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ItauUnibanco (ITUB) Q3 Earnings Disappoint, Expenses Down

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ItauUnibanco Holding S.A. ITUB posted recurring earnings of R$5 billion ($0.93 billion) in third-quarter 2020, significantly down 30.6% year over year. Including non-recurring items, net income came in at R$4.5 billion ($0.84 billion), declining 19.6% year over year.

Results display higher provisions, and fall in revenues and managerial financial margin. However, lower expenses highlight prudent expense management. Moreover, a solid balance-sheet position acted as a tailwind.

Revenues Down, Provisions Rise, Costs Decline

Operating revenues came in at R$28.4 billion ($5.3 billion) in the reported quarter, down 6.3% on a year-over-year basis.

Managerial financial margin declined 11.2% year over year to R$16.9 billion ($3.1 billion). Yet, commissions and fees were up 2.1% year over year to R$9.5 billion ($1.8 billion).

Non-interest expenses came in at R$12.7 billion ($2.4 billion), down 0.9% on a year-over-year basis. However, expenses for provision for loan and lease losses flared up 28.8% on a year-over-year basis to R$6.3 billion ($1.2 billion).

In the third quarter, the efficiency ratio was 48%, marking an expansion of 250 basis points (bps) from the year-earlier quarter. An increase in this ratio indicates decreased profitability.

The non-performing loan ratio (loan transactions more than 90 days overdue) came in at 2.2% during the July-September period, down from the prior-year quarter’s 2.9%. ItauUnibanco’s credit portfolio, including financial guarantees provided and corporate securities, reached R$847 billion ($150.4 billion) as of Sep 30, 2020, up 20.4% year over year.

As of Sep 30, 2020, ItauUnibanco’s total assets amounted to R$2.11 trillion ($0.37 trillion), up 21.3% from the end of the year-ago quarter. Assets under administration totaled R$1.38 trillion ($0.25 trillion), up 4.5% year over year.

Annualized recurring return on average equity slipped to 15.7% in the third quarter from the 23.5% recorded in the year-earlier quarter. As of Sep 30, 2020, the estimated BIS III ratio came in at 10.7% compared with the prior-year quarter’s 12.8%.

Our Viewpoint

Results of ItauUnibanco underline the company’s disappointing performance during the September-end quarter on higher provisions. Nevertheless, the bank’s future prospects look encouraging as it is focused on building strategies to expand inorganically.

In addition to these, the merger with CorpBanca has fortified the bank’s footprint in Latin America, while acquiring Citibank’s operations has fueled its growth. Furthermore, controlled expenses are a tailwind.

Nonetheless, heightening competition and stressed conditions in the Brazilian economy pose significant risks.

Itau Unibanco Holding S.A. Price, Consensus and EPS Surprise

Itau Unibanco Holding S.A. Price, Consensus and EPS Surprise
Itau Unibanco Holding S.A. Price, Consensus and EPS Surprise

Itau Unibanco Holding S.A. price-consensus-eps-surprise-chart | Itau Unibanco Holding S.A. Quote

ItauUnibanco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Competitive Landscape

HSBC Holdings’ HSBC third-quarter 2020 pre-tax profit of $3.1 billion represents a decline of 36.4% from the prior-year quarter’s reported number. The company recorded lower revenues in the quarter, along with a decline in expenses. Capital ratios were decent.

Barclays BCS reported third-quarter net income attributable to ordinary equity holders of £611 million ($789 million) against a net loss recorded in the prior-year quarter. Results were primarily hurt by a rise in credit impairment charges as well as lower revenues. In addition, elevated operating expenses were a major headwind.

UBS Group AG UBS recorded third-quarter 2020 net profit attributable to shareholders of $2.09 billion, up significantly from the prior-year quarter’s $1.05 billion. The company’s performance was supported by an increase in net fee and commission income (up 8% year over year), along with a rise in net interest income (up 39%). However, higher expenses were a concern.

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