Itau Unibanco Holding S.A. ( ITUB Quick Quote ITUB - Free Report) posted recurring earnings of R$7.3 billion ($1.77 billion) in fourth-quarter 2019, up 12.6% year over year. Including non-recurring items, net income came in at R$7.5 billion ($1.82 billion), up 20.6%.
Results display higher revenues, managerial financial margin and a solid balance sheet position. However, elevated expenses and provisions were headwinds.
In full-year 2019, recurring net income came in at R$28.4 billion ($6.9 billion), up 10.2% from 2018.
Revenues Improve, Provisions Rise, Costs Up
Operating revenues came in at R$33.1 billion ($8 billion) in the quarter, up 11.8% on a year-over-year basis.
In 2019, the company generated revenues of R$119.8 billion ($29.1 billion) compared with R$111.8 billion in the previous year.
Managerial financial margin jumped 11.8% year over year to R$19.4 billion ($4.7 billion). Further, commissions and fees were up 12.7% to R$10.4 billion ($2.5 billion).
Non-interest expenses came in at R$13 billion ($3.2 billion), up 1.7% on a year-over-year basis. In addition, expenses for provision for loan and lease losses were up 61.9% to R$6.1 billion ($1.5 billion).
In the fourth quarter, the efficiency ratio was 44% compared with 48.7% in the year-earlier quarter. A decrease in this ratio indicates increased profitability.
Non-performing loan ratio (loan transactions more than 90 days overdue) came in at 3%, up 1 basis point from the prior-year quarter. Itau Unibanco’s credit portfolio, including endorsement, private securities and sureties, reached R$706.7 billion ($171.7 billion) as of Dec 31, 2019, up 10.9% year over year.
As of Dec 31, 2019, Itau Unibanco’s total assets amounted to R$1.74 trillion ($0.42 trillion), up 5.4% from the end of the year-ago quarter. Assets under administration were R$1.39 trillion ($0.34 trillion), up 22.6%.
Annualized recurring return on average equity climbed to 23.7% from the 21.8% in the year-earlier quarter. As of Dec 31, 2019, estimated Common Equity Tier I - BIS III ratio came in at 13.2% compared with the prior-year quarter’s 14.9%.
For 2020, the company expects costs of credit in the R$18.5-R$22 billion band. Also, non-interest expenses are expected to either decline 2% or rise 1%.
In addition, the total credit portfolio is projected to rise 8.5-11.5%, while commissions and fees are likely to be up 4.5-7.5%. Managerial financial margin with clients is estimated to remain stable or increase 3%. Financial marginal with the market is estimated to be between R$5.7 and R$6.7 billion. Effective tax rate is estimated in the 33-35% range.
Results of Itau Unibanco suggest an encouraging quarter. Furthermore, the company’s prospects look encouraging as it remains focused on building strategies to expand inorganically. In addition, the merger with CorpBanca has fortified the bank’s footprint in Latin America, while the acquisition of Citibank’s operations fueled its growth.
Nevertheless, heightening competition, rise in expenses and stressed conditions in the Brazilian economy pose significant risks.
Itau Unibanco Holding S.A. Price and Consensus
Itau Unibanco currently carries a Zacks Rank #4 (Sell).
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