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Itau’s Earnings Beat Estimates as Rate Cut Eases Bad Loans

Itau Unibanco Holding Chief Executive Officer Roberto Setubal said last month that profit may rise 15 percent next year as interest-rate cuts ease the burden on borrowers and reduce delinquencies.  Photographer: Paulo Fridman/Bloomberg
Itau Unibanco Holding Chief Executive Officer Roberto Setubal said last month that profit may rise 15 percent next year as interest-rate cuts ease the burden on borrowers and reduce delinquencies. Photographer: Paulo Fridman/Bloomberg

Nov. 1 (Bloomberg) -- Itau Unibanco Holding SA, Brazil’s biggest bank by market value, reported a 25 percent increase in third-quarter profit after reducing bad-loan provisions, beating analysts’ estimates.

Adjusted net income, which excludes one-time items, climbed to 3.94 billion reais ($2.3 billion), or 87 centavos per share, from 3.16 billion reais, or 70 centavos, a year earlier, the Sao Paulo-based bank said today in a filing. The average estimate of eight analysts surveyed by Bloomberg was 3.65 billion reais.

The bank reduced provisions for bad loans to 4.97 billion reais in the third quarter from 5.1 billion reais in the second quarter. Chief Executive Officer Roberto Setubal said last month that profit may rise 15 percent next year as interest-rate cuts ease the burden on borrowers and reduce delinquencies. Brazil’s central bank unexpectedly cut rates on Aug. 31 to 12 percent from 12.5 percent, citing the deteriorating global economy.

“The quality of the beat was not what we would like to see, however Itau showed encouraging trends with regards to expense growth,” Mario Pierry, an analyst at Deutsche Bank AG in New York, wrote in a report today.

Personnel expenses rose 4.1 percent, below the 7.3 percent increase for Brazil’s consumer prices in September from a year ago. The spending is also smaller than the 9 percent pay raise given to all Brazilian bank workers last month. Itau reduced the workforce to 105,969 jobs in the third quarter from 107,546.

Default Rate

The default rate, a measure of payments at least 90 days overdue, rose to 4.7 percent at the end of September from 4.5 percent in the second quarter, in line with the bank’s August forecast of an increase of 20 to 30 basis points in the second half of this year.

The delinquency rate may show a “small increase” in the fourth quarter of about 20 basis points, Rogerio Calderon, the head of investor relations, told journalists in a conference call today.

Higher loan delinquencies had caused Itau to miss estimates when it reported second-quarter results.

Total lending expanded 23 percent in the third quarter to 382.2 billion reais from a year earlier, while total assets rose 23 percent to 837 billion reais, the company said. The firm maintained its outlook for credit growth of 16 percent to 20 percent this year.

Calderon said Brazil’s lending may grow about 15 percent next year as the company forecast the nation’s gross domestic product will expand 3.5 percent. Itau will release in February its outlook for credit growth in 2012, he said.

Itau fell 1.8 percent to 32.13 reais in Sao Paulo trading, while Banco do Brasil SA dropped 0.4 percent to 25.80 reais and Banco Bradesco SA declined 1 percent to 30.75 reais.

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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