ItauUnibanco (ITUB) Q2 Earnings Disappoint, Revenues Down

ItauUnibanco Holding S.A. ITUB posted recurring earnings of R$4.2 billion ($0.78 billion) in second-quarter 2020, significantly down 40% year over year. Including non-recurring items, net income came in at R$3.4 billion ($0.63 billion), plummeting 50% year over year.

Results display higher provisions and fall in revenues and managerial financial margin. However, lower expenses highlight prudent expense management. Moreover, a solid balance-sheet position acted as a tailwind.

Revenues Down, Provisions Rise, Costs Decline

Operating revenues came in at R$28 billion ($5.2 billion) in the reported quarter, down 5.1% on a year-over-year basis.

Managerial financial margin declined 3.8% year over year to R$17.8 billion ($3.3 billion). Further, commissions and fees were down 7.4% year over year to R$8.4 billion ($1.6 billion).

Non-interest expenses came in at R$12.1 billion ($2.3 billion), down 4.4% on a year-over-year basis. However, expenses for provision for loan and lease losses flared up 71.6% on a year-over-year basis to R$7.6 billion ($1.4 billion).

In the second quarter, the efficiency ratio was 46.5%, marking an expansion of 30 basis points (bps) from the year-earlier quarter. An increase in this ratio indicates decreased profitability.

The non-performing loan ratio (loan transactions more than 90 days overdue) came in at 2.7% during the April-June period, down from the prior-year quarter’s 2.9%. ItauUnibanco’s credit portfolio, including financial guarantees provided and corporate securities, reached R$811.3 billion ($149.3 billion) as of Jun 30, 2020, up 20.3% year over year.

As of Jun 30, 2020, ItauUnibanco’s total assets amounted to R$2.08 trillion ($0.38 trillion), up 23.8% from the end of the year-ago quarter. Assets under administration were R$1.33 trillion ($0.24 trillion), up 10.8% year over year.

Annualized recurring return on average equity slipped to 13.5% in the second quarter from the 23.5% recorded in the year-earlier quarter. As of Jun 30, 2020, the estimated BIS III ratio came in at 10.4% compared with the prior-year quarter’s 13.6%.

Our Viewpoint

Results of ItauUnibanco underline the company’s disappointing performance during the June-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 its growth. Moreover, controlled expenses are 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-eps-surprise-chart | Itau Unibanco Holding S.A. Quote

ItauUnibanco 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

HSBC Holdings’ HSBC second-quarter 2020 pre-tax profit of $1.1 billion reflects a slump of 82.4% from the prior-year quarter’s reported number. This decline primarily reflects higher expected credit losses and other credit impairment charges resulting from the coronavirus outbreak. The company witnessed lower revenues in the quarter along with a decline in expenses. Capital ratios were mixed.

Barclays PLC’s BCS second-quarter net income attributable to ordinary equity holders of £90 million ($111.6 million) represents a decline of 91.3% from the prior-year quarter number. Results were primarily hurt by a significant increase in credit impairment charges. Also, the company witnessed a decline in the top line. Nevertheless, lower operating expenses were a tailwind.

UBS Group AG UBS reported second-quarter 2020 net profit attributable to shareholders of $1.23 billion, down 11% from $1.39 billion in the prior-year quarter. The performance was impacted by a decline in net fee and commission income (down 4% year over year) along with a rise in expenses. However, higher net interest income (up 36%) was a tailwind.

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