Itau Unibanco (ITUB) Q3 Earnings Impress On Lower Provisions

Itau Unibanco Holding S.A. (NYSE:ITUB) posted recurring earnings of R$6.3 billion ($2.0 billion) in third-quarter 2017, up 12.5% year over year. Including non-recurring items, net income came in at R$6.1 billion ($1.9 billion), up 13% year over year.

Results displayed lower provisions, decreased expenses and a solid balance-sheet position. Lower revenues and managerial financial margin were headwinds.

Revenues Down, Costs & Provisions Fall, Capital Position Solid

Operating revenues came in at R$27 billion ($8.5 billion) in the reported quarter, down 3.4% on a year-over-year basis.

Managerial financial margin moved down 7.1% year over year to R$16.8 billion ($5.3 billion). However, commissions and fees were up 6.8% year over year to R$8.4 billion ($2.7 billion).

Non-interest expenses came in at R$11.8 billion ($3.7 billion), down 4.5% on a year-over-year basis. Moreover, expenses for provision for loan and lease losses plunged 30.6% on a year-over-year basis to R$4.3 billion ($1.4 billion).

In the quarter under review, the efficiency ratio was 47.3%, reflecting contraction of 70 basis points (bps) from the year-earlier quarter. A decrease in the efficiency ratio indicates increased profitability.

The non-performing loan ratio (loan transactions more than 90 days overdue) was 3.2% in the reported quarter, contracting 70 bps year over year. Itau Unibanco’s credit portfolio, including endorsement, private securities and sureties, reached R$539.1 billion ($169.7 billion) as of Sep 30, 2017, down 5% year over year.

As of Sep 30, 2017, Itau Unibanco’s total assets amounted to R$1.47 trillion ($0.46 trillion), up 5% from the end of the year-ago quarter. Assets under administration were R$938.5 billion ($295.5 billion), up 15% year over year.

Annualized recurring return on average equity climbed to 21.6% in the reported quarter from 19.9% recorded in the year-earlier quarter. As of Sep 30, 2017, estimated BIS III ratio came in at 14.6%, expanding 100 bps year over year.

Outlook

For 2017, the company expects loan losses and impairment in the range of R$15.5-R$18 billion. Also, non-interest expenses are anticipated to escalate in the range of 1.5-4.5%.

In addition, the total credit portfolio is projected in the range of 0.0-4.0%, while commissions and fees are likely to climb 0.5-4.5%. Managerial financial margin with clients is estimated in the range between -4.2% and -0.8%.

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 this, the merger with CorpBanca has fortified its footprint in Latin America. Nevertheless, heightening competition, reduced revenues and stressed conditions in the Brazilian economy pose significant risks.

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 (NYSE:DB) reported net income of €649 million ($762.6 million) in third-quarter 2017, significantly up on a year-over-year basis. Income before income taxes grew 50.7% year over year to €933 million ($1.1 billion). Cost management and reduction in provisions were positive factors. However, lower revenues due to trading slump were an undermining factor. Notably, net new money inflows were recorded during the quarter.

UBS Group AG (NYSE:UBS) reported third-quarter 2017 pre-tax operating profit of CHF 1.51 billion ($1.56 billion) on an adjusted basis, up around 16% from the prior-year quarter. Results displayed increase in operating income on the back of higher net fee and commission income (up 5% year over year), partially offset by lower net interest income (down 2%) along with lower trading income (down 1%) and other income (down 40%). Notably, the quarter benefited from the company’s consistent focus on expense management.

Barclays (LON:BARC) PLC’s (NYSE:BCS) third-quarter 2017 net income attributable to ordinary equity holders was £583 million ($763.1 million), reflecting a significant improvement from £190 million reported in the prior-year quarter.

Wall Street’s Next Amazon (NASDAQ:AMZN)

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>