On Feb 13, 2013, we uplifted our long-term recommendation on
Itau Unibanco Holding S.A.
) to 'Neutral' from 'Underperform' attributed to the completion
of the acquisition of Redecard along with improved earnings
Though its diversified product mix and cost control efforts
are encouraging, we believe that the low interest rate
environment and weak asset quality remains a major concern for
growth of its profitability.
Why the Upgrade?
On Feb 5, 2013, Itau Unibanco reported fourth-quarter 2012
recurring earnings of R$3.5 billion ($1.7 billion), up 2.9%
sequentially. Operating revenues of R$19.9 billion ($9.7 billion)
at Itau Unibanco were up 1.8% sequentially.
The sequential upsurge was driven by the increase in banking
service fees and income from banking charges and insurance
operations, which was offset by the decrease in financial margin
with clients, and the decrease of 6.5% in loan and retained claim
losses, net of recovery.
BANCO BILBAO VZ (BBVA): Free Stock Analysis
BANK MONTREAL (BMO): Free Stock Analysis
BANCO ITAU -ADR (ITUB): Free Stock Analysis
SHINHAN FIN-ADR (SHG): Free Stock Analysis
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Following the earnings announcement, the Zacks Consensus Estimate
for 2013 has gone up 0.6% to $1.70 per share. With the upswing in
the Zacks Consensus Estimate for 2013, the company now has a
Zacks Rank #3 (Hold).
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. Therefore, the acquisition enables
Itau Unibanco in offering products and services to the bank's
clients and expanding business to a number of Brazilian
Moreover, the company has made sufficient progress in controlling
costs, with the efficiency ratio falling to 45.4% in 2012 from
51.2% in 2007. Such efforts to improve the bottom line augur well
Other Major Foreign Banks to Consider
Besides HSBC, other foreign banks that are currently performing
Banco Bilbao Vizcaya Argentaria, S.A.
Bank of Montreal
Shinhan Financial Group Company Limited
). All these companies carry a Zacks Rank #1 (Strong Buy).