Q2 2022 Itau Unibanco Holding SA Earnings Call

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Good morning everyone. I'm not to me.

the IRO officer for Ita Unibunco. Thank you for taking part in our video conference to talk about the earnings for Q22.

This event is being held here from our studio at headquarters in Fariyalima Avenue. So I'd like to give you some instructions so you can enjoy the event. For those who are on...

The website you have three options to here. All content in Portuguese, all content in English or in original audience.

For the first two options, we have simultaneous translation. So click on the flag on the top left-hand corner of your screen. You can also submit your questions by WhatsApp. Just click on the icon on your screen if you're watching on the website, or send a message to the phone number 551194529674.

So, the information is also available for download on the hot site screen and on our website. So, now I'm going to hand over to Milton, who will give his presentation, and I'll be back to moderate the Q&A session. Milton, over to you.

Good morning, everyone. Welcome once again to our video conference for the earnings of 2Q22.

I'll give you information during some slides and then we'll go into our traditional chat during the Q&A with our investors. Thank you.

So to begin…

We have disclosed the results of 7.7 billion BRL. That's the recurring managerial results. Increase of 4.3% quarter over quarter. We have a consolidated ROE of 28.8, but in Brazil we're considering 21.6, which is strong return. In the credit portfolio, I'd like to highlight 1,084 billion BRL, growth of 5% and consolidated 5.5 in Brazil. That will give you more flavor than that.

point one percentage point.

And important figures are efficiency index and the consolidated was 40.8%. In Brazil, another quarter where we've achieved the best index of the series, 38.7%. These are just some of the highlights. I'll give you more flavor about that in the next slide. About the credit portfolio, for individuals we have a growth of 7.2%, mainly driven by credit cards that havewalk through a series of

effect of consumption, actual increase in demand, and that's really driven the revenues for credit cards which naturally impacts the portfolio. Personal credit growing 6.8%. The highlight in this case in personal credit portfolio, we have consumer credit overdraft and the composition, but as it grows the overdraft 8% growth and consumer credit 7.3.

So the main element that I'd like to highlight is that 80% of this growth in the quarter came from the personality and unit class segments. I'd like to remind you that we went through a trough in those portfolios and we've been recovering. H

Payroll loans had an increase of five percentage points in the quarter.

a strong effect in that quarter and it should continue to grow in the next quarters, but at a different rate.

I'd like to call your attention to large companies, the growth of 4.1%.

In Brazil, the portfolio grew 5.5% in the quarter, 25% year over year. When we consider Latin America, it's a portfolio that grew 3.2%, but if we...

take away the exchange rate variation, we grew 4.5%. Here in payroll loans, we were strong for public agencies. You might remember that I've been saying that in that business, in payroll loan where we have the smallest share, we repositioned ourselves, we've been giving more emphasis on that, and that's why we've been going into more payroll loans with the public agency, and we're seeing growth of 12% in the quarter and 90% year over year.

The growth of very small, small and medium-sized companies, we have 9.4% in the quarter, 72% of the origination in the quarter were companies with higher revenues. So the profile where we've been growing the portfolio are the companies that have higher revenues in that segment, very small NSMEs.

We announced an objective to the market to achieve 2025 with 400 billion BRLs, structuring the capital's market, originating credit for industries that have a positive impact in ESG. We've already achieved 76% of our targets. So over 10 years now, we're beginning to experience moremonths of labor that may be working towards yes, Gr coal or woodlyn erased. It took at almost six months to approach a appliancesRelqt data set.

224 billion operations that were structured and were

we will comply or meet our objective by 2025.

We had a strong quarter in financial margin with customers as you can see.

So in the top line, 1.9 billion BRL, 9.7% quarter over quarter. That's very strong. But in the core…

business where we have volume spreads, Latin American operations and others and funding, we grew 1.6 billion BRL, a growth of 8.8%. That's mainly driven by the average volume as you can see, but impacting all lines of product lines.

or product makes.

more consecutive days in the quarter and spreads.

with the liability lines, with the increase of interest rates in Latin American, and others have other items that are in that line.

Our working capital, which is allocated into the financial margin with customers because it's the capital used for the credit portfolios with customers, you can see that it grew 400 million BRL, therefore solid growth. As I mentioned before, our capital is the capital used for the credit portfolios with

Our medium annualized managed G margin achieved 4.8 and the consolidated in Brazil we achieved 9.2% with the growth that I already mentioned

Margin with the market. The news is good given this scenario. Since the beginning of the year when we gave you our guidance, we said it would be one of the hardest years in this case because of the volatility, the scenario overseas, the interest rate.

But still, we have good results. As you can see,.6...

600 million BRL and overall we have the cost of hedging of the capital ratio that's been approximately 500 million per quarter. The guidance said it would be approximately 2 billion so that means that the margin alone was 1.1 billion in the quarter and that's a good result given the challenges. Probably at lower levels but still closer to what we were seeing in the quarter.

these series. Last year we had some exceptional quarters in the market margin.

Services and insurance. I'd like to call your attention to credit and debit card growing 6.6%, very strong. Here we can see an effect in issuing more revenues, but also in the acquirers, not only more volume, but also more share in financial products.

Here in managing funds, we had an exceptional quarter, not only in regular use but also the performance of our funds.

that had an important effect in this quarter.

and financial advisory and brokerage. So, the variable market is weaker and we found a great opportunity in the fixed income market. Therefore we have solid results. And here the last line that I'd like to call your attention to on this slide is insurance and its results. We achieved 1.8 billion margin.

But I'd like to call your attention to that on these lines we have some

And we have core insurance operations. We also have the actuarial result that we have of a mismatch between assets and liability and inflation aspects.

We also have the results, adding on the results of Porto Seguro. So, we've grown expressively in assurance. And we have consecutive quarters with great growth. As you can see here.

Gain premium increased 23.6% in the quarter. And when we see the managerial recurring result you have.

An increase of 88.7%. Different rate, different level, great expectations for the insurance operations. Credit cards, as I mentioned before, growth of 33.1% when you see the flow year over year. And in the acquirer, 22.1. Here I'd like to highlight the acquisition of avenues. You visit, you will find an shopping cart at xhas as well. Bless the spawn of

Still not full control, but structured to acquire control as time goes by, and that will increase our investment ecosystem, offering a new value proposition for our customers who want to invest in the international market.

Here we have some good news.

So.

50 and 90 are stable, as you can see in Brazil, Latin America, and the consolidated view in Brazil....

Here individuals less than corporates, they're very well behaved and that's good news given the scenarios and challenges that we've been facing. And the longer tail, we have a slight growth of 0.1 not only in Brazil but also in Latin America. And when we look at portfolios, you can see a small growth in individuals as I've been talking about since 3Q21. Now in Super overarching, there's a significant growth in specific industries as you have

And on the other hand, when you look at SMEs, you see a small drop of 0.1 and 0.4 in very small companies. So they're well behaved in this case. We have some challenges moving forward, but we've been able to perform well despite the challenges.

When I look at the relative indicators, there's two information that's very important. So, everything that we've seen in the previous slide aren't affected by portfolio sales. We haven't sold any in the quarter. And that's very important information because obviously when you sell an active portfolio, it impacts those indicators.

In credit, we didn't have a relevant increment in negotiations, and that's another lever that makes the delay.

indicators at lower levels. So here we have a small growth, 3.2% of the portfolio as we call it a renegotiated portfolio and that's great news growth of just 2%.

But solid coverage, 195% of coverage on the past due, 90-day past due.

Cost of credit was 2.8% on the portfolio, still lower than what we saw before the pandemic, achieving 7.5 billion BRL. And nominals should grow with much more portfolios. So in the relative indicators, it's very important to have that relative measure. When we go to a flexible eyes.

Portfolio, good news, we achieved $24.1 billion BRL. That's portfolio been dropping across time. We were amortizing $4 to $5 billion per quarter. Speed is still good. We'll continue to disclose that portfolio.

And the good news is that 65% of that portfolio has an actual guarantee and that's great. And we have coverage of 267% of...

the past year over 90 and This portfolio this portfolio is performing well without any renegotiation. So it's the normal flow and how it's been Behaving the coverage ratio. We had a small drop in Brazil and retail, but I'd like to remind you that from 2015 to 2019 the cover it was 167 percent in retail portfolio were at 195

higher than what we have done before and we provisioned the 70% of the NPL creation so the balance sheets well protected and provisioned for.

one or two.

Monarch chusets at the non interest.

So in the quarter, 6% growth in the quarter 5.6. And when we see the inflationary pressure measured by

salary increases, IPCA and IGM.

by GPM, we see a solid delivery in terms of cost and efficiency, bringing the bank costs to an adequate level, solid efficiency levels as I mentioned before. We've reached the lowest level 38.7% in Brazil, 40.8% consolidated with

declining path and that's great news but still investing in the bank's core business so our cost agenda is about tactics, strategy and long term. So when you look at the core alone...

We're growing.

point nine percent in the quarter if you consider

1Q21 compared to 1Q22, but we've had over $1 billion going through the expenses line. And all the expenses are in this line. We don't have any others. So they're all in these lines in the balance sheet. That's how we've been able to perform. That shows our discipline, our focus, and how we are concerned about the future. Capital, good news as well.

We have stable capital.

and in DIC here we go started from 11.1 to

12.1, so we achieved 12.6% and net income 0.5% adjustment and

the risk-weighted...

You

items 0.3%. Here we have the purchase of a share, our share in XP and the exchange rate has in significant change devaluation from the first quarter to the second and our hedging has been very efficient. There's the cost that I already mentioned in the market margin but when you take a look at this we are not sensitive

to the exchange rate, which was not what happened in the past.

So we've been hedging that index. Lastly, I'd like to call your attention to our guidance.

So what's the story that we're telling? It's the best expectations that management has about what we see in terms of challenges and the earnings we expect during the year. So whenever we have new information, we always want to be proactive and adjust the guidance. We deemed it was important to adjust to four lines of the guidance.

and I'll explain them now.

We changed the guidance for the credit portfolio. We expected growth from 9 to 12 percent and we're reviewing that to 15.5 to 17.5. In Brazil we expected growth of 11.5 to 14.5 and now we're considering 19 to 21.

the financial margin with customers from 20.5 to 23.5, now 25 to 27 in Brazil in consolidated.

22 to 25. We're viewing that to 26 and a half to 28 and a half.

in Crip.

of credit.

portfolio growing, top line growing, therefore we need to adjust the cost of credit and the relative performance of the net financial margin has been very positive. So when we go from 20 to 29 we go from 20 to 31 in consolidated, Brazil 23 to 27 to 26 to 29 and lastly

grow portfolio, do more business and being closer to our customers that leads to more cross selling. So we deemed it was important to review the line of revenues from services and insurance. The performance was better than we imagined from three and a half to six and a half and the consolidated to seven and nine and in Brazil from four to seven to seven and a half to nine and a half. In the other lines not only the financial margin with the market and the non interest expenses and the tax rates are maintained.

what we talked about last year, how we've been delivering what we said, what we think about the future, and how we imagine to execute the future.

how we've been delivering what we said, what we think about the future, and how we imagine to execute the future.

not just about telling the story, but you also have to execute, and we've been very good at doing that.

To those losses clean.

67% of our

Clients are engaged and they are engaged with our portfolio. 2.1 million new engaged clients, customers.

The growth of engaged customers has been more than our already customers. These engaged clients are much more satisfied and faithful.

So, thank you very much. I hope that you guys can help me with this. I want you to be there on Ita'o Day, and we'll have all sorts of interesting information for you then.

So that's the invitation for you.

Questions and answers.

popping over to Renato and I'll be back shortly. Thank you so much and see you soon.

Now we're going to start the questions and answer session.

You can send your question via WhatsApp at.

Is that me?

We have some questions coming in already.

Job.

Thiago from UBS.

Good morning and congratulations on these results, they were wonderful.

I have a question about the portfolio quality.

Pico is performing better when we look at the quality indicators.

And we see that its portfolio is growing strongly.

Especially this quarter.

Can you talk a little about expectations about EPL?

What would the cycle you expect?

What is this nation?

and its future growth.

and guidance is going to continue.

with personalité or what type of customer are you focusing on? Thank you so much. Thanks for this question, Thiago.

Just to give you a bit of background on the credit quality.

our loan quality.

.....

You can see.

that are overdue indicators are quite consistent.

There's always...

We didn't sell any active.

portfolios?

We've been very disciplined in managing and renegotiating. You can see actually the numbers for these renegotiated portfolios. It was just 600 million reels.

The Li ility three book TRACE.

and the index is the ratios dropped from 3.3 to 3.2

So, you can see the numbers are quite strong.

looking again at portfolios we have to make a few comments it's quite important to look at this first.

We have made some significant adjustments in production. We've been doing this since the third or fourth quarter last year when we noticed there were some variations and we acted quickly in response. I think actually two portfolios required some adjustments.

you

The first was credit cards.

So we thought that there was some necessary adjustments made.

We cut production by 50% just to give you an idea.

And there were also cuts in vehicle production.

We found that there were some variations there, especially with ratings. So that was important to us.

And we've been very active, proactive, and we made some very important adjustments. We talk about GDP, but for credit we have to look at nominal.

We started the year off with higher inflation rates.

So GDP nominals were quite, were much higher and this has affected our portfolio growth in general. When we look at retail, over 40 million people worked in Issues and Disabilities? M noticed a great detail census in September progress its average headline error as of Dash Ayt. Up to 40 million people have completed their PhD achievements and over 500 onions have received disappearances throughout the world.

A few things. The first credit card that was most affected by inflation and consumption increase. So consumption. Consumption.

with obviously a high impact and inflation obviously impacts so 120 million in this.

One billion is credit cards without interest rates. So that's a very significant amount. The rest?

is can be paid in installments.

paid installments without investments and so there was a lot of growth in that area over the quarter.

When we see payroll loans that also grew.

We had new clients, new customers in that area. It was a much more active portfolio.

And also the public sector grew. That was actually a gap that we had before, we recognized before, so we are now working with the Minas Gerais state payroll, so we have a much larger segment working with the public sector now. So these have been very exciting, very positive numbers. We feel very comfortable and we've had a lot of growth.

focused on higher income, uni-class personality.

specifically because of their ability to pay, the inflationary effect is quite high.

But because of the central bank, we're getting the message that we need to be cautious. We have been very active but very cautious. We're looking every time where any other delays, any overdue payments, we act very quickly.

We use all of our leverages.

And everything that when we look at everything I think we need to be cautious. There are macro risks not just in Brazil but in the world. There are intrinsic risks, higher inflation, higher interest rates.

And some portfolios we've seen lower demand.

including real estate. And there have been some adjustments in production as well to avoid problems. So some of our credit cards are doing well, others aren't. But when we look at...

From 2021, we see a slight drop. There was high amortization of clean including in personal loans checks.

Overdraft.

But we made some adjustments. We've been able to recover that.

A market Chairman, they caroll.

We've been able to recover our market share.

With the annual effects year on year, this is very important.

So

We have to look at a normalized quarter compared to a more depressed quarter.

Moving forward, we've got an active management. We're going to be very cautious. We're well positioned and that's going to be our approach moving forward. Thank you so much. Next question.

Flavio Cida from Merrill Lynch.

Good morning. Congratulations on the results. Very strong results. Good job.

Follow up.

That's my question. Actually, it's a follow-up question.

For me, the fact that you are increasing the customer's experience, and the individual portfolio with personality and only class has been growing significantly. This is individual customers and these are the lower risk customers, right?

So that's okay, but if the high-income customer is taking out a loan

The situation in terms of...

default is not as good or in terms of delinquency is not as good. So I'd like to actually know how you feel about this dynamic.

Thank you so much for this question, Sadio.

Our outlook is one of caution and we have to look at portfolio performance overall.

If we break it down by segments and not just individuals but

personality versus unit class, things have gone quite well.

But in 2020, 2021, there was a very drastic shift and these customers amortized our debt. They stopped spending as much. They ended up amortizing and.

We all also lost a bit of our fair share in that time.

Now we're recovering our fair share.

We're starting to penetrate and customers have been with the bank for over two years now. So they're well known customers as well as customers who had lower debt rates because of the amortization.

they're now recovering and returning to some of the lines. So Unicles is a segment are

customers.

who make more than 4,000 BRL per month.

So they're a little more upscale.

So again, we're talking about individuals who make more than 4,000 per month.

So this is no way to say, oh, the situation is worsening. We're monitoring it.

We actually don't see any.

severe alterations in terms of customer behavior. It's very similar to what we saw prior to the pandemic.

But overdraft and credit cards are something we have to pay attention to.

We're quite online with where we were pre-pandemic.

Pop loss.

Next question.

Sean?

Upper.

The followingIS Kidney

From sleeping.

Good morning.

You're on mute.

Thank you very much and good morning.

Thank you very much and good morning. Milton. Thank you very much.

You said that last year.

It was a lot more critical in this journey.

And now we're coming back to normal.

So this is very clear in your...

Name.

I think was 10 before prior to 2020.

We're now at 8.4 ish percent.

Do you expect it to be around 10% or do you see some sort of mix with income?

The other question is...

default or delinquency even on PL

I think it's got you. Yeah, it was much more significant in the past.

And as the mix changes this may increase. So the first question is, is that 10% is credible or not?

And for NPL creation.

we do expect those to follow the same trends.

Great.

auter.

Thank you for the question.

thought

When we look at NIM in the past,

We have to look at how the mix was in the past. They were a lot cleaner than they were in terms of we had a higher retail than we had wholesale in the mix. Now, it's more guaranteed than it is before, which clearly affects our name. And wholesale has grown significantly. So there's more wholesale to retail in this period. So this naturally is going to impact us.

The second big thing you mentioned.

is that there was a cap of overdraft for retail, I think it was 8% before, so this is very important in terms of our returns and our numbers.

interest rate has helped us with the

There's no than the

You cratch the mobile to quo Tou the rurural.

Liabilities margin.

And this affects the entire.

portfolio. So this is a much more negative impact on the name. Other portfolios including payroll loans you've got more caps so the interest rate has increased, funding has increased in these caps so this is also affected pushed against the margin. I don't expect this to go back down to the 10% name.

because of what I just mentioned.

We do expect this to expand slightly, but just because I said there is the working capital effect, which has been positive.

Again, those 400 million reels with the effect that I mentioned earlier.

When I look at this performance, I think our levels are...

Quite good.

Quite stable.

keeping

for at least the next two quarters.

I'm going to play a bit for me.

When we look at the portfolio mix, the –

Overdue rates are okay, but again,

We work with expected losses and not actual losses.

So there is a certain effect from 2021, from 2022, but since we're working with expected loss, we look at the lifetime loss or lifetime overdue loans for that client. So when we look at growth of our portfolio, like we've seen...

this naturally affects our balance sheet. So we've really seen this dynamic play out. When we look at

Coverage.

Our losses are covered.

in this quarter, specific in this quarter

We have a complementary inclusion, which means that we really haven't

significantly touched upon this.

And this is established to be consumed over time. So our coverage rates are adequate.

With retail, we've got about 18% coverage.

Of ourarias.

That's just retail.

Last year we were at 167 when we were looking at 15 to 19%. So I think it's very good with NPL creation. You talked about NPL creation.

We include at 100%, so it's already provided for.

these of the credit costs.

and we expect that to be around 105% moving forward. So we do expect to normalize these overdue loans over time. We expect this to happen over the third and quarter.

Third and fourth quarter.

But our best expectation is that they will...

start to reach those pre-pandemic levels. That's what we do expect in the next few quarters.

Again, that's another positive effect.

moblity.

Again, we have to be very.

Be very cautious. We know that we've got solid growth ahead.

And we're very proactive and I do expect to cover this coverage over time and I expect that we'll reach levels that we saw pre-pandemic. So we'll reach those levels, we'll normalize to those levels shortly. Thank you so much. Thank you, Rafael.

Thank you so much for this opportunity.

I want to talk about credit cards.

We talked about transactions, we know that...

Credit cards have been used increasingly more for payments.

bills, credit cards have been growing in Brazil. But we look at loans, actual loans or payments in installments.

What the changes in.

Turnover went from six to about 10% now.

One-time payment, upfront payment.

Has jumped to 80, 81%.

Thank you....

Yes a drop 8%.

When we look at credit cards and we look at all sorts of indicators...

We see that Brazilians have been using their credit cards more, but when you look at the break down, it's only a breakdown.

of how they use those credit cards.

I think there's higher amortization.

What do we expect in terms of...

Turnover and for NPL.

for individuals when you break it down.

I know we have break it down. We break down by individuals versus company. But if you could perhaps break down even a little bit more, we'll talk about.

The use of credit, the use of loans, the use of installment payments for credit cards. You could talk a little bit about that. I'd appreciate it.

Thank you so much, Gustavo, and thank you for that question.

When we look farther down the road.

this transactional credit card.

portfolios were quite high in 2020, 2021.

There was a.

because spending was lower and amortization was higher.

You So faceed on queue.

Thank you.

this was a very significant decrease in the portfolio.

when we look at

the profitability for retail you see a very significant drop in the ability to take out loans get credits or use credit cards

We don't think that this was sustainable over the long term. So what we've seen now is an increase in prevention.

much higher than what we saw prior to the pandemic. Consumption is increasing, expenses are up, there is an inflationary effect. So again, higher bills, higher payment, higher bills, lower payments.

Put for ISM.

When we look at the entire portfolio.

126 billion BRL.

80% is non-interest, 20% is interest, 10% is rotational and the rest is in instalment.

Regulatory has changed.

So you no longer have it paid.

The payment starts to incur interest after 30 days.

So this is a dynamic that we started to see last year. This is nothing atypical.

And again, our levels were quite low before. So what we're trying to do is bring this up to normal levels.

But this portfolio is a very important, very big portfolio. You can see retail, it's about a third of our credit card portfolio.

This is a port.

Multi-channel distribution portfolio.

distribution portfolio. We've got bank.

This is a very strong channel. Performance has been wonderful, and we have a great relationship with the individuals. And retail store owners, this has been a...

little more difficult channel because longer hire but you also have the advantage

working with the agencies of these stores and they're helping to charge and get the payments back. So they've been working with the proposals, they've been able to react to the portfolio.

we've been able to and obviously we've seen volatility in a larger portfolio.

So we had a significant worsening in those portfolios. So what we see in delinquency individuals

basically comes from credit cards or from cards. So the other lines are well behaved, the other credit, the other products are well behaved so to speak.

When you have like open water and less of a connection to the bank and more than one product, that's where we see deviations, that's where we saw that in cards and we saw that in auto as well. The two portfolios that suffered a little more, but they pretty much explain that in individuals. We don't break that down per product, but just to give you an idea. So looking forward, we've seen the change in the portfolio and production. We're still...

actively managing the portfolio. It's a scenario that does require caution, and we have good models of provisioning. When we see worsening in delinquency or macro scenario, we have provisions. Balance sheet is well protected. But without a doubt, that portfolio does suffer a little more. In the mid and long term, it should become more stable, and the yield of the business should.

get better. Thank you, Milton. Thank you, Gustavo. Hello, Cito. Thanks for joining us today.

Hi, good morning Renato and Milton. Thanks for the call and taking my questions. If I could follow up a little bit more on the financial margin. First on the financial margin with clients, I think benefited from two aspects with higher interest rates and the shift in loan mix rates, potentially close to peaking, maybe another small increase, but probably close to the peak, maybe start to come down next year. Help us think a little bit how click is equally yet to allowed.

that could potentially impact that financial margin with clients. Can that still go up because of mix or and how dependent it is on the movement and rates? And then the other part of that is on the market and II, right? You know, that's been fairly weak, I think, because of the higher rates. If rates begin to stabilize, how do you see that market and II can evolve from here? Yeah. Thank you. Sure, sure. Chitu, thank you very much for your question.

Well, talking about the financial margin with clients, I was saying in a previous question that we believe that we should stabilize this 8.4 around this in the next two quarters. We may see 10, 15 basis points in the coming quarters. So, we believe, of course, we do have the impact. We believe that we should stabilize this 8.4 around this in the next two quarters. We believe that we should stabilize this 8.4 around this in the next two quarters.

of the interest rate as we can see in the chart above. But in the other hand, as you can see, the most relevant impact comes from the core business of the bank. So you can see the volumes, very strong. You have impacts in the spread, but much more on the interest rate, on the liability side, on the investment from our clients. And we don't see in the short term a movement in the interest rates. You're right, we believe we are very close to the peak, 1375, we may have 25 basis.

in the previous quarter. So it's difficult to say now where should it stabilize by this year. I still believe that around 8.4, 8.5 on a consolidated basis sounds reasonable. Let's see for next year what level of interest rate, what would be our mix, our capability of growing in some specific portfolios. So this is the way we are approaching that.

Talking on the financial margin with the market, the most important thing is that our guidance had embedded an estimation of not very relevant profitability in financial margins with the market for a few reasons.

First of all, as you know, we still had the overhead strategy for the coming years, the past years. They were very relevant. Just to give you a number, last year we had around 800 million reais, especially on this strategy. We don't have this anymore. We didn't have the cost of the hedge, the capital index. We implemented the hedge policy by the year-end, so we've been investing or expanding around 500 million reais per quarter, as you can see in the chart.

But we had, of course, with the opening and the interest rates widening, the way we are seeing and all the macroeconomic challenges that we see, Fed raising interest rates, Europe , and all the impact that this has been having in Brazil. We expected to have lower financial margin with the market as the guidance was posted. I think we did a decent quarter. As you'll see.

excluding the 500 million reais that we had for the cost of the capital index, we posted 1.1 billion reais in financial margin with the market, which is relevant if you go back to other quarters. You will see that's not so very below that, but I think we posted a decent quarter. My view is that we're going to have challenges for the next two.

especially due to the interest rate effect. But we have a lot of results coming from trading. Trading this quarter was not so good as it was in the first quarter. We have the market financial margin in the treasuries abroad in Latin America. They are doing a good job as well in Chile. We had a very good profitability in Treasury. So it's difficult to project but I think we are doing fine due to the scenario we are facing now.

Thank you, Cito. Thanks, Billto.

Next question came from WhatsApp from Natalia Gore from JP Morgan. I'll read it to you.

It's about.

about OT1, about our bond.

And considering the close to 6.6 to 81, the perpetual if executed would not be economic considering the market scenario. So how do you see the possibility of calling if it's not feasible?

Natalia, that's a really important question.

We've been talking a lot about that. We've had a lot of market demand. So the vision is, in fact,

That call comes due at the end of the year and another one in the beginning of next year to relevant operations almost 3 million USD in the total issuance.

We believe that when we do a simple update,

the reset for the coupon of those bonds with the new issuance we're talking about a difference of over 250 beats and that's very material.

So first of all, there's a fiduciary duty and economic duty, so calling, paying over $250,000.

base points in the new call.

Doesn't.

seem reasonable.

When the time comes, we'll make the decision and we'll disclose that to the market. But in fact, the takeaway is if it were a small award that made sense, even though the liability management would be a bit more expensive, we would consider it. Because under these consistent—

When the time comes, we will look at the in exclusively economic perspective if

The premium is that big if it's higher than that will consider the macro scenario, but looking at the market today

it's difficult to say that we would call under those conditions.

And it's not about capital at the second time, but the Brazilian Central Bank also has to approve and one of the requirements for Brazilian Central Bank approval is to approve the

In addition to show that you have sufficient capital, and we do, you have to prove that a new issuance is more economically feasible than the current operation. Obviously, the central bank will work with ranges, reasonability, that's valid, but the differences are very significant. So even before submitting that to the regulator, we would probably not call if the conditions were similar to what we see right now.

Thank you.

Thank you, Milton.

Let's go back to the screen. Now we have a question from Isil from Jhenelle. Good morning.

Good morning everyone, Milton, Renato, thank you for taking my question.

I have a question.

about your ROE sustainability.

Given...

that you said it's not hard to get an ROE of 20 but maintain it at 20.

that you said it's not hard to get an ROE of 20, but maintain it at 20. And if it's higher...

You can run at a higher profitability. So looking at 2023.

Do you see a small increase or even an improvement to your ROE for the upcoming years given that the FISFIL rate will be higher?

Do you see a small increase or even an improvement to your ROE for the upcoming years, given that this fill rate will be higher? Hi, Nishio. Thank you for your question.

First part.

The answer is

When we look at the data, even the guidance that we just reviewed, there's an ROE of approximately 20 percent.

We still believe and we've been able to run at that level of profitability. We had a recovery across last year so it would be reasonable to believe.

for the next quarters even though we don't give guidance or

of ROE, it's implicit and that's how we did it.

showing what the ROE would be.

In the interest rates we have

Good results well actually there were three major effects on interest rates through banks working capital

the liabilities and the overhead strategy given the arbitration of the local coupon with the external coupon. So overhead, we don't have that anymore and the liabilities we're capturing now. And when you look at the compensation of working capital, these are the interest rates, you see that the effective rate of the working capital, the select rate is there because we hedge working capital and the liabilities.

And we do that in points across the curve. When you have a sudden increase of the rate, you can't capture that at once. It comes in quarter by quarter.

And we went through a very important reduction in the interest rate where the working capital rate

It goes down slower, not so sudden.

So, the effective rate of working capital should go up in the upcoming quarters as you roll over the hedging and you capture the increase in the interest rates, the bad side of interest rates. And we don't advocate for a high interest rate scenario. We want something stable because you're driving delinquency. We talk a lot about individuals in a world where the spreads to the margin aren't repriced because as a general rule the individual...

portfolio is prefixed.

For SMEs and larger companies, that interest rate has a large pressure to service their debt. So that also leads to pressure in default. So on one side you have growing revenues, but that also gives you a pressure in growing credit. So on one side, higher interest rates help you on one side but affect you on the other. So we prefer it lower and credit, which is one of the most important.

levers in our P&L should be relevant and remain sustainable in the long term. It's not good to have too much volatility in the cost of credit. You have to look at the whole and not each aspect alone. So, moving forward, we don't see anything that would make us believe that the bank's profitability would be materially affected. But then again, forecasting 2023 and 2024 is a reasonable exercise in futurology given the scenario of all the information available.

So I'm not going to give you guidance of profitability. We have been able to advocate that for the bank. The results of the quarter speak for themselves. The guidance that was given also includes the

a reasonable rate of profitability. 2023 has challenges, competition in the credit scenario and the more mature economies. What's going to happen with the slow down in the US and in Europe and China may even perform better than it will in 2022. The Fed increasing the interest rate to 4%, opening up the rates. So there are many variables. We're going to have to monitor that and look at that.

And all the migration of the portfolios where we have revenues from services, we're going to a more longer term sustainable relationship lowering the churn. So there's pressure from the competition, pressure coming from all sides. I'm not going to give you guidance in the long term for ROE, but we've been able to deliver good profitability in the short term. We will continue to perform well, in my opinion. Thank you, Milton. Thank you, Anish. Thank you.

Jorge, good to see you. Welcome, thank you.

Hi, thank you. Thanks everyone. Congrats on the quarter results.

I wanted to ask

Milton, you said along your presentation

that you feel

that is prudent to be cautious, and you talked about a cautious environment. And I'm just trying to understand what that means in the context of...

the balance sheet growth that you're seeing and the guidance that you have. I mean you're guiding for growth that could be up to close to 18% year-on-year, your consumer group.

7% quarter on quarter that annualizes high double digit rates, particularly riskier products like credit cards are growing at almost 40% annualized right this quarter. And I'm trying to understand that cautious commentary versus the velocity at which you plan to continue to grow the business. And I'm just wondering if evidently there's risks out there and the world is not a great place today.

Thank you Jorge, good to see you again. First of all, of course, whatever we produced and all the growth we had in the portfolio that we posted in this quarter, of course we are comfortable with that, otherwise we wouldn't be growing the portfolio the way we did. And as I was saying before, we are doing that in the most affluent segments, so they are performing very well in terms of credit and we have still have good perspective looking ahead.

When I say cautious, it's because we are always cautious. We are always looking, understanding this and how to understand it.

what are the challenges we may see ahead. And when we look two quarters ahead and 12 months ahead, we don't have all the answers, no one has. So we are cautious because in the short term we've been seeing as we are posting here the delinquency measured by the NPL over 90 days has been growing every single quarter since the third quarter of last year.

This is completely the way we expect it to be. You might remember in the third quarter of last year I was saying to the market when we hit the low, I was saying that we would see a gradual normalization of our delinquency ratios. And it's exactly what's happening. So when I say cautious, it's because we are seeing the delinquency going up. And we have been acting our portfolio the way we should. So we've been reducing strongly.

the production in the credit card portfolio, we're reducing strongly the production in the auto low-end. So we've been being very effective and very fast, moving fast to make the adjustments that we need. So my point is whenever you see a gradual normalization of the delinquent considerations, we still believe that we should destabilize very close to what we saw in the pre-pandemic.

scenario. We have to follow through and we have to guarantee that we will execute this the way we would like to. So this is our base case scenario. The other thing I was saying before, we lost in 2020 our fair market share in many credit lines. We've been recovering that so there is a base level comparison that should be taken and understand that we are comparing to a base level of 2021.

I know the quarter on quarter, but we have to look to the nominal GDP to understand why the portfolios are growing. And especially on those portfolios like credit card, as you said, we've been seeing a behavior coming from our clients, but we've been reducing credit limits for many clients that we believe that have an important deterioration or that when we look forward, we understand that might have some issues in terms of the capability of repayment.

of paying the bank. So we are comfortable with the growth we had. On a margin basis we are decelerating. But understand that the portfolio is not only retail, we have wholesale here that's been growing a lot and as you can see here with a very healthy portfolio. And we cut a lot of productions as I said so there is the event.

putting together many productions on the retail you see that the impact in the portfolio growth is coming in those quarters but we are confident with what we did but we are cautious with the future so this is the way we are approaching it.

Thank you, that's very clear. If you don't mind, I think one of the points in your results that have been underappreciated and no one has had this on the expense side, you've done a great job at managing expenses well below inflation and well below revenue growth. And I'm just wondering, you know, how much of, and this is not it here, you've done this for the last few years, how much...

more is there for you to continue to minimize expenses, maximize efficiency over the next few years? Have we seen the past years, you know, could potentially start to see an uptick in growth or three years out, we should continue to see you improving on a year-on-year basis. Thank you. No, thank you very much. In fact, we are very focused on that. Of course, when we see 38.7 efficiency ratio for Brazil,

It's the best quarter ever, the best index that we had, if you look to a long series, whatever you look at. But we have the two effects here. We are having a very strong top line growth that benefits the ratio and we are also having a very strong efficiency program as you can see showing that we grew only 0.9% year on year looking this semester. You can see the difference between the two effects here. If you look at the top line growth, you can see the difference between the two effects here. So we have a very strong efficiency program and we are having a very strong efficiency program as you can see showing that we grew only 0.9% year on year looking this semester.

It's relevant when you compare to the level of inflation we are facing in the market. So we are confident I'm sure many of our guys of the bank are watching here Our conversation now so I can tell you that we still have a lot of room To reduce costs to be very disciplined and to keep on this agenda. There is a lot of opportunities here. We are not there yet We will depend on the dynamic on the top line of course to see where we can stabilize

the ratio, but I can tell you from the cost perspective, we still have room to improve. This is the message for everyone. And also on the investment side, we are investing a lot in technology and investing in new business. So all the growth we had in terms of costs has to do with investing in the future of the bank. So this is very relevant. We are not doing a short-term agenda, guaranteeing the profitability of the bank for the coming quarters, and not looking for the whole period. We are looking for a long-term agenda. This is the way we manage the bank.

We have a very strong shareholder view. This is the way we are doing our investments here.

Thank you. Thank you. Thanks, Jorge. Thanks, Milton. Now we move to Portuguese. We have Daniel Vaz. We have Daniel Vaz from Credit Suisse.

Thanks for ry texting it. They've got to move igal perp Portuguese. Specific questions are got to many of us. Who could you back Portuguese? We've got know us from credit Swiss leg us. Thank you very much.

And congratulations for the results. I'm looking at liabilities.

Last half of the year we've seen a little bit of growth on top of...

When we look at the ratio, you see that this drops a little bit.

Thank you very much.

to understand how you've grown.

pret some you, you it funding.

for bonds and other instruments.

what about in strategic investment for funding?

Thank you. First, we have gained market share in investments.

both in terms of private and in terms of retail. And we've been working in our ecosystems.

significant investment in Aeon, 110 offices working. We hope to hit 120 branches by the end of the year. Nearly 500 billion BRL under custody management.

which is dedicated consulting. So we've been operating very strongly in investments. We're no longer working with net resources.

We're working net net.

Net-net banking has been really expanding quarter on quarter.

Our strategy is very clear.

And I think your question is very significant. When we say we've been working in consultancy, that's the best thing for many years now. That's the best thing. We can take them out of a multi-market account with its higher administrative rates and bring them over to bonds or other instruments. It's much better. It's better instruments for them. It's better for their suitability. We understand what their risk profile is.

So with this high interest rate, there was a migration from higher risk to lower risk on top of these other backstorms.

So there were some funds that were multi-market.

and they have moved over to fixed markets. So we've got a great...

We've got LC, LII, IEG, we've got all sorts of different instruments and products available. They're very consistent, consistent returns specifically for retail.

We also use this institutionally for funding.

Sometimes we're the first asset.

And we have great liquidity management.

the liquidity management LC is quite high.

because a flight took hold during the crisis, and there's high demand for credit and loans.

So the request for loans and credit has increased.

So we've been using cash, but again, we're working within margins above regulations and we're very comfortable. Our investment strategy and our model has been stable. So early is heavy investments.

Because you can't just do this, you can't just have a ton of people working if you don't have the model, the products, the offers, the digital side, if you don't have all of the elements that you need, and if you don't have human capital, quality human capital to be able to make this work. So we've been strengthening and investing in this model for some time now. We've seen that results have stabilized as a result of this very significant investment. So we're heading in the right direction. The model is very functional and we've had very good results.

So we've got some, when we look at our breakdown and we see the coverage, we're doing fine. We've got different products, we've got new products. Every channel, private bank, we all have different products. We've also been working strongly to overcome some of the investment product gaps.

So in addition to Treasury, the traditional products that we had, but how can we meet some of the other demands?

contracts, mini contracts, limits, home brokers, and we've been growing and we've been doing this we've been focusing on this.

But we've also seen in the market.

We've also seen in the market in

is that we've got great strategy in terms of the market. We understand...

that this is up to and our spreads are fully compatible with the operation.

and our spreads are fully compatible with the operations. So it's important to have this overview.

We are looking at the sustainability of our customer relations over the long term.

Sometimes we need to accept a lower margin in order to offer better products to the customers, but these are all consistent with our strategy with the moment that we're facing right now and the spreads are absolutely adequate for what we're offering. There's another element that I have to mention as well, which is the secondary market, which is purchasing sale of assets. And we have been doing more of this to offer more liquidity for our customers.

These are either lower liquidity instruments, but it's important, if you can, when you look at these analysis, look at the spread and transparency with our customers and how we have been consistent and sustainable when doing this. I think there's a great opportunity and we've been growing, our investments have been growing. I'm very optimistic about what we should expect moving forward.

liquidity instruments, but it's important if you can, when you look at these analysis, look at the spread and transparency with our customers and how we have been consistent and sustainable when doing this. I think there's a great opportunity and we've been growing, our investments have been growing. I'm very optimistic about what we should expect moving forward. Thank you.

I'm not sure whether we can ask you questions in Portuguese, English and Spanish for one mix of the three so I'll let you decide which one you want to take. Thanks for joining us today Jason.

Hi, thank you for the opportunity to ask questions. Congrats on the strong results, in particular in Brazil's current economic context.

Economists as per consensus for the central bank focus poll expect real GDP to grow 0.4% now in 2023 down from

I don't know, 0.5 just a few weeks ago. Interest rates are expected to remain high now with Salik staying in about the 11% range at the end of 2023. And we have a presidential election. I mean, you've addressed a lot of my issues, but I thought maybe

you could give us your views on where ETAU and IVANCO is in the current economic and banking sector cycle. You've talked a bit about where you see loan growth going and caution, et cetera. Maybe you could share where you see similarities and differences versus historical cycles with high rates and low economic growth and Brazil's fiscal challenges that might be helpful. And as a secondary part of that question in the Q&A, I'm going to ask a question.

The current cycle, it is interesting and I appreciate the disclosure of it's always hedging strategy on the capital index. You showed that you spent 500M reais on the 2nd quarter after 400M in the 1st. Maybe if you can. Give us your views on how you see that working currently and going forward.

Thank you. Okay, Jason. Nice to see you again. Thank you for your question. So talking about this scenario, I think it's difficult to compare when we look back.

I think we still have a few challenges looking forward. First of all, you are right when you see the focus. You are seeing these growths coming from 0.4 hour macroeconomics.

has a 0.2 figure for 2023, so it's not that different, even though half of the focus is still on a very low ratio. So that's a challenge for 2023 and especially due to the level of interest rate. We don't believe that we've been facing all the effects of the interest rate hike that we've been observing in the past month. So looking forward, we believe that it's going to have a slowdown, the impact on the economy side. We might see commodities.

coming to a lower level due to the war, Russia-Ukrainian war. But also we expect that the GDP in the US coming from 2 this year, maybe 1 next year. In Europe coming from 2.5, coming to 0.7% next year. So Mario has this mathematics that says that when the global GDP...

falls around 1%, we feel about 1% in our GDP as well. The good side of that is that on China, we might see a recovery coming from this year to next year, so you won't see the World Index, you won't see that major impact, but you are seeing this in the US, in Europe and in South America, you still have huge challenges in many of the countries. We are going through an inflationary process worldwide. This is not a phenomenon of Brazil.

So our view is that the interest rate, depending on the fiscal policy that we will understand and everybody will know that in the coming years we are going to an election process so no one will be discussing here what will be the new or same fiscal policy depending on who wins. But we will understand that by the beginning of next year. And this will be a very relevant pillar to define where the interest rate may accommodate. So it may stay at 1375 for a longer period, it may go down.

our base case is going to 84. So the question is where it will stabilize. We are doing a few investments now, some more of fiscal stimulus. Are they going to be permanent? Are they going to be only for this period or next year it won't happen? So there is a lot of questions that we don't have the answer. So this is what we are seeing in terms of macroeconomic challenge. I think will be a challenge a year.

There are risks here, interest rate going up in the US as you know, it might go more than 4%, so you have the BCE in Europe will increase interest rate as well. So we are seeing this phenomenon worldwide, so that's why I'm saying that we have risks, we have to be cautious, we have to understand where we are. And I think when we go back to many crisis in Brazil, we have almost 100 years old, so we have capabilities, we've been learning from our mistakes.

and we've been learning from the macroeconomic environment. So we have the capability and we have a very relevant risk appetite toll to manage this scenario. So we are doing the measures that we need to do and linking to your second question, it has to do with the Hadron capital index.

When we decided to do that, it was because we had a volatility in our capital that we didn't control.

And this has nothing to do with the overhead strategy. It has more to do with the banks we have abroad. So when you look to Chile, Cologne, Argentina, Uruguay, Paraguay, they have their capital in the local currencies. So when you do the hedge, you have the benefit of the arbitrage. You don't have this 500 million reais cost. But in the other hand, you have your capital very volatile. And this is not good to manage a bank the way we do.

We want to understand what's our risk appetite, what are the levers that we can work to keep the level of capital that we have, but the effects we don't control. So the only way of doing that was hedging it. This is something that other banks are doing on an international basis when they have subsidiaries abroad. We think it's relevant, but we are going through a phenomenon in Brazil of a high-kicking interest rate. This is happening in the US and in the other countries as well. So what really costs to us is they spread over.

our local interest rate with the local interest rates of those countries. In a more, I would say, sustainable scenario, this spread should be much lower than what we are observing now. This cost might be lower than what we are seeing. But we are confident. You can see from our capital basis, the effects came from 470 to 525. And we had at the end of the day a stable capital. If you take out

the credit and if you take out some prudential effects and the consumption by the XP acquisition, you will see that the hedge was very effective. So we are happy with the strategy, happy with the hedge and we have a much more controlled scenario when we can predict and we can estimate our capital. So our view is that by the year-end, our best guess now, we're going to recover to our risk appetite capital index. I'm talking about 11.5 core capital common equity.

Thanks, Jason. Thank you. And you will have now in terms of Portuguese. In fact, Portuguese.

We've got Dominguez from J.P. Morgan.

Good morning. Hello, Milton.

Good morning. Hello, Milton. I like to curious questions.

I'm looking at Bloomberg.

saying the CEO is a little more cautious with inflationary increase.

But we're looking at the portfolio.

It grew 8% quarter on quarter.

quarter on quarter for credit cards.

For revolving credit.

That grew 86% year on year, I'm sorry, the revolving part, grew over 120% year on year.

And now 20% this past quarter. So I've got lots of questions or ways to ask this.

for these interest earning assets or perhaps if you could talk about these a little bit more. Do you think it makes sense to be so cautious with the 8% growth quarter on quarter?

These are customers who didn't pay on bill dates, they didn't pay when it was due, so they're already overdue, they're already paying in installments.

And these are customers who didn't pay on bill dates, they didn't pay when it was due, they are already overdue, they are already paying in installments.

So, is there a need for some kind of discourse?

So I'm just trying to tie this into growth.

What makes sense in terms of caution?

What makes sense in terms of caution? And then in terms of wholesale.

I don't remember the number, it was 30 plus percent.

But wholesale beat out retail right in your portfolio. I'd like to talk a little bit about wholesale overtaking retail in your portfolio. Thanks so much for that question.

wholesale beat out retail right in your portfolio. So I'd just like to talk a little bit about wholesale overtaking retail in your portfolio. Thanks so much for that question. I'm going to go back to Portuguese now.

Very good questions. I'm sorry, it's

is highly related to consumption and transactions. So quarter on quarter this grew 11% that was a growth 11%

This shows that consumption is now up and we've got different types of consumption according to our different customer basis. What's our basic consumption? What's excessive consumption? So we basically understood what low income, middle income, high income customers look like.

So all everyone across the board has been spending more. We've been working with low propension. If you look back at 2020, 2021.

There was high amortization, especially in 2021, for revolving credit. So there was high amortization.

because of the dynamics of lower expending, higher liquidity in the system, all of the support, all of the help because of COVID.

So there was a real important decrease in prevention, but it's risk to return when we talk about credit cards.

real important decrease in prevention. But it's risk to return when we talk about credit cards. So again...

the rates are higher. So, we can work with risk, a little bit higher risk for this type of product. There's no cap.

mamari.

Thank you.

There's margin, there's manipulation, but we also have a certain point where we don't want to accept risk. Because if you hit it too high a risk, obviously it doesn't matter what percentage you get because we're going to have to cut the customer off, right? They're going to be completely overdue or default.

If you look at the portfolio volume, over 120 billion reels, and we're talking about 6-7% of...

look at the portfolio volume over 120 billion reels and we're talking about six seven percent of

funding for revolving we would expect this prevention to increase now but the levels are still very adequate they're just right they're very similar to what we saw in previous quarters but it is a more volatile portfolio and it is going to be affected by what we see so credit costs and overdue rates are also accounting for this are already accounting for the suspects this is something we've already felt

That's why we made the cuts that we made. They're very important. In some areas we reduce production by 50% and we expect to make more cuts.

But the brokerage credit is much better. Engagement, which we called, which we talked about, is stronger. And for the retail card.

You've got higher risk, but

But you can.

you can collect much easier. Also we have with the nucleus or the cores where we're able to provide customer service, those are a little bit stronger too. So we're able to collect better from our customers.

collect much easier. Also we have with the nucleus or the cores where we were able to provide customer service those are a little bit stronger too so we're able to collect better from our customers. We've also had very similar market shares.

Because where we're seeing market excess, we're not...

We're not going after it. We see there's too many cards on the market. There's a flood of cards in the market. There's very little cost for experimenting. So very easily any customer could pick up four or five, six cards. So we have seen higher leverage than what we've seen in the past. We don't want to defend market share at whatever cost. We want to do something that makes sense according to our risk appetite.

but it is focused on transactions and we have to look at inflation, consumption, we're going to see portfolio growth and this is going to...

How you operate with the portfolio is on the limit. We've been very active. We've been actively working on the limit.

for those patients that would improve or worsen. So you've got the installed portfolio, you've got a higher ability to charge or collect from the customer, focus on customer service, but we also have significant limits in certain sectors, specifically in groups, low-income groups where we've seen a lot of overdue or complete delinquency, overdue payments and complete delinquency.

So there is a balance of risk and return and the portfolio effect.

since we've got a lot of unit class and personality customers, where it's very healthy, so we're able to offset. But if we look at profitability of retail, and we're going to talk about this retail wholesale, this is the same thing we're seeing. There's the...

portfolio effect, but there's also the gradual normalization of overdue payments or complete delinquency.

And the portfolio of individuals being profited.

brings profitability down. So you can work on that with products that may or may not create value. You look at the relationship of the customer overall, and you can't look at it individually. So you consider that in the portfolio. That's why I talk about caution. And in our practices, from the third quarter until now, it's been all about that, adjusting production where we have to. And we have growth because we have comfort.

caution looking forward and the cost that we have in marginal production. About the return of the wholesale bank, it's not actually a wholesale bank, it's the entire wholesale business. So it's not only ETABBA but we have WMS here. So asset...

and all the result that comes from our wealth business.

So, we're in the best years of the wholesale banks, so ETOBBA has very strong revenues out of all the business lines coming from credit, coming from investment banks, fixed income, variable income is a little bit slower this year, weaker as you know, M&A, okay good results, the commercial portfolio as well. All the niches where we operate in are performing well, cross selling in FX.

So we've seen in the wholesale world lower levels of bad debt. So they're at the lowest levels for the wholesale division. And in our opinion, at some point, things will get back to normal. I don't think it's going to be what we've seen in the retail industry.

previous crisis we don't expect that but we are at a very low level and that's work that's valid for everyone that operates in that market in our case specific case the court in the corporate business business we changed the mix going into the better ratings very active portfolio management that started off with BBA in the beginning of 2015-2016 we changed how we managed the portfolio and now we're reaping the results a very healthy portfolio great ratings

Very strong results in all the lines that you can generate from your customers and at the same time. You can generate from your customers and at the same time generate from your customers

low cost of credit, and low bad debt.

So timing is perfect for the profitability snapshot, but I don't think it's going to be 30-some for too long. Wholesale with WMS will have very strong profitability rates.

is perfect for the profitability snapshot but I don't think it's going to be 30 some for too long but wholesale with WMS will have very strong profitability rates. Okay, thank you.

Thank you Milton. Thank you Dawn. We have Henri Qui Navarro from Santander. Good morning. Good morning. Thank you.

for giving me this opportunity to ask questions and congratulations on your results about the acquirers. Hi.

already have very strong results. I remember that three years ago, even in Saideh-Tawu, that in the future, acquirers would be a cost center, a very profitable cost center. The results are very good. So my question is, did you change the dynamics with the acquirers?

So, we saw Cielo as well with good results. Is that?

linked to a scenario where acquirers connected to big banks have a competitive edge or because of new entrants. Could you give us some more favor of the quality of the results of Red Day? How should we look at that going forward? Great, Enrique, thank you once again for your question. It's great to see you here. So the Red Day business and for people who sat in this chair for a while in the past, when you look at long series, I was actually looking at this a couple of days ago. In the past.

We had three billion in profit with Reade. That was the order of magnitude.

When you look at what happened from then until now, the market changed. There's a lot of competitors out there. The prices.

dropped material, the MDRs as well, and the take rates as well.

So there was a huge change in the competitive environment. Things really changed in the world of the choirs.

was a huge change in the competitive environment things really changed in the world of acquirers. So the market in the past...

The external channel was highly relevant, not the bank channel. And now customers want an integrated offer. They want to talk about receivables and payments. They don't want to talk just about MDR, just about the terminal, even though they still discuss that. They want quality service. They want price. We know that MDR has a significant impact to retailers' costs and the companies that take credit cards. So the market really changed.

So what we did was first of all to focus on the more profitable segments. And I remember this in the past. There was a huge fight.

about market share that that was synonymous to results but it's not because two-thirds of the market share in the acquirers market comes from the big customers where prices are tight and negative contribution margins sometimes.

So we gave up on that negative contribution margin unless that relationship with the customer makes sense. So we look at the customer with an integrated view, different than when we looked at them in the past. It's not an acquirer and a bank separate. The customer is the same. You have to look at both.

When we make a decision at red date, one of the bank managers are involved, be it in the wholesale segment or in the corporate segment. So, it's fully integrated. The second element is that when you compare the results of red date, when you look at the top line, you won't see that much. But on the bottom line, internally in the managerial model, we take working capital out of the company and we allocate that to the corporation. Acquirers are independent, so they have the working capital in favor of them. That's the equity of the company.

with the financial products.

And we've been focused by focusing on more profitable segments, we've gained market share, but we also lose from design in the series, even though in the quarter, we can defend that market share in some cases.

We lowered the market share because of the negative contribution margin, and we've been leveraging the financial services, be it advances or even the slides, and that's in the MDR. When you look at the revenues from services and insurance, that's the result of MDR.

And the flags where we advance, that's the financial margin for the customer because it's pretty much a credit product. The funding cost is also in the financial margins for customers. It's not here.

So, the interest rates really affected all acquirers because of the mismatch. They're very active in advancing and prefix and postfix funding and that affected many acquirers. There is normalization as you change the pricing of the assets.

the liabilities and assets, be it the advance payments or the sales, the payment methods. So, if you don't increase the net MDR but you clearly improve the spread of the financial products that were highly pressured from the increase in interest rates, that's what's being done. We're still very satisfied with the evolution that we see in the bank. It's a cost center.

based on the point of view of the business, it's not. When we were saying that, it's that because we didn't look at an acquirer as a business as it was in the past. It's just another branch of servicing customers. So now it's a complete view.

point of view of the business, it's not. When we were saying that, it's that because we didn't look at an acquirer as a business as it was in the past. It's just another branch of servicing customers. So now it's a complete view. That's how we've been operating.

Perfect, Milton. Thank you.... Nicholas Rieber from Back of America. Hello, Nicholas. Good to see you.

Hi Renato, hi Renato and Milton, thanks for the chance to ask questions. I have a follow-up on the on the prior question about the perpetual bonds. So you said clearly you know under current market conditions it doesn't make sense for you to issue a new perpetual bond in international market. My question is if you would consider calling the perpetual bond in December , losing temporarily that capital the 1.25 million dollars and waiting for market conditions to improve to issue a new perp.

Or also potentially if you would consider issuing a new perp in the domestic market and refinancing some of that international perp in the domestic market.

Thanks very much. Thank you, thank you, Nicolas, for your question. Good to see you. Thank you very much.

to be very clear here. We don't have a capital constraint, so the decision has nothing, it's not relevant the discussion on capital here. So we still have room, we have the additional tier one of the bank consuming 1.5, so we are on the regulatory cap. So we don't imagine to take this risk and mismatch, because at the end of the day if I exercise the call, not being effective.

economic wiseings to the bank and then waiting for a new window of opportunity. We're taking a market risk if we do that So and it doesn't make sense on the economic perspective again to exercise a call if the reset Will give you a premium a new Ishing will give you 250 basis point is spread over Of what we have nowadays

So the answer is no. We would make the decision whenever it's possible, but taking a consideration that if in economic view, we should exercise the call. This is our fiduciary obligation. We will exercise the call. If we don't have to exercise the call, due to economic perspective, we won't exercise the call. So due to the current market level that we are seeing now, and if we had to make this decision today, we wouldn't exercise the call. I think this is the best way.

to give you the sensor. Talking about the local market, we've been active, we have an important amount of local debt in the local market and we are always analyzing. So when I say there is a huge spread, I'm not looking only on the international market because we may be able to access local pockets at these same conditions, but we do the same calculation. If this new liability doing locally, if it's better than the perpetua.

Of course, we would exercise the call and issue a local. So we don't have a preference if it's other offshore or in offshore. Our preference is to make the most relevant economic decision. We take other things in consideration, but this is the core element on the decision we make. So we will look to the local market as we always then, but it's not so deep as we see the offshore market for this type of instrument. But we are looking to the local market as well.

Last question, Milton.

We have Marcelo Teles from Credit Suisse. Good morning, Marcelo. Hi, good morning. Thank you, Milton and Renato, for taking my question. It's the last question.

Marcello Tell is from Credit Suis. Good morning, Marcello. Hi, good morning. Thank you, Milton, and Renato for taking my question. It's the last question. So thank you for your patience.

Actually, I have two questions. They're pretty much related to each other. And it's not actually about the bottom one. We talked a lot about that. But I'd like you to hear your opinion, Milton.

about the Brazilian Central Bank initiative of the digital

Is there a concern in the bank where that would increase the risk of financial intermediation?

So, upfront deposits, I'd like to hear your opinion on that. And the second point is Itau Digital.

and the tokenization area.

the tokenization area. Could you talk about that?

Objective there, if there's an opportunity in cost reduction there.

How are you getting ready?

Define web responses are for web 3.0

D5, I'd like to hear about that. Okay, great, Marcello.

Great question to end this day. Two different questions than what we've heard so far. So first about the CDDC. Obviously, we've been following that closely. The zone central bank has been talking to the market and talking about their objectives. I think it's still early to say, but in our opinion, we don't believe that the regulator would like to generate a systemic risk. I don't think that they want to capture the deposit.

stages and pilot program but I don't ever I don't believe that the that was the regulators idea to take the banks out of the equation so that's not a concern but we do have to monitor understand how that will be done how it would be operated what

bank, what role will the banks play, is it collateral, will we have each one of us, each of the banks have their own coin, will it be stable or not.

or currency, excuse me. So, but I'd like to say again that we don't see a systemic risk in that, at least as far as everything that we've heard from the regulator, that's not what they want, what the Brazilian Central Bank wants. They don't want to generate a systemic risk. So we're very comfortable in that. The size of the opportunity to be determined and how we're going to operate, TBD. So it's hard to say right now. We created an area of digital assets. In fact, that was something that we were already doing step-by-step basis. And we decided to centralize that under one single department.

strongly and that's good to understand the bank's opportunity in Web 3.0, Metaverse and so on. So we're very open. We do spend time talking about that and understanding that. So we're already moving, we already have pilot projects of digital tokens here at the bank. I myself was part of that. I bought a credit token to see how it works.

the type of experience that the customers will have. So it's something we've embraced. We believe that there will be.

cost reduction agenda that's very significant, more digital processes and efficient processes where you can have digital authentication and certification.

You can break down the products and create secondary liquidity and individuals. You can democratize and allow people to buy a part of credit where they don't have access to that today, because through the tokens we can do that. So, there are a number of opportunities. That was a great question. But the main takeaway is that we are looking at that and we're also moving on those fronts. Thank you, Milton. Thank you, Teles. Milton?

We have a number of questions from WhatsApp asking about delinquency costs and the avenues acquisition. Since we have no further time, the IR team will answer everyone directly. So this is the end of the Q&A session. Before you leave-

Once again, we'd like to invite you to Ita'o Day 2022 that will be held on September

First, 9 to noon BRT time.

We'll have the co-chairs of the board of directors and also all the members of the executive committee. As Milton mentioned, this year we will talk about customer centricity and looking at that at many different angles. We hope you can join us.

on September 1st. See you then. Thank you, Milton. Thank you, everyone. Thank you.

I'd like to thank everyone for participating. Once again, it's always a pleasure to talk to you all and share this information about all the different themes and consistency, always with transparency in our disclosures and the quality that we offer the market. We always answer the questions. You might not like the answer, but we always answer whenever you ask us your questions. So once again, I'd like to...

invite you once again to be with us on each other day to talk about the bank, its path.

It would not be what it is today without all its shareholders and the trust that we receive from all of you. So, we'd really like to share with you our agenda. And it's also a way to give the visibility of the rest of us, of our Executive Committee, because nobody does anything alone. We always work towards our customers' interests, and you'll see a lot of that on ETO Day. Thank you once again for participating. We'll see you in...

specific meetings and the next call. Thank you.