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…

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…

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.