Earnings Call Transcript - ITUB Q3 2024

Operator, Operator

Hello. Good morning, everyone, and thank you very much for taking part in another quarterly earnings conference, this time to talk about the third quarter of 2024, which we are broadcasting, as always, from our office in Avenida Faria Lima, in Sao Paulo. The event will be divided into two parts. In the first part, Milton will take you through our performance and earnings for the third quarter of 2024 and then we will have a Q&A session, during which analysts and investors will be able to interact with us directly. I would like to provide some guidance to help you make the most of our meeting today. For those viewing this through our website, there are three audio options on the screen. You can choose to listen to the entire content in Portuguese, the entire content in English, or just the original audio. For the first two options, we will have simultaneous translation. To choose your preferred option, just click on the flag at the top of your screen. Questions can also be sent via WhatsApp. For those viewing through the website, just click on the button on the screen, or simply send a message directly to the number +55-11-96176-8561. Today's presentation will be available for download on the website screen and, as always, on our Investor Relations website. That's it for now. I will now hand over the floor to Milton, who will begin the earnings presentation, and then I will come back to you at the end to moderate the Q&A session. Milton, the floor is yours.

Milton Maluhy, CEO

Good morning, everyone. Welcome to another earnings presentation to talk about the third quarter earnings. I will try to keep my presentation brief so that we have more time for our Q&A chat. I will talk about earnings, ESG, digital, technology, transformation, and at the end a little more about our guidance. ... Regarding the performance and results, we saw quarterly managerial recurring results of BRL10.7 billion, which is a very strong result, growing 6% quarter over quarter and almost 20% year over year on a comparable basis. This result leads us to a consolidated return on equity of 22.7% and a return on equity in Brazil of 23.8%. These are very important results. That being said, it is always important to pay attention to capital. In this quarter, we delivered a Common Equity Tier I ratio of 13.7% with a growth of 60 basis points in the period, and we are substantially above our capital approved by the Board within the risk appetite, which is a Common Equity Tier I ratio of 11.5%. If we were to simulate what the ROE would be adjusted by the minimum capital ratio approved by the Board of Directors, we would be running at 24.6% ... in Brazil, at 26.4%. So, this shows you the level of profitability that is most comparable in relation to the numbers that have been released ... In the loan portfolio, we grew 1.9% quarter over quarter, with a growth of almost 10% in the year ... The individual loans segment grew 2.5% quarter over quarter, which is a very important growth ... In the Latin America portfolio, this effect is even stronger. The portfolio grew 1.2% quarter over quarter. Excluding the effect I mentioned, it grew 8.2% in the average balance ... We've managed to navigate more challenging cycles with great quality. And we have managed not only to grow in terms of quality, but also to generate engagement and principality, with good results in the bank's balance sheet and good profitability ... The growth of the credit portfolio with a guidance between 9.5% and 12.5% ... I would like to make an additional comment on this ... Excluding this effect, the cost of credit over the portfolio would have been 2.8% and not 2.6%, once again demonstrating the strength of the balance sheet and our ability to reverse the provision ... Well, the term of capital and dividends, very important to discuss since we're discussing capital. Over the last 12 months, we closed the sales of our participation at XP ... Thank you for the question ... We expect to complete this migration next year ... We have very good news in NPL 15-90, both in Individuals and SMEs ... So this picture shows how we have managed to navigate more challenging cycles ... We have some very relevant messages here. All the modernization we did on the platform has brought benefits. From 2018 to 2024, we reduced high-impact incidents by 99%. ... This shows that we can not only solve client demands much faster but also generate value much more efficiently, with a much lower cost per transaction ... What is our logic in management? First of all, if we don't have the digital platforms that are state-of-the-art ... The efficiency index ... What changes is the size of the portfolio of credit and the appetite for risk ... Having said that, there ... We see growth in all segments. But a relevant point here. The issue of the return of capital that is allocated is the mantra of the bank ...we are optimistic.

Operator, Operator

Thank you very much, Milton. It was a very interesting presentation. Besides the regulatory changes in technology, we are talking about ESG strategy. So now let's start with a Q&A session. And to remind you, this is going to be in two languages. You can ask your questions in your native language, English or Portuguese ... And for the first question, we have Eric Ito from Bradesco BBI. Welcome. The first question is yours.

Eric Ito, Analyst

Thank you. Good morning, Milton, Renato. Congratulations on the results. Milton, I think that my first question is going to be about capital and dividends ... So I wanted to understand from you an update actually if we can expect that the extraordinary dividend is going to get your CET I to close to the internal level of 12.5 in the last quarter or do you see any other capital needs that will leave some buffer for the higher level?

Milton Maluhy, CEO

Well, thank you for the question. Thank you, Eric. Well, the term of capital and dividends, very important to discuss ... So, what do we have today and what do we have 12 months ago when we did the extraordinary dividends? Well, last year we had a larger capital base and less regulatory uncertainties than last year ... What we're going to calibrate the CET I is to have the bank well capitalized. Remember that the appetite of the board is 11.5, but it's a minimum of capital index ... So, my expectation is that we're going to have capital in capital index dividend and capital index distributed that is higher than the extraordinary dividend of last year ... But you can expect a larger dividend than what was paid and declared last year.

Eric Ito, Analyst

Thank you, Milton. If you allow me, there is a doubt from the market in regards to our call of the AT1. Is there going to be any impact in the decision of paying dividends?

Milton Maluhy, CEO

This is a great question. The answer is no. No impact in the policy of distribution of dividends of the bank. We've been working with an AT1 close to a one-and-half, given the CET I level of the bank ... even though the AT1 is going to be lower than 1.5, it's going to be 140. It's not going to impact distribution policy for the dividends.

Operator, Operator

Next question, we have Daniel Vaz from Safra Bank. Welcome.

Daniel Vaz, Analyst

Good morning, Renato, Milton, congratulations on the results. Thank you for the opportunity. I wanted to focus on the portfolio ... So what are the lines that have the best return for the growth and the strong rhythm that the bank is going to focus its efforts?

Milton Maluhy, CEO

Thank you, Daniel. This is an important question and we have to clarify a few issues ... So, if you look at our records, you've seen that we have consistently expanded our line adjusted to the risk ... So, it shows the importance of having this capacity of developing and structuring and distributing operations for the capital market. ... We see growth in all segments. But a relevant point here ... So there is no hypothesis that we're going to grow in a portfolio without having the right price and the adequate return ... This is the mantra and we will not let it go. We are going to do the growth with profitability and quality.

Operator, Operator

Next question. Autonomous, Renato Meloni. Floor is yours.

Renato Meloni, Analyst

Good morning. Congratulations on the results. Thank you for the opportunity. I need to go back to the issue of guidance ...

Milton Maluhy, CEO

Thank you, Renato. Thank you for the question. First of all, this question is important ... So, once again we never look at the growth, looking at growth in the short term that will generate margin ...

Operator, Operator

Thank you, Milton. Next question. Also with us, Yuri Fernandes, JPMorgan. The floor is yours.

Yuri Fernandes, Analyst

Hello, everyone. IFRS very important ... So, if it's neutral for you and it's not neutral for your peers ...

Milton Maluhy, CEO

Well, I'm going to be very careful here because, obviously, we always try to avoid to talk about the market ... So, what we try to do is to remove the surprise event and lack of predictability ...

Thiago Batista, Analyst

Hi. Thank you, Milton ... My question is, have you done the adjustment, the change of mix that you're doing? Do you think that it went through the point or no?

Milton Maluhy, CEO

Okay. Thank you, Thiago. Good to see you. Thank you for the questions ... The spread is positive, okay, but the ROI is below the cost of capital ...

Tito Labarta, Analyst

Hi, Renato. Hi, Milton ... When you think of the macro, inflation is still above the target ...

Milton Maluhy, CEO

Yes. Well, thank you, Tito ... So this is one topic. The second, yes, we are looking forward and see that we might have more challenges ... But yes, we have some attentional signs. We have to keep an eye on that.

Operator, Operator

Now, going back to Portuguese and our question now, Brian Flores from Citibank. Welcome. Floor is yours.

Brian Flores, Analyst

Thank you, Renato. Thank you, Milton. A question about Latin America ...

Milton Maluhy, CEO

Thank you. First, Latin America, we've managed to improve all of the operations with solid results. But it's important to realize that in our business model, the way that we publish ...

Operator, Operator

Next question, Mario Pierry, Bank of America. Welcome.

Mario Pierry, Analyst

Good morning everyone. Congratulations on the results ... Could you tell us about structural changes that you need to do to improve this index?

Milton Maluhy, CEO

Look, Mario, excellent question. Thank you for the initial words ... The name of the game is efficiency, scalability ... This is the strategy. This is the path moving forward.

Operator, Operator

Next question, Bernardo Guttmann from XP. Welcome.

Bernardo Guttmann, Analyst

Good morning ... Can we expect the portfolio of natural persons converging for a higher threshold, maybe closer to the total portfolio in the next three, in the next quarters?

Milton Maluhy, CEO

Thank you. Thank you for the questions ... We are not here saying we're anticipating that our guidance of growth of portfolio is going to be from 9.5 to 12.5.

Operator, Operator

Next question, Carlos Gomez from HSBC. Hola, Carlos, welcome. Thanks for joining us.

Carlos Gomez, Analyst

Hola. Thank you very much and congratulations again on the results ... I wanted to know if there is something special that has changed or this is voluntary given that you are having a good result?

Milton Maluhy, CEO

Yes, thank you very much, Carlos ... So this is one of the effects ... So our cost by legal law ...

Operator, Operator

Thank you, Milton. We are now going to switch back to English for the last question of the day ...

Nicolas Riva, Analyst

Hi, Renato. Thanks very much for the chance to ask questions ... So it's not only price. Price, it's a relevant input of our decision ...

Milton Maluhy, CEO

Yes. Thank you ... So about the second questions on the IFRS 9 ... the key message is that when you mentioned at the beginning of your question is that there is not going to be any impact for us in the capital of the organization.

Operator, Operator

Thank you, Milton. ... It is always going to be the guidance, dividends. We're going to discuss dividends where I expect positive news.