Itaú Unibanco Holding S.A. (NYSE:ITUB) Q3 2023 Earnings Call Transcript

Itaú Unibanco Holding S.A. (NYSE:ITUB) Q3 2023 Earnings Call Transcript November 7, 2023

Renato Lulia: Hello and good morning, everyone, my name is Renato Lulia, and I’m the Head of Investor Relations and Market Intelligence at Itaú Unibanco. Thank you very much for participating in our conference to discuss our earnings for the third quarter of 2023, which as always, we are broadcasting directly from our office at Faria Lima. Today’s event, as usual, will be divided into two parts. In the first part, Milton will go through our performance and our earnings for the third quarter of 2023. Right after that, there will be a Q&A session during which analysts and investors can interact directly with us. I’d also like to give you some instructions on how to get the most out of today’s meeting. For those who are accessing our website, there are three audio options on screen, the entire content in Portuguese, the entire content in English and the original audio.

The first two options there is simultaneous translation. To select your option, just click on the flag in the top left corner of your screen. Your questions can also be sent via WhatsApp. To do this, just click on the button on the screen for those who are watching on the website or send a message to 11-97-825-5707. Our presentation today is available for download on the website screen, as well as on our IR website. I’ll now hand over to Milton who will start the earnings presentation. And then I’ll come back to moderate the Q&A session. Milton, the floor is yours.

Milton Filho : Good morning, everyone. Welcome to our earnings call supported by a very objective presentation. I’m going to run through the figures for the quarter and emphasize the Argentina effect which as you saw on Friday, we settle the sale of this operation. I’m going to show you how this affects our earnings and how the guidance is kept unchanged, except for just an adjustment that removes the effects of Argentina from the seven months that this operation was part of our earnings and how we’ve disregarded the remaining five months and the guidance that’s been published in the second quarter. So let’s get started. We’ve delivered a recurring managerial result of BRL9 billion results, which points to very strong earnings that has grown 3.4% quarter-over-quarter.

We’ve reached a consolidated ROE of 21.1%. Brazil’s ROE which is the most comparable with market was 22% up half a percentage point. It’s key to highlight that if we were working with our capital within the risk appetite threshold approved by our board this ROE would be around 24%. I’m telling you this just to give you an idea of the effect that capital has and how it dilutes ROE by 2 percentage points. In commission and fees and result with insurance operations, the growth was 3.6% quarter-over-quarter reaching BRL12.9 billion results at a cost of credit of BRL9.3 billion riyals This is the first nominal drop we’ve seen with a 1.9% decrease quarter-over-quarter. This is very good news from lending. The NPL rate is absolutely stable with no news, which is in-line with the message I’ve been sending you for a few consecutive calls now.

The Level one capital ratio, which I mentioned just now reached 14.6%, an increase of one percentage point in the quarter. I’ll show you in a moment our set one running at 13.1%. But there was also a significant increase in the bank’s capital. Speaking about the loan portfolio, the individuals portfolio grew by 6% year-over-year. As for the quarter the credit card portfolio is still decelerating. But I’ll emphasize this in a moment. Personal loans portfolio grew by 4.2% in the quarter, payroll loans portfolio reduced and vehicles portfolio increased slightly in the quarter. So the portfolios in general except for personal loans as mentioned grew 6% year-over-year. The SMEs portfolio grew 3.2% year-over-year, but we’re already seeing a significant pickup this quarter growing 3.3% which means that the quarterly effect is already above the trend we had seen for this portfolio.

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Q&A Session

And then the credit portfolio as a whole after adjusting the Latin America effects we see a growth of 4.7% year-over-year and 1% increase this quarter. The message I want to leave you with which for me is the most important one is that in the portfolios where we decided to not stop growing, they continue to expand significantly. Thus, if we take the two middle and high income segments, Uniclass and Personnalité, the portfolio grew 3.7% in the quarter and the individual loans portfolio grew 0.6% on a consolidated basis. Year-over-year this portfolio grew 17.5%, while the individual loans portfolio grew 6%. The portfolio of the middle and high income cards grew 3.6% in the quarter against a drop of 0.5% on a consolidated basis, and by 15% year-over-year against a drop of 0.8% on a consolidated basis.

And in middle and high income personal loans, we grew 6% in the quarter and 24% year-over-year. This shows that we’ve been increasing our engagement in the middle and high income segments where we’ve delivered and performed very strongly over the quarters. And we’ve made a portfolio adjustment. We’ve made a significant derisking in our portfolio. This saved the banks almost 200 NPL points throughout the period. The portfolios where this derisking was more significant, were in the credit card portfolio, which already had a significant nominal drop in the period, and also in the vehicle portfolio to which we had to make very significant adjustments. In the other portfolios, we continue to grow, and especially among those clients that are in fact resilient throughout the cycle, as we say, through the cycle.

That’s how we’ve managed our portfolio. When we look at the payroll loans portfolio, for example, we have two key messages. The first is a drop in the INSS public pension portfolio, which is in line with the information we’ve been disclosing as FEBRABAN itself has done due to the limits that have been set. When this happens, the access to a cheaper financing facility cannot be made available to pensioners who end up electing more expensive facilities due to these limits now in place. We can see these portfolios dropping. On the other hand, we’ve managed to expand government and private companies payroll portfolios, where we’ve grown by over 12% year-over-year in both cases. As for credit origination for SMEs, we see that it’s continued to grow since the first quarter of this year.

For large companies, there was a slight increase up to the second quarter. And since then, we’ve seen a growing demand already reaching 118 year-over-year on a 100 baseline, which shows that we’ve managed to grow with quality by always focusing on the net interest margin. To focus on generating operating revenue is not enough, we have to look at the generation of operating revenue, the related cost of credit and the return they’re on by analyzing the net interest margin, therefore already adjusted for the service cost which may conclude whether these transactions are adding value to the shareholder in the long term or whether they are simply showing a growth in earnings that does not bring a return on the shareholders’ capital. This is the type of management and work that we’ve done consistently each quarter.

This is our daily work. As for the financial margin with clients, we have good news. The line expanded by BRL700 million in the quarter a 3.2% growth. It was a well distributed and balanced growth with the effects of volume, the volume of liabilities, number of working days some effects in Latin America and others. These are very sound results and for the first time to increase transparency, we’ve broken down the Argentina effect. Argentina and the working capital had an impact of BRL3.2 billion last quarter with BRL2.9 billion from working capital itself and BRL0.3 billion from the Argentina effect, which contributed with approximately BRL100 million to our monthly earnings. When we look at the end of the graph, we get BRL3.1 billion with BRL3 billion from working capital, which compares to BRL2.9 billion.

It shows that we’ve managed to adequately hedge our investments and growing equity. And this quarter, we only have one month from Argentina. So we show this result considering July, as the earnings of the other two months were not affected. Because we stopped to account for this asset as a consolidated bank, as the Argentina operation was recorded as an unavailable for sale asset due to the sale process that was underway. When we look at the consolidated margin, it expanded quarter-over-quarter from 5.1% and we reached 5.6% in the consolidated margin this quarter. And when we look at Brazil, we also see this expansion taking place reaching 5.9% 30 basis points in the quarter, which is a very strong result. As for the financial margin with the market, the quarter was in line with the previous quarters, reaching around BRL700 million results after the effect of the cost of the capital index hedge.