UPDATE 4-Itaú slumps as outlook for provisions points to hard year

martes 2 de febrero de 2016 16:48 GYT

(Adds details, share performance, comments throughout)

By Guillermo Parra-Bernal

SAO PAULO Feb 2 (Reuters) - Plans by Itaú Unibanco Holding SA to boost loan-loss provisions faster than rivals this year drove its shares down sharply on Tuesday, as Brazil's deepest recession in more than a century and sluggish activity across Latin America bite hard.

The provisions could rise as much as 38 percent to 25 billion reais ($6.9 billion) this year, with over 95 percent of that being set aside in Brazil, Itau said on Tuesday. The bank's loan book could even shrink this year, the grimmest outlook for Itau, Latin America's No. 1 bank by market value, has issued in years.

The warnings underscore Chief Executive Roberto Setubal's efforts to strengthen Itaú's balance sheet to offset soaring defaults and protect earnings. Slumping activity and fallout from a sweeping corruption probe into state companies are driving a record number of companies and households into insolvency in Brazil.

"We are prepared to cope with an increase in defaults, but we are proactively working towards mitigating that impact," Setubal said at a news conference to discuss fourth-quarter results.

Still, shares tumbled the most in 4-1/2 years on concern the overly cautious tone of guidance could pose downside risk for Itaú, which is also expecting slower interest income growth than are rivals. Investors are closely watching results and guidance to gauge how the recession may affect profitability.

Non-voting shares of São Paulo-based Itaú, which released its results earlier in the day, fell 7.5 percent to 23.55 reais, a price last seen in November 2012. Itaú's drop also helped spark a widespread decline in Brazil bank stocks and the benchmark Bovespa stock index.

"Concerns over asset quality outlook, the transfer of bad loans and the high provisions guidance could undermine market sentiment," said Philip Finch, a strategist with UBS Securities in London.   Continuación...