credit portfolio to grow in the range of 11% to 14%.
During 2012, Itau Unibanco acquired 49.98% of Redecard through a
Tender Offer completing the purchase of 100% shares. The total
amount invested in the acquisition of Redecard's outstanding
shares was R$11.75 billion.
In Oct 2012, Itau Unibanco sold its remaining stake of 601,403
shares of Serasa to Experian. Therefore, the company experienced
an income before taxes of R$1.5 billion in the fourth quarter of
Moreover, through the association with Banco BMG S.A.,
established on Jul 9, 2012, Itau Unibanco targets to achieve a
leading position in the offer, distribution and sale of payroll
loans in Brazil. The company expects more significant results
from this deal in the first quarter of 2013.
Though Itau Unibanco's diversified product mix, growing service
fees, cost control and expanded credit portfolio are encouraging,
we believe that weak asset quality remains a major concern for
Itau Unibanco. Given the company's rapid loan growth over the
last six years and expansion into lower-income markets, we expect
asset quality metrics to remain stretched in the upcoming
In addition to asset quality concerns, increasing competition and
the stressed conditions in the Brazilian economy pose risks.
Itau Unibanco currently carries a Zacks Rank #3 (Hold). Among
other foreign banks,
Westpac Banking Corporation
Credit Suisse Group
) carry a Zacks Rank #2 (Buy).