Itau Falls to Three-Month Low on Drop in Banking Fees

Itau Unibanco Holding SA (ITUB4) fell to the lowest in more than three months in Sao Paulo trading after reporting a drop in third-quarter revenue from service fees and a decline in net interest income.

Itau, Latin America’s largest bank by market value, slid 3.2 percent to 28.42 reais at 5:08 p.m., the lowest price since July 12. Banco Bradesco SA (BBDC4), the region’s second-biggest bank, declined 1.1 percent to 31.41 reais.

Brazil’s banks have been reducing consumer borrowing costs after President Dilma Rousseff stepped up pressure to cut interest rates. Sao Paulo-based Itau, led by Chief Executive Officer Roberto Setubal, 58, said banking fees declined to 5.01 billion reais ($2.47 billion) in the third quarter, down 0.9 percent from the previous three months and up 4.4 percent from a year earlier, according to a regulatory filing today.

“We still see the results as negative for the stock,” Carlos Firetti, an analyst at Bradesco BBI in Sao Paulo, wrote in a note to clients today. “The negative highlights were weaker fee revenues and weaker net interest income before provisions, impacted by the lower Selic rate,” he said, referring to the central bank’s benchmark rate.

Itau’s net interest income fell to 12.8 billion reais in the third quarter, down from 13.5 billion reais in the second quarter and 12.9 billion reais a year earlier.

Recurring net income, which excludes one-time charges, declined to 3.41 billion reais in the third quarter, or 0.76 reais a share, from 3.94 billion reais, or 0.87 reais, a year earlier, the bank said. That compares with the 0.77 real-per- share median estimate of 10 analysts surveyed by Bloomberg.

Late Payments

The bank’s delinquency rate fell to 5.1 percent at the end of September from 5.2 percent in the second quarter. The rate was 4.7 percent a year earlier. Itau expects default rates to continue declining in the fourth quarter as Brazil’s economy expands at a faster pace, Rogerio Calderon, the head of investor relations, told reporters today.

Brazilian borrowers have been delaying debt payments because of the slowing economy, prompting the central bank to cut interest rates to a record low over the past year. Itau set aside 5.94 billion reais for bad loans in the quarter, down from 5.99 billion reais in the previous three months and higher than the 4.97 billion reais in the year-earlier period.

Itau’s loan book increased 9.3 percent to 417.6 billion reais at the end of September from a year earlier. The bank reduced its portfolio of auto loans to 54 billion reais, down 4.5 percent from the second quarter and 10 percent from the previous year.

Credit Growth

The lender expects credit to expand 9 percent to 10 percent this year, Calderon said. He forecast 10 percent in July, and 14 percent to 17 percent in February.

“We think Itau’s revenues are being negatively impacted by weak loan growth and a sharp drop in market rates,” Mario Pierry, an analyst at Deutsche Bank AG in Sao Paulo, wrote in a note to clients today.

Total assets reached 960.2 billion reais, up almost 15 percent from a year earlier.

Itau said it agreed to sell a 16.1 percent stake in Serasa, a Brazilian consumer credit-rating firm, for 1.7 billion reais to Experian Plc (EXPN), according to a separate regulatory filing today. Last month, the lender paid 11.8 billion reais to buy out card-payment processor Redecard SA.

Itau’s board approved the buyback of as much as 13.7 million voting shares and 86.3 million of preferred shares through November 2013, according to a regulatory filing.

To contact the reporter on this story: Francisco Marcelino in Sao Paulo at mdeoliveira@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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