Soured Loans Spur Decline in Itau as Brazilian Shares Retreat

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Brazilian stocks declined for a second day after Latin America’s largest bank by market value reported a surge in bad loans.

Itau Unibanco Holding SA extended this year’s tumble to 7.2 percent after saying delinquencies rose for the first time in 11 quarters and bad-loan provisions climbed. The increase has fueled concern that earnings at Brazilian lenders will worsen amid prospects for an economic recession, according to Vitor Suzaki, an analyst at brokerage Lerosa Investimentos.

“That may be a signal that banks are starting to feel the pinch,” Suzaki said in a phone interview from Sao Paulo. “Brazilian lenders are very well-managed and have improved their operations over the years, but it’s tough to remain unscathed in such a negative economic environment.”

The Ibovespa fell 0.2 percent to 50,058.49 at the close of trading in Sao Paulo, bringing a two-day drop to 1.6 percent. Itau sank 2.4 percent. The real retreated to a 12-year low.

Financial companies in the MSCI Brazil gauge have plunged 28 percent this year amid speculation that President Dilma Rousseff’s decision to boost taxes on the industry’s profits will erode earnings. The rout has accelerated on concern borrowing costs will climb should Brazil lose its investment-grade status as the government struggles to shore up the budget.

Estimated Earnings

Brazilian stocks have slumped 14 percent from this year’s peak in May on prospects Latin America’s largest economy will post the worst recession in 25 years. The slide sent the gauge’s valuation 3.7 percent below its 2015 average, according to data compiled by Bloomberg based on estimated earnings.

The Ibovespa rallied earlier Tuesday as miner Vale SA jumped on speculation that China, the nation’s top trading partner, will stimulate construction. The Asian country was said to plan at least 1 trillion yuan ($161 billion) in bonds to fund projects that can help address a struggling economy.

“At a time when Brazil’s economy is losing steam, it would be great to have some sort of help from abroad,” Raphael Figueredo, an analyst at brokerage Clear Corretora, said by phone from Sao Paulo. “A Chinese economic stimulus would be good news for Brazil and commodity exporters.”

State-controlled oil producer Petroleo Brasileiro SA followed a jump in crude to $45.74 a barrel. Petrobras, as the company is known, has said that its investments in offshore production are economically viable with the commodity above $45.

Petrochemicals maker Braskem SA rallied as its shareholders were scheduled to discuss the replacement of board members after Marcelo Odebrecht, the chief executive officer of the company’s largest shareholder, was arrested amid Brazil’s biggest corruption scandal.

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