Banco BTG Pactual S.A. ($BPAC11)

Good morning, and welcome to the First Quarter of 2026 Results Conference Call of Banco BTG Pactual. With us today, here 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 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 filed disclosed 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

Good morning. Thank you very much for joining once again our quarterly call. If you could please turn to Page 3 of the presentation, we'll talk about the first quarter highlights. Once again, we're very happy. We had record revenues and earnings, reaching a return on equity of 26.6% in the quarter. . Despite the very challenging macro environment. We had one market until February 28, and we have -- we've had another market since March 1. And I guess this really reflects the resilience of our diversified business models, where we are usually able to benefit from the different scenarios, bearing sometimes which of the business units benefits from each scenario. In investment banking, we had a very strong quarter with strong performance, highlighting this very strong franchise we have in different products and sectors. Corporate lending continues to show strong momentum delivering not only record revenues, but be able to grow the portfolio 22%, while keeping a very disciplined underwriting. And here, while investment banking suffered from a weaker DCM market, the reduced competition from capital markets benefited our corporate lending business. Sales & Trading had another solid quarter, supported primarily with pipeline activity VaR decreased throughout the quarter as we dynamically manage our risk with the new fact coming to market. But again, a very strong quarter. And finally, in Asset & Wealth Management, we continue to have very strong net new money, reaching BRL 83 billion of organic net new money in the quarter and reaching BRL 2.6 trillion between the Wealth Management and Asset Management franchises. Turning to Page 4. We show a bit of highlights of the numbers. So we had revenues of BRL 10 billion in the quarter, a growth of 34% versus the first quarter of last year. Net income of BRL 4.8 billion, 42% growth versus the first quarter of last year. This reflects -- it reflects the operational efficiency, economies of scale, the network effects of the business model that we're building and finally, once again, we had a 26.6% return on equity in the quarter. Turning to Page 5. We had BRL 83 billion of net new money. This is purely organic; second best organic net new money compared to the fourth quarter last year, which was BRL 108 million and in the first quarter of '25, we had 105 million, but you have to remember that here, roughly BRL 60 billion came from the [ Judaspare ] acquisition. Our wealth our, assets and wealth management and assets under an Asset Management, both grew 28% year-over-year, reaching roughly BRL 1.3 trillion in each of the franchises. Turning to Page 6. Our unsecured funding continues to grow significantly, 31% year-over-year, reaching BRL 379 billion. We continue with a very solid capitalization, 15.9%, capital ratio, Basel ratio and equity of BRL 75 billion at the end of the first quarter, increasing EUR 5 million from the end of last year and we continue growing our total credit portfolio 24%. So 22% the corporate credit portfolio, total portfolio, 24%, reaching BRL 255 billion, of which roughly BRL 281 billion in the corporate and SME segment and BRL 74 billion in the consumer credit segment. If you turn to Page 7, we then show our traditional reporting that we've been doing quarter-over-quarter. So once again, revenues of BRL 10 billion, net income of BRL 4.8 billion, a net income per unit of BRL 1.24 cost/income roughly flattish to the combined cost income of pro forma cost income of BTG and [ Bacoa ] that we showed in the last quarter at around 38%. We do expect that over the next few years, we will be able to bring this cost income to similar levels that we had before the consolidation. We reached total assets of BRL 846 billion in the quarter, equity of BRL 75 million capital ratio of 15.9% and an average VaR for the quarter of 32 bps. If you turn to Page 8, we are showing the first quarter revenues versus first quarter revenues of last year. We were showing this in the last 12 months since we do not have the pro forma previous 24 months, we're going to be showing first 3 months than 6 months, then 9 months than year-over-year, and then we'll start showing last 12 months versus last 12 months. But here, I think we see in investment banking. Strong growth, reflecting what was a weak quarter last year. Solid growth in corporate lending. Very strong growth in Sales & Trading as once again, first quarter was a weak quarter last year. Good growth in asset management, considering that first quarter of last year, we had significant dividends from our investments in the independent platforms. extremely strong growth in the wealth management franchise, 45%, also very strong growth in the consumer credit franchise and in interest and other. And what we see here is a very balanced revenue stream. So basically, corporate lending and business banking 23%. If you look at corporate and investment banking, 29% and sales and trading at '19. If you look at sales and trading, plus investment banking, that's 25%, we say, let's say, linked to markets, 23% in investment management, 11% in Consumer Finance, which should grow over time and interest and other 17% relative stable, and this should probably reduce over time as we expect interest rates to come down. With that, I'll pass the floor to Renato can who will talk about the performance of each of the business units.

Thank you, Roberto, and good morning, everyone. So going to our specific business lines. We start with our investment bank where we had strong performance supported by our leading franchise across segments and sectors. Revenues came at BRL 628 million, and that's a decrease of 9.3% when we compare it to the previous quarter. And it's an increase of 65% when we compare to the first quarter of in market activity in the beginning of the quarter was very strong with the DCM activity in both local and international markets. And we also have good prospects for some ECM transactions with Ibovespa reaching new highs and getting close to the 200,000 points, Mark. By the end of the quarter, as Roberto mentioned, we saw a different scenario as a consequence of volatility related to geopolitical tensions and also a deterioration of the credit scenario in Brazil which affected both DCM and ECM, DCM remain -- the main revenue contributor with transactions concentrated in January and February and reduced activity in March as a consequence of increased volatility in the secondary market. M&A continues to provide a solid contribution to our investment banking activities as we continue to execute our diversified pipeline. And ECM, as I mentioned, benefited from the increased client activity at the beginning of the quarter and higher Ibovespa levels at -- by the end of the quarter. And during this quarter, we were ranked #1 in volume, any number of transactions in Brazil, and we are ranked first also in a number of transactions in LATAM. And last Thursday, repriced the first IPO since 2021. So we acted as a lead and global coordinator for the IPO of Compass in at BRL 3.2 billion transaction, and that was 100% secondary deal. So we move now to Page 11. We see our corporate lending and business banking where we had consistent performance driven by record revenues and sustained portfolio expansion. Revenues came at BRL 2.332 billion. That's a 4.2% increase during the quarter and a 21% increase when we compare to the first quarter of '25 portfolio grew 7.2% during the quarter and 22% compared to the first quarter of '25 and reached a total of BRL 281 billion as we took the opportunity of reduced client activity or reduced activity in capital markets and the widening of credit spreads, more specifically towards the end of the quarter. So we took that opportunity to expand our book with high-quality names and at attractive spreads. And we continue also to expand and diversify our portfolio in different geographies with our Luxembourg Bank gaining traction and also our U.S. bank starting to operate during this quarter. If we go now to our sales and trading on Page 12 and we see that we had solid results supported primarily by client activity with our VAR decreasing as a result of our dynamic risk management approach. Revenues came at BRL 1.77 billion, and that's a 6.6% decrease when we compare to the previous quarter, which was our best quarter ever. But it's a 43% increase when we compare to the first quarter of 25%. Performance was driven mainly by strong client activity in a wide range of products and services that we offer to our clients while RR, as I mentioned, declined somewhat to 32 basis points, reflecting a more conservative approach, actually by the end of the quarter when geopolitical risks increased market volatility. And our market risk component of our risk-weighted assets reduced to 22% as again, we took a more conservative approach towards the end of the quarter and as we continue to expand our credit portfolio and diversify our risk. If we go now to our asset management on Page 13. We saw continuing assets under management expansion supported by strong net inflows across segments and our business lines. We recorded revenues of BRL 783 million during the quarter, which is a decline of 8.9% from the very strong previous quarter when we recorded performance fees for the second half of '25. And when we compare to the first quarter of '25, we see an increase of 6.5 percentage points with revenues from management and administration fees growing alongside the portfolio, but we saw a lower contribution from dividends received from independent asset managers that we invest in. Were somewhat smaller than what we recorded in the first quarter of '25. Assets under management and administration increased 5.3% during the quarter and 28% since the first quarter of '25, reaching a total amount of BRL 1.3 trillion. And during the quarter, we managed to bring BRL 48 billion of organic net new money a strong number with inflows being directed towards both our asset servicing and also our managed fund business. Moving now to our Wealth Management and personal banking. On Page 14, we see that we had record revenues driven by higher client activity and strong organic growth. revenues reached BRL 1.5 billion, which is a 10% increase when we compare to the previous quarter and a 45% increase when we compare to the first quarter of '25 million. Strong growth during the quarter was driven by increased client activity alongside the consistent expansion of both our private bank and our high-income retail businesses. wealth under management reached BRL 1.28 trillion, which represents a 4% growth during the quarter and a 28% increase when we compare to the first quarter of '25 million. Many money came at BRL 35 billion, once again, a strong number of purely organic inflows and during the quarter, BTG, wealth management was recognized across 11 categories in Euromoney Private Banking Awards, including Best Private Bank in Latin America and in Brazil for the third year in a row and best private bank for family office services in Latin America. Going now to Page 15. We look at our new business line, Consumer finance and banking. Here, we saw consistent portfolio growth driven by strong payroll loan origination as we completed the acquisition of the remaining stake at Banco Pan, we started recording now 100% of its revenues and costs in this first quarter of '26 million. Credit revenues came at BRL 954 million, somewhat impacted by upfront provisions related to the overall expansion on the portfolio and also higher provisions in our auto loan portfolio. Total credit portfolio grew to BRL 73.6 billion. That's a 14% increase during the quarter with the largest contribution coming from private payroll loans origination and that is a 34% portfolio expansion when we compare to the first quarter of '25. To Seguros revenues increased 44% during the quarter as a consequence of one-off impact related to a regulatory change on how to require revenues and commissions and and revenues reached a total amount of BRL 171 million. And in April, we successfully concluded the mill to do transaction. We go now to our expenses and a ratio on Page 17. We saw here a consistent operating leverage gains despite the impacts of the consolidation of Banco minority stake. So overall, expenses increased by 1.8% with the main impacts coming from adding the costs of the remaining 20% stake of Banco Pan and also the usual cycle of salary increases and promotions impacts during the first quarter of each year. So salaries and benefits increased by 6% during the quarter, again, reflecting inflation adjustments and promotions and also the addition of Banco Pan stake, administrative and others increased 4% and with some higher investments in our U.S. operations and also, again, an impact here from the addition of the stake of Banco Pan, who will increase by 8% and as fully the impact of the acquisition of Banco Pan. And overall, cost income remained flat at 38% and with our effective tax rate at 20.3%. Looking now at our balance sheet on Page 19, we see the total assets increased 5%, reaching BRL 45 billion. That's 9.7x our equity. Our liquidity remained solid with BRL 84 billion of cash and cash equivalents with ratio of 161%. Coverage ratio remained stable at 136%, including now the consumer finance credit portfolio. And our total credit portfolio, again, including all our corporate, our SME and our consumer finance portfolio now represents 4.8x our equity. If we go to Page 20, we look at our unsecured funding base evolution. So we see here that our total funding reached BRL 379 billion. That's a 6% expansion during the quarter and a 31% increase when we compare to last year. Most of the growth came from the domestic markets with issuances of time deposits and securities, but we also managed to issue in January BRL 750 million of a 5-year bond in international markets at a 5.5% yield. And in addition, we also issued BRL 3.1 billion of 10-year subordinated notes, further strengthening our capital base. And our retail component of our funding remained stable at 29% of total funding and demand deposits grew in line with total funding expansion and they represent now our total fund. And looking now at our base on ratio on Page 21. So we see our total capital ratio increased to 15.9%, benefiting from the strong profitability achieved during this quarter and also the issuance -- the issuance of the Tier 2 note I mentioned. Core equity increased 10 basis points and also Tier 1 capital increased 10 basis points and reached 12.4%. And as I mentioned before, our reduced to 32 basis points as we took a more conservative approach as a consequence of more volatile markets by the end of the quarter. So once again, Roberto mentioned, very good, very strong results in a volatile environment, which reinforces the strength, the resilience of our business and our ability to navigate in a profitable way through different and challenging scenarios. I think with that, we can go to questions.

[Operator Instructions] The first question comes from Renato Meloni Autonomous. Please go ahead.

Renato from Autonomous Research here. Congrats on the results. So you were mentioning that ECM saw some weakness in March due to the volatility. So I'm curious here if you see a pickup starting second Q. And also curious about your perspective for the rest of the year. And if you can also add comments on ECM, right? I think in general, we're seeing -- well, some deals like some companies becoming more positive if you expect that to happen.

Thank you, Renato. It's always very tough to make predictions, right? But if you ask me today, I think we will probably see DCM had a weak March and we'll probably have a weak Q2. We do expect it to start picking up in Q3. And we are quite encouraged by what we're seeing in the equity capital markets. We had significant flows to LatAm and to, let's say, emerging markets in general. They still slowed down a bit recently. But as on mentioned, we were able to do the first IPO in, I think, 5 years. So we are encouraged by the train ECM. We think DCM still has a weak Q2 and hopefully picks up after that.

Perfectly just allow me for a quick follow-up here. Can you give us the one-off impact on to Sirus revenues? And if that comes down in second.

Yes, No, we expect to -- we don't expect to repeat. This is a one-off. So it would be back to obviously closer to the average of what we've seen. Obviously, we expect some business development there, but not to the extent to repeat this amount of revenues. It's perfect congrats again on the results.

Next question comes from Daniel Vaz was with Safra.

Congrats on the results. I have 2 questions on maybe consumer finance. The vertical has a very positive quarter. And I myself have been flagging the retail opportunity in all my interactions with investors. So it's great to see it coming through. And specifically on private payroll lending, we've seen some players report cost of risk with the product in the first quarter, a bit higher, right? So I'm curious to hear how have been your vintages performing? And what's the level of cost of risk you find okay working with, right? So these vintages have been giving you more confidence to further accelerate or important to reflect on it a bit and review everything? And then second question on [indiscernible] the acquisition was concluded in April. So I guess this quarter doesn't fully reflect the consolidated economics for this business. any hint on incremental earnings contribution with [ Metudo? ] Is it going to be in the consumer finance vertical?

So starting by your second question. The numbers include our participation in the portfolio originated by Miltudo, but there is no revenues attributed yet. So this will start in the second quarter. And so we're very happy with the transaction. It's a -- I think it's a fan fantastic setup. And on the private payroll, I have to say that so far, we're quite satisfied. Everything has been quite a dry adherent to our underwriting. The performance of the different clusters have reflected pretty much what we expected. And I think this is probably the difference. When we analyze what's going on in the market, I think -- some people were not differentiating so much between how we classify the -- the different clusters and we see that we're probably the frustration lies but so far, we've been extremely satisfied with the results. Naturally, there were some operational challenges in the beginning. But as time goes by, we see this product getting better and stronger.

Okay. And maybe if you -- a little word on the cost of risk, any level that you work with, I guess, the revenues are already net of the cost of risk, right?

Yes, you're right. We report them net of the cost of risk already. And of the operational expenses linked to -- directly linked to the transactions.

The next question comes from Arnaud Shirazi with Citi.

Congrats on the strong set of results. My question is related to asset quality. We saw the Stage 2 plus Stage 3 increase in this quarter. I wonder what's behind this, if there's anything linked to any acquisition or there's a one-off impact --

Sorry, no, I -- I'm not sure I understood. You mentioned about the Stage 2 and Stage 3. Can you repeat the question?

Yes, correct. Stage 3 as a percentage of total portfolio, it increased in this first question to quarter to 7%. I wonder what's behind this increase?

I think that it didn't increase in a significant because the portfolio increased in line with that, right? And we have the growth of Banco Pan portfolio, which has a higher component of Stage 2 and 3, right impact the overall. So the mix, if we have a larger share of total credit within -- from consumer finance within the total portfolio, which, in this case, was from 80% to 100%, right? You have that impact. But when you look at the separate parts, right? The sum of the parts then you won't see an increase, right? We're just adding an additional 20% of consumer finance to the total numbers, and that's the reason why you see this increase.

Okay. Got it. I believe -- sorry, it was in terms of provisions, the increase for this portfolio. . I think the -- so I think that the provisions are aligned with the with -- also with the types of credits that you have, right? So the when you take the Banco Pa portfolio, it has a much higher initial and journey of provisions than the corporate lending part, right? So once we increase by 20%, our stake at Banco Pan, that impact happened, right?

The next question comes from Guilherme Christen, with JP Morgan. Please go ahead.

Congratulations on the print. Just a follow-up on the consumer banking optionality here. I just wanted to follow up on 2 regulatory changes we had recently. The first one was on the private payroll kind of implied caps. I'm not sure if you can formally call a cap, but there was a formula that limits the interest rates. How this affects your appetite to grow in the product going forward? And number 2 was the recent change on payroll that came in with the Sinhala that now the payroll margin for cards reduce a little bit and then you can eventually compensate this with higher margins for the traditional payroll. Just on the Banco Pan perspective, how you're seeing those movements impacting the loan portfolio and appetite in general.

Thank you, Guilherme. So first, on the private payroll cap, it affects roughly 15% and of our production and the higher risk clusters, which probably means that we will probably not be doing that. But overall, so far, it has not really affected overall. It's just within the different clusters of risk that is affected. And the second, there were quite a few changes with the [indiscernible]. The first one was the unification of the limit. We think it's quite healthy. I would say it's neutral to slightly positive for , if you ask me. And then the second one is that over time, the total amount that can be committed will be reduced. This will probably reduce production of the whole market over time. This line has not been significant for us in the recent quarters. We do expect it to grow. So we will affect it -- we'd be affected by like the rest of the market. But personally, I do think it's something very healthy for society as a whole and for the macro environment. So I think of the -- personally, I don't really like caps. I think the market regulates itself, you're pricing out the higher-risk customer, which will probably be paying a higher interest rate somewhere else. On the changes to the ESS, I actually thought that they were quite positive.

That's clear. And on the insurance, just to be sure, I imagine also the new caps that are related to how you tie insurance to the product. I imagine does not affect Banco Pan the private payroll that you will originate, right?

No, nothing significant there. It's all within the parameters. There's a bit of the difference of the product we were doing life instead of Prestamista but this will be adapted soon.

The next question comes from Marcelo Mizrahi with Bradesco BBI. Please go ahead.

Congratulations from the results, very strong again. My question is also regarding Consumer Banking. So said about so that -- so you guys were consolidating the portfolio of [indiscernible] but not the revenue. So it seems for me that the base of the profitability of the take rate of the Consumer Banking will improve a lot in the next quarter. So my question, the first one is if it makes sense to see that the or the take rate of this line will be higher next quarter and during the next quarters also. And also regarding the adjustments on the accounting on vehicles, my question is how much was the impact on the revenues of this adjustment?

Marcelo. So you are correct that we didn't record revenues related to [indiscernible] transaction during the first quarter because the transaction was concluded in April, right? So in the second quarter, we will record those transactions those revenues, sorry. Difficult to say that take rate, it's probably -- it's going to be higher, right, because it depends also how the portfolio will will develop during the second quarter, but we expect higher revenues during the second quarter than the first. The second question, I'm not sure I understood. Can you repeat that? I think the second question was related to the auto loan provisions, right? So we, usually we do. We revised our models for provisioning, and we increased a little bit the levels of provisioning for the portfolio now at the beginning of the first quarter. So there was a small impact there for that. I think it was a similar amount.

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

So my question goes on asset quality. You touched a little bit across some questions. But my question is we had a pretty eventful first quarter so far, pretty eventful first 5 months of the year with higher-than-expected interest rates perhaps for a year to war. So my question here is how is asset quality behaving versus what you have been expecting? And what do you expect for the upcoming months? And also, how do we evaluate lines for SMEs collateralized by the government. I'm thinking here about -- especially about the indebtedness and potential concerns on asset quality for the SMEs. How do you balance this risk of high interest rates impacting them with the line [indiscernible] by the government.

Thanks. So actually, we had already been underwriting credit with a more adverse scenario in mind. To be sincere, the performance of the portfolio has been much better than what we had modeled, both on the corporate and on the consumer finance side so far. As you mentioned, the -- this first quarter and the last months, especially on the corporate side, you've had some few events. We have not had any significant exposure to any of these more high-profile situations that have been reported. Also, on the SME side, we are still mainly in the supply chain financing and discount of credit card receivables. We do have some exposure to this government, these lines that have some government guaranteed coverage, but it's still small but growing, but so far, so good, no significant, let's say, issues there. And same thing on the consumer finance side. probably at some point, you will see a pickup on the provisions on the consumer finance side, similar to what you're seeing in, let's say, the more corporate events that we're seeing recently. But I would probably say that this might be 2 or 3 quarters away, given just the recent government interactions, which have which continue to benefit the consumer. But we have been underwriting from our conservative scenario. And if anything, the portfolio has been performing better than what we had under on the road for.

The next question comes from Tiago Binsfeld with Goldman Sachs.

My question is on efficiency. We now see that you have 11,000 employees post the Bank consolidation. So we'd like to understand what do you see as the right size for running the bank from now I think Sallouti mentioned during the presentation that efficiency could come back to levels preceding the plant consolidation. So if you could elaborate a little bit more on that idea, discuss the time line for efficiency gains. When do you expect operating leverage and synergies to come through?

We probably expect them to start showing themselves more towards the next year. this year still, we're operating on their 2 core banking systems. We will probably be operating under one core banking system towards the beginning of next year. . At the same time, you have to remember that we've been adding new business lines and new geographies -- so if you look at our total head count, it's actually been more or less stable since December '24 when you do the pro forma. And basically, we have been able to gain some efficiency. We're unifying back office and controls. With plying BTG, while at the same time, expanding headcount in new businesses and new geographies. So for example, in the middle market in Brazil, we're the bank in the U.S. or the bank in Luxembourg, so we do expect to -- the cost income could start trickling down, hopefully towards the second half of this year and hopefully, by the beginning of next year, that pace picks up. but we don't have any hard guidance to give here. This is more of a soft guidance just based on expectations, not on any mathematical exercises.

The next question comes from Enrique Navarro with Santander. I'm sorry.

Congratulations for the results. Two questions. First, on the net new money, it was a minor drop compared to the last quarters. How do you see the sustainable level of net new money looking forward? That's question number one. Question number two, if I'm not mistaken, in the 4Q you mentioned that you have -- you believe that in the future, Banco Pan has the potential to run at the same ROE as a BTG. My question is, if this is still valid, and when do you see that number being achieved.

I'm not sure I agree with the assumption that it's I think the new money was very strong once again because it was purely organic, right? So fourth quarter was higher than that, TRY 108 billion. But third quarter -- the total annual money was 82.7%, and we added, if I'm not mistaken, '18 in the acquisition of JGP business, right? And second quarter, the combined annual 1 was 58.6%. And first quarter, the combined annual money was BRL 104.7 million, but there was the acquisition of Julius Baer with BRL 62 billion right? So this is a very strong number of purely organic net new money that it's only smaller than the third quarter. So we're very happy with the new money, right?

And regarding your question on Banco Pan, we probably expect ROE to increase quarter-over-quarter, and we'll probably reach similar ROE to BTG as a whole, probably in 2028 towards the middle of 2028.

Thank you. 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 go ahead, sir.

So thank you all once again for participating in our quarterly call. We look forward to talking to you again in around 3 months. Thank you. Have a great week.

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