Analyst Note| Michael Miller |
No-moat-rated Itau Unibanco posted middling second-quarter results, with recurring net income of BRL 6.5 billion up 2.3% quarter over quarter and 55.6% year over year. Second-quarter results equate to an annualized return on average equity of 18.9%. Inflationary pressures in the Brazilian economy continue to be a concern for our Brazilian bank coverage. Monthly inflation readings have risen sharply in the past few months from a 4.5% annualized level in January 2021 to 8.3% in June 2021. The current levels are worrying, especially given the fact that Brazil has not completely recovered from the pandemic. Brazil’s central bank has raised the benchmark Selic interest rate to 4.25% from 2.00% in July 2021 to curb the inflationary pressures in the economy. We expect that Brazil’s central bank will continue its contractionary monetary policy as the risk of inflation getting out of hand cannot be ignored.