Itau Profit Beats Estimates as Lending Margins Increase

  • `Absurd market volatility' helped results, Kopel says
  • Firm using part of one-time gain as additional provision

Itau Unibanco Holding SA, Latin America’s largest bank by market value, said profit climbed 12 percent, beating analysts’ estimates, as lending margins and revenue from proprietary trading and asset-liability management increased. The shares rose as much as 2.7 percent.

Third-quarter recurring net income, which excludes one-time costs, jumped to 6.12 billion reais ($1.6 billion) from 5.46 billion reais a year earlier, the Sao Paulo-based bank said in a statement Tuesday. That beat the 5.77 billion-real estimate of eight analysts surveyed by Bloomberg. Net income rose 10 percent to 5.95 billion reais.

Brazilian banks are benefiting from benchmark interest rates at a nine-year high, which makes lending more profitable and generates gains from proprietary trading. Itau’s “financial margin with the market,” which includes proprietary trading and asset-liability management operations, more than doubled to 2.28 billion reais in the quarter. Net interest income, or revenue from interest earned on assets minus payments to depositors, climbed 5 percent to 8.71 billion reais in the three months through September.

“Proprietary trading was a good surprise, and lending margins were stronger as well,” Max Bohm, an analyst at Sao Paulo-based consulting firm Empiricus Research, said in a phone interview Tuesday. “Itau must be praised after delivering ROE of 24 percent in such an unfavorable environment,” he said, referring to the bank’s return on equity.

‘Absurd’ Volatility

Itau rose 2 percent to 26.98 reais at 11:33 a.m. in Sao Paulo, compared with a 0.8 percent gain for the Ibovespa benchmark index.

Itau posted gains from proprietary trading and asset-liability management amid “absurd market volatility,” Marcelo Kopel, the bank’s investor relations director, told reporters Tuesday. The figure will probably return to its historical average next quarter, he said.

High inflation and the economic contraction have led to higher overdue loan payments by companies and consumers. Itau used part of a one-time tax gain of 3.99 billion reais to book 2.79 billion reais as an additional cushion against delinquencies. Provisions reached 5.75 billion reais in the third quarter, up from 4.74 billion reais a year earlier. The delinquency rate for debt overdue more than 90 days rose to 3.3 percent, compared with 3.2 percent in the same period last year.

The downturn has also cooled demand for investment-banking services from the company’s Banco Itau BBA SA unit, where it’s been cutting costs. Jean-Marc Etlin, chief executive officer of Itau BBA, is leaving at the end of December for personal reasons, according to an October statement from Itau. The company cut seven executives earlier this year from its international debt-capital market business, including the head of the division, amid the worst year for investment banking in Brazil since at least 2005.

Last week, Banco Bradesco SA, the region’s second-biggest bank by market value, reported adjusted net income of 4.53 billion reais, beating the 4.48 billion-real estimate of seven analysts surveyed by Bloomberg. The bank also used a one-time tax gain for bad-loan provisions.

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