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Itau Jumps After Fourth-Quarter Profit Beats Estimates

Feb. 4 (Bloomberg) -- Itau Unibanco Holding SA, Latin America’s largest lender by market value, rose the most in 20 months after fourth-quarter profit beat analysts’ estimates.

Itau climbed 4.9 percent to 31.35 reais in Sao Paulo today, the biggest gain since May 21, 2012. Brazil’s Ibovespa benchmark index increased 1.8 percent, pulled higher by Itau’s gains.

Chief Executive Officer Roberto Setubal, 59, boosted earnings as the company reduced loan-loss provisions. Recurring net income, which excludes one-time charges, climbed to 4.68 billion reais ($1.94 billion), or 94 centavos a share, from 3.5 billion reais, or 70 centavos, a year earlier, the Sao Paulo-based bank said in a statement today. That beat the 4.18 billion-real estimate of 10 analysts surveyed by Bloomberg.

“Fourth-quarter numbers were solid from the top to the bottom,” Banco BTG Pactual SA said in a report to clients. BTG said it upgraded Itau to buy from neutral after the “stunning” results.

Itau has reduced auto lending to focus on less-risky credit such as payroll loans and mortgages. The strategy paid off in the quarter with a 27 percent drop in provisions, to 4.19 billion reais. In 2013, Itau had provisions of 18.6 billion reais, below its forecast range of 19 billion reais to 22 billion reais.

The lender posted return on average equity, a measure of profitability, of 23.9 percent in the fourth quarter, up from 19.3 percent a year earlier, according to the statement. Itau expects provisions will be 13 billion reais to 15 billion reais this year, while lending will expand 10 percent to 13 percent.

Default Rate

The bank’s delinquency rates on debt overdue more than 90 days will continue falling in coming quarters, Setubal told reporters in Sao Paulo today. Default rates dropped to 3.7 percent in the fourth quarter from 4.8 percent a year earlier, according to the statement.

Deutsche Bank AG said the results “remind us of the old Itau -- net income well above expectations and ROAE well above the rest of the industry,” according to a report to clients.

Last week, Banco Bradesco SA, Latin America’s second-largest bank by market value, said fourth-quarter adjusted net income rose 10 percent to 3.2 billion reais from a year earlier as it reduced provisions.

Itau said last week it agreed to buy a controlling stake in Corpbanca for at least $2.2 billion to expand in Chile. The Brazilian lender also intends to expand in retail banking in Mexico and Peru, and doesn’t see additional acquisitions in Chile or Colombia in the near future after the deal with Corpbanca, Setubal said.

“Making an acquisition is the only way to get into the retail banking business,” he said, adding that Itau may enter Peru and Mexico with a wholesale-banking operation before expanding into retail.

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

To contact the editor responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net

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