Itau Profit Beats Estimates; Fee Revenue Offsets Loans Drop

  • Loan book may shrink as much as 10.5% in 2016; provisions rise
  • Earnings consolidate the acquisition of Chile’s Corpbanca

Itau Unibanco Holding SA, Latin America’s biggest bank by market value, posted a smaller profit decline than analysts estimated as the Brazilian lender boosted revenue from services, while warning that its loan book will shrink.

Second-quarter recurring net income, which excludes one-time items, declined 9 percent to 5.58 billion reais ($1.71 billion), the Sao Paulo-based bank said in a statement Tuesday. That compares with a pro-forma 6.13 billion reais a year earlier, which fully consolidates Corpbanca, the Chilean bank that Itau took control of in April. The average estimate of nine analysts surveyed by Bloomberg was for profit of 5.08 billion reais.

With Brazil grappling with its worst recession in more than a century, banks have been boosting service fees to compensate for the slowing market for lending. Last week, rival Banco Bradesco SA reported second-quarter results that missed estimates after it incurred a 365-million-real provision for an energy company.

Revenue from services was one of the positive trends of the quarter, Max Bohm, an analyst at Empiricus Independent Research in Sao Paulo, said in a telephone interview. “Comparing Itau’s results to Bradesco’s, Itau was better.”

Loan Book

Itau’s revenue from fees and commissions climbed to 7.82 billion reais in the second quarter from 7.1 billion reais a year earlier. The bank said it expects its loan portfolio to decrease between 5.5 percent and 10.5 percent this year, compared with a previous estimate ranging from a 4.5 percent expansion to a 0.5 percent decline.

Itau revised its lending forecast because Brazil’s economic contraction is worse than the bank predicted at the beginning of the year, while the nation’s currency will be stronger, Marcelo Kopel, the firm’s investor relations officer, told reporters on a conference call.

Itau said it expects provisions of 23 billion reais to 26 billion reais in 2016, up from the previous forecast of 22 billion reais to 25 billion reais. The bank set aside 6.34 billion reais to cover souring loans this quarter, compared with 5.77 billion reais a year earlier.

The bank booked a 539-million-real securities’ impairment in the second quarter. Most of the charge is related to a specific case, Kopel said, declining to say which company issued the securities.

Net income on a pro-forma basis fell 7.8 percent to 5.52 billion reais.

Itau shares gained 1.5 percent to 33.93 reais at 11:49 a.m. in Sao Paulo. The stock has climbed 29 percent this year.

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