Itaú Unibanco Holding S.A. (ITUB) on Q4 2021 Results - Earnings Call Transcript

Renato Jacob : Good morning everyone, my name Renato Jacob and I represent market intelligence in Itaú Unibanco. Thank you very much for joining our video conference for the Fourth Quarter results in 2021. We're streaming this event from the headquarters of Itaú Unibanco and have three parts this event. In the first part, we'll talk about the results for the year of 2021. Renato Jacob : Milton Filho: Flavio De Souza: Andre Rodrigues: Matias Granata: Milton Filho: Andre Sapoznik: Carlos Constantini: Milton Filho: Alexsandro Broedel: Ricardo Guerra: Milton Filho: Renato Jacob : Milton, are you ready for the third part? This is the Q&A now. And remember you can also text us your questions using WhatsApp just use the link that you have on your screen. You can use the website or you can use the telephone number to text us as well. This is a bilingual event so we're going to answer the question in whatever language you asked, Portuguese or English. Eduardo Rosman from BTG Pactual is asking the first question. Eduardo Rosman: . Hi, good morning, everyone. Good morning, Renato. Good morning, Milton. Congratulations on your results. They're very good. I have a question about digital transformation. We know that Itaú is going through this massive transformation, and we know there's a lot to be done. I wanted to hear from you whether you're already able to know whether this digital transformation is what helps accounts for this better margins. And performance that you have had than the peers. It's difficult to understand that from outside. It's difficult to know who is doing that type of for job better. So do you know or can you tell whether this transformation is what is accounting for this better improvement or is that something that we're only going to find out in the next years? Milton Filho: Thank you, Rosman. Thank you for your question. And thank you all for joining this Q&A session. So how can I set the stage around digital transformation? First of all, it goes far beyond changing technological platforms, right? And this is the slowest processing. Guerra just talked about this now. We had 25% of our platforms modernized at the end of the year, which is crucial for this little transformation. And by the end of this year, we should have 50% of our platforms modernized. I think the pivotal point is how we prioritize this. We focus on what is more important to the clients. So by the end of the year, 80% of what matters to the clients will have been modernized, or updated. And when I say modernized or update, I don't just mean coding something new. I mean, really having a platform that has a time-to-market that brings us to a whole new level with quality of products that is better. And there's another very important point that I've been talking about that very much. And that is the cultural transformation. That is a major enabler to me that will really allow us to boost our digital transformation. We're sticklers for the idea that a digital bank is not a remote bank, but a bank that thinks faster, has cutting-edge technology that will understand the client's pain points, and that will react to the client's needs as fast as they expect us to. We want to have a simple decision-making process. We want to have good control. We also talk about preserving and conserving what is good in what we already have, but also making progress towards a new mindset with a lighter type of environment, less hierarchy. We have removed layers and administration. We want to give more autonomy to our staff, one to really have the chance of starting small and innovating and taking chances, making mistakes, and improving. We have more indicators. Some are more objective, and some are more qualitative. This is not a process that started last year. We have been talking about updating and upgrading, modernizing our platform for a while. We did expedite the process in 2021, and this cultural transformation has been bolstering it. Over 60% of our sales are already through these digital channels, which does indicate that that's part of the results. We have been investing in technology, we more than doubled our technology team, we have 14,000 staff in technology. This is a very expressive amount that's part of our guidance already and that shows that we have been able to invest in technology, invest in purchases, in productivity, increasing scale, sustainable performance, and that's been making the bank more efficient and more able to be competitive when it comes to prize. And all of the indicators that we have been monitoring are just according to plan or even better than that. And from a data perspective, we have really revolutionized our data infrastructure. So when you think of the data cleansing, that is something that we really solidified in 2021. And in 2022, we're getting to improve even further data management, which will allow us to take decisions faster and to really interpret what our clients’ needs instead of just looking at a segment. So we have a lot of homework to do. It is a lengthy and laborious process. But we're very excited and not only looking at the results that we have had, but also at we have achieved so far. Eduardo Rosman: Thank you Milton. Renato Jacob : We already have quite a few questions. And the next one is Jorge Friedman from Citibank. Jorge Friedemann: Thank you. Thank you for having my question. Congratulations on your results echoing what Rosman said. I'm not going to be asking much about operations. For a guidance, I think we have a lot of information. The message was quite clear. But I wanted to try and understand a little bit more about your view concerning foreign strategies and foreign actions or actions in other countries that you're planning to take. There is a cost of opportunity that you have had in Chile. It was a lengthy transformation, but it's been doing well. And in the past months recently, you've really been cleared about tax issues in Brazil, and there was also a premium asset in Mexico, and that's a very interesting market. I'd like to understand from you, what your interest is, or if you're interested in continuing to expand or how we're going to be dealing with your branches in other countries? Milton Filho: Thank you, Jorge. It's great to see you again and thank you for your questions. Whenever we talk about international strategies, this is something that the bank decided a few years ago. We decide to expand internationally. What we have Chile and Colombia, Itaú Unibanco, and we have various asset there. The banks we have in Argentina, Uruguay, and Paraguay have also been performing well. In Argentina, of course, there are macroeconomic challenges, but we have been operating well with our corporate wallet and treasury, especially where we have had good results despite the market challenges. Argentina has also been a bit of a trial environment for us. We have a new FinTech that we have developed completely independently from the bank. And we're just getting started, but we can see that it's an auspicious start and we have good signs there. Uruguay and Paraguay, we have more consolidated banks with a very good historical performance and they really have been adding value to the organization. And I continue always have a capital cost, but still it's an operation that still will create value. And we have been managing cross-border risks really well and will reduce our exposure at the right moment. And Itaú Unibanco is a marathon, right? It's not a short-term task. We were going through some points after the merger, some credit, some platform operating technology issues, that are quite complex. And our decision, once we took over the bank, was to really look at the market from a long-term perspective as we do in Brazil. Not favoring short-term, but favoring long-term value creation for shareholders. So in the fourth or fifth year of the operations, we expect results to crop up. Last year, we made a few interesting or important adjustments to the balance. And this year, we already had better performance in Chile as you mentioned. It is still a challenge from a tax perspective. There is some lack of symmetry today. We bring profits to Brazil, and we have taxes from Brazil levied upon it and that makes us a little less competitive internationally speaking. And there is a challenge concerning capital because we have a risk appetite well set in Brazil, and we have to set as a level of capital here it supports our operations. And the capital costs in Brazil is about 14% now at this point and that is also a challenge. There is a tax and a capital challenge. Looking at that as a whole, we have expanded our operations in Chile as you probably noticed. We increased capital and that was positive for the bank because the capital impact was virtually zero. And we used to have 40% share and now we have 56% so straight. And that was a good moment to increase capital. Also, because the bank is now going to acquire the Colombian operation 's another slice of it. And Colombia is still a challenge. We have a very devoted management team. We've been simplifying the cost structure, and we want to raise the Colombian operations to another level. And scale is a challenge in Colombia, a small operation. And we have 3.5% market share in retail. So it's more difficult to gain profits there. But we're quite comfortable at this point and that is to continue to improve the assets that we have there. As for international expansions, I don't see that as a focus. We'll continue to focus on consolidating assets that we already have and we are reaping the benefits and results as you have mentioned. And I think it's unlikely that we will make any changes in consolidation or into new countries. We think Mexico is a great country and a great opportunity, but we also see a number of opportunities in Brazil and opportunities to improve operations we already have. So we're not in a process like that. And of course, we will look at assets in the region. Of course it's part of job description, but I think we're unlikely to go that way. We have to really focus and generate value for shareholders. And because of this lack of symmetry, any operation outside Brazil will allocate a number or a substantial amount of capital and have an impact on value generation for shareholders in the short-term, but I think we have a full plate at the moment. Renato Jacob : Shall we go into the third question? Gustavo Schroeder from Hello, Gustavo. We can hear you, Gustavo. Gustavo Schroeder: Good morning, Milton and Renato. Thank you for the presentation. Congratulations on your results. They are indeed very good. I just wanted to go back to a subject here, treasury and capital hedging. We understand there may be a need to neutralize the mismatch there may be from FX operations. And I think the assets and liabilities aspect, that's well hedged, but maybe the capital account isn't, if I'm not mistaken. How do we match that? This hedge you have for capital has an opportunity cost? You have a $2 billion impact expected onto treasury. But this doesn't look like a meaningless cost of opportunity. What is the upside you see in capital that would justify having this $2 billion impact on treasury? And if you could try and clarify what the rationale behind that is. And still about that, I don't believe this is going to be a one-off only in 2022, I believe you're going to keep this capital hedging structure so we could expect $2 billion less in treasury for a couple of years, right? Milton Filho: Thank you, Gustavo. It's great to see you again. Let me tell you a little bit about our hedging strategy and why we're going that way with hedging capital. All of the equity we had from banks and other countries were bringing back to Brazil with derivatives using tools, using hedging. So the capital though was there, would always come back in BRLs, in Brazilian Reals. There is a substantial lack of symmetry when it comes to taxes. And with that, we've been doing over hedging as you know well, and there was a high cost of opportunity. So the first element is that in the first half of 2021, we started working with overhead -- the first half of over hedging, the second half of over hedging, the second half of 2021. So that is over now. So we only have hedging now. We only have over hedging. There is -- the flip side of the coin is that if you have FX being devalued, you generate tax credit and that's important for our capital indices. And another aspect that is negative is that as you had the equity of the bank hedged in reals, all the RWA of the wallets would vary alongside the currency, so that would consume more or less capital depending on the currency. I'm not only talking about the Brazilian Real, but also the Chilean Peso and Argentinean Peso and so on and so forth, these currencies will go through real -- the actual dollar. We always had a buffer in the past to be able to deal with adverse effects coming from RWA or from a tax credit, so what was a decision that we then took. It's difficult to manage a capital index for the bank because that's where you're going to generate value for the bank, and that with a point they can't control. So you can have your risk appetite set by the board, and you may lose opportunities to grow the bank or have mergers and acquisitions and whatever it be. And you may lose that flexibility because the capital index is volatile. We can't control it. We lost 40 points in the Tier 1 capital index. 140 points is $14 billion in profit that we need to generate to recompose this capital. So this is substantial figures. What is the decision that we then took -- ending over-hedge, cost of opportunity and then good international practices? We'll look at other multinational banks and their hedge capital index, and in Brazil, we have the cost of opportunity due to the interest rates. We had a $2 billion estimate because of the increasing interest rates that we can see and the normalization of the interest rate could be a lower cost. But the flip side of the coin is very important because we have margin with the market being exchanged for margin with the client. And I think this is the pivotal point because if there is any devaluation in FX rate, and this is possible because it is an election year. Then -- that is one point. And the bank has the ability to generate capital and results that will allow the bank to grow and grow our wallets. And with that, we can work with a lower risk appetite than the current one, which will allow us then to leverage the bank can generate more new businesses and to have other operations with the associations, acquisitions and merges for example. So the flip side of the coin will generate more value for shareholders and we will reduce the level of uncertainty and will allow the bank to operate with more leverage and also to generate more value as you can penetrate the current buffers. So I think at the end of the day, this is quite positive and we wanted to be very transparent around the cost of opportunity. About $2 billion is what we said. It could be a little bit more, a little bit less, give or take. But for -- from a value creation for the shareholder perspective, I think we have a right decision here. It is a hedging structure, a hedging strategy, and these can change in the course of time. But we want to keep this level of capital hedge, especially due to uncertainties that might crop up. Renato Jacob : Thank you, Milton. Thank you, Gustavo. And we're going to go to the next question. We have many coming up. We have Thiago Batista from UBS. Thiago Batista: Congratulations on your results. The central Bank approved a project recently; there will be credit operations that will be carried out through picks, transfers. How will that affect credit and what impact will that decision have on the market? Milton Filho: Thank you, Thiago. It's great to see you. Fixed credit is still a concept. So we don't yet know the details of how that's going to be working. Our expectation is that by the end of the year, there should be more clarity on it. So there is a time period that is important for more definitions. But I think the crucial point here is that the fixed operations have come to stay. We have really embraced it from the start, so we don't swim against the current really. And we prioritize, takes on all of our channels. We have about 20% market share with payments and transfers. And we really penetrated our client base with that. And has become a key product for whatever client that wants to make transfers to an individual or corporation. And we really want to embrace the opportunities however we can. Our vision is lifetime value, creation of value. In the long run, proximity with our customers and delighting them. So if to some extent, we have to give up on some fees to use the PIX, we'll do that. We've done that in the past. In the guidelines for 2022, everything that you see in income and revenue already includes PIX. And since we are quite careful in terms of payment as a whole, we also think that PIX will have an important role. We don't know exactly how that's going to happen. But anything that's relevant for the market, relevant for customers, we want to be in the leading edge of that, and add that as our purpose. I'm not able to give you many details, maybe in the next few quarters. But the fact that it was chosen in the sandbox, it shows that we're open to it and that we want to challenge ourselves and we want to be disruptive whenever we need to. It's better for us to advance quickly than waiting for the market to do it. And once again, if it's good for the customer, it has to be good for the bank. That's the core of our thinking. Renato Jacob : Thank you. And next question from New York. Mario Pierry from Bank of America. Milton Filho: Hi, Mario. Mario Pierry: Hi. Can you hear me? Milton Filho: Yes. Mario Pierry: Thanks. Thanks for the opportunity and congratulations on the results. My question is about XV. You have to buy XV stocks at a price that seems to be attractive. I want to understand your strategy and how you're going -- when you're going to make the purchase and what you're going to do with these stocks. Milton Filho: Hi, Mario. And thanks for your question. Nice to see you again. You're quite familiar with the process. This is a purchase and sale process that was negotiated back into 2017 when we made a transaction with XP. And we were waiting for two things. First, the regulator's approval, and that was already approved by the Central Bank of Brazil. We still need some minor adjustments, some more formalities. But the main thing was to wait for the 2020 results. As you know, we negotiated a 12.5% purchase. And now, after the capital increases, we are talking about 11.38% of XP. And we negotiated 19 times the profit of '21. And their results were published this week, based on which we are now calculating the amounts with them. The exact amounts and how to reach a price to formalize that in the next few months. So we expect that in the upcoming 30 or 60 more days, we'll be able to finish the transaction. So from a process perspective and approval perspective, we're all set. And naturally, given the size of the operation, it's a non-strategic operation and the bank made the decision not to control the spin off and deliver it to shareholders and we first want to complete the purchase just so that afterwards, you can talk about the next steps. So that is our focus. And then only we'll discuss the next steps. Mario Pierry: Thank you, Milton. Renato Jacob : Our next question comes from Geoff Elliot from Autonomous. Just reminding people that you can choose whatever language you want to listen to the Q&A session today. Geoff, welcome. Geoffrey Elliott: Thanks so much for taking the question. Hope you can hear me okay. The outlook for financial margin with client points to a bit more growth than you're seeing in the loan portfolio. Can you talk about the moving pieces that go into that in terms of mix, spreads, competition, interest rates? What's driving that stronger growth and financial margins and you're expecting in the loan book? Thank you. Milton Filho: Thank you, Geoff. Good to see you again. Thank you for your question. But just to give a quick view, we had a very strong year in terms of financial margin with clients as you know. The last quarter was very strong. And as we've been growing the portfolio in a very healthy pace and yielding a very good portfolio. we believe that we have a strong year, next year for financial margin with clients. And the reason why is because this portfolio has been built in the last two to three to four months. So there is an inertia of the effects of this portfolio having a full-year in 2022. So this is one important component. The other one is the interest rate in our working capital. As you know, it has an impact not only in the working capital, but also in the investments that we have from our clients, so it has positive impact. Combining those effects, the portfolio that we have been building, plus the impact investments, plus the investment of our working capital that's the reason why we believe we can grow the financial margin 20% round numbers in 2022. This is basically the reason. If you only take the accrual that we already have, this will take us 13% without any additional effort. But we still -- will be the portfolio in 2022 in a different pace from where we come -- what we did in 2021. So we may go under in terms of portfolio growths as you can see in the guidance. But we felt very good mix as well. So we see the retail portfolio growing. We see the wholesale portfolio growing in a good pace. But it will all depends on how that capital markets will evolve in 2022. But on the retail side, we still see a lot of opportunities then in the other hand, we've been building the portfolio, very guaranteed products, more venting clean products. But we saw in the last couple of months a important recover on the clean portfolio, which helps us as well with the margin with clients. So this is basically how we believe we should achieve that in 2022. Renato Jacob : Thanks, Milton. Now that we all warm up in English, let's take the next question from Tito Labarta from Goldman Sachs. Tito, welcome. Tito Labarta: Hi. Good morning, Milton and Renato, thank you for taking my question also. My question -- a little bit of a follow-up, but in terms of your loan growth, in terms of your expectations for growth this year, particularly in Brazil, growing into double-digits to low teens. I know it's a little bit of a deceleration from 2021, but how prudent or how comfortable do you feel with that growth just given the deteriorating macro, with GDP, potential slight recession, best maybe growing 1% or so. And you indicate that the provisions will be rising. So how comfortable are you growing at that pace? Can you give a little bit more color in terms of the segments, like what kind of growth that implies for corporate, for retail, and why you think you can grow so strongly with weaker macro? Thank you. Milton Filho: Hi, Tito. Good to see you again. Thank you for your question. Basically what we see is that there is still opportunity to grow the portfolio. It's important, we're talking about we have minus 0.5%, but let's say that it's a 0 GDP for 2022. I think to compare with the portfolio growth, we have to look at the nominal GDP, and when we take inflation in consideration, we're talking about 7% to 8% nominal GDP for 2022 and a portfolio that should grow around 10%, 12%. There is an important inflationary process in Brazil, and this is relevant for the credit and the portfolio growth. So we are very comfortable with the pace. Of course, we have a very relevant way in tech knowledge to decide about credit. We have a lot of information above the clients, we are taking the polls all the time. So if feel more comfortable, we will deliver more. And if we feel we have to slowdown, we will do that. So basically, this is our best expectation talking now. We still believe there is opportunity. There is this portfolio that was already built in 2021. It has a natural inertia 2022, but we are confident in a slow pace, of course, slower pace than what we did in 2021, that we should perceive healthy portfolio growth. In the other hand, I know your question has more to do with the pace of growing portfolio. But talking about the cost of credit, I think it's important to highlight that when we look for 2022, we do believe, as we have implied in our cost of credit, that this will grow. We're talking about nominal base. So it's important to talk about the index and our cost of credit in relation to the portfolio, we believe that we should grow, but is still behind what we perceived in the pre -crisis, in the pre -pandemic. So we still believe we're going to get to a very healthy relation in cost of credit and portfolio. This is important. Second, we are diminishing the pace, so it has an impact in the index, and even though we believe we should have a healthy portfolio by the end of the year. In terms of coverage, it's the same. We believe we should keep a healthy level of coverage. And also the delinquents should increase as we have been saying. You might remember that in the last quarter, I said that we would be seeing a growth in our delinquency ratio. It happened on the personal portfolios this quarter. We still believe we'll see a delinquency ratio coming up but it will be stabilized by the year end. This is our best projection right now. So we still feel very comfortable about the dynamic of risk return of those portfolios. And also we've been engaging with the clients. We've been more increasing the lifetime value of the clients. So the year doesn't end the bank in 2022. So we are looking about building our portfolio in the long term and enhancing the relationship, and the relationship and the lifetime value with the clients that we have. And the new ones, of course. Renato Jacob : Thanks, Milton. And then The next question we go back to Portuguese. It's Henrique Navarro from Santander. How are you? Henrique Navarro: Good. Thank you. Thanks for the opportunity and congratulations. The format of the meeting is great. I'm sorry, we're going back to this subject. Lots of people talking about credit, but I understand about the initial inertia. But okay, Itaú was probably one of the first banks to make negative GDP projections for 2022, minus 0.5. In the third Q, the message is sent out was a warning message that there was a challenging scenario. And still, you delivered the number that was much higher than the expectations and the guidance for 2022, is really way above our expectations. When I look at the guidance that you published. it's not really aligned with this message of caution for 2022, and if you look at the level of accruals, it's a very strong growth. And maybe we should interpret that yes, it's risky, but we're able to monitor our risk and we will run greater risks for better returns. And maybe that's why the accrual is so high. When you look at the survey that was talking about 6.5% in credit growth for 2022, it seems to -- to be a great misalignment between what some players are seeing for 2022 in terms of risk. And I thought that was being more conservative, but the guidance, which is very good by the way, mostly says that we're able to manage our risks and returns. I know that you've talked extensively about that, but maybe you can shed a bit more light on -- as I was seeing something different in the market, is this scenario really dangerous? Are you really being cautious? Maybe you could dive a bit deeper into why you're considering this growth and the risk that you're taking. And the -- and it's impacts on the risk and the accrual. Thank you. Milton Filho: Thanks, Henrique, nice to see you again. I think your question is important in clarifying some aspects. But first, I think that everything depends on the comparisons that you make and some aspects that are extremely relevant. The first one is that 2021 and '22 are two very difficult years in terms of comparability when you talk about the regular fiscal year. In 2021, we had a fiscal stimulus and several other stimuli, and the pandemic came in 2020 and people stopped consuming. So less consumption, more stimulus. The stimulus checks incentives for companies and low interest rates. The capacity, people's capacity to repay increased a lot. If I told you that we imagined that that would happen, that's not true that we would see in 2021 such an important job in the delinquency rates. In 2020, we did a reasonable volume of anticipated accruals or a complementary accruals, which have been untouched so far. We were expecting a more adverse scenario that did not happen in 2020. In 2021, it's kind of a continuity of that scenario. And since in 2020, there was less credit hired. And we also saw that the delinquency rates were much lower. If we look at 2021 and 2022, that's not a good metric. That's why we always go back to 2019 to get a better perspective. And the second aspect is that we see a gradual normalization of delinquency of the last quarter. If you look at numbers, you'll see that the portfolios are well-behaved even though we see delinquency in and in natural persons. I made this comment and I'll make it again, we did not sell a portfolio. This does not say that we're not going to do it but the fact is we haven't been using that lever which does have it's effects, but its biggest effects are in the delinquency rates. Our delinquency rates are quite pure and that is important. There's another aspect which was that what we had a flexibilized portfolio that was relevant in 2020 in our program, and the way we dealt with our customers by offering them installments that would be possible for them to play is really good. And the delinquency rates are really good in that portfolio. We reduced the delinquency rates by 42%. We had over R$54 billion in the portfolio, and we are talking about $31 billion with very healthy numbers. And the clean portfolio, most of it has been paid. And what remains in the end are the guaranteed portfolios that have good LGD, a good recovery. So if you look at the next year, we grew the credit portfolio of the bank by more than 40% in the last three years. And that's natural. We work with an expected loss model, and that anticipates the provisions in the cycle and the accrual comes with time. So there is a mismatch in the timeline. The expected loss is less but the margins increase. And that's the phenomenon that we're seeing in 2022. And I was just being cautious, and we're still being cautious. This is our best expectation for the guidance. As you know, we're always going to focus on the best results for the bank and not simply turn a blind eye on our expectations. If we need to make expectation adjustments, we will do that during the year. That's not our intention. In 2021, for instance, we reduced the credit cost and we adjusted the credit lines. So if there are adjustments, we will make them and we will -- we expect to deliver an ROI of around 20% and as a reminder, and this is central to our guidance, there is no expectation of material consumption of complementary accruals, which is relevant. You're seeing growth of around $5 billion to $6 billion without using any complementary accrual. So I think the balance is quite good. And we have complementary accruals. And if we have a harder and more difficult credit cycle or greater uncertainties, we'll always have leeway to deal with that. I think the risk and return of the portfolios are also quite healthy. It's just natural. I think your question is legitimate, but there is a flip side to the coin, the interest rates are increasing, which also results in increased margins for customers. And that's why you see these results. And if you look at the portfolio growing in Brazil between 11%, 12%, 13% for a nominal GDP of eight or nine, that doesn't seem so relevant. And these are products and portfolios that we have mastery over and customers that we know well. But again, the future is uncertain, so we will be cautious if necessary during 2022. Henrique Navarro: Thank you, Milton. Renato Jacob : For the next question, Jason Mollin. It's going to be in English. , Jason. You can choose your Jason Mollin: I like the meeting's new formats. But I'll ask my question in English. What Milton you just mentioned, the review that Itaú all can generate around 20% ROE on a sustainable basis. And in this context, I wanted to refer to the slide. I like that you guys publish every quarter on the business model. I guess it's on Slide 19 this time. And Itaú shows the value creation of 9.3 billion rise in 2021, and almost 100% -- or 99% of that in the year was generated in the insurance and services segment and that segment had a return on regulatory capital of 32.5% for the year, and there was a small value destruction, I guess I would call it, from the credit portfolio. How should we and investors think about this sustainable ROE of 20% given this view on returns in the business segments? Thank you. Milton Filho: Thank you. Hi, Jason. Good to see you. I'll answer in English, even though I know your Portuguese maybe better than my English. But what I would tell here about this model business -- business model, the way we provide you the information. It's very important to highlight that you are seeing the year base. So it's true when you look for a credit perspective, we didn't have any capital or value creation when you consider the hikes we had in the cost of capital of the bank. So all the value creation that we had came from service, came from all the revenues, basically, as you were saying. But when you look from the last quarter, we saw positive trend on the credit, so generating value. So you are looking at full-year set. We believe that for 2022, we may be able to achieve a value-creation on credit as well. But we are talking about 14 cost of credit can be a little bit higher, a little bit lower. So when we look to that, we are delivering a very good pace and growth. But these costs, and even if we generate a little bit of value creation for the shareholders, has very important on what we see on the service side. So we cannot look for credit standalone and forget that this is what brings reciprocity from our clients. Deep the penetration of the relationship. So credit, it's a very good lever and relevant lever for that. So we believe that we may have any value on credit for 2022 for the reasons I just mentioned the last quarter was positive. We may see this growing interest rates that will help somehow the returns that we have on that. But it's very important lever for the other lines, especially for services in general, the reciprocity, cash management effects derivatives and all the other products, investment banking, asset management that we do with our clients in all segments. So we are pretty much comfortable with that. Renato Jacob : Thanks, Milton. Next question. Marcelo Telles from Credit Suisse. How do you do, Marcelo? Marcelo Telles: Hello, Renato. Renato Jacob : Hello, Marcelo. Marcelo Telles: Thank you for the presentation. Thank you for this format, as well. Most of my questions were already answered, but I like to take the advantage here to ask about your strategy as an investment platform. You acquired Ideal as you mentioned and you want to leverage on technology and you want to use the platform to plug the IFAs. So I would like to hear from you what that means exactly, is it transformational for Itaú and how you see the possibilities of distributing your investment platform products? Do you want to create an XP within Itaú? How can we think about your investment products and strategies related? Thank you. Milton Filho: Thank you, Marcelo, it's great to see you again and thank you for your question. Acquiring EDL has a very important role in our strategy to complement our environment at the bank. And we have very important information to share with you. In Private Banking, we had an increase of 2% acclaimed percentage points in the market share. We grew more in the market, it got two market share points. We have 30% market share, we have the absolute lead in this segment, and we got market share in investments as well. So there are always points coming in and out, but net, we got market share to 70 bases, approximately. So we believe that our strategy is growing big in the private or general public, general audience. We -- we plan to open 90 offices, but not autonomous, but our own offices with our registered staff. We expanded into 20 cities. We are present in 20 cities, and we should grow and penetrate other 20 cities in the course of this year. So by the end of this year, we should have substantial number of offices and branches 2030, and over 2,000 IFAs focusing on investments. We have over 400 thousand clients already using this new model, using the digital platform getting support from us, and Itaú personal . It was the franchise for high income. And the manager had that exclusive role to manage the relationship and so on. And now we have specialized group further which is this the IFAs mentioned and they will work hand-in-hand with the managers, giving support and advising our clients. This model has really been where we have migrated the portfolios. And clients have really enjoyed this new model. We're very satisfied and very happy with this strategy and how it's been orchestrated. You heard from Constantini just now, himself and Andre have been putting in this really well. So Itaú has a few major objectives. First, it is it upgrades in some markets we high-frequency trading and traditional market operations mainly. So this is an edge that we get from them. They have cutting edge technology platform better than ours. So that's another point. And the second point concerning Itaú is the human capital. So Nielsen and the whole team, they are top notch professionals with a wealth of experience, and they bring in flexibility so that we can penetrate other markets to strengthen our value offer and also to allow us to develop our strategy, if we understand we should go from our own offices to external Autonomous offices as well. We are still bit unclear around how this model is going to develop. It's moving more and more towards B2C hiring their own teams. And there could be some conflict between the -- our own teams and Autonomous teams. And we're soon making a decision around how to deal with this. But with this platform, we can plug in more easily our own staff for Autonomous teams and clients. So this is a model we're still discussing. And soon you should have more clarity on this matter. Marcelo Telles: Thank you, Milton. Renato Jacob : Thank you Telles. Domingos Falavina from JPMorgan. Welcome. Domingos Falavina: Hello, everyone. Good morning. My question has to do with the PDD. This initial assumption that you have, no additional items that will consume some of your provisions. The NII was very positive and there's room for this high coverage. Maybe that has to do with high levels, and then the bank is just to cover this higher coverage until the end of 2022. What I am trying to get at here is we see you allowing more this quarter. Is this a new level of coverage that we will probably see Itaú working at or is it a temporary movement and there will be more room for net profit in 2023? Milton Filho: Thank you for your question, Domingos. Great to see you. That's a good point you've raised, and I will try and break it down. In 2021, we expect it to consume the complementary point. We already budgeted the year like that. What surprises positively is how our portfolios behaved. And not only talking about flexibilized portfolios, but also non - flexibilized portfolios. Those who didn't need the program. So we reviewed the guidance to credit costs in the course of the year. We felt very comfortable about that. And we reviewed the guidance down and we understood this was not the right moment to consume complimentary provisions. And when we compare that to previous years and we look at the retail portfolio, we're still operating on higher levels, which makes us very comfortable. And we're also very comfortable looking at 2021. The risk return rate not tapping into the complimentary allowance provisions. What happens is that as we work with expected losses, we will bring forward provisions and the NPL will come in. So we had the NPL formation. 30% of that provisioned. And we expect that to convert in the course of time. So our expectation is that, in the course of time, this should normalize. It should go down, and the NPL should come with time. And I'm looking at the retail portfolio. We don't manage the bank through NPL formation. We use expected loss. And when you look at retail and you know that as well as I do. We bring forward a lot of the provisions and the delinquency from major clients come in the course of time. So the coverage consumption happens fast, which is what we saw one quarter ago, which I mentioned in the presentation. This is a good indicator for us to have an idea of the coverage looking forward if the scenario plays out as is and if it goes down, we'll use it -- make use of the complementary provisions, but it will depend on where the scenario is, our level of comfort, but the provisions were made for that. In 2022, as I said, we're not expecting to reduce the coverage levels. We'll probably operate on the same line as we did in the past quarter. And as the scenario normalizes, we're likely to consume some of these provisions, so it is possible to that may happen in 2022 -- maybe in 2022, but that's not our base scenario right now. Renato Jacob : Thank you, Milton. The last question from the analysts now comes from Roberto Garcia. Hi, Roberto. It's good to meet you. Thanks for attending our earnings call. Roberto Garcia: Thank you for the call. It's nice seeing you as well. My question was on the guidance, very impressive, particularly so, I guess, given the tough macro conditions. So I was wondering if you could give us some color on how you feel that the macro could impact results. Is there anything in particular that would be -- that you find concerning? And so as , is there anything that you feel you are being too conservative in terms of the guidance, anything that you're particularly excited about? Thank you. Milton Filho: Thank you Roberto, good to see you. Gracias. So going to your first question, we're still, as I was saying, a little before was too constructive about the opportunity to grow the portfolio. We have to look at the GDP, of course, in a nominal basis. And this is very relevant. And of course, there is some mismatch in terms of timing on how the provisions are made and how the portfolio generates margin. So I think warriors, we will be seeing 2022, has to do with the last two to three years in which we've been growing the portfolio. So this is the fifth consecutive year that we're going to portfolio in a very good risk return pace. So this is our view. So we expect the cost of credit to grow. As I was explaining a little ago, for the reasons, I said. So as I said, in the very beginning, this is the best estimative that we can do right now. We will be understanding how the year will evolve in terms of macro conditions, delinquency leverage of the families. And we'll be deciding throughout the year if we have to slow down or not, if there is opportunity to grow. So this is how we are going to be doing as we've been doing in the past. But there is a natural inertia with the portfolio. As you know in the retail, you'll be piling the portfolio. So when you look the last months and we had the growth so this has a natural impact for 2022. Coming from, and it's important to say in 2020 due to the crisis, we reduced very -- in a very relevant manner, the pace of providing credit to our clients, so we lost on the retail side almost 50% of our market share in production. Some of the credit that we've been deploying in the market in the past years is to recover our fair share in those clients that we have a very close relationship and we were not very present in the market at that time. This has an impact as well. Looking to the guidance, what it's the positive, I believe the guidance, it's very fair in terms of -- I don't see positive or negatives. I think it's the best projection that we say. I think the numbers has implied an important growth in terms of bottom line earning before tax. So I would say there is no positives or negatives. This is our best projection, and let's see in the coming months how we should be adjusting if necessary any of those lines. Renato Jacob : I said it was the last question, but it isn't. We have Rafael from Banco do Brasil. Hi, Rafael. Welcome. Rafael Reis: Hi, everyone. Good morning. Thank you for having me and my question. And congratulations on this format and your results. I wanted hear a little bit about the payout. What you expect regarding payout, what could support growth? And in the short term, what going to make or you're going to be doing with all of this profit you've made? Milton Filho: Thank you for your comment and question, Rafael. Well, payout, right? There are always two possible answers to what to do with payout. The profit for since you're going to be distributing and the profit per share and earnings per share, we're looking at earnings-per-share at this point. With the improvement we had in 2021, we're going to have improvements in dividends naturally. We haven't changed our dividend policy regardless of the review of capital indices. We continue to look at the policies that we have and our commitment is to distribute and pay out the 3.5 figure or point that we have with capital. We're still below that, we show the capital indices so there is some recovery that needs to be achieved. There is growth for the bank, so while we think there is an opportunity to grow the bank with quality and creating value to the shareholders, then I can't tell you that I have a dividend payout target. I have a target to increase the nominal value per share. We still have a 25% payout forecast, and looking forward, depending on the capital levels that the bank will achieve. This number could go up. But we're not committing ourselves to that for now. Also because we believe there is a lot of opportunity to grow the bank and create value for shareholders. If we think that we have a lot of capital and results and we can apply that to the right profitability level, then we review the dividend's policy. But for now, we're still very committed to the bank entity growth of the franchise. Renato Jacob : We still have some minutes, and we've been getting lots of questions on WhatsApp. Several of them have been answered already. But I'd like to ask you at least maybe two or three questions in the last 10 minutes. And just as a reminder, if your question has not been answered the RI team will contact you directly to answer your questions, okay? Milton, there is a question about ESG and our initiatives in that regard for 2022, what we're planning in terms of a issuing green bonds and internal initiatives around ESG. Could you share your thoughts, please? Milton Filho: Sure. To your point, the ESG agenda for us, it's not fad. Ever since we joined the Dow Jones Sustainability Index, we've been constantly working on that agenda. And there has been huge evolution of the course over the last few years. And I always like to emphasize a few things that are quite significant. or everyone united for health was very relevant. We allocated over $1.2 billion. It was a donation by the bank. And we had a council that works tirelessly starting every day at 7 AM. It was a pro bono initiative. So it was really important for the bank, and we were really proud of it, all of, us, collaborators. Well, I think that in terms of what's relevant, we made a recent announcement and we increased our credit volume and operations that we intend to structure by 2025, to tackle high impact sectors and segments like renewable energies, clean energy, and lots of other segments that bring about a series of benefits to the ESG agenda. To give you an idea of the magnitude, we decided to allocate $400 million , whether in credit or green points. We reached $170 billion or 43% and we have the commitment to reach that by 2025. So it's numbers that will have a huge impacts on the country. The Amazon council, I always mention it with Bradesco and . We sit together and it's a group of council members that are extremely knowledgeable about this sectionally high complexity subjects with slow results. It's really hard, it's challenging, there's a lot that needs reviewing. But that's an important part of our agenda. The mobility agenda is something that we've been investing a lot in not only the bikes, but also, car, electric cars. And the fact that you can use these cars, that's a great investment that we're making. And we believe that it's going to be very successful. The first results of the test pilots are really positive. So that's very prominent agenda. The diversity agenda is also very important, and we're going to be talking about it soon. Our commitments, that's something that we're working on. I believe that we need to have goals in terms of where we want to reach, it's not -- but the most important thing is not really the goal, but rather the path that we're treading, the direction we're headed. Women are getting more and more voice in discussion succession committees actively participating, so this is an agenda that we have to pursue in talking about women, blacks and browns, sexual orientation, people with disabilities. So it's a quite diverse agenda and we have areas dedicated to that and our progress has been great. There's also corporate governance, we talk about sustainability. In sustainability, the net zero commitment that we have made by 2050. And this has a huge impact in terms of how we're going to support our customers in that project. So we do not want to be law enforcement agents. We want to have commitment. So it's joint process. There are important plans by 2030. We're going to reduce it by half and reduce it to zero by 2050. And when we signed that project, the first question I get asked was well, 2050 is a bit far away, right? This is a problem for your successor, but the things that I always say is that when you sign a long-term commitment, your responsibility is even greater. It's not just because it's far away into the future that you're not going to plan for it. We created an ESG board that's dedicated to all the subjects, and we have the departments dedicated to that and we're working on the Net Zero plan that we just signed, then that will be very important. And in terms of corporate governance, we've got very important awards this year. You've worked in the finance industry awards recognizing the quality of our financial statements, the commitments, and everything else. So we're protecting our best practices and we've been getting extremely relevant awards. So we've been dealing with all of the agendas, this is at the top of our list. I cannot believe in a bank that talks about ESG and has a separate area for that. I believe that it has to be presence across all departments of a bank. Renato Jacob : Thank you. I think we could spend two more hours talking about this, so we have an endless list of questions. But I've been told that our time's up. If your question has been answered, we're going to get back to you. I'd like to give you the floor back for your final words and your goodbyes. Milton Filho: Well, first, Renato, thank you very much for leading this event, and the change at the end of the day was meant to present a different format for you. So I want to thank the site team and I'm really happy about the creation of this more interactive environment. I'd also want to hear a bit more from the executive committee. And this of course, means commitments with our results and its positive that we all got to hear from them and now we can demand action from them. But anyway, jokes aside, I wanted to tell you that our energy levels are extremely high at maximum levels. Everybody is extremely engaged with this transformation and the work that I've been repeating is, let's do it together because we really believe that it is something that needs to be done jointly, and only by doing so will we be able to create value. Cultural and digital transformation, I talked about everything. But the word that I want to finish this teleconference with is customer. That's what we're obsessed with. We have some homework to do, but we'll pursue this very hardly. And I believe that we can really execute that and delight, more than please our customers. We're not talking about a small base of customers, we're talking about 60 million customers and each one of them matters, and that has to be at the center of our initiatives. So thank you again and see you next time. And I believe that it will be a bit more interactive like this one was. Thank you.
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Itaú Unibanco Holding S.A. (NYSE:ITUB) - A Comprehensive Analysis

  • The consensus price target for NYSE:ITUB has decreased from $7.4 to $6.8, indicating a cautious outlook from analysts.
  • Itaú Unibanco showcased a strong operational performance in the third quarter, with significant credit growth and a decrease in delinquency rates.
  • Despite challenges, Itaú Unibanco's financial stability is bolstered by substantial capital reserves and strategic dividend distributions, making it an attractive option for dividend investors.

Itaú Unibanco Holding S.A. (NYSE:ITUB) is a leading financial institution in Brazil, headquartered in São Paulo. It offers a wide array of financial services through its Retail Banking, Wholesale Banking, and Activities with the Market and Corporation segments. The bank serves a diverse range of clients, from individual customers to large corporations, both domestically and internationally.

The consensus price target for ITUB has seen a decline over the past year, dropping from $7.4 to $6.8. This shift suggests a more cautious outlook from analysts, possibly due to economic challenges or company-specific factors. Despite this, Itaú Unibanco's third-quarter results showed strong operational performance, with robust credit growth and a decline in delinquency rates, as highlighted by Zacks.

Itaú Unibanco's financial stability is further supported by its substantial capital reserves and strategic dividend distributions. These factors contribute to an attractive dividend yield and improved return on equity (ROE). However, Barclays analyst Gilberto Garcia has set a lower price target of $4.5 for ITUB, reflecting a more conservative view on the stock's future performance.

The bank's recent earnings reports indicate an increase in both earnings and revenues, driven by a rise in operating revenues and managerial financial margin. However, the company faces challenges due to rising expenses, which could impact its short-term financial outlook. Investors should monitor upcoming earnings releases and macroeconomic indicators in Brazil for further insights.

Itaú Unibanco's strong financial performance, including a net income of R$10 billion in the second quarter, positions it as a reliable choice for dividends. This performance surpasses competitors like Banco do Brasil and Nu Holdings, underscoring Itaú's solid track record and focus on security and predictability within the banking sector.