Itau Rises to 19-Month High After Record Profit: Sao Paulo Mover

Itau Unibanco Holding SA, Latin America’s largest lender by market value, rose to its highest level in 19 months in Sao Paulo trading after reporting record earnings that beat analysts’ estimates.

Itau climbed 3.3 percent to 34.49 reais at 3:21 p.m. Itausa-Investimentos Itau SA, Itau’s controlling shareholder, rose 3.8 percent, the biggest gain on the Ibovespa benchmark index. The 73-company gauge dropped 1.5 percent.

“The bank’s earnings momentum continued to improve,” Deutsche Bank AG analysts including Mario Pierry wrote in a report to clients today. “Overall results look solid.”

Recurring net income, which excludes one-time items, increased to 4.02 billion reais ($1.85 billion), or 81 centavos a share, from 3.41 billion reais, or 69 centavos, a year earlier, the Sao Paulo-based lender said in a statement today. That compares with the 3.9 billion-real estimate of nine analysts surveyed by Bloomberg.

Chief Executive Officer Roberto Setubal, 59, shifted toward less risky mortgage and payroll loans and away from auto finance after default rates on consumer loans in Brazil reached a record 8.18 percent in May 2012. Provisions dropped 26 percent in the third quarter from a year earlier.

“Privately owned banks in Brazil such as Itau and Bradesco are more selective in giving credit,” Pedro Galdi, head strategist at Sao Paulo-based brokerage SLW Corretora, said in a telephone interview last week. Banco Bradesco SA, the nation’s second-biggest bank by market value, reported record earnings on Oct. 21.

Provisions Fall

Itau posted provisions of 4.54 billion reais in the third quarter, down from 4.91 billion reais in the second quarter, and 6.12 billion reais a year earlier, according to the statement. The bank expects provisions at the lower range of its 2013 estimate of 19 billion reais to 22 billion reais, Rogerio Calderon, an executive vice-president and head of investor relations at the bank, told reporters on a conference call today, reiterating similar comments in July.

“Credit quality may keep improving for a long period of time” as the bank continues shifting to less risky credit lines such as mortgages, Calderon said.

Loans overdue more than 90 days declined for a fifth straight quarter to 3.9 percent, compared with 4.2 percent in the previous three months and 5.1 percent a year earlier. The portfolio of loans rose 10 percent to 481 billion reais from a year earlier.

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