Itaú on an extraordinary trajectory, pushing past excellence
Itaú posted R$10.68B profit, 6% above prior quarter and 18% YoY growth, beating estimates while maintaining analyst favoritism among traditional Brazilian banks. Bradesco and Santander face slower profitability recovery hampered by past credit excesses and high default rates, while Banco do Brasil achieved second-best ROE at 21.1%.
- Itaú posted R$10.68 billion profit in Q3, 6% above prior quarter and 18% above year-ago
- Itaú's ROE of 22.7% led all traditional banks; Bradesco's 11.3% lagged significantly
- Itaú's 90+ day delinquency rate hit 2.6%, lowest in 11 quarters; Brazil segment at 2.9% historical low
- Santander's P/L ratio of 16.83 highest among peers; Banco do Brasil's 3.92 lowest
- Nine of ten analysts recommend buying Itaú with 21% upside target to R$41.77
Brazil's four largest banks reported strong Q3 profits, with Itaú outperforming peers through superior margin expansion and cost control, delivering 22.7% ROE versus competitors' lower returns.
Brazil's four largest banks closed out the third quarter with billions in profit, each delivering results that met or exceeded market expectations. But when the numbers came into focus, one institution stood apart from the rest. Itaú's earnings of 10.68 billion reais surpassed analyst forecasts by 2.7 percent, climbed 6 percent from the previous quarter, and jumped 18 percent year-over-year. The bank's return on equity—the metric that measures how efficiently a bank converts shareholder capital into profit—reached 22.7 percent, the highest among its traditional rivals. Banco do Brasil came second at 21.1 percent. Santander managed 17 percent. Bradesco lagged at 11.3 percent.
What separated Itaú from the pack was not luck but execution. The bank expanded its profit margins by deepening relationships with existing customers and holding costs in check, a combination that analysts at EQI Research saw as evidence of exceptional capital returns. The performance suggested to some observers that extraordinary dividend payments to shareholders could arrive early in 2025. Bradesco and Santander, by contrast, faced a slower climb back to health. Both had extended credit too freely in recent years, leaving them burdened with higher default rates and the grinding work of recovery. When Bradesco's profitability improved in the latest quarter, much of the gain came from a reduction in provisions for bad loans rather than from genuine operational strength—a distinction that disappointed investors who had grown hopeful after the bank's second-quarter showing.
The structural landscape of retail banking had shifted beneath all four institutions. Regulators had capped interest rates on overdrafts and government-backed payroll loans. Fintech companies had siphoned away fee income. The cost of serving customers had risen in certain segments. Within this tighter environment, credit discipline became the difference between thriving and merely surviving. Itaú had proven itself adept at reading the cycle. During the period from 2021 to 2023 when defaults climbed across the sector, Itaú's delinquency rate rose less steeply than competitors. When the tide turned, Itaú was first to see defaults fall; the others took at least six months longer to follow. By the third quarter, Itaú's loans overdue by more than 90 days stood at 2.6 percent, the lowest level in nearly three years. Within Brazil itself, the figure dropped to 2.9 percent—a historical low—with improvement visible across every customer segment from retail to large corporations.
Analysts framed the divergence in stark terms. Itaú occupied one end of a spectrum: a bank on an extraordinary trajectory, consistently delivering excellence and pushing past it. Santander and Bradesco occupied the other, searching for better days ahead, hampered by the mistakes of the past. Banco do Brasil held middle ground. Itaú's advantage extended beyond credit management into technology. The bank continued pouring resources into digital transformation and innovation, moves that sharpened its competitive edge and trimmed operational costs, lifting margins further. The combination of stability, profitability, and strategic positioning made Itaú the primary bet for the sector at this moment, according to analysts tracking the space.
Yet the market's assessment of value told a different story. Stock valuations, measured by the price-to-earnings ratio, showed Santander trading at 16.83 times earnings—far richer than peers. Bradesco sat at 9.05. Itaú came in at 9.02. Banco do Brasil, at 3.92, looked cheapest by far. The gap between Itaú's operational superiority and its valuation suggested the market had already priced in much of the bank's advantage. Among the ten research houses covering Itaú, nine recommended buying the stock, with a consensus price target of 41.77 reais by year-end, implying 21 percent upside from prevailing levels. Bradesco drew six buy ratings and four neutral calls, with analysts seeing 30.5 percent potential gain. Santander, despite its premium valuation, attracted only four buy recommendations against six neutral ratings. The message was clear: investors willing to pay up for Itaú's track record would do so; those seeking cheaper entry points faced a choice between Bradesco's recovery story and Banco do Brasil's deep discount, each carrying its own risks.
Citas Notables
Itaú continues to deliver profit expansion through margin widening with customers and cost control, generating exemplary returns on equity— Felipe Reis, EQI Research
Itaú is a solid bank that brings value and profit to shareholders, with consistent performance, diversified credit portfolio, and competitive advantage through digital investment— Marcos Duarte, Nova Futura Investimentos
La Conversación del Hearth Otra perspectiva de la historia
Why did Itaú pull so far ahead when all four banks operate in the same market?
It comes down to how they managed credit through the cycle. When defaults were rising, Itaú tightened its standards early and stayed disciplined. The others kept lending freely and paid for it later. By the time they realized the problem, Itaú had already moved on.
But if Itaú is so much better, why isn't its stock price higher relative to earnings?
The market has already rewarded it. Nine out of ten analysts recommend buying, and the stock is expected to rise 21 percent. That's not nothing. But Itaú's excellence is no longer a surprise—it's priced in. Cheaper banks like Banco do Brasil might offer more upside if they execute a turnaround.
What about Bradesco? It showed improvement in the latest quarter.
The improvement was mostly accounting—they reduced provisions for bad loans rather than actually collecting more money or earning higher margins. Analysts saw through it. The bank is still fighting to rebuild its reputation and clean up its credit portfolio.
Is Santander's high valuation justified?
Not by the numbers. It's trading at 16.83 times earnings while Itaú trades at 9.02. Santander is betting on a digital transformation and a return to better capital efficiency, but it's not there yet. Only four analysts recommend buying; six are neutral.
What would make an investor choose Bradesco over Itaú despite the weaker results?
Risk tolerance and time horizon. Bradesco is cheaper and has more room to run if it executes its recovery. Itaú is the safer choice—proven, consistent, already delivering. It depends on whether you want certainty or upside.
Does the sector look healthy overall?
Healthy, yes, but unequal. Itaú is thriving. The others are profitable but struggling with the legacy of past mistakes. The regulatory environment—capped rates, higher costs—means only the most disciplined banks will maintain high returns.