Itau Unibanco (ITUB) Q3 Earnings Impress on High Revenues

Itau Unibanco Holding S.A.ITUB posted recurring earnings of R$6.5 billion ($1.65 billion) in third-quarter 2018, up 3.2% year over year. Including non-recurring items, net income came in at R$6.3 billion ($1.6 billion), up 3.3% year over year.

Results display higher revenues, lower provisions, improved managerial financial margin and a solid balance-sheet position. However, elevated expenses were headwinds.

Revenues Improve, Provisions Fall, Costs Up

Operating revenues came in at R$27.9 billion ($7.1 billion) in the reported quarter, up 3.3% on a year-over-year basis.

Managerial financial margin advanced 3.6% year over year to R$17.4 billion ($4.4 billion). Further, commissions and fees were up 3.3% year over year to R$8.6 billion ($2.2 billion).

Non-interest expenses came in at R$12.6 billion ($3.2 billion), up 7% on a year-over-year basis. However, expenses for provision for loan and lease losses fell 8.8% year over year to R$3.9 billion ($0.99 billion).

In the quarter under review, the efficiency ratio was 48.8%, reflecting expansion of 150 basis points (bps) from the year-earlier quarter. An increase in this ratio indicates decreased profitability.

The non-performing loan ratio (loan transactions more than 90 days overdue) came in at 2.9% in the Jul-Sep quarter, contracting 30 bps year over year. Itau Unibanco's credit portfolio, including endorsement, private securities and sureties, reached R$636.4 billion ($160.8 billion) as of Sep 30, 2018, up 10.6% year over year.

As of Sep 30, 2018, Itau Unibanco's total assets amounted to R$1.61 trillion ($0.4 trillion), up 9.5% from the end of the year-ago quarter. Assets under administration were R$1.09 trillion ($0.27 trillion), up 16.2% year over year.

Annualized recurring return on average equity declined to 21.3% in the reported quarter from 21.6% recorded in the year-earlier quarter. As of Sep 30, 2018, estimated BIS III ratio came in at 13.8% compared with 14.6% in the prior-year quarter.


For 2018, including the impact of Citibank's operations, the company expects costs of credit in the R$12-R$16 billion band. Also, non-interest expenses are expected to escalate in the band of 0.5-3.5%.

In addition, the total credit portfolio is projected at 4-7%, while commissions and fees are likely to be up 5.5-8.5%. Managerial financial margin with clients is estimated between -0.5% and 3%. Financial marginal with the market is estimated between R$4.3 and R$5.3 billion. Effective tax rate is estimated in the 33.5-35.5% range.

Our Viewpoint

Results of Itau Unibanco highlight an encouraging quarter. Furthermore, the company's future prospects look encouraging as it remains focused on building strategies to expand inorganically. In addition to these, the merger with CorpBanca has fortified its footprint in Latin America, while acquiring Citibank's operations has fueled growth.

Nevertheless, heightening competition, flaring up expenses and stressed conditions in the Brazilian economy pose significant risks.

Itau Unibanco Holding S.A. Price, Consensus and EPS Surprise

Itau Unibanco Holding S.A. Price, Consensus and EPS Surprise | Itau Unibanco Holding S.A. Quote

Itau Unibanco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Competitive Landscape

Deutsche Bank AG DB reported net income of €229 million ($267.4 million) in the Sep-end quarter, which tanked 64.7% from year-ago quarter. Income before taxes plunged 45.8% to €506 million ($590.9 million). Lower revenues and higher expenses were the key undermining factors. Notably, net asset outflows were recorded during the quarter. However, strong capital position and lower provisions were the main positives.

UBS Group AG UBS reported third-quarter 2018 net profit attributable to shareholders of CHF 1.2 billion ($1.2 billion), up around 31.7% from the prior-year quarter. Results display rise in net fee and commission income (up 3% year over year) and lower net interest income (down 4% year over year). Further, the company's performance in the quarter reflects lower expenses.

Among other foreign banks, Credit Suisse CS will report September quarter-end results on Nov 1.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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