August 2, 2016 / 11:49 AM / 2 years ago

UPDATE 3-Itaú profit tops view, sees small rise in provisions; shares jump

(Recasts to add share performance, comments throughout)

Aug 2 (Reuters) - Itaú Unibanco Holding SA handily beat second-quarter profit estimates in a sign that efforts to curb expenses and reclassify problem loans will buffer profitability, sending shares higher on Tuesday.

Itaú, Latin America’s largest bank by market value, kept a lid on defaults and cut loan disbursements as Brazil’s worst recession in decades led to a doubling of bankruptcies over the past year.

Chief Executive Officer Roberto Setubal slightly raised loan-loss provision estimates, fanning hopes that credit losses may soon bottom out.

Recurring net income, or profit before one-off items, totaled 5.575 billion reais ($1.7 billion) last quarter, up 8 percent from the prior three months. Profit beat the analysts’ consensus estimate of 5.025 billion reais as compiled by Thomson Reuters.

Easing political turmoil may help pull Brazil out of a lengthy crisis, analysts said. Brazil’s top four listed banks, seeking to help their debt-laden corporate clients, probably reclassified about 90 billion reais in problem loans last quarter, a move that analysts said will facilitate a recovery.

“Itaú posted solid bottom-line numbers, further indicating that results for Brazilian banks have likely bottomed,” said Tito Labarta, an analyst with Deutsche Bank Securities.

Preferred shares, Itaú’s most widely traded class, gained as much as 2.7 percent. However, shares in rivals fell, in line with a 0.6 percent drop in Brazil’s benchmark Bovespa index.

If a recovery materializes in the coming months, demand for credit could recover and credit-related losses will decline significantly, according to Marcelo Kopel, Itaú’s head of investor relations. The bank has a sufficient capital buffer to ramp up operations if a recovery takes hold rapidly, he said.

“There are early signs that things have gotten better,” Kopel told reporters on a conference call to discuss results.

Itaú reported consolidated Latin American results for the first time since finalizing the integration of a joint venture with Chile’s CorpBanca SA in which the Brazilian bank has a majority stake.


Setubal and his team at Itaú raised the outlook for provision expenses for this year to between 23 billion reais and 26 billion reais, slightly above the prior forecast of 22 billion reais to 25 billion reais.

Interest income, or revenue from loans and securities trading, could fall as much as 2.5 percent this year, suggesting tougher loan repricing and fundraising conditions, the bank said.

Loan disbursements at Itaú, Brazil’s No. 2 listed lender by assets, could shrink by as much as 10.5 percent this year, an indication that demand will remain under pressure for credit in Brazil, Itaú’s main market, it said.

Still, loan book quality indicators at Itaú were encouraging despite the bankruptcy filings of phone carrier Oi SA and rig leaser Sete Brasil Participações SA, which had a combined 35 billion reais in loans, said analyst Domingos Falavina of JPMorgan Securities.

Loan-loss provisions fell almost 19 percent in the quarter, far more than expectations, after Setubal and his team reshuffled additional reserves and the bank set aside less as a buffer from riskier corporate borrowers.

The 90-day default ratio, or loans in arrears for 90 days or more, rose slightly, even after Itaú’s loan book shrank 5 percent in the quarter. The default ratio rose 0.1 percentage points, less than the 0.6 point increase expected by analysts, while early defaults showed a slight increase.

The amount of loans that went from current to overdue, a gauge known as NPL formation, fell in the wake of sales of bad loan portfolios.

In a statement, Itaú also said it plans to raise 12 billion reais in fresh capital, with shareholders getting an additional share for each one held. The move, said Kopel, should translate into more active trading of Itaú’s shares in the São Paulo Stock Exchange. ($1 = 3.2612 Brazilian reais) (Additional reporting by Alberto Alerigi Jr and Aluísio Alves in São Paulo; Editing by W Simon and JS Benkoe)

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