Itau Unibanco Holding S.A.ITUB gained around 1.47% on the NYSE following its fourth-quarter 2016 earnings release. The company posted recurring earnings of R$5.8 billion ($1.8 billion), up 1.8% year over year. Including non-recurring items, net income came in at R$5.5 billion ($1.7 billion), down 3.5% year over year.
Results reflected lower managerial financial margin, reduced revenues and higher expenses. However, the quarter highlighted a solid balance-sheet position.
For 2016, recurring earnings came in at R$22.2 billion ($6.8 billion), down 6.7% year over year. Including non-recurring items, net income came in at R$21.6 billion ($6.6 billion), down 7.7% year over year.
Revenues Down, Costs Rise; Strong Capital Position
For 2016, operating revenues were R$108.3 billion ($33.0 billion) in the reported quarter, almost in line on a year-over-year basis.
Operating revenues came in at R$27.4 billion ($8.3 billion) in the reported quarter, down 2.1% on a year-over-year basis.
Managerial financial margin decreased 2.8% year over year to R$17.3 billion ($5.2 billion). Annualized net interest margin with clients came in at 9.6%, down from 10.2% in the prior quarter.
However, commissions and fees were up 1.4% year over year to R$8.0 billion ($2.4 billion).
Non-interest expenses came in at R$11.9 billion ($3.6 billion), slightly up on a year-over-year basis. Yet, expenses for provision for loan and lease losses declined 8.5% on a year-over-year basis to R$5.8 billion ($1.8 billion).
In the quarter under review, the efficiency ratio was 47.5%, exhibiting an expansion of 120 basis points (bps) from the prior-year quarter. An increase in the efficiency ratio indicates decreased profitability.
The non-performing loan ratio (loan transactions more than 90 days overdue) was 3.4% in the reported quarter, advancing 20 bps year over year. Itau Unibanco's credit portfolio, including endorsement, private securities and sureties, reached R$598.4 billion ($183.8 billion) as of Dec 31, 2016, down 11% year over year.
As of Dec 31, 2016, Itau Unibanco's total assets amounted to R$1.43 trillion ($0.44 trillion), down 2.7% from the end of the year-ago quarter. Assets under administration were R$903.7 billion ($277.5 billion), up 18.1% year over year.
Annualized recurring return on average equity decreased to 20.7% in the reported quarter from 22.1% in the year-earlier quarter. As of Dec 31, 2016, estimated BIS ratio was 14.0%, up 40 bps year over year.
Outlook
For 2017, the company expects loan losses and impairment in the range of R$14.5-R$17 billion. Moreover, non-interest expenses are anticipated to increase in the range of 1.5%-4.5%.
Moreover, the total credit portfolio is projected between 0.0% and 4.0%, while commissions and fees are likely to climb 0.5%-4.5%. Managerial financial margin with clients is estimated in the range between -4.0% and -0.5%.
Our Viewpoint
Results of Itau Unibanco do highlight a decent quarter. Moreover, the company's growth prospects look encouraging as it remains focused on building strategies to expand inorganically. In addition, the merger with CorpBanca has fortified the company's footprint in Latin America. Nevertheless, increasing competition, elevated expenses and stressed conditions in the Brazilian economy pose significant risks.
Itau Unibanco Banco Holding SA Price
Itau Unibanco Banco Holding SA Price | Itau Unibanco Banco Holding SA Quote
Itau Unibanco currently carries a Zacks Rank #4 (Sell). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Competitive Landscape
Deutsche Bank AG DB reported net loss of €1.9 billion ($2.05 billion) in fourth-quarter 2016 compared with the loss of €2.1 billion in the prior-year quarter. Loss before income taxes came in at €2.4billion ($2.6 billion), compared with the loss of €2.7 billion in the year-earlier quarter.
UBS Group AG UBS reported fourth-quarter 2016 pre-tax operating profit of CHF 1.11 billion ($1.11 billion) on an adjusted basis, up 46.6% from the prior-year quarter. While results reflected increase in net trading income, they recorded a decline in net fee and commission income. Notably, the quarter benefited from the company's consistent focus on expense management.
Another foreign bank - The Royal Bank of Scotland Group plc RBS - is expected to release results around Feb 24.
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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.
