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Strategic Buyouts Aid Itau Unibanco (ITUB), High Costs Ail
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Itau Unibanco Holding S.A. (ITUB - Free Report) benefits from a strong network franchise and buyouts. Growth in commissions and fees, resulting from insurance operations and efforts to have a healthy credit portfolio, are other positives. However, increasing expenses limit bottom-line growth. Weak credit quality and intense competition are added concerns.
Itau Unibanco, a premier banking brand in Brazil, has a large branch network in geographic areas with high economic activities. As part of its internationalization strategy, the company has consolidated its presence in other countries of the Southern Cone. It also expanded its presence in Colombia and Panama, followed by the merger between Banco Itaú Chile and CorpBanca in April 2016.
Expanding operations in Brazil and abroad on the back of strategic buyouts in 2022, the company acquired an 11.4% equity stake in XP Inc. for R$8 billion. Further, it inked a deal for purchasing Ideal Holding to bolster its investment ecosystem and completed the first phase of the deal on Mar 31, 2023. Such an inorganic effort to diversify its product mix is expected to support ITUB’s top line in the upcoming quarters.
Itau Unibanco also displayed growth in revenues from commissions and fees, and results from insurance operations. The metric has been growing over the years primarily due to a rise in asset management, credit operations and guarantees provided as well as credit and debit cards.
Given the company’s preeminent position in the asset management and investment banking businesses in Latin America, and growth opportunities in the insurance space, the metric is likely to improve in the upcoming period and support revenues. For 2023, management estimates commissions and fees, and results from insurance operations to be up 5-7%.
Itau Unibanco has maintained a healthy credit portfolio. Moreover, the company has been trying to reduce its loan portfolio exposure in higher volatile segments. Such efforts are likely to strengthen its credit portfolio in the future. Management anticipates its credit portfolio to improve by 6-9% in 2023.
It has a strong funding base, evident from the deposit of R$923.28 billion as of Sep 30, 2023. Hence, we believe, Itau Unibanco is less likely to default interest and debt repayments if the economic situation worsens. Moreover, robust funding position of the bank helps it to maintain a healthy credit portfolio (including financial guarantees provided and corporate securities).
ITUB’s ongoing investments in technology will contribute to improve processes, reduce costs and increase productivity gains. It had initiated a transformational strategy, iVarejo 2030, at its retail operations unit. It has adopted the phygital and omnichannel approach, as well as the e-Commerce model to improve in-person services and revamp its branch networks.
However, escalating expenses are concerning for ITUB. Notably, general and administrative expenses have flared up over the past few years. The metric witnessed a rising trend over the years. This is likely to hinder bottom-line growth in the near term. Management projects non-interest expenses to grow 5-9% in 2023.
Itau Unibanco has exhibited deterioration in its credit quality. In third-quarter 2023, total non-performing loan ratio (transactions more than 90 days overdue) remained unchanged from the prior quarter. The worsening economic outlook amid recessionary fears is expected to affect credit quality in the near term. The bank expects costs of credit in the R$36.5-R$40.5 billion band for 2023.
Itau Unibanco’s operations are hugely dependent on the performance of the economy of Brazil. Any changes in fiscal, monetary and foreign exchange policies as well as a decline in government fiscal account may affect the bank’s financials. Moreover, markets for financial and banking services in Brazil are highly competitive, and it faces significant competition from other large bank operating in Brazil and globally. Competition has gained momentum as a result of recent consolidations among financial institutions in Brazil.
Shares of this Zacks Rank #3 (Buy) company have risen 13.1% on the NYSE over the past six months compared with the industry’s growth of 7.3%.
Image Source: Zacks Investment Research
Stocks Worth Considering
A couple of better-ranked foreign bank stocks worth considering are Grupo Financiero Galicia S.A. (GGAL - Free Report) and ICICI Bank Ltd. (IBN - Free Report) .
The Zacks Consensus Estimate for GGAL’s 2023 earnings has been revised significantly upward over the past 30 days. Its shares have lost 3.1% in the past six months. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Estimates for IBN’s 2023 earnings have moved north 1.5% over the past 30 days. In the past six months, IBN's shares have risen 1.5%. The company currently carries a Zacks Rank #2 (Buy).
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Strategic Buyouts Aid Itau Unibanco (ITUB), High Costs Ail
Itau Unibanco Holding S.A. (ITUB - Free Report) benefits from a strong network franchise and buyouts. Growth in commissions and fees, resulting from insurance operations and efforts to have a healthy credit portfolio, are other positives. However, increasing expenses limit bottom-line growth. Weak credit quality and intense competition are added concerns.
Itau Unibanco, a premier banking brand in Brazil, has a large branch network in geographic areas with high economic activities. As part of its internationalization strategy, the company has consolidated its presence in other countries of the Southern Cone. It also expanded its presence in Colombia and Panama, followed by the merger between Banco Itaú Chile and CorpBanca in April 2016.
Expanding operations in Brazil and abroad on the back of strategic buyouts in 2022, the company acquired an 11.4% equity stake in XP Inc. for R$8 billion. Further, it inked a deal for purchasing Ideal Holding to bolster its investment ecosystem and completed the first phase of the deal on Mar 31, 2023. Such an inorganic effort to diversify its product mix is expected to support ITUB’s top line in the upcoming quarters.
Itau Unibanco also displayed growth in revenues from commissions and fees, and results from insurance operations. The metric has been growing over the years primarily due to a rise in asset management, credit operations and guarantees provided as well as credit and debit cards.
Given the company’s preeminent position in the asset management and investment banking businesses in Latin America, and growth opportunities in the insurance space, the metric is likely to improve in the upcoming period and support revenues. For 2023, management estimates commissions and fees, and results from insurance operations to be up 5-7%.
Itau Unibanco has maintained a healthy credit portfolio. Moreover, the company has been trying to reduce its loan portfolio exposure in higher volatile segments. Such efforts are likely to strengthen its credit portfolio in the future. Management anticipates its credit portfolio to improve by 6-9% in 2023.
It has a strong funding base, evident from the deposit of R$923.28 billion as of Sep 30, 2023. Hence, we believe, Itau Unibanco is less likely to default interest and debt repayments if the economic situation worsens. Moreover, robust funding position of the bank helps it to maintain a healthy credit portfolio (including financial guarantees provided and corporate securities).
ITUB’s ongoing investments in technology will contribute to improve processes, reduce costs and increase productivity gains. It had initiated a transformational strategy, iVarejo 2030, at its retail operations unit. It has adopted the phygital and omnichannel approach, as well as the e-Commerce model to improve in-person services and revamp its branch networks.
However, escalating expenses are concerning for ITUB. Notably, general and administrative expenses have flared up over the past few years. The metric witnessed a rising trend over the years. This is likely to hinder bottom-line growth in the near term. Management projects non-interest expenses to grow 5-9% in 2023.
Itau Unibanco has exhibited deterioration in its credit quality. In third-quarter 2023, total non-performing loan ratio (transactions more than 90 days overdue) remained unchanged from the prior quarter. The worsening economic outlook amid recessionary fears is expected to affect credit quality in the near term. The bank expects costs of credit in the R$36.5-R$40.5 billion band for 2023.
Itau Unibanco’s operations are hugely dependent on the performance of the economy of Brazil. Any changes in fiscal, monetary and foreign exchange policies as well as a decline in government fiscal account may affect the bank’s financials. Moreover, markets for financial and banking services in Brazil are highly competitive, and it faces significant competition from other large bank operating in Brazil and globally. Competition has gained momentum as a result of recent consolidations among financial institutions in Brazil.
Shares of this Zacks Rank #3 (Buy) company have risen 13.1% on the NYSE over the past six months compared with the industry’s growth of 7.3%.
Image Source: Zacks Investment Research
Stocks Worth Considering
A couple of better-ranked foreign bank stocks worth considering are Grupo Financiero Galicia S.A. (GGAL - Free Report) and ICICI Bank Ltd. (IBN - Free Report) .
The Zacks Consensus Estimate for GGAL’s 2023 earnings has been revised significantly upward over the past 30 days. Its shares have lost 3.1% in the past six months. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Estimates for IBN’s 2023 earnings have moved north 1.5% over the past 30 days. In the past six months, IBN's shares have risen 1.5%. The company currently carries a Zacks Rank #2 (Buy).