Market analysts continue to twist their noses to the latest earnings guidance of Itau Unibanco (ITUB3, ITUB4) and the projected higher expenses needed to cover bad loans (provisions). Last friday it was time for Bradesco’s brokerage arm Agora to reduce the target price for Itau’s preferred shares from R$ 42 to R$ 36, downgrading the stock from “buy” to “hold”.

The “change of heart” came as the bank itself outlined the challenge that lies ahead. In its earnings announcement, the private bank said that its expenses due to loan loss provisions will increase from R$6 billion to R$6.4 billion in the second quarter and between R$6.5 to R$ 7.1 billion in the third quarter. Needless to say, the bank shares tanked after the announcement.

In a note to clients, Agora analyst Aloisio Villeth Lemos said he expects Itaú Unibanco’s profits to fall starting this year until 2014. “Our reduced forecasts are mainly due to the increase in bank provisions.”

Share →