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Itau Unibanco (ITUB) Q1 Earnings Disappoint, Provisions Up

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Itau Unibanco Holding S.A. (ITUB - Free Report) posted recurring earnings of R$3.9 billion ($0.88 billion) in first-quarter 2020, significantly down 43.5% year over year. Including non-recurring items, net income came in at R$3.4 billion ($0.77 billion), plummeting 49.3% year over year.

Results display higher provisions on the heightening coronavirus crisis and a rise in non-performing loan ratio. However, elevated revenues, high managerial financial margin and lower expenses were positives. Moreover, a solid balance-sheet position acted as a tailwind.

Revenues Up, Provisions Rise, Costs Decline

Operating revenues came in at R$29.2 billion ($6.6 billion) in the reported quarter, up 3.5% on a year-over-year basis.

Managerial financial margin advanced marginally year over year to R$17.8 billion ($4 billion). Further, commissions and fees were up 10.4% year over year to R$9.5 billion ($2.1 billion).

Non-interest expenses came in at R$12.1 billion ($2.7 billion), slightly down on a year-over-year basis. In addition, expenses for provision for loan and lease losses more than doubled on a year-over-year basis to R$10.4 billion ($2.3 billion).

In the first quarter, the efficiency ratio was 44.4%, marking a contraction of 190 basis points (bps) from the year-earlier quarter. A decrease in this ratio indicates increased profitability.

The non-performing loan ratio (loan transactions more than 90 days overdue) came in at 3.1% during the January-March quarter, up from the prior-year quarter’s 3%. Itau Unibanco’s credit portfolio, including financial guarantees provided and corporate securities, reached R$769.2 billion ($147.8 billion) as of Mar 31, 2020, up 18.9% year over year.

As of Mar 31, 2020, Itau Unibanco’s total assets amounted to R$1.98 trillion ($0.38 trillion), up 20% from the end of the year-ago quarter. Assets under administration were R$1.3 trillion ($0.29 trillion), up 12.1% year over year.

Annualized recurring return on average equity slipped to 12.8% in the first quarter from the 23.6% recorded in the year-earlier quarter. As of Mar 31, 2020, the estimated BIS III ratio came in at 10.3% compared with the prior-year quarter’s 13.3%.

Our Viewpoint

Results of Itau Unibanco highlight a disappointing performance during the March-end quarter on higher provisions due to the coronavirus crisis. Nevertheless, the company’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 the company’s growth. Moreover, controlled expenses is a tailwind.

However, 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-eps-surprise-chart | Itau Unibanco Holding S.A. Quote

Itau Unibanco 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

The Royal Bank of Scotland Group plc reported first-quarter 2020 profit attributable to its shareholders of £288 million ($368.6 million), significantly down from the prior-year quarter’s £707 million. Operating income totaled £519 million ($664.3 million) as compared with the £1.01 billion reported in the year-ago quarter.

Deutsche Bank (DB - Free Report) delivered first-quarter net income of €66 million ($72.8 million) compared with the year-ago quarter’s €201 million. Also, the German lender reported adjusted profit before taxes of €303 million ($334.3 million), up 13% year over year.

UBS Group AG (UBS - Free Report) recorded first-quarter 2020 net profit attributable to shareholders of $1.6 billion compared with the prior-year quarter’s $1.14 billion. The company’s performance was supported by higher net interest income (up 18% year over year), along with rise in net fee and commission income (up 22%). However, higher expenses were deterrents.

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