Banco BTG Pactual S.A. (BPAC11) Earnings Call Transcript & Summary

Good morning, and welcome to the First Quarter of 2025 Results Conference Call of Banco BTG Pactual. With us here today, we have Roberto Sallouti, Renato Cohn and Julia Rocha. We would like to inform you that this event is being recorded [Operator Instructions] Today, we have a simultaneous webcast that may be accessed through the website, www.btgpactual.com/ir and the platform. There will be replay facility for this call from today. Before proceeding, let me mention that this call may contain forward-looking statements relating to the prospects of the business, estimates for operating and financial results and those related to the growth prospects of Banco BTG Pactual. These are merely projections, and as such, are based exclusively on the expectations of Banco BTG Pactual's management concerning the future of the business. Such forward-looking statements depend substantially on changes in market conditions, government regulations, competitive pressures, the performance of the Brazilian economy and the industry, among other factors and risks disclosed in Banco BTG Pactual's filed disclosure documents and are, therefore, subject to change without prior notice. Now I'll turn the floor to Mr. Roberto Sallouti, who will begin the presentation. Mr. Sallouti, please go ahead.

Thank you very much. Good morning, everyone. Thank you for joining our first quarter earnings call. If you could please turn to Page 3 of the presentation. We will start with the quarter highlights. So the quarter, as all of you know, was a very challenging business and market economic environment. But we're still able to deliver a 23.2% return on equity. I think this highlights the resilience and the strength of our business, the diversification, and we continue to perform within the guidelines that we gave even amidst this environment. On the -- talking about the second point, we continue to grow our credit portfolio, growing 27% year-over-year. However, what's most important, we continue to maintain sector, segment and geographical diversification and continue to have stable spreads and very disciplined provisioning levels in the portfolio. Our Asset Management franchise had outstanding quarter. We not only had record revenues and solid net inflows in the quarter, but we also crossed the BRL 1 trillion mark in assets under management administration, and we also had a fantastic quarter in Wealth Management. We also crossed the BRL 1 trillion mark. We had very -- another record quarter in revenues -- strong organic net inflows, and we successfully consolidated the acquisition of Julius Baer Brazil in the quarter. Turning to Page 4. We talk a bit about the numbers. So we finished the quarter with revenues of BRL 6.8 billion, a growth of 16.1%, net income of BRL 3.4 billion, BRL 16.5 billion year-over-year growth, so a bit of operating leverage there. And as mentioned previously, 23.2% return on equity. Going to Page 5, we talk about the net new money. So BRL 105 billion in the quarter, of which BRL 60 million came from the acquisition of Julius Baer in Brazil. Wealth Management growing 32% year-over-year. As I said previously, reaching the BRL 1 trillion mark, and Asset Management growing 17% year-over-year, finishing the quarter at BRL 1.026 billion. Going to Page 6. We talk about our credit portfolio, which reached BRL 231 billion, of which BRL 28 billion in the SME segment, a 27% year-over-year growth. Our funding grew 16% year-over-year finishing the quarter at BRL 260 billion, slightly below the fourth quarter, mainly because we had anticipated the funding needs for this quarter as we had the maturity of an offshore bond of around $1 billion, which we paid in the quarter. And finally, we finished with a robust capitalization with Basel Index at 15.4%. Moving to Page 7. We show results, as we usually show them. So once again, revenues of BRL 6.8 billion, net income of BRL 3.4 billion, net income per unit of BRL 0.88. We continue to have gains in say, operational leverage, finishing the quarter with a cost-to-income ratio of 37%. We finished with total assets of BRL 608 million, shareholders equity of BRL 60 billion. And just reminding you that 4966 had impacted our equity in BRL 964 million. Cohn will talk about this a bit more in the next part of the presentation. And we still continue to have low bar with only 16 bps average VaR for the quarter. On Page 8, we show the different business units and how they've been performing last 12 months versus the previous last 12 months. We can see significant growth in corporate lending and Business Banking, 30%, significant growth in Asset Management, 29%; and in Wealth Management, 21%. So as we -- as we've been saying in the last few years and quarters, we continue to see these business units outpacing the rest of our business units. We did have a more challenging environment in investment banking. Investment Banking down 9% year-over-year. Sincerely given what's happening in the markets, we're pretty satisfied with these results and Sales & Trading down 7% year-over-year. Here, we think that it's a matter of time. We will be back to growth in Sales & Trading. But as we all know, the environment has been extremely challenging. With that, I'll pass the floor to Renato Cohn, who will talk about the business units and the balance sheet.

Thank you, Roberto, and good morning, everyone. So we start on Page 10 with our investment banking where we had resilient results, reaching BRL 380 million during the quarter. It's important to note here that we saw an improvement of market activity during the second half of the quarter as during the beginning of the quarter, markets were still feeling the impact of the high volatility that we saw during the month of December and January. So what we saw is that March was much better than February, and February was better than January. So we expect that for the second quarter level of activity will be more similar to what we saw in March than what we saw in January and February. Most of the revenues came from DCM transactions despite the lower number of transactions executed during the quarter and we had a softer contribution from M&A activity during this quarter, but we continue to see a healthy pipeline of transactions to be executed throughout the year. And during this quarter, we were ranked #1 in a number of transactions and also in volume of transactions in ECM in Latin America. Going now to Page 11. We see our corporate lending and business banking, and we see that we have robust performance, achieving record revenues and consistent portfolio expansion. Revenues reached BRL 1.932 billion, and that's an increase of 5.6% when we compare to the fourth quarter of '24, and a 35% increase when we compare it to the first quarter of '24. Total credit portfolio increased 4.1% during the quarter and a 27% growth compared to last year and reached BRL 230.6 billion while our SME portfolio increased 9% in the quarter, totaling BRL 28.3 billion. Portfolio continues to expand, maintaining healthy spreads and also our disciplined risk management approach as we continue to diversify our portfolio in different market segments, different sectors and also different geographies. Looking now at our Sales & Trading on Page 12. We see that we had consistent performance with what we saw during previous quarter supported by client activity and also Roberto mentioned low risk levels. Revenues came at BRL 1.312 billion, mostly from the contribution from client activity and despite the strong levels of volatility related to the global macroeconomic uncertainties especially during the months of January and February and also the negative seasonality that is common during the first quarter, which is a vacation period here in Latin America. Important to note that revenues were impacted also by 2 one-offs in this quarter. So during the fourth quarter of '24, we saw that Eneva had a markdown in their equity, which we recorded as equity pick up now in the first quarter, and that amounted at about BRL 250 million. And the second impact is that we transferred the contribution from EFG to our Sales & Trading line as we expect that the contribution of EFG results will be less relevant for the bank in the future. And during this quarter, specifically, EFG contributed with BRL 130 million as we sold part of our position at the premium, but we expect that in the following quarters that the contribution of EFG results will go back to the levels that we saw during 2024, which were closer to in to BRL 25 million to BRL 30 million per quarter. So overall, we had a BRL 250 million negative contribution from [indiscernible], that's a one-off. And our one-off also positive contribution from EFG of BRL 100 million. So overall, the net is BRL 150 million negative contribution in our Sales & Trading line during this first quarter of '25. And looking at the right side of the slide, we see the VaR remained almost stable at very low levels, just 16 basis points, that's very similar to the previous quarter when we recorded our lowest par ever, 13 basis point and the market risk component of the risk-weighted assets closed at 21.6%, a little bit below previous quarter, but in line with what we saw throughout 2024. Going now to Page 13. We see our asset management business, where we also achieved record revenues, and we surpassed the BRL 1 trillion mark in assets under management and assets under administration. Revenues came at BRL 735 million, which is a strong 11.3% increase when we compare with the previous quarter and a 28% increase when you compare to the first quarter of '24. We continue to see consistent growth in management fees aligned with the AUM evolution. And as we usually do during the first and third quarter, of every year, we recorded the contributions of minority stakes in the independent asset management firms that we invest in, and those contributions came with strong numbers this quarter. Assets under management and administration surpassed the BRL 1 trillion, as I just mentioned, and reached BRL 1.26 trillion, which represents a 3.4% growth when we compare with the previous quarter and a 16.6% increase when we compare to the first quarter of last year. And annual money came at BRL 16.6 billion, which is a similar level when we compare with the previous quarter, and most of the flows were directed to our Asset Services franchise. Moving now to Wealth Management and Personal Banking on Page 14, we see that we had also a strong performance with record revenues and our wealth under management reached BRL 1 trillion. So revenues came at BRL 1.48 billion and that's an increase of 8.8% during the quarter and 19.2% when you compare to the first quarter of '24. As I mentioned, we reached BRL 1 trillion in total wealth under management, and that's an 11% increase when we compare to the previous quarter and a 32% increase when we compare it to the first quarter of '24. We also recorded strong net inflows despite the typical seasonality or weaker seasonality of the first quarter. So total net new money came at BRL 88.1 billion, which includes the organic net new money and the consolidation of the Julius Baer acquisition, which we completed by quarter end and accounted for approximately BRL 60 billion. So if we remove the BRL 60 billion from the BRL 88.1 billion, we see that inorganic net new money, we generated around BRL 28 billion, which is a similar level of what we've been generating for the last many quarters, I think, more than 3 years with similar levels of net new money inflows. And in April, we announced the acquisition of JGP Wealth Management, a multifamily office with BRL 18 billion under management, reinforcing our footprint and our products and services. This transaction requires customary regulatory approvals, and we expect to be able to close this transaction by the end of the second quarter. Moving to Page 15 in participations, we recorded equity pickup from Too Seguros at BRL 66 million, and that's a similar level the results of last quarter. Equity pickup from Banco Pan came at BRL 160 million, accruals of Banco Pan portfolios that we acquired during the previous quarters came at BRL 106 million and the elimination effect from the portfolios that we acquired during the first quarter of '25 came at BRL 43 million. So overall, we had BRL 290 million contribution from participation, which is a similar amount that we had from -- compared to the previous quarter, even excluding EFG contribution, which now is and will be recorded in Sales & Trading. Moving to Page 17. We see our expenses and main ratios. And here, we see that we continue to gain operating leverage supported by our disciplined cost management and also as our revenues grow consistently at a higher pace than our cost. Total operating expenses slightly decreased 2% during the quarter, mostly impacted by bonus accruals and lower tax charges. Salaries increased by 12% during the quarter. And here, important to note that as during every first quarter of every year, we have a number of impacts, but the 2 most important components are the mandatory salary readjustments related to inflation and the salary readjustment related to promotions, a process that we do during the fourth quarter, but impacts are recorded during the first quarter of every year. And as we saw during '24 and during '23, we expect that in the remaining 3 quarters of '25 this line will grow at a slower pace because the growth there will be more related to hirings and acquisitions. Administrative and others remained flat during the quarter. Our cost income was then diluted from 39% to 37% and our effective tax rate remained stable at 20.2%. Looking at our balance sheet on Page 19, we see that total assets increased 3.8% when compared to the fourth quarter of '24. And here, important to note that for a better comparison we are using pro forma numbers of the fourth quarter of '24 as if Resolution 4966 was already implemented for December 31, right? So we need to implement it with -- in January, but we use the numbers of December 31, to be able to better compare one to another. And also related to the implementation of Resolution 4966 for FX transactions and also some derivative transactions instead of recording payables and receivables, we record now the net exposure of those transactions. That obviously represented a deleverage in our total assets. So our assets now represent 8.9x our equity while in the previous quarters, you might remember that this metric would be closer to 10x our equity. Liquidity levels remained strong with BRL 71 billion in cash and cash equivalents at a comfortable coverage ratio of 151%. And our corporate lending and business banking credit portfolio now represents 3.9x our equity. On Page 20, we see our unsecured funding base evolution. And here, we see that our total funding slightly decreased 2% during the quarter and then -- that was mainly impacted, as Roberto mentioned, by the maturity of a $900 million senior bonds that matured in January and also by 7% appreciation of the Brazilian real. Obviously, we prepared ourselves ahead of time. So during the fourth quarter, we saw a strong growth in our unsecured funding base. And if it was not for the FX appreciation, our unsecured funding base would have remained flat, even considering the maturity of the bond. The share of our retail funding increased 31% -- to 31%, and demand deposits now represents 7% of our total funding. And during this quarter, we also issued BRL 800 million in Tier 1 perpetual notes in Brazilian domestic market at 140 basis spread to further strengthen our capital base. Finally, looking at our basal ratios on Page 21, we see that our total capital ratio stayed at 15.4% with a Tier 1 ratio of 12.2%. And as I already mentioned before, our VaR remained at very low levels, increasing slightly to 60 basis points as we continue to maintain a conservative approach in this challenging macroeconomic scenario. So once again, a very strong set of results with record revenues in corporate lending in asset management and in wealth management and also in overall total revenues, record revenues and record profits. So with that, I think we can open for questions.

[Operator Instructions] The first question comes from Tito Labarta with Goldman Sachs.

Congratulations another strong quarter. Two quick questions, if I can. Just first on your capital ratio on the core Tier 1 has been trending down. I know you've been growing the loan book quite a bit. I mean, ROE remains very strong and continues to increase. But just want to get a sense of how you're thinking about your capital base. Could it, at any point, constrain your ability to continue to grow given the high ROE do you expect to be generating capital throughout the year, just how you contextualize that given the profitability, but also the growth that you've been delivering. And then second question, just on the interest and other line, very strong quarter there. I know it benefited higher rates, but it seemed to go up quite a bit. Just wanted to make sure, was there anything else driving that besides the interest rate environment? How should we think of that line going forward, particularly if rates begin to peak and maybe come down a little bit by year-end? Any color on that would be helpful.

Thanks, Tito. So on your first question, we continue to believe that the profits will be enough to sustain the target Tier 1 ratios that we want. We especially have been able to access the AT1 market at very attractive spreads. And we continue to expect accumulating, let's say, if we deliver the guidance around 17% growth in core equity Tier 1. And we think that's more than enough to continue to sustain the growth that we expect in credit, in Sales & Trading and all the other businesses. Naturally, there are always some effects from changes in regulation, but these are mostly one-offs and happen once every year. So we feel very comfortable that the retained profits will be more than enough for us to deliver our business plan. And on interest and other, we don't think there was any -- we don't -- there was nothing extraordinary. It's just the accumulation of capital monetization of DTAs, for example, benefiting from the high interest rates that we currently have. And naturally, if interest rates decrease, that will decrease accordingly. But we think that would probably be a better environment for overall business, when we were able to get out of peak interest rates, we would think even though interest and other would decrease, we think it's a better environment for business overall.

Okay. Very clear. Maybe just one quick follow-up, I guess, in terms of the ROE, I mean, you've mentioned you expect ROE to continue to increase on a year-over-year basis. Is that still the case? How high do you think your ROE can get, and particularly given just sort of the changing environment, what sort of a sustainable level of ROE that you're thinking today?

Here, I'm just going to stick to the guidance that we gave that we expect this year's ROE to be higher than last year's. So that's more or less the trend that we've been having, but I'll just stick to the guidance that we gave. I don't want to give anything further than that.

The next question comes from Daniel Vaz with Safra.

And I'll just try to focus on the Sales & Trading part. So revenues were down, kind of understandable given the softer capital markets activity in Q1. So I'm just wondering, is there any other specific factors that drove a larger expected drop. So should we expect a rebound in 2025? So considering that the market like pretty much equity markets recovered rate -- future rates declined. Is it fair to trade at Sales & Trading, you can go back to, I don't know, maybe BRL 15,000 million here.

Thanks, Daniel. So if you consider the one-offs that Cohn mentioned when he made the explanation, it's more or less stable, right, Sales & Trading. And -- yes, I think you're right. I think more -- the trends that we're seeing with higher flows towards other markets other than the U.S., which we saw happening, and we can see that at the equity market levels in Brazil, we see that the level of FX, I think these are all net positives as we continue also to grow our wealth management franchise, our asset management franchise, capital markets in Brazil, even though the, let's say, they're being affected by the high level of interest rates have shown resilience and you see it becoming more sophisticated. So definitely, we think that over time, we would expect it -- we would expect sales and trading to go back to growth, maybe not the growth that we're seeing in the corporate lending or in the asset management business, but we definitely think that it would go back to growth as the trend goes back to, let's say, normal.

The next question comes from Marcelo Mizrahi with Bradesco BBI.

So my question is regarding the new accountability provisions. Can you help us to understand how the new accountability of the higher provisions translated into the results or into the shareholders equity bridge comparing last quarter and comparing to the level that was reported right now?

Marcelo, thank you for the question. I think that the main impact was the impact on the equity, right, BRL 964 million. Most of it came from the impacts of Banco Pan and which was close to BRL 700 million, a little bit less than that. And then the remaining part was also, which was recorded at BTG directly, right? It was also -- the main impact was also related to portfolios that we acquired from Banco Pan, right? For BTG, there's very little impact because we already used the expected credit loss methodology for our corporate lending book, which is the majority of the credit lending portfolio that we do with BTG. So most of the impact came from Banco Pan, and that's already recorded, obviously, in our equity and detailed in the different stages. I'm not sure if that answers the question.

Okay. Yes. And another question is regarding the SME portfolio, which was very good on this quarter. So the growth was expanded a little bit more than the last quarter. Just to understand if there has any new operations here or the perspective of the credit loans, corporate lending into the next quarters?

No, this is just the development of the business as we roll out new products, as we continue to onboard new clients as we mature older vintages of clients and they start to interact with more products with us. It's a normal development of the business, nothing extraordinary here.

The next question comes from Jorge Kuri with Morgan Stanley.

Congrats on the numbers. I wanted to ask your view about rate cuts for Selic, the consensus from economies is still that the first rate cut happens next year, but we're starting to see the fixed income market pricing a possibility of cuts as soon as November. And what are your view on that? And second, if that is the case, how fast do you think the core business that's more rate sensitive can recover? And can we potentially see some upside to estimates for the second half of the year? Or do you think that that's maybe just a first half 2026 recovery? How do you envision sort of like the rate scenario up from here?

Thank you, Jorge. Actually, personally, this will be my personal view here. I don't expect rate cuts this year. I think we're still in a volatile environment. We are still seeing good growth numbers. We still have some inflation expectations that are not anchored. I think it's natural that the market is always trying to anticipate the pivot because as we all know, the level of interest rates are very high, both on a nominal and real basis. But since we have a 3% target, and we have to anchor expectations there, I personally think that probably what is priced in right now is maybe a bit optimistic. So especially on the business side overall and naturally, as a former trader, I allow myself to change my opinion at any moment, but this is what we're thinking right now. But strategically, we are basically only positioning for rate cuts somewhere in 2026. And we think, yes, definitely, we would benefit in investment banking, would benefit in asset management, in Wealth Management, it would create a better environment for credit, would probably create a better environment for sales and trading. So we think that overall, even though interest and other would suffer, it would be much better for the business if we go back to, let's say, a 4.5% real interest rates with a 3% inflation target and let's say, even if we're running at 3 -- between 3% and 4%. So interest rates closer to 8.5% would be much better for business as we all know.

The next question comes from Yuri Fernandes with JPMorgan.

I have a first question regarding our asset management results, and it was very clear from Renato that this is seasonal first Q and third Q, but the seasonality was a little bit higher than in the past. So just checking if this is the new normal. I don't know, maybe you are buying a higher stake in independent asset managers, and this will be like this quarter-over-quarter will become more normal in those quarters? Or if there was any kind of more extraordinary tailwind for the asset management line? And then the second question is on EFG. I remember this has been a long story, right? You bought these years ago. You sold this to the partnership in Generali. How much do you still own on EFG? And I guess, Renato mentioned maybe you sold a small position. So just checking the BRL 130 million gains, how much was for sale of this asset? And basically, how much you still have on this? And maybe if I may ask here, if this is -- it's for investment here for you when you move this for sales and trading.

Thank you, Yuri. So related to the asset management business, there's no specific event. Sometimes some of the asset management companies that we invest in, they perform better or depending on the cycle or at the moment. So we had good results here as we had also very good results during the first quarter of '24. There are also good contributions there. Now it was a little bit better than what we had in the first quarter of '24, just comparing the same moment, right? But nothing specific there, right? And obviously, it also includes the evolution, not just of those that -- they are not one-offs anymore, right? They are recurring revenues that we recorded in the first and the third quarter. And then obviously, the evolution of the assets under management and administration. So I think it's a sum of the evolution of all the business as a whole. And in the second question, which was related to EFG, the one-off, as I mentioned, was close to BRL 100 million, right, which is the sale of part of our investment that we had in the bank that we did during the quarter. We own a little bit less than 3% in the bank of EFG. It’s for the bank, now it's kind of a portfolio position. And depending on market conditions, we might sell a little bit more or maintain that position. And -- but we expect that the recurring revenues that we will have -- that, that position will have from EFG will be in this level that I mentioned, which is around BRL 25 million to BRL 30 million per quarter.

Congrats on asset management and other lines that were super good.

The next question comes from Renato Meloni, Autonomous.

So I wanted to touch a bit on the credit cycle, how you're seeing the development here throughout the year and where you might be seeing risks for growth, right? And also related to this, just thinking more long term here, right? The SME portfolio hasn't really -- I mean it's growing well, just like large corporates. But as a percentage of the total portfolio, it has remained fairly stable for the past few quarters. So I'm just thinking maybe at the end of next year, where do you want to get here? Where do you think the balance can be? And what does that mean for your net yields as well?

Thank you, Renato, on the credit cycle, I think we talked about this at the end of last year that we were anticipating tough conditions for credit. Actually, I would say that the performance of the portfolio has been, I would say, better than what we had prepared for, which I think is good news. But we continue to understand that the level of interest rates presents a challenging environment for companies that are more leveraged. At the same time, eventually, the economy will slow down, and this will also have implications for the different profiles of the credit that we have. And this varies from the large ports to the SMEs to the consumer credit. So as usual, we model for much more challenging conditions that we are seeing. These eventually might happen. And if they happen, we are ready for it. But I think I would say that so far, the credit cycle has surprised us positively by the end of Q1 to what we had, let's say, prepared for. On the SME segment, yes, I think this more conservative approach has limited the growth there. We have been very satisfied with the growth of the business banking side. And with that, we continue to gather more data of the different SMEs. And at some point, we will feel comfortable with the data we have and also with, let's say, the part of the macro conditions to start exploring credit lines, which have higher spreads, but also have higher risk. But we are not comfortable yet. So we continue to focus on SME on the low risk products, the ones that have liquid guarantees. And that's why we have been growing more or less in line with the total portfolio. But as you said, we think this is a great opportunity where we have very low market share, and we are convinced that we can -- if we are disciplined, we continue having very good product, very good service that we can continue to grow this business line over time. And naturally, this business line has higher spreads than we have in the high-grade corporate. And with that, we also continue to grow in Latin America as a whole, Chile, Colombia, the fact that we also have not only sector but segment diversification, we also have geographical diversification that leaves us very comfortable to face the different environments in the different markets where we're present.

The next question comes from Thiago Batista with UBS.

Congrats for the results. I have 2 questions. The first one on the Wealth Management business. I want to hear for you guys, your strategy with all the acquisitions that you guys have been made. So you bought just year-to-date, Julius Baer and JGP. So I want to understand your strategy here. And second one, on IB, how you guys are seeing the outlook for the IB business for the year? I know that Renato mentioned in the beginning that the last months were better than the beginning of the year. But when you look for 2025 as a full year, is the scenario now is a contraction of this line or not really?

Thank you, Thiago. So on Wealth Management, as you know, we are now present in all the different segments, right, high-income retail, high net worth, ultra high. We have different distribution channels. We have the -- what we have our B2C, we have our advisers, we have our wealth management, we have our IFA platform. And we made some acquisitions in the past, which were more focused on the high income, let's say, retail business. And recently, there were 2 opportunities in the high ultra-high segment, mainly in the ultra-high with the wealth management -- with the multifamily office platforms that we acquired, and they have integrated well. So we have a full platform, different channels, which all benefit from a full product line and all the technology investments that we've done, and you have different service levels for the different profile of clients. So these are the acquisitions. The strategy has not changed. We're present in all the different segments, and there are different opportunities for us to consolidate and grow these segments, and we're always paying attention to these in the market. And regarding investment banking, I would say clearly that where we stand now, we are much more optimistic than we were in the beginning or the middle of the first quarter. There were some market expectations, which talked about significant decrease in revenues. We were never that conservative, but we always thought that the market was challenging. I would say that where we're standing today, if we look at our M&A pipeline and our DCM pipeline and even the level of the stock exchange, which allows some ECM transactions to happen, and we've been seeing that happen in the last few weeks, we are more optimistic than we were. I don't want to talk about specific changes year-to-year. But clearly, I think the forecast that some market participants had at the beginning of the year are proving extremely conservative. And I think the market environment now as, let's say, emerging markets overall are benefiting from this flow that is seeking diversification from the U.S. markets, which were extremely dominant in the last few years, allows us to be much more constructive and optimistic with the results for this year.

The next question comes from Henrique Navarro with Santander.

Congratulations for the results. My question is more on Banco Pan. I mean you guys own the totality of the voting shares. So you are -- is in your hands the strategy for the bank. And there's a lot going on with the private payroll. And for some banks, small medium-sized banks, the private payroll could be transformational. So my question is, how do you see the potential positive impact of the private payroll on Banco Pan? It could be good, it could be very good, it could be transformational. Anything you guys could share with us, I would appreciate.

I would say it's very good. I would not put it as transformational because we're still in the early stages of the product, still -- a lot still has to happen. Some players are not present yet. We're just coming in with portability. So I would say it's very positive. Banco Pan, I think, is one of the top 5 producers of consignado privado. So it's very positive. At the same time, all the issues we're seeing in [indiscernible] and now makes that market more challenging as, let's say, that they stopped the production of new products. But I would say it's very positive. And we are integrating Banco Pan back office and control. So we're constructive there. It's still a business in transformation, but we clearly see the private payroll as something that is very positive for the franchise.

The next question comes from Antonio Ruette with Bank of America.

So I have a question on Banco Pan as well. Banco Pan mentioned that the idea is to have a single app operating with both banks. I would like you to explore a little bit more that -- how will this work -- and how could be the implications for both? Also in Banco Pan, if you could explore a little bit more the strategy of integrating the bank. This has been an agenda mentioned by both banks. And just want to get some color on what could be further gains related to that in terms of costs and potentially revenues? And also, I have a second question here, more on strategy. If we look at your revenue composition over the past years, it has changed a lot. So if we look at IB and Sales & Trading, they dropped for about half of revenues to close to 25%, 30%. I'd like you to explore a little bit more, if you can, the potential implications for ROE, which are the levels of ROE of these main revenue drivers? And how could this translate into your ROE evolution going forward?

Thank you, Antonio. So on the Banco Pan integration, a few years ago, we had co-control, so we could not integrate the control and back-office functions. When we did buy all of the voting shares, we actually did not have the bandwidth at BTG because we were going through significant growth and transformation at BTG with the implementation of banking, digital strategies and what we call the SME business. But now we -- given middle of last year, we finally had bandwidth at BTG, and we started integrating back office and control functions. Our main goal is to navigate to one core banking system, which will be shared by both banks. This is something that will happen probably towards the middle of next year. And when that happens, you would benefit from let's say, all of the features that a single core banking would give you, meaning that we could share the app and just have a different branding. And with that, we think that we can have significant cost synergies because today, we have 2 core banking systems running. Over time, there would be only one with marginal increase in cost at BTGs because BTG is very scalable. And that would allow us to allocate the cost differently and will give us a lot of operational efficiency in both banks. This is probably something for middle that we will start seeing middle of next year, but it's something that we're very optimistic because we think it will increase efficiency. It will increase client experience and it will reduce operational risk. So it's something with which we're very optimistic and bullish, even though it takes a bit more time than we would like for this integration to happen. Talking about revenue composition, you are right. We continue to expect wealth management and asset management franchises with don't use capital to grow stronger than the rest. We continue to expect credit, to continue to grow stronger than Sales & Trading and Investment Banking. And that's why we're comfortable giving the guidance that we gave in the last few years, which has been an increase in operational leverage and consequently, an ROE expansion. As I said, in one of the previous questions, we don't want to give guidance beyond this year. But clearly, this trend has been -- we've been seeing this trend over the last few years. And if we continue to be successful in benefiting operational leverage and growing faster the business franchises that don't use capital, it's fair to believe that this trend can continue.

The next question comes from Pedro Leduc with Itaú.

On corporate lending revenues, wondering if you could give us a little bit more color on the moving pieces here. First, we noticed you're growing in service and just credit, if you can help us see how big the nontraditional credit revenues here are representing in terms [indiscernible] the SME portion. And last quarter, you mentioned how big LatAm already was within the total portfolio. If you can update us there and give us a sense if this LatAm portfolio has a higher or lower consolidated spread than what we see here.

Thank you for your question. Look, to be sincere, we're not -- we did not see this quarter anything different than we saw in the last few quarters. And SME, we continue -- especially in SME, we continue to see benefit from the banking business. LatAm has been relatively stable. I believe it was 15% that Cohn mentioned last quarter -- sorry, 20%. He's waving to me it was 20%. It's more or less stable. No big changes. I think here, there's nothing very different than we saw in the last few quarters, trying to be very specific here, the most specific that I can.

Okay. Okay. That's helpful already. And a follow-up to that, I know you guys are evolving into the SMEs or less than larger corporates. There's some recent announcements made. Could you give us an update on how it's progressing, if we should see a more meaningful presence throughout this year from the new clients that you guys are tackling in corporates.

Definitely, yes, we have been expanding our geographical presence throughout Brazil. We have been investing in marketing. We have been investing on the different products. So yes, we're quite optimistic with the results, and we're very optimistic with the trends we're seeing. So we do believe this will present very good opportunities in the next few years for the business as we continue to grow this business line.

The next question comes from Brian Flores with Citi.

A quick follow-up on Leduc's question. I wanted to ask you, you're outgrowing the system by a wide margin in corporate lending. And of course, we have seen as banks start reporting this previous week and this week, maybe some deceleration in some segments. Just wanted to explore how are you thinking about the environment in Brazil? And if we should see the maintenance of this, I would say, rhythm? Or are you thinking about decelerating a bit? And if you could explore a bit what are you seeing on asset quality, I think that would be very useful.

Thank you, Brian. So we grew the portfolio, if I'm not mistaken, 27% year-over-year. I would say, probably say that towards year-end, this will be closer to 20% than to 27%. So it does decelerate a bit. You also have to remember that we benefit from having low market share in SME, in middle market and in the corporate segments. In the large corporate, I think we have a bigger market share. So we benefit from the very low market share we have. We also benefit from growing in different geographies throughout Latin America. So we -- definitely, it might slow down a bit from this 27% that was very strong. But we do think that we will continue to outgrow the market in part because of the geographical diversification and in part because of the segment diversification, especially where in the segments where we're coming from a very low market share.

That brings us to the end of the question-and-answer session. I will now return the floor to Mr. Roberto Sallouti for his closing remarks. Please, you may proceed, sir.

Thank you very much to all of you for joining our call once again. Once again, thank you for your trust and your partnership, and we look forward to hearing -- talking to you at the end of Q2. Thank you very much. Have a great week.

Thank you. This concludes today's presentation. You may disconnect your line at this time, and have a nice day.