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

Good morning, and welcome to the Third Quarter of 2025 Results Conference Call of Banco BTG Pactual. With us here today, we have Roberto Sallouti, Renato Cohn, 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 a 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 us for the third quarter earnings call. If you could please turn the presentation to Page 3. We will start there with the highlights of the quarter. So as you all probably saw, we finished the quarter with a 28.1% return on equity, exceeding last quarter's performance, and I think it shows the strength, execution of the franchise. But what really this return on equity shows is that we're continuing to move along the J-curve of various initiatives that we have done over the last decade as we continue to benefit from operational leverage and we're always focused on great client service. And at the end of the day, these are -- this is the result -- this is what gives the results that we have this quarter. And not only that, but we continue to develop new lines and new geographies so that we continue to have these new initiatives along the next decade so that we continue to have strong growth. And some examples are the acquiring business, which we just announced, the cash management business that we're developing, the bank licenses in Europe and the U.S. So these are all investments that right now will not be generating huge value but over the next years, we expect them to move along the J curve, the same way we are seeing of the investments we did in the last few years. Going to the next bullet point. Our investment banking results were also very strong. We had record DCM revenues on a very solid quarter in M&A from a great franchise that we have built. Corporate Lending & Business Banking reached new record revenues as we continue to expand the portfolio while focusing on good risk-adjusted spreads focusing on quality and continue to diversify. Here, we're greatly benefiting from growing market share in new geographies and new market segments in Brazil. In Sales & Trading, we had again a record quarter. We benefited from increased client activity, which benefited the whole market, but also from the maturation of new business initiatives that we have in this unit and efficient borrow allocation in the quarter. Wealth Management & Personal Banking continued to show very strong growth, once again, record revenues, net new money of BRL 49 billion of which BRL 18 billion came from the consolidation of JGP. And finally, Asset Management, we also had record revenues with strong net new flows, net new money flows in the quarter, BRL 34 billion reaching BRL 1.2 trillion in assets under management. If you turn to the next page, we have some highlights of the key numbers, key figures for the quarter. So revenues reached BRL 8.8 billion, growing 37% year-over-year. Net income reached BRL 4.5 billion with a growth of 42% year-over-year. Here, the difference in growth really demonstrates the operational leverage we have on the platform. And we had a return on equity of 28.1% in the quarter. Turning to Page 5. We had between Wealth & Asset Management, BRL 83 billion of net new money. Our assets in Wealth & Management grew 32% year-over-year, reaching BRL 1.1 trillion and our assets and asset management grew 19% year-over-year, reaching BRL 1.2 billion. Finally, on Page 6, our unsecured funding grew 20% year-over-year reaching BRL 308 billion and our corporate and SME portfolio grew 17% year-over-year, reaching BRL 247 billion. Finally, we continue to have robust capital ratios of 15.5% Basel ratio and net equity of BRL 66 billion. Turning to Page 7. We show the financials that we do every quarter. Once again, total revenues of BRL 8.8 billion, net income of BRL 4.5 billion, net income per unit of BRL 1.19. Cost-income ratio that continues to gain efficiency. We had an adjusted cost-income ratio for the quarter of 34.1%. And we continue to have a not very leveraged balance sheet, we finished with BRL 685 billion of total assets for a shareholders' equity of BRL 66 billion. And we increased VaR a bit to a more normalized level, even though still below historical levels. As we have told you in the previous quarters, VaR was excessively low and we -- our objective was to be in a situation where we could allocate more VaR this, of course, this quarter. So we finished with 30 bps VaR in the quarter. If you turn to Page 8, we talk about the performance for the first 9 months of the year. So net income for the first 9 months of this year compared to the 9 months of last year grew 34% reaching revenues BRL 24 billion and adjusted net income of BRL 12.1 billion. For this 9 months, we have a return on equity of 26.4% and at a cost-to-income ratio of 35.4%. And once again, shareholder as equity growing 16% year-over-year for the end of the third quarter. Turning to Page 9. This chart shows basically what we have been telling you or commenting with you guys over the last few years. Very strong growth from the corporate lending and investment management franchises. So 33% growth in Corporate Lending & Business Banking, 24% in Asset Management, 26% in Wealth Management. And finally, back to growth in Sales & Trading and the new initiatives are producing results. And here, we continue to expect this trend of faster growth in the Investment Management business and the Corporate Lending & Business Banking business then in Sales & Trading and Investment Banking, it will be much more a consequence of the market given the very robust market share we have in this market. So it's very hard to say what exactly will happen in Investment Banking. We have a very -- what can be a very volatile and uncertain year next year. So I think it will develop -- will depend on the developments of the year, what will happen to investment banking. With that, I will pass to Renato Cohn, who will talk about each of our business units.

Thank you, Roberto, and good morning, everyone. So if we turn to Page 11, we start with our investment banking, where we once again had a strong performance this time driven by strong DCM activity. Total revenues came at BRL 643 million. That's a 17.8% decrease from the very strong second quarter numbers, but still a very robust number, especially when we compare to many previous quarters, again reaffirming the strength of our Investment Banking franchise. Like the second quarter when M&A was the main driver of revenues. This quarter, DCM delivered record results and was the main contributor to revenues with 52 transactions being executed during the quarter. M&A also posted solid contribution as we continue to keep our leading position in industry rankings. And in ECM during the third quarter, we ranked #1 in number and in volume of transactions in Brazil, and second in a number of transactions in LatAm. If we move to Page 12, we see our corporate Lending & Business Banking line, where we had record revenues driven by continued portfolio expansion. High-quality risk-adjusted returns and an ongoing business diversification. Revenues came at BRL 2.154 billion, that's an increase of 2.2% during the quarter and 25.8% increase when we compare to the third quarter of '24. Total credit portfolio grew 3.8% during the quarter and 17.4% when we compare to the third quarter last year, while our SME portfolio grew 1% during the quarter and 13% when we compare to last year. Spreads remained stable and despite the challenging macroeconomic scenario, our portfolio continues to show its resilience based on superior asset quality, also supported by our diversified origination in terms of sectors, in terms of segments and also in terms of geographies. And in October, as Roberto mentioned, we launched our BTG Pay. That's an integrated payments platform, marking our entry into the acquiring business. where we will offer end-to-end payment solutions through proprietary devices and also sales management tools. Looking now at our Sales & Trading business on Page 13. We also see that we had a record quarter, supported by increased client activity, continued growth of our new business initiatives and an efficient VaR allocation. Revenues came at BRL 1.941 billion. That's a 1.5% increase when we compare to the already strong numbers from the previous quarter, and they were driven mostly by robust market activity. And as Roberto mentioned, as we continue to grow our client base and this expanded client base benefits from the launch of new products, new services and our new business initiatives. Our average VaR rose to 30 bps still remaining at comfortable levels well within our risk appetite and still below historical levels. And the market risk component of our risk-weighted assets remained stable at 26%. If we go now to our Asset Management on Page 14. We also had record revenues, supported by another quarter of strong net inflows with assets under management and administration reaching BRL 1.2 trillion. Revenues came at BRL 747 million. That's an increase of 20% when we compare to the previous quarter and a 23% increase when we compare to the third quarter of '24. Revenues from management and administration service fees continue to grow alongside the expansion of our assets under management and administration. And during this quarter, we also recorded a positive contribution from dividends received from the minority stakes in independent asset managers that we invest in. Net inflows came in strong at BRL 33.5 billion, with most of the flows being directed to fixed income funds and also to our asset services business. And as we mentioned, assets under management and administration reached BRL 1.2 trillion. That's a 5.7% growth during the quarter and a 19% growth when we compare to last year. Looking at Page 15, our Wealth Management & Personal Banking business, we saw outstanding performance also with record revenues and strong net inflows. Revenues came at BRL 1.366 billion, which represents a growth of 10.2% when compared to last quarter and a 36% growth when we compare to the third quarter of '24. Revenues grew as a consequence of wealth under management expansion, larger -- a larger number of business days during the quarter, sustained levels of return on assets and the consolidation of JGP Wealth at the beginning of the quarter. So we started -- we closed the deal at the beginning of the quarter. So revenues impacted the full quarter. And the consolidation of JGP Wealth added BRL 18 billion in net new money and in wealth under management. Overall, net new money for the quarter came at BRL 49.2 billion. So when we exclude the BRL 18 billion of net new money that came from JGP Wealth consolidation, we still see a strong and consistent BRL 31.2 billion of purely organic net new money during this quarter. And overall, if you get the full year numbers, during the year, we managed to bring BRL 168 billion of net new money. Wealth under management reached BRL 1.136 trillion. That's a 7.6% increase when we compare to the previous quarter and a 32% expansion when we compare to the third quarter of last year. And during this quarter, we have been recognized as a Wealth Management Bank of the Year for 2025 by LatinFinance and Best Bank in Brazil, in Latin America and in emerging markets overall by Global Finance. If we turn now to our participations page, on Page 16, we see that we recorded profits of BRL 325 million, with contributions coming from Too Seguros with BRL 77 million, there, BRL 151 million in profits from equity pickup from Banco Pan and BRL 97 million from accruals of portfolios that we acquired from Banco Pan during previous quarters. And in the same case as last quarter, we didn't acquire any additional portfolio from Banco Pan. So there's no elimination effect. Going now to our expenses and main ratios. We see a continuing improvement in efficiency as we leverage our scalable platform, while we maintain our disciplined cost management approach. Total expenses increased 3.2% during the quarter. They were mostly impacted by goodwill from the recent acquisitions, such as JGP Wealth and Justa. Bonus and administrative expenses remained flat during the quarter, while salaries increased 3%, mostly related also to the consolidation of JGP Wealth and Justa and a little bit of hiring and our effective tax rate remained stable at 20.4%. So overall, our adjusted cost-income ratio decreased to its lowest historical level at 34.1% as we continue to benefit from operating leverage derived from our scalable platform. If we go now to Page 20. We look at our balance sheet. And as Roberto mentioned, total assets reached BRL 685 billion, and that represents 8.8x our equity. Liquidity increased during the quarter, and we now have BRL 88 billion in cash and cash equivalents and our coverage ratio remains at 169%. That's a comfortable level sustained by the strong expansion of our unsecured funding base. And our corporate and SME lending portfolio now represents 3.8x our equity. Moving to our unsecured funding base on Page 21. We see that our total unsecured funding base reached BRL 308 billion during the quarter, a strong growth of more than BRL 28 billion or a 10% growth when we compare to the previous quarter and a 20% expansion when we compare to the third quarter of '24, with most of the growth coming from time deposits and also the issuance of securities in Brazilian domestic markets. Demand deposits grew by 7.3% (sic) [ 7.5% ] in the quarter as both our retail funding and our cash management initiatives continue to support our funding diversification. And demand deposits now represent 6.8% of our funding while our retail funding now represents 28% of our total fund. And on Page 22, we look at our Basel ratios. So here, we see that our total Basel ratio ended the quarter at 15.5% after distribution of BRL 2.3 billion in interest on equity or the JCP. And our Tier 1 capital closed the quarter at 12.4%. Finally, as Roberto already mentioned, our VaR closed the quarter at 30 basis points. That's an increase from the previous quarter, but still well within our risk appetite and below our historical levels. I think with that, we can open for questions.

[Operator Instructions] The first question is from Renato Meloni as an Autonomous Researcher.

Congrats on the results again. So you've just been to this period of fast expansion and profitability, right? And you've been mentioning about how businesses that you've been investing for some time are maturing and you still have other businesses that are further to mature down the line. So I'm wondering here if you expect to go through a period of accommodation and profitability now, so more stable quarters going forward. And then like in the longer-term, still want to see what's your perspective on what's a sustainable level of ROE?

So first, I just want to make sure I made myself clear. I think of the various initiatives, I still think we are in the early stages of the J curve. So we still expect to see a lot of growth and consolidation to come from these various initiatives as they continue to mature. And this is not only in Brazil but across Latin America, and I also mentioned with our Wealth Management initiatives in the U.S. and Europe. So on your question is, if it's -- if we can continue to see ROE expansion from these levels...

In the medium term, right? Or if we're just going to see some accommodation in the upcoming quarters?

Well, we will continue to accumulate capital. So we don't expect to increase the payout then you start having the rules of big numbers. So I would say it's fair to say that, yes, it's hard to be facing expansion in ROE from these levels. And we're not ready to give -- ready to give any guidance different than what we gave in the recent past, 2026 will be a volatile scenario. We don't know exactly what will happen. So we don't want to give any guidance right now. But yes, we do expect continued growth. We expect continued increase in equity. But as given the law, just a mathematical rule of big numbers of what we're seeing some -- using your words, some accommodation should be expected.

Clear. And just in the long-term, do you have an ROE that you feel comfortable to say that's a sustainable level?

No, we're not ready to give any guidance different than what we gave, if you remember, the last guidance we gave was that we expected this year to be above 24%. Mathematically now, I would say, it should not be below 25%, but we're not ready to give any guidance for the future.

The next question comes from Daniel Vaz was with Safra.

Hi, everyone. Congrats again on the strong results, very, very impressive. I wanted to touch base on the net new money that you have been printing roughly around BRL 30 billion to BRL 35 billion of your wealth business like organic. Just to understand like how do you see your marginal allocation going, right? So we see a little bit stronger equities environment in terms of performance this year, especially Brazil equities. I know this has a global component of weak dollar and some LatAm peers are also performing. But I wanted to understand where your marginal allocation is going mainly to understand your retail and wealth business if we have a better trend already to equities, if you see a little bit more appetite from investors going to this product or maybe the risk on you're seeing is not relative to equities, maybe offshore, maybe something related to crypto. So if you wanted to given that you are systemically relevant to the net new money inflows to the system, I wanted to touch base if you see a different appetite for Brazil equities recently.

So on the Wealth Management side, I would say that we have not seen any significant shifts, and this is reflected in the very strong DCM activity. So still given the very strong levels, very high levels of interest rates, the Wealth Management flows have been mainly to fixed income. Marginally, yes, you start seeing some allocation to equities, but we don't think that is what -- that is what is driving this stock market. I think the stock market is driven mainly by institutional investors and international institutional investors. So we have not seen anything yet, but we do think it's a matter of time. And yes, that will eventually come depending on the scenario that develops for next year.

All right. And maybe if I can follow up on your Asset Management side, I know funds have been very liquid in terms of allocation for this credit products like the tax exempt mainly has been the willingness to invest from the retail investors. Can you share with us your views on the current credit spreads scenario? I mean we see some levels of 80 bps negative spread at some offerings and some issuance. So this seems to us not so organic or maybe in the future, you could not see the spreads maintaining this such low levels. Can you share with us your perspective also on the spreads? And how could we see this indicator in 2026, especially considering some events that have been stressing the spreads recently?

So yes, Daniel, we tend to agree with you. We think capital markets and especially the tax-exempt products are tightening spreads in the high grade to very tight levels such that in the large corporate segment of our corporate lending portfolio, we have not been growing exposure because we do think that the capital markets are accepting spreads, which are tighter than what we think will happen in the long-term. We do think there's a negative correlation to interest rates. If interest rates decrease, we expect to see spreads increasing even without any deterioration in the credit environment. But as you mentioned, a prolonged period of interest rates at these levels, does present challenges for more leveraged companies, and we have started to see some companies how I say, reporting these difficulties. So we don't expect anything dramatic. But yes, we are cautious, especially on our corporate lending book. That does not have any of the tax exempt or the money market features, which capital markets have on these levels of spreads. And we do think that, yes, if interest rates decrease you might be able to see wider credit spreads, and this would be potentialized if you start seeing further credit deterioration.

The next question comes from Yuri Rocha Fernandes with JPMorgan.

Again, congrats on another very strong quarter. I would like to understand a little bit the interest and other line. Mark just to understand the sustainability of this strong quarter, right? So on interest and others, what we saw was a very strong quarter, right? It is up 22% quarter-over-quarter this line. But when we go to the Selic, the average Selic is only up 3% quarter-over-quarter, right, from 14.6% to 15%. And when we go to our tangible book when you add the dividends, the goodwill for M&A, like the moving parts on Banco Pan, there was not a major increase on the tangible book either to justify the 22% increase in interest and others. So can you explain to us what happened here? Why the implied yield on this line versus your book moved up? Is this the new level? Is this sustainable? So that's my first question. And then if I may, just on capital, great quarter, great ROE. But when we go to your Q1, it was down 50 bps. I think the dividends they explain most of it. But also, we note a higher market RWA, right? I know on a proportion is the same, the 26% that Cohn mentioned in the presentation. But market RWA, they are up 14%, mostly on inflation. So if you can also explain on capital, how you see it? Are you comfortable for 11.5%? Is this temporary? And given you are generating so much capital, you don't need to do anything here. So if you can comment a little bit on capital also, we would appreciate.

So thank you for the questions. And I think on interest and other, obviously, I think that there are a few effects there, but the main effect is, as you pointed the CDI, but you're taking the nominal or the unrealized rates during the quarter. But if you look at the number of business days in each of quarter, it's very different, right? So 66 business days for third quarter with 61, if I'm not mistaken, business days for the second quarter. So you have an effective CDI rate, which is way higher than the previous quarter. If I am not mistaken, it's about 12% difference there. And then you put on top of that, the growth of our equity, right? Then you have the main part of the difference, this would be around 19% or something like that, which -- and then you have, obviously, the margin of the others that have some contributions that could be either positive or negative, but this is a minor effect. The main effect is the effective CDI rate for the period related to higher rates and the number of business days and the higher equity or capital base that faces this -- the interest and other line. When we look at our capital and our risk-weighted assets, yes, risk-weighted assets increased during the quarter and market risk-weighted assets increased during the quarter, although as a percentage of total risk-weighted assets, they remained quite stable, right? And if you look at our -- which is in line with the growth in VaR, right? So you see that VaR grew from 22 basis points, 30 basis points, although sometimes you have some discrepancies between VaR and risk-weighted assets depending on the type of asset risk that you are incurred. But at the end of the day, looking at the bigger picture, you will see that our capital ratio has been quite stable throughout many years which means that the amount of capital that we retain with our dividend policy is sufficient to support and sustain the level of growth that we are showing. So we are very comfortable with the levels of capital that we have and that they will, together with the profitability that we are showing, the amount of capital that we retain will be sufficient for us to keep our capital ratios stable in the future.

No. Super clear, Cohn. So basically, calendar working days and the CDI, you're right, like it should be on the quarterly, not the yearly. So thank you for the clarification on that. And congrats again on this quarter.

The next question comes from Mario Pierry with Bank of America.

Congratulations on the quarter, very strong results. Let me ask 2 questions as well. On Sales & Trading, you talked about new initiatives. Can you elaborate a little bit more with these new initiatives because again, Sales & Trading is running at about BRL 1.9 billion per quarter. I think last year, it was running at about BRL 1.3 billion to BRL 1.4 billion. So how much of this is a structural change in the level of Sales & Trading? Or how much of this was just like opportunistic trading during the quarter? And then my second question is related to -- you talked about introducing BTG Pay. Can you just give us a little bit more perspective on exactly what is the strategy here? Which segments are you targeting? What size of clients?

Thank you, Mario. So on Sales & Trading, you have basically 3 effects which explain the growth. One is the growth and maturation of new client initiatives. And I'll just use 2 hear to make it easier. Sertrading, which came into our platform and is benefiting from the network effects, the development of our commodities, sales and trading franchises. We started in grains and oil seeds. We're expanding to sugar. So we're now expanding to cotton. So we continue to increase the product offering to our client base. As you know, Brazil is a very important agricultural powerhouse globally. You then have the increase in client base, and this is the increase that we're seeing in our high net worth clients, the fact that we're now covering multinationals, the fact that we're now covering SMEs, middle, corporate, all these flows together also, we had better client activity in the quarter. So you have a bigger client place and higher activity. And also, we had the increase in VaR, but not only the increase in VaR, but the effective allocation of this VaR. For you just to have higher VaR, it doesn't mean anything. So I would say it's fair to say that this is roughly spread evenly among these 3 initiatives but it's very hard to give a very specific scientific answer. And on your second question on BTG Pay, we think acquiring is a very important product to complete our product offering for all our segments. So we have started an SME. We're going into middle market. We expect probably sometime in the second quarter of next year to launch our cash management for corporate and large corporates, and we expect the acquiring products to be in all of these platforms, end-to-end. It is not a specific business, but it's a product that will compose our product offering to the corporate sector across all the different sites.

Okay. Clear. So just let me follow up then on like we're already like in mid-November, so well into the fourth quarter. Has your VaR changed at all from the third quarter levels?

More or less stable.