May 3, 2016 / 11:22 AM / 2 years ago

UPDATE 2-Itaú shares slump as soaring provisions spark profit miss

(Adds analyst comments, data throughout)

By Guillermo Parra-Bernal

SAO PAULO, May 3 (Reuters) - Shares in Itaú Unibanco Holding SA tumbled the most in six weeks on Tuesday as Brazil’s largest bank by market value missed first-quarter profit estimates, reflecting the burden of eroding loan book quality and surging loan-loss provisions.

Recurring net income, or profit excluding one-time items, came in at 5.235 billion reais ($1.50 billion) last quarter, down almost 18 percent from the prior three months. The result came in slightly below the average consensus estimate of 5.280 billion reais compiled by Thomson Reuters.

Even after Chief Executive Officer Roberto Setubal, who plans to retire next year, trimmed expenses in the quarter, new disbursements and average interest on loans slumped, hurting revenue. Both provisions and renegotiated loans hit fresh records last quarter after defaults climbed at their fastest quarterly pace in at least seven years.

Nonvoting shares tumbled as much as 4.2 percent to 30.59 reais, the lowest intraday level for the stock in almost a month. Tuesday’s decline limited year-to-date gains for the stock to 25 percent.

Investors could begin to trim their Itaú profit, revenue and expense growth estimates, and revise those for provisions in the wake of the profit miss, said Pedro Fonseca, an analyst at Haitong Securities.

“Pressure on results - loan growth, net interest margin, provision expenses - should continue to intensify from the weak backdrop,” said Carlos Macedo, an analyst with Goldman Sachs Group Inc.


Seeking to buffer Itaú from Brazil’s harshest recession in decades and fallout from a corruption probe involving key state and private-sector clients, Setubal cut the bank’s exposure to large borrowers last quarter. Risk-weighted assets, a gauge of Itaú’s assets and off-balance sheet exposure based on their risk, dropped almost 12 percent on an annual basis.

Outstanding loans to Itaú’s 10 largest corporate borrowers fell 7 percent to 33.084 billion reais in the quarter from a year earlier. That was equivalent to 6.4 percent of Itaú’s loan book, which ended the quarter at 517.484 billion reais.

São Paulo-based Itaú set aside 6.402 billion reais in provisions last quarter, above the 5.995 billion reais estimated by analysts. Loans in arrears for 90 days or more, a benchmark for delinquencies, rose to 3.9 percent, higher than the 3.7 percent that analysts estimated.

With corporate bankruptcy filings more than doubling on an annual basis and the economy poised to contract by about 4 percent for a second straight year, Itaú will continue to renegotiate loans with small and large business borrowers.

“Renegotiations have become a key tool to help us fine-tune our strategy,” Marcelo Kopel, Itaú’s director of investor relations, said on a conference call to discuss results.

Return on equity, a gauge of profitability known as ROE, fell to 19.9 percent in the first quarter, the lowest in three years and below consensus of 20.1 percent.

The decline in risk-weighted assets helped raise Itaú’s Tier 1 capital ratio to 13.3 percent last quarter. That may leave the bank with spare capital in coming months, which could eventually hamper ROE, Haitong’s Fonseca said.

$1 = 3.5005 Brazilian reais Additional reporting by Aluísio Alves in São Paulo; Editing by W Simon

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