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Itaú Unibanco: Is the bank a static target?

Itaú is performing well, but faces challenges in its corporate banking unit.

Itaú Unibanco had a good crisis. The bank weathered Brazil’s deepest ever recession in spectacular fashion, adopting a defensive posture as credit dynamics deteriorated to minimize defaults.

Although it suffered some large corporate defaults that pushed up provisioning, Itaú Unibanco’s conservative stance to higher-risk individual and small and medium-sized enterprise segments has worked well.

Now, however, the bank may require a strategic repositioning. That is not to say it isn’t still performing well. It is so profitable that it is returning money to shareholders at an unprecedented rate through special dividends and its return on equity was flat on the quarter at a more-than-healthy 20.9%. It is just that the momentum seems to be stalling. For every improvement there is a deterioration that is frustrating the even-higher profitability that might be expected as the economy recovers.

For example, in the third quarter of 2018, the bank grew its loan portfolio by 13.4% year on year, and it even skewed that growth to higher-risk/higher-return segments, but the net interest margin was flat in the lower interest rate environment.

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