Earnings call: Itaú Unibanco posts strong Q2 results, focuses on growth

Itaú Unibanco (ITUB), one of Latin America's largest banks, has reported a robust second quarter for 2024 with its managerial recurring results reaching 10.1 billion reais, marking a 3.1% increase from the previous quarter. The bank has shown a solid consolidated return on equity of 22.4% and an even higher 23.6% in Brazil. Itaú's Common Equity Tier 1 ratio stood at 13.1%, indicating a strong capital base.

The loan portfolio expanded to 1.3 trillion reais with growth across various segments and stable delinquency ratios. Net interest income saw a 7.4% year-over-year increase, with a risk-adjusted net interest margin of 5.7%. The bank also recorded a 5% growth in commission, fees, and insurance revenue, highlighting its strength in credit card services and the middle- to high-income segments.

Key Takeaways

• Itaú Unibanco reported a 10.1 billion reais managerial recurring result, up 3.1% from the previous quarter.
• The bank's consolidated return on equity was 22.4%, with a higher rate of 23.6% in Brazil.
• The loan portfolio grew to 1.3 trillion reais, with a Common Equity Tier 1 ratio of 13.1%.
• Net interest income increased by 7.4% year-over-year, with a stable risk-adjusted net interest margin of 5.7%.
• Commission, fees, and insurance revenue grew by 5%, driven by credit and debit card services, asset management, advisory services, brokerage, and insurance operations.

Company Outlook

• Itaú Unibanco reaffirms its annual guidance, expressing confidence in its strategy for organic growth and the pursuit of opportunities.
• The bank aims to maintain a high level of profitability with an ROI expected to remain above 20%.
• Itaú is focused on customer migration to its new app and cross-selling within that context.
• The bank is considering more frequent capital optimization in the future.

Bearish Highlights

• Non-interest expenses increased due to investments in IT and other areas, impacting the efficiency ratio.
• The wholesale business saw a drop in net interest income due to reduced allocated capital and lower interest rates.
• Regulatory changes like IFRS 9 are on the horizon, which may affect the bank's provisions.

Bullish Highlights

• The bank's net interest margin remains stable despite interest rate volatility, showing strong risk management.
• Itaú reported the best quarterly market net interest income in its history.
• The bank has strong capital base to support organic growth and pursue new opportunities.

Misses

• The bank will have a relevant receivable provision in the next quarter related to Americanas, but the allocation decision is pending.
• There has been a decline in certain portfolios due to de-risking, although overall loan growth remains healthy.

Q&A Highlights

• Itaú Unibanco executives discussed the importance of understanding data and interpreting it correctly.
• The progress of the One Itaú platform was emphasized, with satisfaction expressed in the initial results.
• Executives discussed the bank's strategy for payroll loans and the competitive market.
• Questions about the call options on certain bonds were addressed, with decisions to be based on economic feasibility.

Itaú Unibanco's earnings call revealed a strong performance in the second quarter of 2024, with noteworthy growth in its loan portfolio and commission revenues. The bank's executives remain focused on capital optimization, maintaining profitability, and enhancing customer experience through digital platforms. Despite the challenges posed by market volatility and regulatory changes, Itaú Unibanco appears well-positioned to continue its trajectory of growth and success.

InvestingPro Insights

Itaú Unibanco's financial robustness is further evidenced by the latest data from InvestingPro. The bank boasts an adjusted market capitalization of $54.51 billion, underlining its significant presence in the financial sector. Its Price to Earnings (P/E) ratio stands at 9.64, reflecting investor confidence in its earnings capacity. The adjusted P/E ratio has shown improvement, dropping to 7.84 in the last twelve months as of Q2 2024, which may indicate the bank's growing profitability relative to its share price.

The bank's revenue has experienced healthy growth, with a 12.23% increase in the last twelve months as of Q2 2024. This aligns with the bank's reported growth in commission, fees, and insurance revenue, highlighting its operational efficiency and diversified income streams. Furthermore, Itaú Unibanco's operating income margin is at a strong 34.89%, showcasing its ability to convert revenue into actual profit effectively.

InvestingPro Tips further enrich the understanding of Itaú Unibanco's performance:

1. The bank's dividend yield stands at 2.43%, coupled with a dividend growth of 8.05% in the last twelve months as of Q2 2024, suggesting a potentially attractive proposition for income-focused investors.

2. With a Price to Book (P/B) ratio of 1.59, the bank's stock is trading at a reasonable value relative to its book value, which could be appealing for value investors.

For readers interested in more nuanced analysis, InvestingPro offers an additional 15 tips, providing a comprehensive view that could guide investment decisions. The combination of Itaú Unibanco's solid financial results, stable dividends, and reasonable valuation metrics positions the bank as a potentially strong player in the financial market landscape.

Full transcript - Itau Unibanco Holding (ITUB) Q2 2024:

Renato Lulia: Hello, good morning, everyone, and thank you for joining this videoconference to talk about our earnings for the second quarter of 2024. As usual, we are broadcasting directly from our office in Avenida Faria Lima, in São Paulo. Today's event will be divided into two parts. First, Milton will take you through our performance and earnings for the second quarter of 2024 and then we will have a Q&A session, during which investors and analysts can ask us questions and get into the details with us. Before we get started, I'd like to give you a few pointers to help you make the most of today's meeting. For those of you who access this via our website, there are three audio options on screen: the entire content in Portuguese, the entire content in English, or just the original audio. For the first two options, we will have simultaneous translation. To choose your preferred option, just click on the flag on the top of your screen. Questions can be submitted via WhatsApp. Just click on the button on the screen on the website or simply send a message to +55 (11)-93-959-1877. The presentation we will be making today is available for download on the website screen and, as usual, on our Investor Relations website. I will now hand over the floor to Milton, who will begin the earnings presentation, and then I'll be back to moderate the Q&A session. Milton, the floor is yours!

Milton Maluhy: Good morning, everyone. Welcome to our meeting to talk about the 2024 second quarter earnings. In this presentation, we have primarily tried to provide executive information, in order to make more time for a conversation during the Q&A session. Let me go straight into the figures to share our results. We reached the double-digit mark in quarterly managerial recurring results of 10.1 billion reais in the second quarter and posted growth of 3.1% over the first quarter of 2024. Now, moving on to the bank's profitability, our consolidated return on equity was 22.4%, a quarter-on-quarter growth of 50 basis points and, in Brazil, our ROE was 23.6%, a quarter-on-quarter growth of 100 basis points. I'd like to draw your attention to the fact that we are running with the Common Equity Tier I ratio of 13.1%. If we were to adjust the bank's profitability by the risk appetite level set by our board, which today is not permitted to operate with capital below 11.5%, we would have posted a consolidated ROE of 24%, taking into account all adjustments, and ROE of 25.7% in the operation in Brazil. So, the profitability adjusted by Common Equity Tier 1 of 11.5% is 25.7% in Brazil, which is the profitability for the quarter. We have good news regarding the loan portfolio, with sound growth that I will comment on later. We've been finding opportunities to grow with quality and a long-term vision by looking at longer-term cycles. We reached the 1.3 trillion reais mark during this quarter. Delinquency ratios are within acceptable thresholds, and I think that the delinquency indicators level that two we've been working on is just as important as the steed fall that we're posting. Delinquency indicators are lower than pre-pandemic levels and I'll talk about that later. Commission, fees and insurance recorded a good quarter and posted high-quality growth of 5%. We continued to organically grow our capital base and ended the quarter at Common Equity Tier 1 of 13.1%, a growth of 10 basis points in the quarter. I'll give you more details on capital in a little while. Going into a little more depth, let's talk about the loan portfolio. I'll focus on some key messages. The individual loans segment grew 1.2% in the quarter and last quarter I'd commented to you that there would still be a de-risking effect going on in the portfolio in the coming quarters. The credit card portfolio was one of the portfolios in which we had to make the biggest credit adjustment. This portfolio remained stable, which is good news, because it needs to stop dropping so it can start growing again, and we're already seeing an inflection point for this portfolio this quarter. The personal loans portfolio grew 2.3% in the quarter. We also grew 0.8% in Payroll Loans, in vehicle loans, growth was 3.1%, and the growth in the mortgage portfolio was 1.6%. The portfolio of individuals grew 3.2% in the year, with some more detracting effects, such as the card portfolio and the payroll loan portfolio holding back this growth. But, as I said last quarter, we are at the end of the de-risking process. So, all the origination effects are already starting to be positive for the portfolio. We'll be able to notice that in the coming quarters. The SME portfolio also posted healthy growth in the quarter, of 2.7%, and has been growing above double-digits year-over-year, posting growth of 12.5%. The large corporates portfolio posted very strong growth of 8.6% in the quarter and 16.3% year-over-year. I remind you that this includes a FX impact. I'd say that a third of this growth was due to exchange rate volatility, but two-thirds of the growth happened organically, which shows this portfolio's great momentum. And the results for Latin America, which posted growth of 13.3%, are basically explained by the FX effect. Thus, this does not necessarily represent a portfolio growth but rather reflects FX fluctuations. As a result, we can see the loan portfolio growth of 8.9% year-over-year and excluding FX, growth was 7.1% for the period. I had told you last quarter that we'd reaffirm the growth set in 2024 guidance and that we'd be able to post high quality growth in the quarters ahead. The market doubted it, but I believe that 2Q '24 figures prove this dynamic. By looking at the credit card portfolio, for example, we note that it was flat in the quarter, but grew 2% year-over-year. In this context, I'd like to highlight two segments that are key for the bank in terms of both the quality and the number of customers, which are Personnalité and Uniclass segments. The credit card portfolio in both these two segments grew 3.5% quarter-over -quarter and 17.3% year-over-year. These are middle- and high-income segments where we've been focusing a good portion of our growth. We have good news regarding credit origination in all products. We posted quarter-on-quarter growth of 6% in the individuals segment, 7% in SMEs and 23% in large corporate segment. Year-on-year growth was of 19%, 11%, 21%, and 17%, respectively. This shows our ability to grow and originate credit very strongly, with high quality and a long-term vision. This is what we're managing to do. And deep-diving at the personal loans portfolio, which includes products such as installment loans and overdrafts, 71% of the growth in 2Q '24 came from the middle- and high-income segments named Uniclass and Personnalité segments. Again, this shows the strength of Itaú Unibanco's middle- and high-income segment. It's very important to show our ability to grow in segments that still have a lot of room to continue growing, despite our very strong leadership position. With respect to the clients' NII, I'd like to make an observation regarding the adjustment in Argentina, which I'll continue to make during the next two quarters. Our last year's earnings included seven months of Argentina's results. So, we're trying to normalize this effect by excluding Argentina from the analysis. Taking this and the working capital effect into account, we posted a 7.4% growth in our clients' NII year-over-year. As you can see, if we considered the core clients' NII in the second quarter of 2024 over the first quarter of 2024 by firstly disregarding the working capital effect, this NII growth would have been even greater since we would also have a drop in working capital in these deltas. The core clients' NII grew 2.7% in the quarter, or 600 million reais. The product mix was slightly negative for the NII because, as I showed you in the loans portfolio slide, we grew more in the corporate segment than in the individuals segment, and within the corporates segment, we grew more in the large corporate segment than in SMEs. This is the slightly negative mix impact on the NII. On the other hand, volumes more than offset this effect, with a contribution of R$400 million in the period. We also have the positive effect of spreads and liabilities margins, in which liabilities margins is the more representative of the two, as it continues to expand as a result of a very strong growth of the bank's liabilities. Finally, the structured wholesale operations are also having a positive contribution in the "Other and Latin America" line. Even though we see a slight decrease in the consolidated annualized NIM for the quarter, it is practically sidelined when adjusting for risk. The consolidated risk-adjusted annualized NIM was 5.8% for the fourth quarter of 2023 and the first quarter of 2024, and 5.7% for 2Q '24. The provision recognized in Latin America generated this 10 basis points impact on the consolidated NIM. The annualized NIM in Brazil dropped slightly but, as I always say, the most important indicator is the risk-adjusted NIM. Therefore, increasing our NIM and expanding our topline and our portfolio must be done with high quality, otherwise there will be a negative impact on risk-adjusted NIM. We continued to consistently improve the risk-adjusted NIM. Thus, I would say that this is yet another quarter of good news in terms of our NIM. I'd like to pause for a moment to bring back this chart and tell you the reason why I'm bringing it up again. In the second quarter of last year, we showed this data because some analysts asked us how sensitive our NIM was to interest rates. We've always said that we were less sensitive than some analysts were saying. But since this issue keeps coming back, we thought it'd be important to show this data again. In this graph, we add the clients' NII and the market NII, which is how we manage everything sensitive to interest rates on the balance sheet, whether it is the loan portfolio or market positions. So, the first piece of information is that we set the 100 baseline in the fourth quarter of 2019, which was the last quarter before the COVID pandemic. The second piece of information is the interest rate, which is this black line. It shows how the interest rate has behaved over time. By doing this analysis, we note that the NIM is highly stable, while interest rate behavior is very volatile. We note the interest rate rose from its lowest levels in history to the levels we have experienced recently, while both our gross margin and risk-adjusted NIM have been expanding and proving to be much less sensitive to interest rate fluctuation. I think this graph is very intuitive and it shows our ability to manage all the risk factors of the conglomerate and be able to navigate through greater interest rate volatility cycles with a much lower impact of CDI fluctuation than many imagine. This is why we think it's important to show you this information one more time. And what would this drop be? These are the first quarters of the pandemic, during which we recognized very high provisions in the balance sheet and that's why, in fact, we had a drop in NIM. But then we posted a very strong recovery over time. This is the message I'd like to share with you. The market NII had a very positive quarter, posting the best quarter in this historic series, both on a consolidated basis and in Brazil. In Latin America, we had a slightly weaker quarter, as you can see, and the capital hedging cost was flat compared with the previous quarters. This quarter's earnings, therefore, stand out because they were strong as a result of the operation and better risk management, seizing some market opportunities that we found, allowing us to post quality results. Moving on to commission, fees and insurance revenue, I'll start with credit and debit cards, which grew 0.8% in the quarter. In current accounts, some might ask why there's a drop and what's happening. And I'd like to highlight that we disclosed to the market the support for Rio Grande do Sul and our clients impacted by the floods in the region, and now we can see how it affected some balance sheet lines. We exempted those clients from individual and business current account fees, which explains about two-thirds of this drop in the current account fees. We had a very good quarter in the Asset Management business. It is important to mention that both the second and fourth quarters usually include a performance fee, which generates some volatility, but we've been able to deliver performance fees both quarter-over-quarter and year-over-year. We remind you that last year was a very difficult year for performance fees, and although this year has not been easy, we have been able to deliver better results for some products. We posted major growth for advisory services and brokerage in the quarter, especially in DCM, which posted very strong results, in addition to continuing to expand our individuals' brokerage business. Therefore, this business also helps to explain part of this growth in earnings. Year-over-year, we grew 83.5% and I remind you that in the second quarter of last year, we were facing a very difficult time with no capital market activities, which means that this is not the best comparison. In terms of results from insurance operations, we continued to expand the topline. We also had the effects of the floods in Rio Grande do Sul in the quarter for the insurance business since it affects the retained claims, but the quality of the operation and the insurance penetration continues to grow organically, at the same pace that we had been growing over the past years. This gives us a very sound picture of commissions and fees and results from insurance operations. Funding through the asset management business was strong and posted an increase of 22% year-over-year and of 34% comparing the first half of 2024 against the first half of 2023. This is the advantage of having a portfolio with very diverse products and being able to understand what our clients' needs are. Client centricity, which has enabled our funding volumes to grow and net new money, has been higher and higher quarter after quarter. The pension funds operation reflects the same levers, with revenue growth of 22.8% in the quarter and net inflows growing 61%. So, we have more volume, good advisory service for our clients, and higher profitability as we can also deliver performance fees in pension products. And in investment banking, I already mentioned the strong DCM results. We indeed had a very sound quarter with 27% market share, and once again delivering consistent results. I'll now present the credit quality indicators, starting with short-term delinquency indicator, the NPL 15-90. In Latin America, we had a slight increase in the short-term delinquency indicator explained by one or two corporate groups in the region, which is not worrying us. When we analyze the total delinquency ratio and the delinquency ratio in Brazil, we see a slight drop in the quarter. 90 days NPL is running at 3% in Brazil, a slight drop compared to the last quarter and at 2.7% in total. Further down, we have the Latin America indicator, at 1.4%. As important as it is to analyze the trend, we must also analyze these indicator levels. When comparing the current level with the pre-pandemic one, we can see that we now operate at lower levels, so I believe that this is the most important message to convey: we have been running for some time at levels lower than pre-pandemic. We can see this dynamic in the NPL 15-90 for Brazil, which fell 10 basis points quarter-over-quarter, while the NPL 15-90 for SMEs also fell 20 basis points in the period, which projects a very positive trend. For large corporates, the indicator is at historic lows. 90 days NPL in Brazil remains stable, despite the typical rollover of short-term delinquency that happens in the first quarter. 90 days NPL for individuals was 4.2% in the quarter, remaining flat compared to 1Q '24, and is lower than the pre-pandemic level, which was at 4.8% in 4Q19. As I've said earlier, these indicator levels are as important as their trend. We've shown that, quarter after quarter, we are operating with high-quality credit indicators. And obviously, this is where we always have to be careful with the type 1 and type 2 mistakes: the type 1 mistake is a credit mistake, which is the kind we don't want to make, and the type 2 mistake is a risk appetite mistake, which is the kind that we have been careful not to make so that we can grow with quality. In terms of credit quality, the cost of credit was flat with a growing loan portfolio in the period, as I showed earlier. This leads to another decrease in the cost of credit ratio over the loan portfolio, once again reinforcing the high quality of our portfolio. The renegotiated portfolio also fell, nominally and percentage-wise with the loan portfolio growing. Its ratio to total credit portfolio is at 3% which is good news. The coverage indexes are all very stable with very little volatility within a very acceptable margin when compared to the time series. There are no points for our attention in these credit indicators. Non-interest expenses grew 4.7% quarter-over-quarter in Brazil, noting that the second quarter is typically stronger than the first quarter, because of the accounting effect of vacations in the first quarter and some higher investments made in the second quarter. Excluding Argentina, growth was 7.1% year-to-date over year, and consolidated OpEx grew 5.0% in the same period. The most important thing is that the efficiency ratio continues to fall consistently because managing the top line is as important as managing the cost and it is this dynamic that has been translated into efficiency rates. This efficiency ratio that we are now disclosing is for the six month period. But it is important to highlight that the efficiency ratio for the second quarter is the best efficiency ratio of a Q2 in the historic time series. So this was another quarter in which we achieved the best efficiency ratio comparable to the Q2. At the beginning of the year when we presented the 2024 guidance, I pointed out that core costs would grow below inflation. In effect, inflation for the last 12 months measured by the IPCA is at 4.2% and core costs grew 3. 8%. This shows that we have been able to keep core cost growth below inflation but without ever leaving aside investments in our organization, in business expansion, in technology, in our digital channels and in a better experience for our clients. This is what we've been trying to do quarter-after-quarter. So the main reasons for the increase in the expenses line are the investments we make. All this investment generates results and benefits over time, which is why it is important to analyze the efficiency ratio. The last slide of the presentation covers capital. Here the most important thing to show is that we continue to grow organically and we expanded our capital base by 0.5% already adjusted for the dividends. Prudential (LON:PRU) adjustments, which consider effects of the mark-to-market of securities booked in the shareholders' equity have consumed 0.2% of capital with all the interest rate volatility in recent months. And the loan portfolio expansion that I was talking about just now consumes 0.2% as well. It's important to remember that the capital appetite of the Board of Directors for the business is 11.5% and the capital appetite for dividends is 12%. I'm sure that we'll cover this topic during the Q&A session. The most important message is that we are working with a very strong capital base, which allows the bank to continue pursuing growth opportunities as long as capital is not a constraint. We manage capital allocation focusing on high quality and profitability to ensure value creation. We have a very sound capital base, which has been expanding and financing the bank's growth. So I understand that this is a very healthy dynamic for the balance sheet, which shows that we ended up with very robust CET1 and tier 1 indicators. This is the end of our 2Q '24 results presentation. I'd like to thank you all once again for participating in another earnings presentation. In this presentation we did not bring up the guidance which is naturally reaffirmed. The guidance is not quarterly it is annual and we want to be able to share any developments with you. And we are absolutely in line with everything we have committed to since the beginning of the year. You will certainly be the first to know if there is any change of scenario or vision. Now I'm going to join Renato for our Q&A, so we can discuss our results further. Thank you very much once again for your participation. Cheers. [Break]

A - Renato Lulia: Thank you Milton for your presentation. It was very quick we just have [indiscernible] three hours of initiatives and contents about our business focused on result, and we have 13 questions waiting for you here on today's call. Well, let's start the second part of our meeting today, which is a Q&A session. Now I remind you that we have two languages. Milton will answer the questions in languages that are asked, either English or Portuguese. If you need support for translation, you can choose the entirety of the content in Portuguese or English. Besides, you can submit your questions via WhatsApp. The number (11)-93-959-1877. Let's start Milton with the first question. We have a long list of analysts. We have Renato Meloni from Autonomous. Thank you, Renato for taking part in our call.

Renato Meloni: Good morning, everyone. Thank you for the questions. Actually, I wanted to understand what is the perspective for acceleration of the portfolio of natural persons of, for this quarter. But if you can give us some context, regarding the de-risking that you just mentioned, but also with the comfort that you have to accelerating the origination and all the segments of income? Thank you.

Milton Maluhy: Thank you for the question. Okay. To give you a bit more context, let me just find a camera right there. Alright. So to give you a bit of context, de-risking, it's at the end of the process, as I mentioned on the previous quarter. The 0.35 year-on-year on that drop on the second quarter, I would like to just say that we're very close to that end, the end of this. Well, we are at the inflection point until the third quarter. We should be close to that. So in the end, we have to clarify something very important. We didn't stop growing. We continue to grow in the portfolio of medium high income, several quarters in a row. But when you look at a few portfolios in the aggregate, for example, credit cards, you have a nurture of the portfolios that continue to drop nominally. So you have a strength a gravitational strength that pulls you down when you have your origination and a portfolio growing in other segments. We're going to lose that negative effect, and we're going to see the positive effect. We should observe the year-on-year growth on the portfolios in regards -- growing in regards to what we observed in this quarter. This is the central message. We had the opportunity of growing in several businesses, several products, and several segments of income. So you have to be very careful when we say high income, low income. Well, actually, we've seen opportunities in all segments in growing in a correct channel with the correct client, and we have less resilient clients in all segments. But whether if it's low, medium, high income, we have to interpret well the data. That's the important thing, understanding the model, the depth of the relationship, and engage the more and more these clients. So we're looking at the future, and we can see in a positive way the capacity of growth, especially after the good de-risking in a portfolio, but always having understanding that the level of leverage is still high, the commitment of the income of the population is still high. So you have to grow with care. Growing a portfolio and accelerating, bringing more margin and then returning that, it's not what we do. We do a very disciplined net financial margin. So it's the margin of the products minus the cost of credit, the expenses, and we've defended our net margin. And we are going to continue to expand on the adjusted line for the risk in within this discipline. So we see it in a very positive way. We can naturally continue to with the appetite for growth, quality, and the long cycles and removing the volatility of the portfolio. So we can continue to deliver the consistent growing results. That's the main message.

Renato Lulia: I will switch to English because I know the next question comes from Tito Labarta from Goldman Sachs (NYSE:GS). I was preempting your interest here, Tito. Thanks for joining us for the call.

Tito Labarta: My little bit of Portuguese. But thanks for the call and taking my question. Actually, follow-up on loan growth, but more on the corporate side. We saw very good loan growth both on the large corporates. I know part of that was, FX, but even without the FX origination grew up quite a bit. SME loans also growing at a healthy pace. Just to understand, how do you think about, sort of the health of corporates, the health of the economy overall and in terms of your ability to continue to lend at this pace? And then how could that, maybe even like trickle down into the economy, right? Because you have a lot of fiscal concerns about Brazil. But, I mean, that you're growing corporate loans this strong, right? There seems to be some demand there. So just help us think about that in the context of the Brazil macro as well? Thank you.

Milton Maluhy: Yes, sure. Thank you, Tito. Thank you for coming. Thank you for your question. I would say that the growth that we had in this portfolio, especially on the big companies has been very, very healthy. And we've been able to find opportunities. We have a very well capitalized bank, which bring us opportunities to grow the portfolio whenever we find there is an opportunity. The DCM market in Brazil, as you know, is very active. We've been seeing the AUM growing strongly quarter-on-quarter. And we've been seeing opportunities to deliver more credit to our clients and also to take the advantage to being leading in the decision market and selling this portfolio throughout the market. So this is kind of a revolving process where we grow the portfolio, we sell to the market and we, of course, open the balance sheet to finance clients that don't have access to the DCM market. So in general speaking, although we have all those macro discussions on interest rate, inflation, the effects, We've been working since 2015 and '16. We changed completely the way we managed our portfolio. We have a very, very portfolio approach, risk approach for the portfolio. And if you take just to give an example, if you take the 10 largest clients or the 10 biggest clients in terms of credit within the bank, we have less than 3.5% of our capital allocated to those clients. So we reduced strongly the allocation, the concentration of those portfolios and we have a very healthy balance when you look all the segments where we are inserted in. And if you look off the clients, we're always hearing this client or that client that may or might be having an issue with credit. We've been having good surprises. We never know knock on wood is 3x, but we've been doing quite good in terms of credit origination and credit management and risk approach. So we are very comfortable. We do believe there is opportunity. I don't believe that we'll keep the same pace of growth in the big companies, large companies here as we saw in this quarter. We believe that this pace might reduce in the coming quarters. But even though very healthy, generating a lot of business to the bank cross sell and a very close relationship to our clients. In the SME, we are doing the same. We are seeing opportunity to grow, grow with quality. If you see the delinquency ratio of our portfolio, we've been reducing the short term delinquency, 20 basis points this quarter. So very sustainable, very good quality and very good profitability. So this is key. We're going to keep very focused on the capital in value creation at the end of the day, capital allocation and managing risk. So we are not and we will never be trying to do artificial pricing or trying to gain market share artificially. We are very focused. So all this production and these credits that you see in our balance sheet, they have a very good profitability and return on capital. Looking, of course, the relationship we have with those clients where we have a relevant position in investment banking, talking about ECM, M&A, DCM and also all the other products that we can do with those clients. So we are very comfortable with the health of the portfolio and cautious, of course, always looking to the forecast and the expectations on the economy. And if there is any need to adjust the appetite, we will do so but very comfortable and no need so far to worry with any of this growth, very quality and a good healthy portfolio.

Renato Lulia: Thanks. Now going back to Portuguese, Portuguese, and, we have Rosman from BTG Pactual.

Eduardo Rosman: Good morning, everyone. I wanted to steer away from the quarter, and I wanted to get an update from One Itaú. I wanted Milton, how relevant is One Itaú for the strategy on the medium term for the bank? Do you expect, well, are you going to be disappointed if you don't have success as you want, or this is just an option for your case study?

Milton Maluhy: Okay. Thank you, Rosman. Thank you for the question. I'm going to start with the second one because, the entirety of the team is watching us. We will we will be disappointed if we, in fact, cannot advance in a relevant way in what we call the One Itaú platform. We started this process. It was a very strong work at the infrastructure with a platform, with the unification of management. An unlock for the client holistically for the whole of the relations. And there is a complexity and there is a great opportunity as well as well as complexity. What do we do? We started with a process that I'd say that is, family and friends. It's a pilot that was very carefully implemented. We have a volume of clients that have been working with this, pilot, and all the indicators are very healthy thus far. Just so you know, out of all the clients that we stimulated, the migration of the apps of cards for the super app, 98% migration. 98% is much higher than the expectations and much more than any migration because we've done this in a very light way, in a very soft way. And the client is understanding that there is value being offered. We are very satisfied with the advances, and we will anticipate all the migration. We had predicted about 15 million clients that we're going to migrate for this platform. We are working at a very healthy pace. We don't like to give numbers, but we are probably going to migrate in 2 million, 2.5 million clients still this year. Maybe we're going to do double that this year depending on the rhythm, because there is a lot of quality in what we've done. It's a commitment. It's an -- it's also an expectation, an estimate given the results that we achieved in the short term period. It's a very long journey. There's still a lot to do. There is relevant evolutions in our super app. We've benefited because these mono apps, they had their own quality, specific qualities. The fact that you're specialized in a journey, it gives you more advanced features regarding that journey. But we have the best of both worlds. We are improving the super app with what we had that was the best in the mono product journeys, also bringing to the mono product or the credit card. There is a full bank experience with a delivery that is broader and more complete. We are at a very accelerated pace, following up day-to-day, the way that we do the login with our apps, we don't have just the number of a credit card in the agency. We're looking at the CPF number. These are changes that we could only do with the modernization that we implemented in the bank. Without that, we couldn't have done so. And all the investments in IT have given us benefits at the core platform of the bank, because there are several components or legacy that we're utilizing as well. This is transformational, as a journey. I'm raising the bar of the expectation. The in-house expectation is very high, but we are at the inception. In the P&L, there is no impact from the standpoint of migration. The amount of clients we have, the expectation of impact is going to be high. And all throughout the next quarters, we are going to measure with more efficacy, more quality, more data, how our cross sell capacity will improve the relationship with these clients as well. So high expectations, but still at a ramp up phase.

Renato Lulia: Thank you, Rosman. Now with us, next question, [indiscernible] BBI. Thank you for your question.

Unidentified Analyst: Good morning, Milton, Renato. Thank you for the opportunity. Congratulations on the record income of $10 billion in a quarter. I wanted to explore the results of treasury. I think it really called it stands out. We've seen the volatility, but there is, R$900 million, R$1 billion rise, R$1.4 billion. So I wanted to understand if you can share with us, Milton, the composition of that data. I wanted to understand if there is a gross up of fiscal benefit of a bond that you might have, how much do you get from trading, just so we can understand this better. And is this going to be a trend in the next quarters R$900 million, R$1 billion considering the information available? This is a very volatile line.

Milton Maluhy: Well, thank you, Gustavo. It's important to well, thank you for the question and congratulations. Let me start by the more objective answer. There is no way, There is no artifact. There is no grass up. There is no realization of plus value trying to take the result to the margin. No. None. What we have in that result in this quarter is that it was a stronger quarter, atypical, certainly. If we look at the record, we were running with R$1 billion and some, and results in Brazil in this quarter was a stronger quarter. I think there are many risk factors in play. We had the higher effect with trading, more with banking. The trading had a relevant impact. It was a stronger quarter. But once again, as you said, there are two predictions that we have to do. First, if we naturally can deliver this quarter up ahead, it's going to be a new outlier. That's not the expectation. We are trying to find the opportunities nonetheless, but that's not really our expectation looking at the quarters up ahead. I think it's more reasonable to think about our margin with the market going to the thresholds of R$1.1 billion. Remember that the cost of the hedge of the index has gone to lower thresholds. We published with a decimal, but if you open it, it's going to reduce given the interest rate differential. We've seen -- that we've seen this has been positive for the cost of hedge. So the expectation is going back to normalcy with all the difficulty of trying to protect the line for the market, but this was a quarter that was outlier. And if you look at the DFs, you're not going to see the effects of gross up, or plus values being added that are not recurring to our balance. It's more of a risk management and opportunities that came up because of different risk factors in the different tables. It was a quarter that was exceptional, and there was a no increase in the limit or the risk appetite. But it was within the framework of the risk of the bank for the market. There was no change in the appetite in the sense of limits that are available. There might have had more consumption of the limits, but within the framework that is exactly the same as the previous quarter. So these are quarters that I would say that are comparable.

Renato Lulia: Very clear. Thank you. Thank you, Gustavo. Next question. Now on the call, Daniel Vas [ph] from Safran (EPA:SAF). Welcome.

Unidentified Analyst: Good morning, Renato, Milton. Thank you. And congratulations on the results. I wanted to explore the acquirance. You grew 10% year-on-year. The quarter, it seems to be a maintenance of market share. You're thinking about the growth of the industries. So if and when do you expect to grow above the industry? Are you aligned with the strategy of the apps? And second, I can ask later.

Milton Maluhy: Great. Thank you for the question because I wanted to clarify something and actually give you a feedback on it, some changes. The line of acquirance in the service, in the line of service and insurance, but you can only see a part of the result of the business of acquirance through that line. Because there is another part of the result that stays in the margin, financial margin with the clients. So remember that there is the invoice of rent, MDR, anticipation. There is the flex. There is the cost of funding of that advance, and those lines are distributed. So if you try to simplify and get your take rate, looking at that line isolatedly, you're not going to get to the result of the acquiring. I don't see the benefit in publishing it this way because it's a partial information that doesn't give you the completeness of the whole thing. So we're discussing internally how we're going to publish the acquirance business. Maybe we should get the issuance and the acquirance in the same line to avoid any assumption or any inadequate conclusion. Second point about market share, it's very important in your question in regards to the fact that we don't have an objective, a goal of market share. Market share is a consequence of work, consequence of getting close to the client, a consequence of a value proposition, of an offering, of a business that is done with a client. Regardless of the fact that we're growing along with the market and we have a market share of leadership, we don't guide ourselves through market share. That's not what moves our decision making process in the bank. What we've tried to do is the integration that was done completely, very well done with incredible quality, and we can see the level of penetration and proximity with the clients that is different. The advantage of having a 100% of the bank and having an integrated operation is that you start to talk about the acquiring part of the business as a part of the business. So we did in the past, we looked at acquirance as a separate business. All the companies that fighting for business that was a mono liner, that's not our vision anymore. Our vision is client, companies, value proposition, offering. I mean we don't guide ourselves. Not even if you look at the individual balance sheet and you try to find an assumption of the result, you're not going to do it because, a great deal is with the company's results that is accounted in the balance sheet of the bank. So from now on, we are focusing on the client. We're trying to look at our business in an isolated way as a monoliner. Well, that is wrong. So we really believe in the integration. It's working very well with the connection of the business with the teams, and the value proposition for the client is what matters. We migrated, from that vision of product for a long time. That's an old way of looking at our bank. We have to look at the client now, and that's the need. There is a client that is going to be that is going to open the relationship through acquiring, but then they want the full bank. And back and forth, there is working capital. They might need cash management. They might need an exchange, or a derivative. They need to do the capture of credit cards in their business, whether if it's online or physical. So that's how we've been working, with the acquirance in the bank.

Unidentified Analyst: Can I ask the second question?

Milton Maluhy: Yes.

Unidentified Analyst: Well, you hired 700 employees of technology. It's a number that really, really stands out. Is there any specific direction that you can give us? I know that you're doing a lot of projects simultaneously, but can you give us some color on that?

Milton Maluhy: Yes, Daniel, great question. Great question. I think that first of all, we have to look at the mix. If you look at the amount of technology, employees and the amount of employees in the bank that doubled in the mix. So simplifying very well, very much is we're running at 17%, 18%. That shows that the bank, is changing the way that they're delivering products and services for the clients, the way that we are using the platforms, the importance and the relevance of technology having within the organization, not as a support area, but as a business area. So the way that we organize ourselves, the method of working, and how much we've done and we've delivered at the end with all the services and technology that we've been doing for many, many years have given us important results. We got to the point that we need to be careful because it's not by getting more people that you're going to deliver, more results. If you need to take into consideration the interconnection of the platforms, doesn't matter. Sometimes, like you just get a 100 more employees. You have still monolines that are not changed for a component structure. So without the modernization of the platform, we realize that there is an opportunity of accelerating the value delivery very strongly in the natural. We've seen that there is the acceleration of digital projects that changed the experience of the client in the NPS, in the loyalty. So [indiscernible] has been accelerating, and we understood that we need to open different fronts now. We did the study, and we concluded that we can add more people, more team in technology to accelerate a few processes and a few projects or changes and features, changes in journeys of the client quickly. And this is what we call the throughput at the end. And we decided to, yes, increase more people, more staff. It's not a 100% for a natural person, but 90% or so. And that increase is focusing in our clients and our persons so we can accelerate several of the projects for the value delivery for our clients. The value is there and the results are there to see. Very encouraging. If you start to test our solutions now and you will see this in six months, you're going to see changes in products and context and product solution experience, value delivery for the client, ever more complete than what we have now. More quality within a design language that is very within our own standards and happening very quickly.

Renato Lulia: Next question from [indiscernible] from XP (NASDAQ:XP).

Unidentified Analyst: Good morning, Renato, Milton. Thank you for this space. Just a question. And congratulations on the results. I wanted to understand the growth of levers in the bank, but also the payroll loan. It's very important for the retail. You reduce that payroll, because of the cap of the INSS. So it's very interesting to understand the strategy of this segment, the appetite of this bank to grow the portfolio, and we've seen ever more aggressiveness, with the digital competitors, more aggressive rates that they're practicing. So it would be interesting if you can, comment on how you would retain these clients because of the competitiveness of the market.

Milton Maluhy: Thank you for the question. Thank you for the congratulations. Now, payroll loans, they have several angles that we can explore. First, our portfolio is very much, very well distributed. We have the biggest INSS portfolio. We have a very important position with the business. There's a private portfolio that we have a market share that is very relevant, but a very small market, regardless of the share being big, is a smaller portfolio. And a portfolio that is similar, which is the public that we've been growing, it was a relevant gap that we had, and we've been growing over the last few years. I think that the payroll of that is key where we've been growing in this segment. It's not just Menas [ph]. We've done this with several others. The INSS has a change of strategy for the bank. I think that the cap of the INSS brought for everyone, first an offering reduction for the market. It's not specific of Itau Unibanco. And we've seen that at the end, we've reduced the impact. We've impacted the consumption of this line, which is cheaper for the retirees because of the cap. If you look at the market, historically was always regulated by price. Competition always existed, and competition happens at the bank, but also through the correspondent, the distribution channels. So it was a very competitive market from start. The cap forced a dynamic in the market that you left outside. The retirees that lost access to the credit because given the interest rates, a few specific publics, especially the older folk that have a specific demand, they lose the offer of credit. That impacted the system. And since we are very relevant in the market, we had an impact. The second comment that I do, we migrated a lot of the production. It's not that we changed the whole production, but this was a channel that in the past, the external channel represented 60% of the production for us. Now it's more than the inverse. And now we've, grew in the banking channel, our agency, our internal, and not the external, because this price dynamic with the cap is more competitive. And you can produce the payroll with a loan, with profitability, and with the minimum adequate return. When you go to the correspondent, you have the commission. So besides the natural challenges of the channel, that reduces the correspondent channel, and that's a big impact on the cap. Now there is, in the answer of Daniel, if you remember, the modernization of the platform and the features. We believe that one of the deliveries and the offerings that we really need to, advance is the payroll loan in the digital channel that has been prioritized. The additional investment that we're doing in technology and the increase in staff goes through more products and services, and payroll loans is one of those services that will be attacked with this change of experience for the client. Our vision is that with that, we can be more competitive. Funding, always an issue for everyone. We are looking at a funding that is very competitive. Maybe the cheapest cost of funding in relation to the market, but we always work with transfer price. To ensure that you're not subsidizing the business given the cost of opportunity of that cash. That could be, the limit, for example, in public bonds. So we do a transfer price that is competitive, and we can see space for growth. We've been growing in the different portfolios. Year-on-year, INSS, in fact, has been reducing. But we believe that with this digital offer and with this change of mix and channel and production, we can continue to be more competitive in the product and all the derivatives and variations.

Unidentified Analyst: Thank you, Milton.

Milton Maluhy: Thank you, Bernardo.

Renato Lulia: Next question. Brian Flores from Citibank.

Brian Flores: Good morning. Good morning, Leonardo and Milton. Thank you for the opportunity. Question about the revenues and services. That line, while there is the specific line that I know that DCM was very strong as Milton has said, but also I know that you've done a few structural changes facing the client specifically. So thinking up ahead, how should we think close to the R$2.5 billion that you delivered in a quarter or a line that is normalized, on a downward path?

Milton Maluhy: Thank you, Brian. Look, this is difficult. This is a line that depends on the market conditions. Demand, capital markets depends on naturally of the appetite of our clients to finance themselves and invest, the micro conditions, several variables that impact the performance of this line. We continue to believe and we think that we should continue to work with the market share. Well, I don't see it as an obsession for the share. But from the standpoint of the capacities that have been installed in our bank and the capacity for the distribution of the reading of the bank, that the bank takes. We have a participation of the market, above the fair share in other business. Well, historically, we've always had a leadership position in DCM, and we believe that there is a lot of opportunities for business. And when the capital markets, they're open, we observed this this quarter. This is a line that generates a lot of business because the clients use the windows. There is a close of rates in CDI Plus, so the market is very attractive if you want to self-finance in competitive rates. And the market has been absorbing the papers and with CDIs with higher volumes and rates closing. So it's very healthy dynamic. How sustainable it's going to be? Only time will tell. But I can say that this was, it was a record quarter, I would say, for DCM. But we are waiting for a certain normalization over the next few quarters. I don't know if we're going to see quarters that are so, good for results and dynamics as we've seen for this quarter, but the dynamic is very healthy. It's difficult to project the result of this slide. Equity markets, we don't see in the short term, any chance. There is always going to be a deal or a follow-up. We are looking at pinpoint operations, M&A, some activity, and the investment banking, it's a DCM market per se. I'm waiting for a normalization. I don't think that it's going to continue with the rhythm of the second quarter, but given our fair share, if the market continues to be heated up, we will continue to seize those opportunities.

Renato Lulia: Thank you, Brian. Now the next question, Thiago Batista, UBS.

Thiago Batista: Good morning, everyone. Congratulations on the result. Now, Milton, you commented at the beginning of the call about the utilization of capital, and that would take the ROI of the bank about 24% consolidated and then 25% in Brazil. If I'm not wrong, that should be the highest level since 2015 or something close to that. And I remember some years ago that we've discussed if the ROI of Itau was going to go, middle teens given the competition of newcomers. So that's not happening. But my question to you, that level of ROI, ROI, 24, 25, is it sustainable in the medium term? And do you have a plan for increasing the frequency of the capital allocation? Today, if I'm not wrong, you are optimizing the capital once a year, at the end of the year and then you'll pay the dividend. Would that be more recurrent? Maybe twice a year, something like that. So we can see, in fact, that ROI migrating to 24.

Milton Maluhy: Well, thank you, Thiago. I think that in the end, since we do not do guidance of ROI, we are not projecting the ROI on the long-term, we are projecting the value creation. As a relationship with the cost of capital, direct relationship, We've been delivering this level of profitability because of a series of reasons. We have a benign cycle of credit operation of the wholesale with a threshold that is very high. When we looked in the past, the operation of retail had a higher ROI than the wholesale, but we never worked and operated with this level of profitability in the wholesale as we've operated in these years. Maybe that's the twist of what changed, what you mentioned from the previous years and what we have observed now. We in fact can raise the profitability of the wholesale in the broad sense of the word. It's not just Itau where they are with medium and large companies. It's not just investment banking. It's the whole gross sale and also, our asset that has a relevant role in the value creation of the wholesale and the Latin American operation that has been evolving all throughout the many years. So what wasn't in the equation at that time is that we could take the operation of wholesale for the profitability level that we've observed, and that has been sustainable nonetheless. It wasn't just a jump that came that went down. We can see quarter-on-quarter, we've defended the profitability of wholesale in all the businesses, including this last quarter. There was an additional increment in the profitability of wholesale. Optimization of capital. There is risk management. There is an increase in penetration. There is creation of new businesses. There is an increase in penetration in products and services that generate cross sells. Fee business. I mean, there is a completeness here. And we've been able to lead all most of these businesses, and we've been in the first positions in the rankings. And that brings strength for our wholesale operation. When I look at the future, I think that it depends on circumstantial macro and micro issues. We continue to operate with the 20 plus when we look at the guidance, the ROI, not less than 20%. But this year, adjusted by the appetite, we have been running with an ROI level historically very high. We're doing an important catch up with the wholesale bank. We went through an adjustment. We had the pandemic, regulatory issues, profitability's of retail going down, and then we can go quarter-on-quarter increasing the profitability of the retail business. In the natural persons and the companies, you remember that in the past, we ran 16% profitability in the business of retail, and now we are running at 23.5% in this quarter. So there was an important catch up quarter-on-quarter. And that instead blend, that mix that makes us be able to grow profitability. And at the same time, in the corporation, everything that is a market where the market that is not wholesale and retail, as you've observed, we've been managing to deliver results and generate alpha with the risk of the market. So it's those all of those factors that allow us to operate with that level of ROI. So it's a perfect alignment maybe of the stars, obviously, but also we are subject to changes in scenario and perspectives. But looking at the horizon, relatively short-term or long in what we can observe, the bank will continue to deliver a good profitability, and we are sure of that and the quality of the results. If you look at the different lines of this balance sheet, it's a high quality result and highly recurrent, which is very important. There are no events that are going up and down in our results now. In the end, we have a lot of discipline and consistency in the management of our deliveries in the capital issue. Well, in practice, since we are declaring the dividend, we are doing an adjustment. Now in August, the dividends the JCPs that have been declared over the last quarters, the interest on capital, and that has been done that adjustment. The first payment, I would like to say, is has been done. But I think that once a year, with the information available and with the uncertainties that we still have up ahead, there is regulatory changes. There is operational risk. There is financial review of the trading book. There is the solo basis. There is the discussions of the DTAs and IFRS 9. There is the risk of credit for the operation, increase of the risk of Basel layer. Basel layer III risk operational. Well, when you pile up those uncertainties and plus all the perspective of growth and opportunities that we've been that we've seen, we think that doing that capital management of the optimization of capital once a year is very adequate. And we also use the hybrid tools, 81s, 82s, and we're going to continue to do that. Always thinking about optimizing the capital base on the company. But now distributing the dividend, we can maybe change the opinion, have some extraordinary dividend distributed. Maybe, in the future, yes, that might happen. That's not what we imagine that's going to happen at least in 2024. Our expectation is to end the year with a good vision, prospective, four opportunities of regulatory, issues, good operation of capital capacity of generating organic capital. So we can do a good calibration and do another payments of extraordinary dividends. With the information that I have today, the payment will be done. There will be an extraordinary dividend. But we also see as an advantage that we have a capital base that is very solid, because the opportunities will come up. If you see that we grew the portfolio, we grew strongly in the quarter, and still we expand the capital base of the bank. I mean, there is no healthier dynamic than having a strong balance, seizing opportunities, organic, inorganic, what we know, what we do not know yet, and be ready to do movements that are necessary. So here, you have to be very careful because, the grade is the enemy of the good as we say in Portuguese. Well, we have to be objective in the value creation. If we understand that we are have an adequate allocation of capital, creation of value, giving good profitability for the shareholder, that's the central driver for all of us. But it's not our objective to retain excess capital. So if in fact, in the end of the year, we do our work, and in the beginning of the year, we will communicate to the market what is that extraordinary dividend, but once a year seems to be okay. You said that there was going to be a question on dividends and yes, that was certain. Next question.

Renato Lulia: We have Mario Pierri from BofA. Nice to have you.

Mario Pierri: Hi, everyone. Congratulations on the results. Another quarter. Very predictable. Good trends. And we need to focus still on the capital. With the implementation of IFRS 9 next year, what is going to be the impact? Did you manage to calculate the impact on capital? And another question that I have is about Americanas. It seems that the negotiations have improved. Do you have a potential for the revision of those provisions that you had for Americanas, the company?

Milton Maluhy: Thank you, Mario. Thank you for the question. Okay. To give you some context, in the end with the change of IFRS 9, it has an accounting change. The way that we publish our results, [indiscernible] our IFRS more adapted to what is Basel layer III, but also there is a tax issue. In the sense that you cannot you can no longer choose how much you're going to waste, a tax, the expense of bad debt. You have to pay that PDD, that bad debt throughout the year. There is an optimization of tax and capital, and the main impact is the stock that the norm has to say that you have to award do the amortization in three years at the time that it's it starts to work. So, let me start from the end. Even if we had to do the amortization, in three years, there would be no material impact for Itau Bank. That's the first message. The bank has the capacity and result and stock that is adequate to absorb those provisions and that those expenses in three years from 2025 onwards if the norm prevails. Of course, when that happens, that generates another impact. It generates for the impacts for the optimization of capital, less impacts in the index because you stop to optimize the capital LPDD that that optimize a 100, and then you have to withhold other, tax credits that have a foundation that is higher. You have the consumption of the CPF. You the capacity to absorb is less. So there are impacts. It's not zero impact, but they are immaterial for Itau Bank, Itau Bank. But it's not necessarily the same thing for the industry. What is for us? What do we believe? We believe that there is a debate that is taking place with the central bank, with the finance ministry so that everyone has awareness of the impact. It doesn't matter that you look it's not going to work if you just look at bank A or B. You have to look at the whole system. We're inside of that debate. We are inside of that. And we believe that there is a way to work with this norm, this law to create a condition so that there is no capital impact on the system so that the banks continue to work and giving credit and with their activities without any relevant impact. In the end, every bank has a different condition. The data is public. The stock, the tax, the absorption data are there for the public, and there is a premise. It depends on your analysis and hours for the protection of the results, all throughout the future. There is a tax reform that might happen this next year, might not. If there is a credit tax reevaluation, if the aliquot for the corporations drop, what is the impact of, there are there are many, nuances here. Federal Finance leading that discussion. CNF is involved with the Finance Ministry or the Central Bank. I think that all the banks are going to have to be in the table. So to see if there is an alternative to the norm that is on-site. We can work with some longer deadlines for the amortization of the stock maybe. That's what's on the table. We believe that the new norm is important. Certainly, it will be implemented, but the question is the timing, when effectively it will start, and specifically for the tax issue, when it's going to be implemented. But there is goodwill from everyone, because there is a there is a common problem for everyone and for the government, because if all the banks start to, anticipate the tax consumption, that's going to impact how much the government will get in terms of amount of money. So there is goodwill. So that's within the discussion, but it's still at the beginning of the debate. Good debate, good conversations, but we don't have any other information on how that issue will be conducted. As soon as the government will have a decision, that information will be public. But there is a goodwill to mitigate and decrease some of that impact in the system. Next question.

Renato Lulia: Thank you, Milton and Mario. Next question Nishio from [indiscernible].

Unidentified Analyst: Good morning, Milton and Renato. Congratulations on the consistent results for the quarter. I want to go to go back to the app. It is very interesting that you are taking the risk again and the implementation of the two apps. The first part would be an update of Atlas (NYSE:ATCO) that wasn't mentioned yet. How do you see the ramp up of that product? It's a product that, the other incumbent banks, they still don't have that. And how do you think it's going to impact the industry with this new product? And if you can share with us the level of cross sell, the pilot plan of one, the cross sell is the main objective for this product. How was it in the pilot plan, the cross selling of this product? And do you expect, reversion of 98% when you do abroad rollout of that product? Second question is in regards to your sensitivity to the margins. The analysis is very interesting. The margin -- besides the margin, you also do the hedge of the capital. And I wanted to understand on the dynamics of those two hedges that you do that protect from the volatilities subsidy. And how should we think about that in the medium to long-term? According to the numbers that you presented, I believe that we can conclude that regardless of an interest rates that is lower, we could expect a margin, annualized margin at least, that is adjusted for a higher risk. So is that correct? How do you think about that dynamic of margin and CDI? Thank you.

Milton Maluhy: Thank you, Nishio, for the question. Let me start by Itaú One. Our focus -- central focus in the pilots and the discussion that was in the experience of the migration. So we do not have, let's just say, we're not running after a cross sale without completing, without having the complete migration to the platform. It has to be a soft welcome. Welcome. I migrate and the client has to feel welcome. It has to improve the features of quality, the experience. They have to feel welcome. The way that we can communicate with the client changes, and this has been the central focus of our pilots. That to us is priority one, two, three to ensure that the migration is done with quality, with care, and that the client doesn't feel that, oh, I migrated from the platform, and I am receiving a push of products and of offers and solutions. Because in the end, that's not pro client. That's an old and wrong way of trying to preclude businesses with our clients. The way that we work is to work within the context of the journey of the client. First, we migrate, then we create the context. The client starts to have an app with many solutions and features. They have access to more frequency to the different solutions, and we get into the context. Did they hire, did they register a PIX key? They if they have the journey of the PIX, they have access to the credit of the payment with the PIX. Well, that's going to be this -- that's coming up in the future. So the pilots that we've done, the cross sell, they are encouraging, but there's still, baby steps. There is not enough to show that this is a relevant pilot that is worth to get into any assessment or conclusion. We're still at the beginning of these pilots. Priority number one, two and three is to ensure that these clients are on board on this new app, this new platform, this new journey. The cross-sell has to be within this context with quality and care so we can naturally show to the clients that there is a relevant value of understanding their migration, and their needs. Well, this is, Itau. It's work in progress. Over the next quarter, we're going to have data to share for you with pilots and migration. That has been done. But Atlas, it's important to give you some context. Atlas, we don't see it today in the same way that we see One Itaú as something that we have to ramp up, grow. And there is 50 million clients that we have to service overnight. No. Atlas, in the end, complements a part of our value proposition and offering that was lacking. So we invested a lot of time understanding the needs of the entrepreneurs, talking to the clients, understanding their demands all throughout these years. And we did a relevant revision of all of our model for service, for the proximity of where the products, all with -- it was a complete review. And the campaign that we've just done for the repositioning, you only do the campaign when you really have an important change in the value proposition and offering for the client. So the campaign for repositioning is based on that because we've been growing with quality in our business, in our company's business, And we think that this is a good moment for growth, for acquiring new clients, increasing the basis. And with a campaign of repositioning, we are ready to ramp up our operations in the companies. How Atlas is inserted in that? It's another value proposition. You have within the pyramid of the companies that's different segments. For each of them, a value proposition that is very niched, understanding the needs of the client, the entrepreneur. And Atlas gets in for the companies. Those for those companies that that wants to self-service, want to be fully digital, simple products within a context with artificial intelligence, and that we can, in fact, understand with data the needs of the client. We can deliver the context within this journey. Atlas is also at the inception phase. It's a pilot. It's a few 1,000 clients that are operating in Atlas. We -- our expectation is that our -- as those clients are becoming more digital and they have digital needs, Atlas is within our value proposition providing that. So it cannot be seen as a business that is separated from the bank. In the end, it's part of the offer of the business unit, companies. They service the complex needs and services the simple digital needs of the clients. So I don't see it in the same way that I see One Itaú. That's why we're not providing many details, because it's part, once again, of the value proposition of the segment. Now the other question about margin, it's natural that the business has some sensitivity to the interest rates. And I would like to say from what is visible with the interest rates dropping, we have two effects. First, working capital of the bank that suffers naturally as you roll out. So that that operation, there is lower rates and the liabilities of the bank that impact also in the interest rate. There are benefits with the reduction of the interest rate. The differential of the interest rate drops. The cost of hedge also has an impact. But the two big impacts here are those two. On the other hand, when that happens, you have more opportunity for growth in the portfolio where the interest rates lower and the delinquency tends to be lower given the interest rate level. Now our portfolio today, whether if it's under liability or assets, we can it's already balanced. So whether if it's navigating with the margin of the market, the way that we do the hedge of the risk factors, whether it's the margin with the client, and the way that we operate it with these different businesses, that has brought balance to our margins. So you'll have negatives as the interest rates, but you have several positives. And you have several positives and negatives in the other scenario. Besides that, our portfolio for business is very balanced. So you have business on the wholesale and the retail that will compensate themselves all throughout the cycle. That's why the risk adjustment is important to be taken into consideration in this series. That's the central point. The cost of the hedge of the index, it's important that you mentioned that. It's almost, like a satisfaction of a decision that we took two years ago. When we made the decision of doing the cost of the hedge of the index, the first vision is, whoops, there's a cost. And we said that it could cost 500 million for a quarter when the decision was done. And when we did the guidance for that year, we removed R$2 billion whereas for the margin for the market, which was the exercise of the cost of the hedge of the index. What happened? Is that the differential of the interest rate besides the management, has brought lower impacts? But imagine what happened with our capital index. Had we not done the hedge of the index all through all these years? With this volatility, you see that the portfolios, of the wholesale grew a third through exchange rate. And all the Latin American operation, if we had not done the hedge of the index, what would be the capital index right now? Would we have that excess? Would we be able to grow with the same strength that we've been growing? Would we be able to have that to bring you that predictability to do great big projections on the long term. So today, when we look, we look in the rear view mirror, that was a great decision. Of course, there is a cost. We invested in other currencies and our reais, but there it brought a great stability for our capital index. And the more stability you have, the more safety you have, the bigger is your capacity to project the growth, making the decision-making process inorganic, organic without worrying if it's, if we're going to have capital or not in the next quarter. So that's the central core point. And, of course, in the scenario of changing interest rates, treasury operations, and especially the banking book has a sensitivity that is natural to the levels of interest rates. But we are always working to leave a framework of limits and spaces so we can manage our assets and liabilities and do a good hedge of the bank when we think that is appropriate. So that balance with the margin with the market and the margin with the clients, we've done level of sensitivity, with interest rates much lower. So that's why we have that record, the history. Well, I'm guys, I'm just going to ask you two minutes, going back to the second question of Mario of PFA. It was so complex and we forgot about the question about Americanas. Can you comment that second part? I was just reminded. Well, good. Yes. And you see that the objective was not to steer away from the question, Mario. Let's go back. Americanas. In fact, we adopted a strategy of leaving in a relevant way and at the bid, the data is there. We did a management with the information that we had of reducing relevantly the exposure and the risk. Naturally, we continue. The participation that we have in the company is very small, very, very irrelevant. And there is still some credit lines without getting into a lot of detail because of the we cannot comment, but with the data that is public, that's the information that I can give you. And I would like to say that at this moment, we're discussing what are going to be the impacts. Remember that when we did the provision for Americanas in the balance sheet in the fourth quarter of '22, the subsequent event, what did we do? Half is more rounding up. About half of those provisions were done in the complementary provisions. So we attributed a complementary provision for Americanas. And the other part, about half went through invoice the P&L of the bank. So when you'll have a reversal, a receivable, it has an impact in several lines from lines of P&L and the complementary ones. What are we going to discuss is take into consideration the quarter that will be closed in the next months. And we always review the portfolio case-by-case, where there is a provision, where do we need it, what's the scenario that changed, then we're going to have a clear vision. Since this is not an effect that will be repeated, in the next quarters, this is an isolated effect. My opinion is that not giving that information precisely now does not impact the model and the flow that you have to look at the future, given the isolated effect and the one-off that it has in this business. Possibly in the next quarter when I talk about this result, you will gather the details on how we work the Americanas case. But the fact is from the standpoint of complementary or the P&L, we're going to have a relevant receivable of a provision that was a 100% done in the balance sheet. That's a positive news. A recovery that is relevant given the provisions. But how are we going to work it and allocate it? We haven't made that decision. And that's for the future. But, Mario, it's an important question because I read all the reports that were published yesterday. You have to have precisely the coverage of the wholesale. It has a high, it's very high because we do the provisions before we have any delays. Those clients are, they don't have voided credits. So it gives you an a false sensation of access in regards to delay. But any delay that it has the degree of the sensitivity for the wholesale is big. So any changes in the P&L, you have volatility. So that's why you have to look at the total coverage level and not guide yourself through the index of the wholesale because it doesn't tell you a lot. Americanas has a provision done in the balance sheet, but the delay is not there. So in the end, we're going to have some impact looking up ahead, I mean in Americanas. And depending on the decision making process that we do, it will have an impact in the coverage index. But to give you some numbers, 10, 15 points in the coverage level total is reasonable to take into consideration depending on how we treat Americanas in the next quarter. But this is to give you sensitivity. It's more material in the index of coverage for the wholesale than the whole. So it's important that you take this care and you don't do when you don't do the evaluation of the index of the coverage of the wholesale, it's high volatility because of immaterial effects.

Unidentified Analyst: Thank you, Milton.

Renato Lulia: Now continuing. Thank you, Yuri for waiting. Welcome to the call.

Unidentified Analyst: Thank you Milton. Congratulations on your results. It's no surprise that they are good. I wanted to ask about wholesale. I wanted to explore the margin. We see that the portfolio is growing year-on-year. Of course, there is exchange rate. Of course, there is LATAM. Here, we're thinking about those points, but the NII grew 0, the portfolio grew 11, the ROE capped at 28, invoice didn't grow. So the bigger portfolio, higher leverage. Thinking about assets on P&L, so what are the drivers that are behind this? So it might be LATAM or fees that we're not making so much money in NII, but we're monetizing the clients through FIS. So just those economic issues on wholesale.

Milton Maluhy: Thank you. Good question. Good to clarify. It's important to understand how we work those results, and we provide the results in the business model. The wholesale has LATAM in their asset. So let's leave it on the side, for a bit and look at Itau BBA per se, those activities and businesses of credit. What happens here? We are working with 12 of capital, which is what we use. Minimum of the dividend also allocated in the business. And they made a -- we made a decision of allocating in this quarter the capital of 11.5 and leaving the excess of capital of 11.5 and how much we have in this case, 13.1 in the corporation of the bank. So when you look at the business model, we publish wholesale, we publish retail and we publish a corporation plus margin for the market. So what happens when you do that? First, automatic impact. I am allocating less capital in the business because I left from 12 and I went to 11.5, first. So secondly, believe in the business the Selic rate. Even though I do the hedge of the working capital of the bank in several vertices, in the business model, we have the daily Selic in the business. So any reduction in the Selic and the time has immediate sensitivity in the business and not in the corporation because corporation is working with longer vertices. Since I allocated less capital in the business and I went from 12 to 11.5, the allocated capital of the business being lower provides you less interest because it has less capital and Selic dropped. And that's directly in the margin, in the NII. So when you look at the NII, it has an important component for the effect of the working capital, whether if it's a change for the 12 to 11.5 or the structural drop of the interest rates in the period. Those are the two main effects. And the other effect that you just captured that is very important is that when we do the management of the business, we look at NII, and we look at the revenue of FIIs and services. Because a great deal of the cross sell of the credit that is done in the NII, it gets into the line of services of services and insurance. So there you have all the other businesses, whether if it's exchange rate and a fee of investment bank, which is a very strong franchise. So when you look at our growth that is important in this quarter, there is a third effect that you have to take into consideration. A great deal of the portfolio was produced off in over the last few months. So it has an effect in the income that generates the NII that is lower. So the growth is at the end. You could not capture fully those effect. There is a two effects of the capital that I mentioned, whether if it's 11.5. So I allocate less capital NII, give less remuneration of capital for the business and the interest rate that drops. And there is the other effect that a great deal of the result is in the service in the line of service and fees that balance that vision of profitability from the standpoint of the client. So looking at that whole, you see the effect, and that's why the ROI, regardless of that, the ROI of the business goes up. And why does it go up? Because I have less capital allocated so you can save more leverage in the relationship of 12.5 to 11.5. But I take that access to the corporation. And I keep the access of the capital, 11.5, until the 13.1 with the effect of pre against the Selic is in the corporation and with the effect of the marching with the market. So that's how we publish the business model, and that's where you see that effect that is very specific in the wholesale.

Renato Lulia: Thank you, Yuri. Next question, Arnon, Santander (BME:SAN).

Arnon Shirazi: Welcome. Good morning, Milton. Good morning, Renato. Congratulations on the results. Revenue of R$10 billion. Good number. The question is the portfolio of credits, the share of the interest rate has dropped. That is working with the derisking that you mentioned when maybe at this moment you're going to go back to the appetite of the appetite for risk for the lower income, and how should that work with the [indiscernible]?

Milton Maluhy: Well, thank you. Thank you, Arnon. Sorry. Okay. So you went to the point. The effect of derisking has a lot of benefits, benefits for margin, delinquency, but it has that perverse effect because it decreases given the profile of the clients, the propension of finance on the credit card, whether if it's the interest rate on the credit card or the interest rates on the credit card, which is a parcel. So we have the profile of the interest rates that is different from the market. If you look, we got to 14% of the finance, payer portfolio with the interest rates. And I always talk about the interest. Of the R$130 billion of credit cards that we have, 86% of that of that portfolio doesn't pay interest rates, but we have risk of credit. And we only receive the exchange that is in the service line. So that's the anomaly that exists. Only 14% of that portfolio pays interest rates in the credit card. So what is our vision? First, we have to be very careful because we're always looking at the client, their needs, and we're trying to offer the best product in the best rate possible. So the credit card product, it's not a product for financing consumption. It's a product for payment that is very, it's a way of payment that is very efficient. And on the other hand, as the client needs to finance themselves, through the product, it's not the best product for financing. The client has to look at the other alternatives. The interest rate on credit card, Rotativo is not used, should not be used for financing. It corrects the delay, for the client for not paying the credit card and directs the client to home equity, whatever the credit line that the client has access. Another credit line, therefore. Our vision is that as the portfolio is stabilizing, we might see an increase in the profession and an increase in time, but it's a portfolio with the risk profile that is different from what we have in the past. The biggest impact in the P&L of the credit card is the delinquency, the delay. But this is a client that is not paying and that you charge high rates. So from the standpoint of financial health of the result and the quality of the result, it's not a good quality. So in the end, yes, we've been working with a prevention level that is lower, depends on the cycle. Depends on the evolution of the product that we've been working to offer conditions that are more competitive and solutions of finance within the credit card chassis. This is an evolution, and all throughout time, there might be an evolution with that. But it's a profile that dictates the rhythm. And because it's a portfolio of high, medium income rate, it has lower prevention.

Renato Lulia: Thank you, Milton. Nicolas Riva from Bank of America (NYSE:BAC). Hello, Nicolas. Welcome back to the call.

Nicolas Riva: Hi, Renato. Thanks and thanks, Milton as well. Nice to see you guys. So Milton, I have a few questions on your bonds, on your Tier 2s and your 81s given that the call option approaches on the 2019 in November and also on the 4 and 58s on the 81s in February. So far you haven't been calling the 81s, but you can call in each coupon payment date. And also looking at prices, it's interesting, because it seems that the market is kind of assuming that you're are not going to call the 4.58s in February, it's trading well below the coal price bar. But the 2.81s that you didn't call in the past are trading just above the call price and you can still call them every six months in each coupon payment date. And then on the Tier 2s, I think in the past you have highlighted that even though you cannot say beforehand what you plan to do regarding the call option, The Tier 2 start losing capital treatment if not call which I think gives an incentive really to call the 2019 in November and looking at market prices they are trading at the call price, so it seems that the market is assuming you are going to call the 2019 November. So any thoughts you can give us regarding the call options on the Tier 2s and the 81s would be welcome. Thanks, Milton.

Milton Maluhy: Thank you, Carlos. Nicolas Riva, it's always good to see you. Thank you for your question. Let me go through. So on the 81, we keep doing the same thing we've done in the past decision. So we are looking also all the economics around what would be the new price of new issue if we do and what will be the reset premium. So we believe that today, we would pay at least 100 basis point more if we exercise the call and try to tap the market with a new 81. So at least, okay? So that means that whenever on an economic way we don't feel comfortable to exercise the call due to the impact on the new issue, we won't exercise the call, the same logic that we adopted all the other calls. So we know that we have every six months the decision to be made and we're going to follow through. And if we believe there is any change in the market or any situation that allows us to do in a different way, we'll be more than glad to exercise the call if it's the case. But looking with the information we have today on the 81, we don't believe it's the case now due to the repricing and the reset that we have to do in those transactions. Now going on the Tier 2, we have some calls to be exercised in November. And we haven't made the decision yet. So it's very important to tell you that we're always analyzing what would be a new issue if we can issue locally or abroad. Where are and what is the size of the opportunity? What will be the new issue premium? What would be the new price if we have to tap the market? But it's very important to make it clear. We haven't made the decision on the Tier 2 yet. We are discussing that. There's a lot of discussions going on at this moment. Whenever we have this decision made, of course the market will be the first one to know. And you are right, you have and you lose the capability to use that for capital on the remaining tenure of those bonds. So at the end of the day, we're going to take this in consideration in the decision to be made. So again, we haven't made the decision. We are having at this moment this discussion. Whenever we have this very clear inside the bank, we're going to release and let all of you know what will be our decision on the Tier 2.

Nicolas Riva: Thanks very much, Milton.

Renato Lulia: Thanks, Nicolas. And for our last question, we remain in English, because we have with us here Carlos Gomez from HSBC. Hello, Carlos. Good to see you.

Carlos Gomez: Hello, thank you very much. Thank you for two things, one for your generosity with your time, this is a very long call and second for showing us the cost including Argentina, not only on the revenues but also the cost so that we can see the true picture. A very simple question. You mentioned earlier the uncertainties, regard to uncertainty that you have. You are always negotiating with the government different aspects of your activity. What is the focus now? Last year, we were talking on credit cards. What is the main thing that the banks today are discussing? Is it this, DTA treatment? Is it still the card? Or is it IOC? What is in your mind right now?

Milton Maluhy: Yes, thank you. Good to see you, Carlos. Thank you for your words and to know that for me, it's always a pleasure to have the most quality time with you here to go through all the details about the bank. So thank you for your comments. So I would say that the DTA that we were having the discussion right now is the discussions that we had more, I would say, the past or previous months. It's always discussions on CSLL if it's going to increase or not. I think it's very clear and made it very clear recently that the idea is not to hike the social contribution of the banks because you have to take in consideration that we have the highest amount or highest rate when compared to other countries and other banks around the world. So this is important to highlight. The DTA has been part of the discussions. Credit card is always going to be an ongoing discussion, always going to be an ongoing discussion. So I don't think we solved the problem that structurally we have. But this is, I would say an ongoing discussion. So this topic will come back. We'll be a little bit quiet. We'll have more discussions. But the main topic, I would say, it's the DTA right now. There is no discussions on IOC. There is no discussions on the new reform, on capital and gains. There is no discussions coming from that side. And there is the regular discussions that we have about general topics, the economy, the market, interest rate that we talk about, the fiscal side. So I would say regular discussions but nothing that needs to be highlighted here. So very regular discussions and the common course of business, I would say.

Renato Lulia: Thanks, Milton. Thanks Carlos. And now we finish the Q&A session. We answer to all the analysts that connected today with the call, all the questions. Any questions that might come up through WhatsApp are going to go directly to the Investor Relations team are going to be answered there. I give you the floor, therefore to close our earnings call. Thank you, Renato. Thank you for working with us. Thank you everyone that took part. Always a pleasure to be here with you. We try to do a presentation that is very executive, so we have time to talk and discuss the issues, get into the details with the most transparency as possible. You're never going to leave this call without answer. We're always going to take care of the quality and the transparency of the information. I wanted to see this moment to thank you. To thank, something that is very serious. We are very honored with the recognition that we've had from II. And we were recognized by you, and the sell side and the buy side, and all the categories of AI. And we were very honored. Third year in a row that we are -- second year in a row that we are recognized in all categories. This doesn't make us rest in our laurels. No. Responsibility continues, it increases. We want to do more to, to deliver more and to be ever closer to you with a maximum transparency, delivering the data, information quality on the books, quality on our calls, and publications quality on the Itau Day, which is so important. And we try to open there as most as we can. We always try to give strategy telling you more. But since we have that relationship with the investors in the market, if we are in doubt, we make them as, we have trust on the long-term. Thank you for your recognition and everyone that is watching. Our commitment to the bank is top with the organization, with the country, and we're going to diligently work to deliver solid results, consistent results, and especially quality results. Always thinking on the long-term. Never sacrifice in the short term to deliver results, whether if it's by the growth in revenue, the reduction on expenses. We're always investing in a franchise and working with a 100 year anniversary for the next 100 years. Thank you for your patience and time and dedication to the call and the questions. Have a nice day. We will see each other in the one-on-one meetings and see you on the next call.

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