Good morning, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to Bradesco's Second Quarter 2019 Earnings Conference Call. This call is being broadcasted simultaneously through the internet in the Investor Relations website, banco.bradesco/ir-en. In that address, you can also find the presentation available for download. [Operator Instructions] Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Banco Bradesco's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and, therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Banco Bradesco and could cause results to differ materially from those expressed in such forward-looking statements. Now I'll turn the conference over to Mr. Carlos Firetti, Market Relations Director.

Good afternoon, everybody. Welcome to Bradesco's Second Q '19 Conference Call. We have today with us for the call, our CEO, Octavio de Lazari; our Executive Vice President and CFO; Andre Cano; Bradesco Seguros CEO, Vinicius Albernaz; and our Executive Director and Investor Relations Officer, Leandro de Mirand. For starting the call, I turn now the floor to them.

Hello, everyone. Thank you all for joining our second quarter 2019 earnings review conference call. We are very pleased to continue presenting solid results, despite the many challenges facing the economy. Our business model and team have shown flexibility and excellence to try in every single market that we play. We are proud of our accomplishment and confident that we shall keep this path as we accelerate our investments in people, technology and services. We'd like to thank all of our employees for this outstanding performance and continuous focus on serving our clients and communities. In addition, we have special thanks to our clients who have elected Bradesco as their bank of choice. The economy was far weaker than expected which led us to lower again our 2019 GDP growth expectation. The increased volatility jeopardized the confidence level of consumption and investment, resulting in tougher environment for banking. Despite the challenging short-term scenario, we are optimistic about the future. The pension reform thus seem to be on track in the Congress, as it has already been voted and approved with major support in the first round in the lower house, which may allow companies to finally focus on their long-term goals without being blurred by the macro fiscal uncertainty. Therefore, we believe that investments in growth are likely to resume over the following month. Our outstanding performance this quarter came as a consequence of several changes that we have been implementing for quite a while, which allowed us to grow the credit portfolio, despite economic scenario with excellent credit quality, while maintaining our cost under control and with a great performance of our insurance operation. On page 3, we bring some of our financial highlights. First of all, an all-time high net income of BRL 6.5 billion of growth, higher…

[Operator Instructions] Our first question is coming from Mr. Tito Labarta with Goldman Sachs.

A couple of question. First, in terms of your asset quality, you continue to improve and cost of risk improving. You said it can improve a little bit further, although you did mention that NPL creation increased a bit in the quarter. So just trying to understand the dynamics there a little bit. If you do see some further improvements, how much? And when does it revert to when we think about like the cost of risk? How much lower can you get in that? And what's a more normalized level as the year progresses? And then my second question in terms of fee income. We continue to see pressure in the cards, in asset management and also collections. Just curious, particularly, I guess, in the card income there. We did see a slight pickup in the quarter. Do you think most of the pressure has subsided from the acquiring business? I mean, we sort of see little volumes are up a bit yesterday. Do you think the pricing pressure has now subsided, so it makes you more comfortable with the card fee income business here?

Tito, thank you very much for your questions. Firstly, on the asset quality, we are pretty much pleased with the growth that we have had in Individuals and SMEs. That pretty much represents the healthier possible portfolio than we could have. And when you compare our provisions levels, you're going to see that, pretty much, we are decreasing the provisions, either in relative or absolute terms. That means that the new vintages are by far better than the old ones. So we believe that the asset quality is improving and it shall continue this way at least for until year-end. Regarding to NPL creation, we see that the provisions for an amount that is higher than 90 days, it's going, it's improving dramatically. And the volumes, we do not see them growing in the Individuals and SMEs on, when you compare to a relative analysis. And so therefore, we understand that we shall get more and more alpha when you compare the return of these 2 portfolios when compared to the provision. So we understand that the spreads are pretty much there to stay. Regarding to fees, we can make some sort of a split here between, among the 3 issues that you have point out: Cielo; asset management; and underwriting. First of all, on asset management, we have an adjustment in the management in performance fees, but mainly on management fees due to the decrease in the base rate of the country, right? So pretty much, most of the portfolio was comprised of fixed income funds. And therefore, the management fees should be adjusted to the new reality of interest rates in the country. Now we are changing the mix more and more to equity funds to [Foreign Language] that are hybrid funds, including debt and equity. And we expect the management fees to stay there in fixed income and to have an improvement in management fees to those new asset classes. And as the environment in the country is getting lower returns and interest rates, we understand that clients will get eager to get higher returns in that new base of investments. On underwriting, we also benefit from a stable economy. As we have move on we shall see more and more IPOs, more and more equity and debt offerings. And again, on Cielo, we understand that they have the right strategy. We understand that they have said that they are there for dominance. They are willing to keep their market positioning. And therefore, they have made the sacrifices, and they are increasing their sales force. We are positive with their strategy to provide the full support to the senior management.

Okay. That's helpful. Just I guess one follow-up on the asset management fees with the expected further reduction in interest rates this year. The, that's already priced in, do you think? Or could there be a little bit more pressure just from...

We don't see it. We do not see more pressure. Pretty much, the pressure that we have had in the last couple of years was due to the decrease in the base interest rates. And most of the funds, they are mutual funds or fixed income funds. So in this case, they have to make adjustments. From this point on, we have pretty much reached the balance in the economy, a balance in the industry, and we expect this to get stable in the near-term fixed income funds and to have a higher and wider offering of equity and hybrid funds, which shall increase the management fees and, we hope, the performance fees as we do our job properly.

[Operator Instructions] Our next question is coming from Mr. Jason Mollin with Scotiabank.

My first question is a follow-up on fees. So I get that lower rate to put pressure on asset management fees, but can you talk about competition and new entrants for asset management? And could that be another leg of pressure on fees? And we've seen your checking account fees actually grow the first half of '19 versus first half of '18 by almost 8%. We've seen some new entrants cutting, offering free accounts. Do you think that we could see pressure there as well? That's been actually one of the saviors to get to this 2% growth for the first half '19, almost 2% first half '19 versus first half of '18. And then maybe if you can also talk about, it's a smaller number, but what's driving the growth in the consortium management fees?

Thank you, Jason, for the questions. Well, let's start from the first one that is regarding to the asset management fees, right? We believe that we had some pressure from our competition in the last 2 years, pretty much because we were one of the leaders in this, the industry. So we presented new funds with the adjusted management fees. We were in the process of making the adjustments. Right now, we have made all the adjustments when compared to the whole competition. We have this database and this intelligence, and we do it on a weekly basis. So we do not see that we are lacking any sort of competitiveness features right now. We believe that we are ready to grow. And our management fees shall not decrease any longer. We expect that we shall have an inflow of funds to be managed it by brand, especially because of the interest rate scenario they have in the country. You have seen how much domestic investors are active and how much retail has been, becoming more and more important, especially when you see the brokerage houses movements, bringing high net worth individuals to this game. Regarding to checking accounts, Octavio has made this point earlier that the way we see it is that we shall present competitive packages to every single client of ours, but always take into account their profile, their needs. So we believe that those fintechs or new competitors will be entered into the market. They are not providing all the full service, all the full package that we present. So in this sort of market, we have been more and more competitive. And a very good example of that is that for the first year in a row, we have been able to grow in the traditional platform the number of net accounts. So pretty much, we are having more and more clients in our branches, in our traditional bank as well as in our latest digital bank. If we are really, if we are prepared to lose clients for innovative digital bank, we shall be losing to Next. But our experience is not showing that. Our experience is showing that we are growing both. Both platforms are very strong, and they are trying to serve better and better our clients. That is the reason why we are confident we shall keep on growing. Regarding to pressure on growth, we believe that as economy gets back on track, we shall see clients get more and more banking services. And we are very well positioned, as you could see the first semester, not only to get market share from state-owned banks, but also from the other private held banks. So we are positive with the scenario. And as Brazil gets the level of growth that everybody is expecting, we shall be there on a very leading position.

That's helpful. On the, in terms of your digital strategy, and thank you for the update on the digital customers and initiatives, can you tell us what Bradesco expects to see, where Bradesco expect to see the greatest impact of the digital transformation in the next year or 2? Is it in cost or revenues? And can you help us quantify the impact?

Okay. First of all, we all used to think that tech knowledge would eliminate jobs. And experience has proven the other way around. Tech knowledge allow us to have different jobs, different revenue streams and allow us to serve our clients even better. And that's what our focus is. Our focus is on our clients. So digital channels have allowed us to grow our clients base even faster, have allowed us to grow to serve our clients with better products and are creating leverage to the managers in our branches to be focused more and more on investments and new business. That's where we think that the technology will drive us. The technology will not only drive us to reduce fixed cost, but mainly to improve revenues and to get more and more competitive.

[Operator Instructions] Our next question comes from Mr. Nicolas Riva with Bank of America.

One question on income taxes, if you can remind us where we are in terms of the approval in Congress of increasing income taxes for the banks. When do you think this will go into effect? And also what would be the impact on your capital from the onetime adjustment of your net deferred tax assets?

Thank you, Nicolas, for the question. We know that there further discussions, but there is nothing on track or in process right now. The information we get so far is that the government is willing to increase activity. And if they decide to increase income tax on dividends, they will reduce our tax brackets. So they are willing now to keep the money for the bank and to allow us to be more and more productive to the country to our clients. So by the end of the day, it's going to be a good benefit for the society as a whole and for investors because we do not need to get dividends. You can get capital gains and you can sell your stock in the secondary market. You're going to be much better off.

On top of what Andre said, the discussion on the social contribution, as you know, is part of the pension reform. It was already approved in the first round in the lower house and should be voted probably early August in the lower house. So the approval, if they keep it, should be maybe September, October, the increase in the social contribution.

Okay. And then in terms of the amount, is there some prevalence in [indiscernible], I guess, from your Portugese call about BRL 6 billion.

Yes. Basically, from the increased tariff, from the increased in the social contribution, if it happens, from 40 to 45, there is a revaluation of tax credit and the value of this revaluation will be BRL 6.4 billion. Our amount of tax price increased BRL 6.4 billion. There's no impact on BIS from the revaluation.

Thank you, all. We are finished in the call.

And ladies and gentlemen, since there are no further questions, I would like to invite the speakers for their closing remarks.

Well, thank you. I would like to thank you once more for making the time to be with us. And we are going to be open for questions and discussions afterwards as our Investor Relations Department is here to provide you on the information as they have always done. Thank you so much. Have a great day.

That does conclude Banco Bradesco's conference call for today. Thank you very much for your participation, have a good day.