Itaú Unibanco Holding S.A. (ITUB) Q3 2020 Earnings Report, Transcript and Summary

Good morning ladies and gentlemen welcome to Itaú Unibanco Holding Conference Call to discuss 2020 Third Quarter results. At this time all participants are in a listen-only mode. Latter we will conduct a question-and-answer session. [Operator Instructions] As a reminder this conference is being recorded and broadcasted live on the Investor Relations website at www.itau.com.br/investor-relations. A slide presentation is also available on this site. Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Actual performance could differ materially from that anticipated in any forward-looking comments as a result of macroeconomic conditions, market risks and other factors. With us today in this conference call in Sao Paulo are Mr. Candido Bracher, President and CEO; Mr. Alexsandro Broedel, Group Executive Finance Director; and Renato Lulia Jacob, Group Head of Investor Relations and Market Intelligence. First, Mr. Candido Bracher will comment on 2020 third quarter results. Afterwards, management will be available for a question-and-answer session. It is now my pleasure to turn the call over to Mr. Candido Bracher.

Thank you. Good morning, everyone. And thanks for attending Itaú's 2020 third quarter earnings call. I hope you're all well and safe. On Slide 2 and before we get into our financial performance, I'd like to comment on the macroeconomic scenario we faced this quarter. After a period of strong economic contraction due to the pandemic, we can already see encouraging signs of activity recovery in Brazil. This is reflected both in our GDP expectation for the period, as well as in the Itaú economic activity index, which is very close to the pre-crisis levels. However, this recovery was made possible largely due to the stimulus provided by the government, which in turn increased public spending and deteriorated Brazil's fiscal situation, as you can see in the debt to GDP graph. In the end, this recovery scenario brought important opportunities for the bank. Over the past quarter, the interest rate in Brazil reached its lowest level in our history, which continued to drive our clients to seek more profitable investment opportunities. In this context, activity in the capital markets continued to grow due to the increased demand from individual investors and created the condition for us to advice and structure 28 new ECM transactions this year. This low interest environment in conjunction with the changes brought by the pandemic on the way the population uses for the transportation has led to a healthy demand for car financing products. We also launched important new real estate financing options for our clients with a wider range of products aimed at home equity, as well as the launch of mortgage with interest rates based on savings deposits. This was only possible due to our funding structure, which enabled us to deploy this process, which currently has the lowest interest rates in the market without increasing our ALM risk. Last but not least, we dispersed to our SMEs clients just over BRL16 billion in the period through loan subsidies which is sponsored and largely guaranteed by the government. Slide 4, so in view of the scenario I just described, here we show that the bank ended the third quarter of 2020 with a recurring net income of BRL5 billion, which translated into an ROE of 15.7%. This19% net income growth was led by an 18.7% reduction in the cost of credit and important recovery of our fees revenues. However, these effects were partially offset by the negative impact of the change in product mix on our net interest income and seasonally higher non-operating expense. Finally, the loan portfolio grew by 4.4%, ending the period with a balance of BRL847 billion, which we'll discuss in further detail in the next slide. Moving to Slide 5, we showed the evolution of the client portfolio. I'd like to highlight three things in this page. First is the SMEs loan book growth, the 14% growth in this portfolio was due to our participation in loan facilities sponsored and largely guaranteed by the government aimed at this sector. Our customers used these lines not only so that they could better navigate the effect of the current crisis, but also to replace more extensive credit lines. Secondly, we observed an important recovery in the individual's loan portfolio driven by credit cards, mortgage and vehicle financing. It is important to highlight that the growth in credit cards occurred in a non-interest-bearing portfolio, whereas the revolving credit balance still showed an important contraction quarter-on-quarter. Lastly, personal loans remained relatively stable. But there was an additional relevant change in the mix of products as you can see in the chart on the bottom right corner of the slide. As we mentioned on the previous quarter earnings call this movement reflects not only a change in our customers behavior and a drop in consumption levels, but also and very importantly, our active risk management approach as we gear clients towards more sustainable credit products. It is important to mention that the bulk of this change in mix happened in the previous quarter. Therefore we consider the impact was higher on the average outstanding. Naturally, this portfolio dynamics continued to negatively impact the financial margin as we you'll soon see on the next slide. But we do believe this is a good trade off temporarily to give as part of the margin in order to protect the principle Slide 6, on Slide 6, you'll see that the change in the credit mix as we explained in the previous slide generated two negative impacts, BRL0.4 billion related to the change in the mix on the individuals and SMEs portfolio as mentioned previously, and an additional point BRL0.4 billion due to the change in mix between segments, more wholesale, less retail. And finally, the lowest in the grade had a negative impact of BRL0.2 billion on the remuneration of the working capital. These effects were partially offset by the higher average credit volume and also by the higher number of calendar days. Slide 7, which is the reprofiled loans. Before we move into cost of credit, I would like to update you on how the reprofiled loans behaved this quarter. On Slide 7, we show that this portfolio finished September with BRL53.5 billion, marginally higher than the second quarter when we had BRL52 billion. The acceleration of the growth of his portfolio is directly linked to the better macroeconomic environment, which eventually led to lower demand for this [indiscernible]. By the end of the third quarter, 75% of the grace periods already expired. Out of that six percentage points where delinquent between 15 and 90 days and 0.6% of points were delinquent for more than 90 days. This performance is better than originally forecasted and one that puts us positive in place. Moving to Slide 8, we present evolution of the expected loss provision model and cost of credit. Before getting into the actual numbers, I'd like to once again explain the way we demonstrate the provisions on this chart. The provisions for overdue operations strictly follow the rules defined by the regulator, where a minimum level of provision is required when the loan is overdue. The next layer is what we call aggravated rating. These are related to the amount we have provision for overdue or renegotiated credits above the minimum defined by the regulator. Finally, we have the potential losses, which contains the provisions we've made for credits that are not delinquent nor regulated nor renegotiated. Even though we are seeing a good delinquency behavior from the clients that were granted payment holidays of their loans, we believe that we are still sailing in uncharted waters. Where due to the payment holidays I just mentioned are due to the fact that the recovery of the economy accelerating in the quarter was largely supported by emergency government aid, which is expected to be reduced dramatically next year. Given this fact, we decided to maintain a prudent management of our provisions. Therefore in this quarter, we continue to build provisions for potential losses, which increased by approximately 120% over the first 12 months, and together with the drop in the NPL balance, led to the highest coverage levels we've ever had. The management of our provisions reinforces our commitment to the sustainability of our medium and long-term results. Lastly, although the cost of credit is still above the normal levels, it continues to show a positive trend contracting further 18.7% in the quarter, the second time in row. This reflects all the actions we've undertaken since the beginning of this crisis, and the improvement in the macroeconomic and financial conditions which feed into our expected losses more. Now on Slide 9, we show that due to the intensity of the crisis in negotiations and the proactive offering of more flexible repayment terms of the last two quarters, the NPL 90 days ratios of individuals loan portfolio continue to contract. We believe this numbers do not properly reflect the full extent of the prices yet. You will note though, as expected, that there was an increase of 60 BPS in the short-term delinquency ratio of individuals portfolio as customers started to repay their loans. Slide 10 now, financial margin in the market. We can see that this financial margin continues to perform in line with historical levels. The performance was mainly due to higher gains in the Brazilian real [ph]. In Slide 11, we saw 12% increase in service revenues this period, a stark contrast to the performance in less quarter as all the fees and services revenues performed better than the previous quarter. The better economic activity led to more volumes, and naturally generated positive impacts in our credit and debit card fees, both in the issuing activity as well as in the acquiring operation. The higher transaction volumes also benefited the credit operation fees and the collection services. The low interest rate environment coupled with the economy recovery seen in the quarter led to good opportunities for investment banking activities. We finished the quarter with a 59.8% higher advisory and brokerage fees. Lastly, I'd like to highlight that we ended September with BRL1.9 trillion in assets under custody, a 15.7% growth over the last 12 months. This performance was achieved not only through traditional operations, but as well through the investment open platform, which finished the quarter just shy of BRL290 billion under custody. Slide 12, ESG, last quarter, I mentioned that we would continue to highlight how ESG aspects are integrated into our core business. This quarter we are going to shed more light over some of our initiatives in our asset management and investment banking operation. Itaú asset management has a long tradition in integrating ESG metrics in its operation. It was a pioneer in adhering to the principles for responsible investment. And since 2010, it has incorporated ESG metrics to evaluate the company's where we invest our client's resources. Today, more than 95% of our assets under management are covered by our ESG valuation model. Moreover, we promote the adoption of the best sustainability practices through direct engagement with investees and by exercising our rights to vote as shareholders meetings. Additionally, we have several investment products dedicated to this. One of such products is MomentoESG or ESG moment in a direct translation. It is an active managed fund launched September this year that selects between 15 and 25 stocks with the greatest potential for long-term results. Lastly, in this year our investment banking operation Itaú BBA structured and advised 75% of ESG issuance of Brazilian companies in international markets. Slide 13, now, non-interest expenses. We'll discuss the non-interest expenses, which are another important element of our performance. When we compare this quarter with the same period of the previous year, we can observe a decrease of 0.9% in our consolidated expenses with a 4.2% decrease in Brazil. If we adjusted for inflation, expenses in Brazil fell in real terms by an impressive 7.4% in the period, as can be seen in the chart at the bottom of the slide. One of the reasons we became more efficient is due to our consistent investment in technology. As you can see on the left side of the slide, this is an area where we continue to invest heavily increasing our capacity and developing hours by almost 40% this year. Moving on to Slide 14, we present our clients digitalization trends. As you know, the crisis naturally led and forced many clients to migrate their banking interactions into our digital channels. And in the upper left corner chart we show that the number of customers that primarily use our digital channels continues to grow. In this scenario, we were pleased to see that the availability of our systems and services reached their highest historical levels despite the greater demand and stress of our digital infrastructure. We strongly believe that the experiences our customers had on our digital channels was very positive. And this becomes evident when we observe the same or even higher level of utilization of our digital channels in this quarter despite the end of almost all of the quarantine and social distancing measures that were in place throughout the second quarter indicates. Additionally, we noticed that the flow of new accounts opened online showed a small decrease in this quarter. However, the volume remains practically double what was observed last year and showcases a positive ongoing trend as new clients becoming more digital in the way they interact with the bank. Slide 15, we show that our Tier 1 regulatory capital improved by 30 basis points this quarter despite a still fuller price scenario, and under then it appeared with 12.4% capital ratio. On Slide 16, as we are already in November, it makes no sense to disclose the guidance for the year 2020. Also next month, we will support Milton in defining the guidance for 2021 that will be given on our fourth quarter 2020 earnings conference call. Nevertheless, the perspectives described here should be the basis of this guidance, namely, keeping appropriate levels of capital and liquidity, expanding the loan portfolio, an additional reduction in the average rate of financial margin is client, compensated by our growths in service and insurance revenues. We expect a progressive reduction in the cost of credit, and we'll keep an emphasis in efficiency gains. Finally, on Slide 17, we'll comment on the recent material effect of other stake in XP. As you all know, the original acquisition plan set a series of colon put options whereby we could eventually end up controlling the company. However, this design was not approved by the Brazilian Central Bank, and we ended up with a minority non-controlling stake. As a result, this became a financial investment rather than a strategical asset for the firm. Therefore, after a careful and thorough analysis, we concluded that it would be in the best interest of our shareholders, seeing off such investment from Itaú and transfer it to a new company owned by them. By doing this, we would be able to achieve two equally important objectives, unlock value as this investment is not fully priced in our evaluation, and give our shareholders the ability to decide what they want to do is this asset. As a result, we're studying the possibility to spin off 41.05% of XPs capital held by the bank into a new company or Newco, a company that would be listed in the stock exchange. After the spinoff, Itaú Unibanco's shareholders would receive an equity interest in Newco whose only asset would be the shares represented by XPs capital. This study also looks into the possibility of selling the remainder of the shares issued by XP held by Itaú Unibanco corresponding to 5% of XPs share capital in order to monetize part of this business line in our guarantees, and boost our capital ratios. With this I conclude the presentation, and we may start the Q&A session.

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Jorge Kuri with Morgan Stanley.

Hi, good morning, everyone. Congrats on the numbers and on to XP announcement. Two questions if I may please. The first one is not, what is included in your loss models for NPL in 2021? What are the provisions that you've made are assuming that NPLs will go from the current situation I believe to what exactly makes you - what do you think that peak of NPLs is going to be that I think will allow us to understand what level of cushion do you have in your balance sheet? And my second question is a bit more longer term and hopefully there is no reality of interest rates in Brazil and we see rates stay at low single digits for long. Where do you think ROEs can go back up to in that scenario? Again, I'm not asking you to provide a specific guidance but, overall, how much of historical ROEs in the roughly 20% were driven by the level of rate and can that be offset with expenses or efficiency more profitable balance sheet [indiscernible] again? Thank you.

Good morning, Jorge. Thank you for the questions. So our - for credit quality in 2021, I cannot tell you what level of NPL we expect for 2021, I mean, we don't disclose this information. What I can tell you is that our models for 2021, they are based on very conservative economic projections for economic growth and into the whole macroeconomic scenario. I mean, that's the way we usually do it. And this is why our provisions have consistently been enough for the level of delinquency we have faced over the past many, many years. As we've shown in the Page - Slide 8, I mean, our potential loss provisions have increased by 170% in the last 12 months. So we are very comfortable with this level of provisioning for next year, even given the conservative scenario in which we embed in our projections. As to ROEs this is a very good question. We have always thought of ROEs as compared to the cost of capital. And this is why we even show ROEs and cost of capital in the same chart. And of course, I mean, there is a sort of conundrum here. I mean, that interest rates went down so much, not only in Brazil, but in the whole world and cost of capital did not. I mean, cost of capital remained in the low teens, even with interest rates dropping to 2% in Brazil. This element, I mean, it's not evident, but that we will keep the same - we will be able to keep the same difference between ROE and cost of capital as before. Having said that, I think I mean, we've seen in this quarter 15.7% ROE, I think it's a reasonable expectation that we may see higher figures next year for ROE.

All right, thanks Candido.

Thank you, Jorge

Our next question comes from Thiago Batista with Banco UBS.

Yeah. Hi, guys. Thanks for the opportunity to make questions. I have one question and by the way, the follow up of the previous call about the Newco. Will the Newco be listed in November Card or it is better to have voting in voting shares is the first one. The second, if you have the timeline of this deal, I know that you mentioned that deal will not happen in 2020, but to say that the idea is to have these spinoffs in the first half or second half. So if you can give a little bit more clarity on the timeline of this deal? And thanks a lot for the answers.

Thank you, Thiago. So your first question, I apologize, but we have not decided yet. It's going to be more than Thiago or not. We'll decide to soon. As to when to expect the translations, we have said here, I mean, not before the year end, but I would add to this not too far away from year end either. So I think it will be around that date.

But is it possible to assume that this - the new company will have voting and no voting shares because you mentioned that the new company will follow the control structure of Itaú Unibanco? So at least this means that the new company will have voting and no voting shares. This is correct.

I mean, we are still refining upon the Chairman. It involves some in Itaú Unibanco, it involves the shareholder agreement with XP and so we still decide on the format these shares will have.

Okay very clear, Candido and thanks for the help.

Thank you.

Our next question comes from Geoffrey Elliott with Autonomous.

Hello, good morning. Thank you for taking the question. Biggest shift in tech a little bit away from the spin off? The PIX payment system is going live very soon. I think it's starting to ramp up about now. Could you talk about your performance so far with that in terms of registering keys, there was some data out a couple of weeks ago that kind of showed Itaú lagging behind some of the new entrants there. And then your expectations for what that's going to mean for you and for the system going forward.

Thank you for the question, Geoffrey. You're right. And as a matter of fact, we didn't perform well, in the first days of registration of clients. We had some technological problems in the first three days, which have hampered our ability to onboard clients. Having said that we think that PIX is definitely a long-term sector, it will help us serve our clients much better - basis of clients to serve this rate also combined with our result of products of the bank, like ET and so on and we expect this number to increase a lot. And we are paying a lot of attention on the quality of the service which we are going to need for projects life. For companies for instance, I mean we are increasing very much the cost of companies that we onboard for four PIX, and we are prepared to give them already an excellent service quality. So here, I mean, we consider PIX a very important elements in our competitiveness going forward. And we do not think that this initial problems we had will hamper our ability to significantly grow our platform and improve quality of services to our clients.

Got it and where do you think you're going to get to in terms of those key registrations? Do you think you can catch up with the digital banks that kind of got out there ahead of you? Or do you think that they're just going to have bigger numbers all the way through now?

Listen, I don't think so much in this appearance. I mean simply to have the clients register this thing, but not the client business necessarily, nor does it bring you any income. It has to come jointly with quality service for the client and this is what we are preparing. We are not - we don't have specific targets in terms of number of clients, but we have in terms of quality of clients that we are going to turn into our presence. Having said that you have 55 million clients in the bank, between client account and credit card holders and we expect to serve a large percentage of this base and also to add to this base or digital growth in companies which are not out clients to this.

Thank you.

Our next question comes from Carlos Gomez with HSBC.

Good morning and again, congratulations on the XP transaction and a very successful term Candido, thank you very much for your service at Itaú. My question is regarding transactions. First, I wanted to confirm that the value at which you keep XP in your financial statements, you mentioned here that the book value is now 9.6 billion. Is that how you have it valued in your statements or the cost rate that we should consider for any possible capital gain? Second, I would like to know if the date and the pricing of the original stake that you purchase is unchanged? And finally, would you be paying 45% tax rate on a possible gain? Or does it happen through a non-banking structure and you obtain a lower tax rate? Thank you very much.

Thank you, Carlos. I got your first and your last question, I didn't get your second one. So I'll answer the first and third and ask you to please repeat the second? First, yes, I confirm, I mean that the book value for the XP participation is BRL9.6 billion. And as to when we sell our 5% participation, it's held through a non-financial company, so the tax rate is 34%. And the second question I didn't get?

Yes, I wanted to confirm the terms of the additional acquisition we understand correctly from your filings it is 11.53% of outstanding shares of XP. It takes place in 2022 and it's 19 times earnings, is that correct?

That's exactly it, so it's - have the right to buy 11.5% of XP [indiscernible] it used to be 12.5 in the beginning. But since the capital increase, now it's 11.5. It's in 2022 and it's at the multiple of 19 times earnings.

Earnings of 2021, '22?

'21, '21 request.

'21?

Yes.

Okay. Thank you very much.

Thank you, Carlos.

[Operator Instructions] Our next question comes from Mario Pierry with Bank of America.

Hello, everybody. Good morning. Sorry, I just joined the call late. I had a long time, yeah. So Candido, I apologize I if I'm repeating any of the questions. But first of all, you were leading the bank for the past like three and a half years, almost four years. If you can leave like a message of what do you think your legacy is going to be at Itaú, what would you think were the main accomplishments that you were able to make? And what do you think are the main challenges that the bank is facing? Also, second question is related more to your results, right. I think there were a lot of questions in Portuguese Call talking about the XP transaction and almost no questions about the performance of the bank in the quarter? We did see provisions coming down. We did see your coverage ratio going up. It seems like your renegotiated portfolio is performing much better than we anticipated. Can you talk about what explains this better performance of your loan portfolio? And how do you see this behaving next year? Because it seems to us like there's a lot of room for provisions to start to normalize? If you can give us any idea, what do you think the provisions could be next year if the economy continues to perform the way it is? Thank you.

Hi Mario, well, despite the fact that you have not been present in the call, and I don't think your questions repeat any other question, which has already been made, so thank you for your questions. So your first question about my legacy to the bank after this three and a half, almost four years as CEO. I honestly, I don't like to talk in terms of legacy. I think it's not for the one who has made things to talk about his legacy and the others should recognize if there is a legacy or not. What I can talk about is where did I focus my energy during this time? And my energy was focused, first and foremost, in enhancing the importance of customer experience furthered by customer satisfaction. This was the first, second and third priority and it was stressed in every communication, in every measure taken, I mean, in having implemented the Net Promoter Score methodology throughout the bank, not simply using the measure. But I mean, it goes back to the clients with liturgy, having been created in the whole institution, groups discussing client satisfaction and so on and so this was a main focus. In order to reach this there was a - I mean, digital transformation was elected as the main tool. And so a lot of effort was placed on this. And I think we are off to a good start there. And we already have two years in this effort, and we are quite satisfied with the evolution we are seeing. And another important element of performance and of customer satisfaction is efficiency. Because efficiency allows you to better price your products. And so we, I mean, I place a lot of attention on gaining efficiency, reducing costs. And this is also a place where I think we're performing. And then there's 2020. And in 2020, a lot changed with surprises and here the important thing and where I placed most of my energy and efforts was to show a constructive face of a bank in the light of a major crisis. And so here, I mean, we have this BRL1 billion donation and restructuring [indiscernible], which was an effort designed to support the country in this difficult period. We had an attention towards all of our co-workers beginning from realizing that they were fragile at the onset of the crisis in order to reassure them so that they could render better services to our clients. And finally, there is this really - this climate change and with the Amazon, where we've - I mean we've jointly resolved our competitors, Bradesco and Centenaire [ph] are launching and in this effort, which is a long-term effort in order to support environment, so here it was about - I mean showing how good our corporate citizen a bank can be. That we've had some success in ensuring these and enhancing the bank's image. But that's for the first question you made. About the results for next year and your question was well on the provisions, right. Could you repeat your second question Mario please?

Yes. No, exactly. The second question is more related to how do you see your coverage ratio? Why do you think your portfolio is performing better than you expected at the beginning of the year? And how much do you think provisions can come down in 2021?

Well, it really depends a lot on how the economy performs. On the economy - I mean, we are expecting 2% to 3% GDP growth next year. But there are other factors around how the relation - net debt to GDP behaves, how's the fiscal performance of the government and then how will this impact exchange rate? How will this impact inflation and how inflation turn interest rates and then we'll close the cycle because interest rates have an influence on the debt to GDP relations and so on. So there are dangers ahead. And the government will have to be efficient in dealing with these dangers. I don't know how much the affected gross in 2021 itself, but it will really affect the long-term perspectives. As I have mentioned in one previous question, I mean, our provisions are made based on conservative assumptions as to the economic performance of the country. So if we have more and more good evolution of the economy, I trust that our provisions will prove to be excessive. But because this is not the scenario, which we have taken into account in our models when making the projections, but this is something we will only know later in 2021. Because as I have said, in the presentation, to a certain extent, we feel that we are still on unchartered waters next year, as we do not know how the economy will react to the extraction of the stimulus - of the fiscal stimulus that was very extensive this year.

Okay, Candido, thank you very much. And I really enjoyed working with you last few years, and wish you much success in the near future rolls. Thank you very much.

Thank you very much, Mario.

Our next question comes from Tito Labarta with Goldman Sachs.

Hi, good morning, Candido. Thank you for the call. A couple questions also, I guess, first on your margin, if you look - we've seen quite a bit of pressure over the last couple of quarters, as you mentioned, partly due to the segment mix and the retail mix and lower rates. But given sort of the government supporting long cycle in SMEs, how much of this margin, do you think you can get back pretty quickly as those loans sort of go away? And how much of this pressure on margins do you think is more structural and will continue? So I guess, overall how should we think about your margin evolution from here? And then my second question on XP, just thinking a little bit more in terms of the rationale, I mean, I think economically it makes a lot of sense out of the stake and given that you're benefiting from what they're doing. But from a strategic perspective given that you're benefiting from what it is doing, but at the same time, they're competing against you. From a long-term perspective, and I think with the recent announcement also could make it easier for you ultimately sell your stake, but do you think strategically, in the long-term, it will make sense to continue to have this stake in XP, should you be more competitive against them, just as think a little bit about the competitive dynamics going on, particularly given your economic stake in them? Thank you.

Thank you very much for the questions Tito. First on our margins, I think you're right. The reduction in the margins, not a precise calculation, but I would make a wild guess here that three quarters of it, is due to the pandemic [ph] and how we reacted to it. And we reacted to it by offering the sponsored lines, and also by offering better terms in our own lines, and offering all this flexibilization of lines as we call it here. A part of it will come back sooner, as the economy evolves, if the economy improves, a part of it will take longer because this government lines, they're long-term lines, most of them. So they'll not mature next year alone. So which is a negative for the margin, but is a positive for credit quality going forward. So I think we still may see because of the effect of the average amount, I mean, we still may see some decrease in our margin for one, two quarters, but then I expect it to stabilize and begin especially in absolute terms, as we also expect the portfolio to grow. Now, your question to XP is a very interesting question. I may say that I - I mean, the whole XP transaction was made while I was CEO and so acquired the stake in May 17. And I have never gone softly on our own investment area, investments, our efforts and so on, because we have a participation in XP. So it was very clear. I mean, from the moment that the Central Bank said that you cannot have any kind of influence that was a financial participation, a good financial participation. I mean happy with that management, happy to have a stake in the growth of an activity, which we could not compete exactly in the same Tier 1s as they did it. But it did not make us shy of competing freely, having said that, it's of course, our task of competing. It has made easier and more comfortable by not having a direct participation in the company. So although we have not shown of doing this, we will feel more comfortable from some and less risk of having any conflict of interest whatsoever.

Great, thank you, Candido, that's awful. So just to follow up on that last comment, so - and I don't want to read too much into it, but does that mean, ultimately, it would make sense to divest the entire stake or? I mean, I understand we may not see your comments and all of that. But just to get a sense. I mean, you said you think it would be easier to compete without any direct participation? And I guess this vehicle makes it easier to sort of divest a bit. But is that sort of the trend that you're going to sell 5% and maybe continue to dilute over time, is that the way to think about it?

Well, Tito, let me [indiscernible] of what falls under the responsibility of Itaú Unibanco, we are divesting everything and we are spinning off 41.05% which, for Itaú Unibanco is equivalent to a divestment because the bank is no longer an investor in the company. And we will sell in the appropriate moment, the other 5%. So we are divesting everything of the company. Of course, we still have the commitment to buy 11.5% percent in 2022, which we will of course honor. And what we'll do with that this will be the new administration's decision to take.

Perfect, okay, thank you, Candido and best of luck in the future.

Thank you very much, Tito.

Our next question comes from Natalia Corfield with JP Morgan.

Thank you very much for taking my question. With regards to your capitalization and spinoff, do you have a spinoff and deputation fee of the 5% stake? Do you have an idea of how much those events would impact your core equity?

Yeah, the spinoff impacts only indirectly our capitalization level. I don't have the number here Natalia for the spinoff, but it's marginal. And impacts in the sense that today a part of this investment we have to deduct from our Tier 1 capital and this will no longer be necessary. The sale of the 5% stake of XP, depending of course on the prices, it's made in my estimate will improve our Tier 1 in 40 to 50 BPS.

Okay, that's clear. Thank you so much.

Thank you, Natalia.

Our next question comes from Henrique Navarro with Santander.

Hi Candido, good morning, thank you for taking my question. The COVID-19 has anticipated or accelerated several digital initiatives. So maybe now we expect these are lower number of branches and personnel for the next year than we were expecting before. So I would like you to comment on the potential improvement in efficiency, specifically on number of branches personnel for the next few years. I know it's not going to be in your hands, but I mean, the trend's already started. So anything you could comment on these will be very welcome. Thank you.

Thank you, Henrique. So I think that the solution of the COVID crisis, if we can call it so I mean, the vaccine and let's assume that things come back to normal in the second half of next year. So I don't think it has a great impact in our efficiency efforts. I think what will have an [indiscernible] is the way we will have now - or people working at the bank and home office will be much more widely used in the bank. And this may have an impact in closing the branches, which we have not fully managed for the optimum. We've had to see the behavior occur, the client behavior once we are back in, in normal life. But most of our efficiency gains are projected to be gained upon the better use of technology. And we are projecting these and I think that Milton is confident that he will keep on improving the efficiency level of the bank and will keep on having a significant efficiency gains in the future.

Okay, thank you. And thank you for all those good years, I was tweaking as an analyst and watching the very straightforward and nicely. Thank you.

Thank you very much Henrique. I appreciate it.

Our next question is a follow up from Geoffrey Elliott with Autonomous.

Hi, again, thanks very much for taking the additional question. The spin off, is that kind of pending approval from any regulators, kind of pending any sort of approval from XP? Do you need any agreement from an outside party to get that done or is it entirely in your hands?

Hi, Geoffrey, no, it's only pending approval from the Board of Directors.

Got it, thanks very much.

Thank you.

And our next question is a follow up from Carlos Gomez with HSBC.

Yes, and again, thank you for taking my follow up question as well. When you look back over the last four years, Itaú has been a great dividend payer, has administered its capital very, very well. However, in terms of how the company has been able to grow its profit and when we compare you to your main competitor. It's clear that your rate of growth has been lower to the point that here we are in this quarter in which you've had exactly the same recurring profit both banks, how do you see this going forward? Have the investments that you have made going to endower result in higher growth in the future or do you expect more to accumulate and distribute capital? How you see the capacity for Itaú to grow in line with the other large banks in the market. Thank you.

Thank you, Carlos for the question. As you know, I mean, we have always been very focused on risk adjusted return on capital and our investments have always had this in mind. I have said before in a question that I see the challenges, the main challenges ahead for the new administration are digital transformation and growth. So growth is an objective which will be much enhanced in the new administration.

This concludes today's question-and-answer session. Mr. Candido Bracher, at this time, you may proceed with your closing statement.

Well I just want to thank you all for the consideration, for the interest, for the very good questions. It has been an honor and a pleasure to talk with you during all this time. And thank you very much.

That does conclude our Itaú Unibanco Holding's earnings conference for today. Thank you very much for your participation. You may now disconnect.