February 11, 2020 / 2:26 PM / 14 days ago

UPDATE 1-Itau Unibanco to tackle costs, grow fees in tougher year

(Adds CEO comments, shares)

By Carolina Mandl

SAO PAULO, Feb 11 (Reuters) - Brazil’s largest lender, Itaú Unibanco Holding SA, is banking on fee income growth and lower operating expenses to boost 2020 profits during a challenging year for the country’s big banks.

On Monday, Itau said its fee income should grow between 4.5% and 7.5% in 2020, above Itaú’s national inflation forecast, while the bank is aiming to trim costs by up to 2%.

Chief Executive Candido Bracher said the bank will continue to shut branches this year, although more slowly than in 2019, having ended the year with 4,504 branches, or around 400 fewer than a year earlier.

Itaú’s cost-cutting push comes amid fiercer competition from financial startups and more intense regulatory pressure. Last year, Brazil’s government capped overdraft interest rates, in a move seen hurting banks’ 2020 results.

Bracher said there was no easy way for the bank to achieve a targeted 2% reduction in operating expenses by the end of the year, adding that at most it would allow them to grow by 1%.

Itaú forecast that net interest income from clients will remain stable or grow up to 3% in 2020, due the overdraft caps and Brazil’s record-low benchmark interest rate.

To compensate, Bracher said investment banking and fund fees should help sustain fee income growth this year.

“As Brazil’s economy recovers, we see a growing demand from companies for investment banking advisory,” Bracher told journalists on a conference call. Fees from share offerings, mergers and acquisition grew by 79.3% last year.

Bracher noted that low interest rates boost the asset management business, as individuals seek more complex investment products.

Growth in Latin America’s largest economy is also likely to drive higher checking account and card fees, he said.

Given the bank’s newly released 2020 outlook, analysts said in notes to clients that they saw the bank posting higher profits than previously expected this year.

Goldman Sachs said Itaú’s forecast would suggest 2020 net income about 10% higher than previously forecast.

Itaú shares rose about 2% in Sao Paulo, outperforming the benchmark Bovespa stock index. (Reporting by Carolina Mandl; Additional reporting by Paula Laier; Editing by Edmund Blair, Kirsten Donovan)

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