Good morning, ladies and gentlemen. Welcome to Itaú Unibanco Holding Conference Call to discuss 2021 First Quarter Results. [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. Milton Maluhy Filho, President; Alexsandro Broedel, Chief Financial Officer; and Renato Lulia Jacob, Group Head of Investor Relations and Marketing Intelligence. First, Mr. Milton Maluhy will comment on 2021 first 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. Milton Maluhy.

Hello. Good morning, everyone, and thank you for attending our first quarter 2021 earnings conference call. I will start with Slide 2. We can jump straight into our highlight highlights for the quarter. The recurring net income grew 18.7% and reached BRL 6.4 billion, and this important growth was supported by a sound overall performance of our business despite the volatile macroeconomic environment. When we look to the loan book, we had a solid growth of 4.2% in the quarter. Three of the most important contributors for this performance were mortgage and auto loans and growing, respectively, in both of them, 12.1% and 4.5% in the quarter as well as our renewed focus on the agribusiness sector. The increasing demand for this product is directly correlated with a new approach towards this segment with the new and specific products being lodged. Looking at our P&L, the financial margins with clients continued its positive trend for the second quarter in a row despite the negative seasonal effects of the first quarter. Cost of credit contracted by 31.9% in the period, reflecting here the positive credit quality trends in the portfolio. Noninterest expenses decreased 6.6% in the period, which is a result of constant investment in technology, boosting our operational efficiency. And lastly, we managed to navigate this high volatile environment very well, generating a 51.7% growth in the financial margin with the market. I also would like to update you about our digitalization efforts as they continue to generate positive results. We opened more than 3.7 million relationship with new clients through our digital channels only in this first quarter alone. And finally, I would like to highlight the important changes in our strategy metric which was born originally as a digital wallet, as you remember, and evolved through this life…

[Operator Instructions] Our first question comes from Mario Pierry with Banco da America.

Thank you for a very detailed presentation, it really helps us understand the bank's strategy better. Milton, I have 2 questions. The first 1 is on iti, right? You show that you're growing your iti clients quite fast. You're able to attract clients, they are not clients of the bank. So I would like to understand here is, how do you think about monetizing on these clients, right? You talked about some products there, but if you think about your ability to monetize on these clients, how do you think it will compare to the level of monetization of your regular bank clients? And then on that topic, how do you see the threat of competition from fintechs? How do you rank that as a threat to the profitability of Itaú? And then my second question is related to operating expenses, right? As you talked about, you had another onetime provision charge for restructuring. We see that your employee base in Brazil declining excluding all of the hires that you're making in IT. Well, how do you see your branch network over the next couple of years? Is there room for you to be reducing branches quite aggressively?

Thank you, Mario. Thank you very much for your question. I will start with the first one. Of course, when you mentioned about the platform, iti platform. So the first thing is that we had to do a major change in the way we were approaching the market and approaching the clients. At the very beginning, it was concepted to be a payment platform. But at the very end, we started to migrate to a full banking -- digital banking offer. This is a way to compete and to attract clients. As you can see on the numbers we showed, we are not -- we are bringing new clients to the bank at the end. So 84% of the clients are new clients, the bank. And also, we have a very important approach with young people and nonbanking clients which are the major public coming to this platform. So this is a different way. It's completely different of doing a business plan as we used to do in the past that you know that in the second, third, fourth and fifth year, what will happen and what will be the profitability. So the idea here is to change the mechanic. So we bring clients -- we do -- we bring them to a very unique experience. So in the coming quarters, we will understand their needs and how to monetize the platform. So this is the way we are approaching. Of course, one of the best ways of monetizing this platform will be credit in the mid- to long term, so this is our view in credit cards and personal loans. This will be, of course, the strategy. We don't have a products roadmap. We have a need of clients roadmap which is very important, it's a different approach again.…

That's very clear, Milton. I appreciate your answers. Let me just follow up on iti then really quickly. When we think about all of the other digital banks in Brazil, it seems like we have a new digital bank popping up every week. What do you think makes people choose to download an account at iti? And if you can talk a little bit about your acquisition cost, your customer acquisition cost at iti.

Perfect. Look, first of all, the client, he wants a simple payment account. He doesn't want to go through that process that you have on a regular current account. He wants a free of charge experience and a digital one. And it's to be somehow sexy for the client when he looks and see he -- himself with the brain with the appeal of the product, and I think it has an important role, something youth, something that brings new opportunities for that client. So when you go to iti, you can see that in 4 minutes, you open an account, and this is very impressive. And when we see some information that it's provided to the market, some interviews that they make to clients, you see that iti nowadays leads very well in a lot of rankings in surveys that they make specific service, the experience to open an account in iti. But it's free of charge, so this is basically what the client wants. He want an account, a payment account, he wants to pay bills, he wants to put some cash and he wants to have a prepaid card. But then we can, as we understand the behavior of the client, start to provide credit. And this is something that most of those clients, they don't have a credit score or they don't have a credit experience in the market. And this is very important for us to provide them some financial education, gamification as well and also to provide a lot of discounts and cash backs and things that for him is very important for his own income generation. So this is basically what they look for. What we made here is that we couldn't go to market if we didn't have a very, very competitive cost of acquisition because, at the end of the day, if we're not able to monetize in the long term, that will be a huge cost for the bank. And nowadays, we are working with BRL 24, BRL 25 per account, this is the cost of acquisition, which is more percentage of what we have when acquiring a client through a physical branch or any other channel. So iti has been a way to make and to bring a CAC, cost of our client -- client acquisition cost, very, very competitive. And this is why we are achieving a very important amount of people.

Our next question comes from Tito Labarta with Goldman Sachs.

Also a couple of questions, if I may. I guess, first, on your revenue growth outlook, both on the financial margin with clients. I know it's impacted a bit by seasonality, but even looking on a year-over-year basis, financial margin with clients was down despite the good loan growth. And then also on the fee income side, right, also some seasonality there, but cards are down, asset management fees, despite the growth in asset under management, are also down supported by the advisory business which can be cyclical. But I just want to think in terms of sort of a longer-term sort of revenue growth outlook, how should we think about the competitive environment, you're talking about the fintechs and everything going on, movements in rates? And I know you have the guidance which you expect so is the best guidance for the year, but how much pressure do you see on revenue growth going forward? Do you think the worst is behind and your revenue growth can begin to pick up? If you can help us just think about that given all the competitive dynamics. And then my second question is on the cost of credit, good performance there. But the cost of credit is now below historical levels, and I know you have plenty of excess reserves which you could perhaps use. But also again, on a more recurring basis, once you get back to normal, is this a new level of cost of credit given the changing mix or should this go back up as things normalize? If you can help us think about sort of a longer-term level for that cost of credit would be helpful.

Thank you for the question, Tito. So first of all, talking with the margin with clients, the main topic that I would like to reinforce here is that we had 2 major effects last year. Somehow, we have the revolving credit price, pricing discussions with the Central Bank regulating, and this had an important impact for us in the financial margin with clients last year. We had a pandemic which was very strong and hit very strong our activity. But I also would like to reinforce that we made some self-inflicted decisions here that, in the short term, we say it's an investment in the relationship and the lifetime value of the client. But in the other hand, we had a huge impact in our revenues last year when we migrate clients from revolving credit and for clean portfolios with a much better spread to long-term credit lines with a grace period and a very -- I wouldn't say very low, but a lower interest rate on the portfolio. So we've been paying that for 3 quarters in a row. We still have the impact of that. This is -- we'll be reducing in a slow pace in the coming quarters. And last year, we had as well the government credit lines which we made an important amount again, very focused on our clients how to help them to go throughout the crisis. And this has also an impact in the financial margin with clients. Even though in terms of return on equity and a return on the expected loss of this portfolio, it's very positive because it's a very well-protected credit line due to the guarantees that we have from the government on those credit lines. So having said that, we've been seeing an acceleration in the last quarter.…

All right. Milton, That's very helpful, very thorough. Maybe 1 follow-up, if I can. On the lifetime value of clients, as you mentioned, right, you're very focused on that. Any initial data you can provide on what kind of LTV to CAC you might be getting or targeting to eventually monetize these clients?

CAC and which, I'm sorry, I missed the first part.

Like the lifetime -- yes, sorry, like a lifetime value to -- LTV to CAC.

No, we are not releasing that because it's calculated for different segments in different ways, but this is a metric that we are pursuing and looking and guaranteeing that it's implied here in all the KPIs that we have for all the businesses. So we don't have 1 figure to release, we have many different figures that we follow. What we are seeing is that on the clients that we have a proactive approach in helping them going throughout the crisis, we have been seeing a lot of benefits of doing that, especially on the NPS which is very well correlated with the lifetime value of the client. So this is the way we've been seeing that.

Our next question comes from Henrique Navarro with Santander.

My first question is on the -- I'm going to come back on the provision for restructuring. I understand -- I mean normally when we do this kind of provision, normally, there is a long-term plan where the both tips are higher than the provision itself. I saw through your presentation that you have to go to a personally reduce the bank core cost over the next 2 years. So I would like to understand the relations between the provision forward of iti and this 3 years ago, I mean, what kind of savings shall we expect for the next 2 years based on this provision? And that's my first question. Then I'll jump to the second one.

Okay. Thank you, Henrique. So to go through that, I can tell you that we've been saying to the market that we are pursuing a reduction -- nominal reduction in costs. This is the second year in a row. And this has to do with our efficiency program that we've been leading here and dealing for 2 years now. So the idea here is to separate what its core cost, what is investment and to separate and say, look, we want to reduce the core costs of the bank to open room for new investment. This provision, it's not why we want to achieve this 3 years in a row, 3 years is to give you a horizon here to say that's what we can see looking from now, things can change in the meanwhile, so that's why with that 3 years would be a good positive message to give you from where we can see what we can deliver. And of course, this is part of this structured efficiency program. This is one of the initiatives. As you saw before, we have more than 1,600 initiatives. 400 are in place right now. And this is a moving target. So every day, we are discussing what else we can do. So this is not why we will achieve, but of course, it may help us because we are simplifying the way we deliver the relationship with our clients in the branches. On the operation and commercial team, there is a huge investment in this front over here. So this is part of the transformation we are making on the bank, but this is not what explains this reduction in the coming years. This is one of the initiatives, but there are many others as we were seeing here in the previous slides.

Okay. My second question is on iti. You mentioned that you have 6 million clients and 84% of clients without an active account, which basically means 16% of our clients are coming from Itaú. So we're talking about 1 million clients. I would like to understand, how do you see this cannibalization looking forward? I mean it's something that shall increase, decrease -- I mean, you target's 15 million clients until the end of 2020. How many of those clients might come from Itaú. I would like to hear from you how do you see this cannibalization between Itaú and iti? And when do you believe iti will reach breakeven?

Perfect. Henrique, so coming to this cannibalization question, we have a very simple view, either we do or someone will. So as we have many offers nowadays in the market and we have an important churn in our client base and this is something that we follow on a regular basis, it's expected that clients, especially the ones that have this profile, they migrate for regular current accounts to product that for them and for the bank is better because most of those clients, if you allocate the cost of the branch, you will see that they are not profitable at all for the bank. So they are cost somehow. And when they migrate to a very digital platform with a very small cost of acquisition and our cost of maintenance, we can serve this client in a much better way with a very more correct cost to serve the clients. So this is positive at the end of the bank when you have the true view of the clients that keep using your products, your current account and the branches. So I see that as a positive migration, not as a negative migration. And also today or in the coming -- on the past years, we were losing those clients to someone else, so I didn't have a very economic way, intelligent technology way to serve those clients. So I was losing those clients to the market. Now I can capture, bring new clients and also retain clients that would be losing to the market. So I see that as a positive way. About the breakeven of each, we are not giving any relase on that. And the reason why, we are pivoting here and investing and seeing what is the size, how many clients, how we monetize. So we don't see that at a 5-year business plan, we see more on a quarterly review to understand if the OKRs and the KPIs that we had planned for this quarter were achieved. And if yes, we will invest 3 more quarters and keep doing like that. So we don't have a specific metric in terms of P&L., and this is the way that the new market, the new competition works, and this is the same way we are approaching iti with a completely different way than we used to approach all our business lines in the bank. So we are learning as well the way to understand what are the success metric relating to client cost of acquisition, engagement, NPS, those are the most relevant metrics that we are following now.

Our next question comes from Jorge Kuri with Morgan Stanley.

I wanted to go back to the net interest margin outlook and mainly understand the relationship between SELIC rates and your margin. And evidently, there's a lot of moving parts over the last 12 months, as you pointed out, Milton, in how your margin with clients fared. But there is 1 big item there, which is rates, which were very different a year ago. So your Brazil annualized average margin was 11% in the first quarter of last year with average SELIC rates of 4%. It was 8.5% in the first quarter of this year, with average SELIC significantly below around 2.5% average for the quarter. If consensus is right and SELIC rates go back up to around 5% to 6% a year from today, what do you think your annualized margin will be? Would it be fair to say that you should be above what you did in the first quarter of last year? And just in general, so forget about what it was back then, where do you think that will be in an environment where rates are 5% to 6%? And I have a second question which is similar which is your asset management business. I think there's a bit confusion there. Your volumes did really well, but your margins didn't. And it also, I think, is impacted by the average SELIC rates where your fixed income products, which is a really big part of what you have under custody and management, can generate the same amount of fees for you. Where do you think -- should we see an acceleration in those fees over the next year as a result of rates moving back up to 5% to 6%?

Thank you. Thank you very much, Jorge. So beginning here with the financial margin with clients, I will tell you that when you look back a few years ago, you will see that our large corporate portfolio was not growing the same way it grew last year and this year, and this, of course, has a direct impact in the NIM. So we have to go back and see the mix that we had in the first quarter of 2020 and compare it to the mix we have now. So on the NII side, we will be growing the NII due to this increase in the portfolio, but we have a mix that when you go back to first quarter of 2020, it was more riskier mix, not only on the retail side compared to the wholesale side, we have more credit card, personal loan and less mortgage, less vehicle auto loans and also, you had a lower portfolio of large corporate companies. So having said that, I don't believe we will be going back now to this 9.2% that we saw. I believe we're going to be improving our financial margin with clients. But I think with a different mix, okay? This is one of the issues. The second one, yes, you're right, you will have the impact of the increase in the interest rate. We were seeing the first quarter a low interest rate scenario, but now we expect by the year-end of 5.5% SELIC interest rate, and this, of course, will bring impact here to financial margin with clients, especially on the working capital of the bank. But also, there is, of course, a pass-through to some credit lines depending on the competition, depending on the -- our capability to pass through those impacts. So I believe…

Yes. And I guess -- let me go back to the first question if we quantify this, and then I think you were looking at the consolidated margin, which is fine, I was looking at Brazil, but let's do it on the consolidated margin. So you're at 7.3% now. You said it will be difficult to go back to 9.2% even if rates more than double from the current level. But say rates at the end of 2022 are at 6% and that means that you're margins, maybe you pick up 100 basis points. You'll go from 7.3% to 8.3%, 8.5%, still below the 9.2%, that, on prices and an improvement in prices, is roughly a 15% improvement in prices. And if your volumes next year grow on average 10% which seems pretty possible under a recovery scenario, I mean, right there, you're talking potentially about a 25% NII growth. Is that within expectations? Is this realistic? Where in these numbers you think I'm over or understating the math?

No, I think the math is correct. I cannot say anything about the math, the only thing is that will depend in the way our portfolio will improve in terms of mix in the coming quarters. So I have difficult to tell you now What is the projection, but I do believe that the math set is parable. That means if we maintain the same level of mix that we have, you are correct. The question is how the mix will improve in the coming quarters? And we don't have to answer now, but we'll keep track on that.

But from just a top-down perspective, with COVID behind significantly lower interest rates today, hopefully, the economy growing, wouldn't a risk on modes be justified over the next 12 months versus the last 12 months?

Sure, sure. But we have to put in perspective the competition as well and how the market will evolve. I do believe so that we have the opportunity. We may be able to increase the margin in the coming quarters. But again, we have to think a lot about the mix and the competition. So I'm positive, but we have to keep this on track.

Our next question comes from Carlos Gomez with HSBC.

Two brief questions from me. One is if you could give us an update on the XP transaction, if there is anything new that we should know or dates that you have for the closing? And second, we noticed that there was an increase in provisions for labor claims. They almost doubled from last year. Any particular reasons for it? And what should we expect going forward?

Thank you, Carlos. Talking about XP, we had expectation by the end of January to have the approval of the Fed so we could make the spinoff. We didn't have the approval yet. We may have in the short term, but I cannot control this process, so this is something that we are expecting here a decision, okay? Let's see that we have any news by the end of this month or maybe so. We already sent all the information we needed for many months, and now we have to wait their approval. So we don't have any new specific on that. On the labor side, the reason why it's exactly the restructuring nonrecurring provision that we made within the balance sheet and where we reinforced as we are simplifying the way we serve our clients on the retail side. We may have an impact on the labor side, that's why we made more provisions. But this is completely related to the nonrecurring provision we made in this quarter.

Okay. That's very clear. And on XP, there's approval from the Fed, but also your negotiation with XP itself regarding transaction. Any news there?

No. On the XP side, they made a communication to the market. This is a negotiations among the stakeholders. We are not involved anymore after the spinoff. So it's our shareholders with XP shareholders. This is a negotiation that doesn't have to do directly with us. I think they made this communication to the market that they're willing to make an incorporation offer in market conditions, but we have to expect that to be materialized. But this, again, is a discussion about between shareholders. We are not involved in that. The only part of the process that we are involved is with Fed approval.

Our next question comes from Geoffrey Elliot with Autonomous.

It's Geoffrey Elliott with Autonomous. A couple of questions. Firstly, on iti, what you're doing in terms of digital bank, a separate brand trying to go after different clients. It sounds a bit like what Bradesco has been doing with Next the last few years. And I know that you've been critical of that strategy in the past and said it wouldn't be right for Itaú. So can you help us understand what you're doing that is different?

Okay. Thank you very much, Geoffrey, for your question. As we said at the very beginning, our strategy was to have account -- payment account platform. We evolved to a full digital bank experience to our clients. This is something that it's made within the bank, so this is not separate from the bank. And this is one of our offers and business model to deliver a different experience to the clients that have the profile that I mentioned before. So this doesn't mean that we decided to have a full digital bank separate from the bank because it's inside the bank. This is somehow the evolution of our transformation process where we can deliver platforms and business like this. And we kept very focused, as you saw on the previous slide, on our digital transformation. And we'll be delivering, if necessary, if there is demand from clients, different digital platforms and businesses in the future the same way we did with iti. But this is something -- a specific way and a value proposition for young and no banking clients. This is basically that. So this is a business inside Itaú that has this profile and characteristics.

And then the second question, current account fees, obviously down during the quarter. You mentioned there the impact of money transfers becoming free. Are you seeing any evidence of customers downgrading their checking account packages because the dock and edgy transfers, they can get them free anyway so they don't have to pay for a more expensive package to access those?

Perfect. I think there are 2 answers for your question here. First of all, we are changing the packages we have and trying to bring new features that are much more aligned with the needs of the clients as we have the capability to buy on a wholesale side and somehow embed in those -- on the packages a much more interesting feature for the client. So we are changing if stock and hedge was something very relevant. We are bringing new features so the client can serve and keep the package if they wish. On the other hand, we have a very, very clear suitability view to our clients, and this is the approach. So we will be migrating clients that don't fit to a specific package even though we lose revenues in the short term. So the idea here, again, it's investing the lifetime value of the client, suitability and to migrate package that are not confirmed with the usage of the clients. So we'll try to reinvent some packages, and we are doing that in a very positive way. And if the client at the end is not a user of that package of that features, we'll be migrating him to different packages, cheaper ones. So suitability and the needs of the client is the most important metric that we look when we make this decision. So this is our approach. So we expect, yes, pressure in this line in the coming years, and we are working towards this view.

[Operator Instructions] Our next question comes from Thiago Batista with UBS.

I have 2 questions. Actually, 1 is a follow-up. But on the first one, on the Portuguese call, you mentioned that an ROE back to '19 levels is very difficult or not feasible. In that time, the ROE was about 24%. Looking for the first Q, your ROE was, let's say, 18.5%. So do you believe that this type of profitability should be recurring in the near future? The second one is again about the restructure plan. Can you give a little bit more of details of this plan? Honestly, I'm not got correctly the plan. I'm not sure if this is, let's say, a simplification of your back office, if this is a change in the way of the branch. So if you can give a little bit of more details on this plan?

Okay, Thiago, let me try to answer both of your questions. On the first one, I won't give you a guide in terms of return on equity. We are, of course, working towards -- if you look our guidance and if you look at something that we released last quarter, the midpoint of our guidance had implied a 17.6% return on equity. This is what we gave in terms of guidance. In this quarter, we had a better performance than that. Of course, as you can see, but we don't guide on a quarterly basis. So at the end, I will say that I will keep the guidance as the best available information now. And if you look to the midpoint of the guidance, again, we are talking about 17.6% return on equity. This is what we guided for the year. We may have different geographic positions by the year-end, but I can give you -- this is the best information I can provide you right now which is very much different from what we had in 2019, as you just mentioned, okay? And on the second -- in your second question, we are integrating the operation and commercial teams of the branches. And this is something that we announced internally including. And the idea here is to have an owner. In the past, we used to have 2 owners here of the branches, the 1 that was responsible for all the operational area and the 1 responsible for the commercial area. And we don't believe that this is the best way to take care of our clients. We want someone to own the store. We want to be focused here in the attention of the client. And this, of course, merge of teams have impact. And this is the decision we made, and this is why we made the provisions here. Most of it is explained by this decision. This is what I can give you in terms of information.

Our next question comes from Natalia Corfield with JPMorgan.

I have 2 questions. The first one relates to your dividend. I'd like to know what is the plan for this year? And if you could also just remind me of what's going on in Brazil right now in terms of dividend because last year, you were restricted to distribute more than your minimum statutory, so an update on that? And also in terms of issuance in the international capital markets, what are your plans for 2021? You have 1 of your AT1s with a call for next year, so your thoughts on that would be very helpful.

Thank you very much, Natalia. So let me go through your first question. Our -- the way we release our dividend policy, it's the same. We didn't change it. We don't have any restriction from the Central Bank now to pay dividends, but we still keep with the same policy of paying what exceeds the 13.5% of Level 1 capital. So the payment that we made in this first quarter was 25% which is the minimum regulatory and statutory dividend payment. And it will depend in how fast we reach the 13.5% to pay the exceed amount. So the idea here is to keep this 25% until we reach the 13.5%, so then we can distribute more than that. So this is the policy. We kept the policy, and we kept the risk appetite for the capital in 13.5% for now. So this is basically that. I don't think.

A follow-up. On the -- when you mean the 13.5%, is 13.5% Tier 1 or 13.5% CET1?

Level one. So that includes the AT1 as well, okay? So on the second question here on the international market, we don't have a plan in anticipation for what will be our approach. It depends on market conditions. We are always looking for hybrid instruments on the foreign and local market as well. So it will depend on price, it will depend on conditions. Our teams are always talking to the market, having here propositions, understanding where the market is. We like to diversify our investors base. I think it's important to have bonds in the local market and in the offshore market. But it will depend on market conditions. So our debt capital market team will be following up every opportunity. If there is an opportunity to do something in the international market, we'll be doing that. But it's difficult to anticipate now it will again depend on market conditions.

This concludes today's question-and-answer session. Mr. Milton Maluhy, at this time, you may proceed with your closing statements.

Well, thank you all for the questions, for the interest in participating in our conference call. As you saw, we changed it a lot, and we provide a lot of new information here. I hope to catch up sooner. Stay well. Stay safe. Thank you very much. Bye-bye.

That does conclude our Itaú Unibanco Holding Earnings Conference for today. Thank you very much for your participation. You may now disconnect.