Ibovespa Falls Most in Four Years as Itau Leads Brazil Bank Rout

  • Itau posts biggest drop since 2011 after earnings report
  • Petrobras joins global oil producers' slump as crude retreats

The Ibovespa fell the most in four years as Itau Unibanco Holding SA led a rout in banks after an increase in bad loans highlighted concerns that Brazil’s worst recession in more than a century will sap corporate profits.

Itau contributed the most to the Ibovespa’s decline after Latin America’s largest bank said delinquency rates and provisions for bad loans rose in the fourth quarter. Shares of energy companies also slumped as oil capped its biggest two-day loss since 2009. Consumer shares have been punished on signs that Brazil’s recession is far from ending as inflation accelerates and the government struggles to trim a budget deficit.

"The banks’ negative expectation is highlighting the horrible prospects for Brazil in the short and medium term," Paulo Henrique Amantea, an analyst at brokerage H.H. Picchioni, said from Belo Horizonte, Brazil. "An advance in delinquency rates would just be the result of the unhealthy situation we’re living."

Brazil’s economy is contracting as a corruption scandal paralyzes the government and President Dilma Rousseff fends off attempts to impeach her. The country’s credit grade was to cut to junk last year after the government failed to trim a budget deficit, and the tumble in its currency has helped push the Ibovespa down 45 percent over the past year, among the five worst performances in the world. The index’s tumble Tuesday was the most among more than 90 global benchmark’s tracked by Bloomberg.

The Ibovespa fell 4.9 percent to 38,596.17 at the close of trading in Sao Paulo, the most since August 2011. Almost half of its 61 stocks are down at least 10 percent this year. Itau also had its biggest one-day slump in almost five years.

Banco Bradesco SA, which reported an increase in provisions when it released results last week, lost 4.1 percent. Credit-card processor Cielo SA retreated 6.5 percent after reporting fourth-quarter profit that trailed analysts’ estimates. Mining company Vale SA tumbled the most since 2008 as the S&P GSCI Index Spot CME extended a two-day drop to 5 percent.

More bad news for the Brazilian economy came from the manufacturing sector Tuesday, when the national statistics agency said that industrial output unexpectedly declined 0.7 percent in December. Machinery manufacturer Weg SA sank 4.1 percent.

State-controlled oil producer Petroleo Brasileiro SA slumped 8.9 percent as crude declined, dimming the outlook for its offshore projects. The company said in January it cut its proven reserves by 20 percent after lower oil prices made part of its fields not economical to tap.

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