Itaú Unibanco Holding S.A. shares closed higher on Friday, bucking a slight downturn in the broader Brazilian market, as investors absorbed the bank's latest capital-boosting move and looked ahead to a pivotal central bank rate decision next week.
The bank's NYSE-listed American depositary receipts (ADRs) rose $0.10 to end at $8.01, while its preferred shares on the B3 exchange gained 0.40% to R$40.66. In contrast, the benchmark Ibovespa index edged down 0.13% to 171,273 points, underscoring the relative strength in Itaú's stock.
The bank announced it had raised R$3 billion through the issuance of perpetual subordinated financial bills to professional investors. These instruments, which have no fixed maturity and are callable starting in 2031 only with central bank approval, qualify as Additional Tier 1 (AT1) capital. The move is designed to enhance Itaú's loss-absorption capacity, with the bank estimating it will boost its Tier 1 capital ratio by 19 basis points.
Strengthened capital flexibility provides Itaú with greater leeway for lending, dividend distributions, and share buybacks, while also offering a buffer against potential credit losses. This comes after a solid first quarter, during which the bank posted a recurring managerial result of R$12.3 billion, up 10.4% year-over-year, and a recurring return on equity of 24.8%—a key metric that has kept many investors loyal to the stock despite macroeconomic volatility.
Credit quality remains a focal point. Itaú's credit portfolio reached R$1.483 trillion in March, a 7.2% increase from a year earlier, while non-performing loans (loans over 90 days past due) held steady at 1.9%. The bank has maintained its 2026 targets, projecting credit portfolio growth of 5.5% to 9.5% and cost of credit between R$38.5 billion and R$43.5 billion.
However, the near-term outlook hinges on Brazil's interest rate trajectory. May inflation rose to an annual 4.72%, above the 4.66% forecast and the central bank's target ceiling, according to Reuters. This sets the stage for the monetary policy committee's meeting on June 16-17. After cutting the Selic rate to 14.50% in April, the hotter inflation data has clouded the next policy move. "Inflation remains under pressure," said Rafael Rondinelli at MAG Investimentos, adding that while higher rates can boost lending margins, they also risk dampening credit demand and elevating defaults.
In a positive signal for income-focused investors, Itaú's board approved a R$3.99 billion Interest on Capital distribution. Shareholders of record as of the close on June 18 are eligible to receive R$0.36188 gross per share (R$0.298551 net after a 17.5% withholding tax for most holders). The shares will trade ex-rights on June 19.
Analyst sentiment remains largely bullish. Investing.com reports a consensus Buy rating from eight analysts, with an average 12-month price target of $8.825 for the ADR, while MarketScreener shows 13 Buy ratings and an average target of R$48.38 for the preferred shares. However, some bearish voices caution that much of the upside is already priced in after the stock's rally over the past year. The upcoming central bank decision could force a reassessment of loan growth, funding costs, and credit loss expectations. Analyst low targets stand at $6.10 on the ADR and R$30.50 on the preferred shares.
As Brazil's rate, currency, and credit cycle risks remain elevated, Itaú appears fairly valued to moderately attractive for investors willing to navigate these uncertainties. The stock's resilience amid a weaker market suggests confidence in the bank's capital position and profitability, but the next few days will be critical as the central bank's decision looms.
