Hello. Good morning, everyone. My name is Renato Lulia, and I’m the Head of Investor Relations and Market Intelligence at Itaú Unibanco. Thank you very much for attending this conference to discuss our earnings for the second quarter of 2023, which we are broadcasting directly from our office here at Faria Lima Avenue, in Sao Paulo. Today’s event will be divided in two parts. In the first, Milton will detail our quarterly performance and earnings. This will be followed by a Q&A session, during which analysts and investors will have the opportunity to interact directly with us. I’d like to give you some instructions so that we make the best of our time today. For those who are watching on our website, there are three audio options on the screen, the entire content in Portuguese, the entire content in English, or in the original audio. In the first two options, there is simultaneous translation. To choose your option, just click on the flag that is in the upper left corner of your screen. As always, questions can also be sent via WhatsApp. To do this, just click on the button on the screen for those who are watching on our website or alternatively send a message to the number +11-97825-5798. Our presentation today is available for download on the website screen, as well as on our IR website. I will now hand over to Milton, who will start the earnings presentation. And, I’ll be back later to moderate the Q&A session. Milton, the floor is yours.

Good morning, everybody. Welcome to our earnings presentation for the second quarter of 2023. Thank you, Renato. I’ll get straight to the figures. We have a very direct presentation today in order to give you an overview of the figures, pick out some highlights, and at the end, we’ll talk about guidance. So let’s get started. This quarter, we’ve delivered BRL 8.7 billion in earnings, which represents a growth of 3.6%, with a very strong ROE profitability of 20.9%, 21.5% in Brazil. In our opinion, these are two very strong results. The margin with clients grew by 3.7% to reach BRL 24.9 billion, and as you will see from the figures, this is a core result with little impact from working capital. In terms of margin with the market this was yet another very strong quarter. You’re aware of the challenges faced in this area, but despite these we’ve been able to continue to deliver quarter-after-quarter seen 65% growth. The delinquency ratio is stable with a growth of 0.1 percentage points as we’ve been anticipating for several quarters. Meaning, these are entirely in line with our expectation and consistent with the information we’ve provided to you in the past. The efficiency ratio is 39.6%, on a consolidated basis. And in Brazil, we reached the lowest ratio ever, which is great news and was driven by the key top line growth in cost control. We’ll get into a bit more detail on both of these agendas a little later. As for our loan portfolio, I’ve set to you on past calls that the adjustments that have made to this portfolio, such as de-risking in some segments which were significant to our delinquency ratio and cost of credit. As such, it’s only natural that we’re seeing the portfolio’s growth decelerate somewhat. We…

Well, we will start now, Milton. It’s nice to have you here. We’re going to start with the Q&A session now. [Operator Instructions] Now we have the questions. I’m actually going to take the microphone. I’m going to ask you a question that has to do with the yesterday’s operational event. A lot of our partners were affected by the intermittent availability of our system. So, I thought that it was very good that we start the Q&A and ask you what happened? How do we solve it? And what did we learn?

Thank you, Renato. Thank you. Excellent question to start. Well, I’m going to begin by saying that what that happened. Well, yesterday, actually I would like to apologize to all of you, investors, clients, partners, stakeholders that were impacted. Of course, we work every single day. So that events such as these do not happen again. And if they should happen, we try to recover as quickly as we can. It was an internal platform in the bank that degradated the entire environment. So we took a bit longer than what we wanted to actually recover the environment. It was something very specific. I think that we have a very important learning. This is a part of the evolution of the bank the transformation of itself to go ahead and deal with situations such as these. We have a lot of resilience, calm, and we have to recognize that we are not perfect and we need to advance. And we have learnings that remain. The glass is half full. I would like to apologize, therefore.

Well. Thank you, Milton. Let’s talk to the analyst. We have Henrique Navarro from Santander. Hi Henrique. Welcome.

Hi, thank you very much for the opportunity. Congratulations on the results. Actually, Milton, I wanted to – for you to shed some light in 2024. We hear in the bank, we updated our model with the numbers of the second quarter. You delivered everything as expected. It wasn’t very difficult to analyze. And well, looking at 2024, I can see 10% to 15% of growth in the revenue. This is this growth. Some investors that we talked to, they are not so sure of the growth. There is a doubt about how we’re going to behave with the market, the interest rate, the margins of the clients in the second quarter we saw that we have a deceleration in the credit. I mean, the provisions, banking fees. It’s a bit weaker. So I believe that the first question, Milton, is, well, without trying to get the guidance beforehand, do you agree that Itaú would be able to deliver 10%, 15% for revenue in 2024? And where are you going to get that from? What are the indices that are going to make a difference in 2024?

Well, thank you, Henrique. Let me start. We are continuing to be positive and optimistic about the scenario and the evolution of the bank. The margin improved. The first quarter, there were challenges, as you know, challenges in the capital markets, in the credit portfolio people. Well we’ve been working over the last few quarters, the future, the impact there, the performance fees as well, the portfolio is naturally in the aggregate, they grew less. As you can observe, that was by design. So when we look at the results of the portfolio, we are very comfortable, because we are leaving a cycle of adjustments that are very important post-pandemic. A normal – normalization of delinquency. So we are positioning the bank in a very important position. If it wasn’t for the de-risking of the portfolio, our delinquency indices would be 180 points above what we have. So the strategy was adequate. We do the bottom line management as well. We don’t look at an isolated line, of course, top line is important. It shows strength, engagement, the capacity to extract value. But we have to work in the other two lines with the same emphasis. Our expectation is that, the cost of credit may be peaked. And we hope for a PDD expense that is more to expand more – well, nominally, I’m not talking about a delay, of course, we have the events in the wholesale. We have this and well in the part of costs, I imagine that we have an efficiency work that we are doing. Naturally, we’re going to seek to have a balance between the capacity to generate value. In the portfolios, we’ve been growing in several core segments for the bank, above 20%, the non-aggregated number doesn’t help, because if you just look…

Thank you. Very good, Milton. And now we have the second question Renato Meloni from Autonomous. Renato, please take the floor. You’re muted.

Hi guys. Thinking about the capital position that is very comfortable and the growth that hasn’t really taken acceleration. What is your opinion on the payout?

Hi, Renato. Thank you for the question. To be very direct, we have a great recovery in the capital levels over the first – last quarters, we have an organic growth, improving profitability, earnings and in return of the quarter, we have the benefits Basel A, the risk of credit, 80 basis points, the improvement of the internal models. Now, our risk appetite from the Board is 11.5% and maybe 1.5%, 13%. Therefore, so the most important thing in the second quarter is that, we know the details of the Basel III operational risk guidelines. It led us – leads us to believe that we’re going to get the information in the second quarter. We’re waiting for the data, so we can have a better projection. Now directionally, yes, there is an expectation in the payout increase. It is not our objective to retain the results with the capital beyond necessary and that necessarily has to do with the opportunities of growth, the opportunities for capital allocation. So we are always looking at that. We’re doing our plans, looking at the scenario that is longer in the capital. But there is an increment in the payout and we’re going to publish that information as soon as we have the data, the operational risk and our best estimation might impact 100 basis points in the bank. It can be more, it depends on the norm of the operational risk and we anticipate that in our projection. But we are very optimistic. And the idea is for the payout, we should do that in a second semester as soon as we have the data, we can share it with you.

Thank you, Milton. With us from Morgan Stanley, Jorge Kuri.

Hi, Jorge. Good to see you. Thanks for joining our call today.

Hi, everyone. Good morning and congrats on the numbers. I wanted to ask you about the tax reform. There is a discussion about eliminating the IOC tax as well as potentially reducing the corporate tax rate and taxing dividends. IOC has – according to your disclosures, IOC has represented roughly a 10% tax break for you guys over the last five years on average. So, in a scenario in which, indeed that IOC is eliminated and the corporate tax rate doesn’t change much. What can you do to offset that 10 percentage point hit on your profitability that will go out the window with IOC?

Jorge, good to see you, again. Thank you for your question. Let me go there. So our view today is constructive about the IOC. We don’t know yet how the second phase of this tax reform will be designed and discussed in the Congress, especially in the Congress. But we know and we understand that the IOC has an important role, especially for a segment like ours that pays the higher tax not only locally, but also worldwide compared to other banks and other sectors in the world. So I think the government has that very clear, understands the impact of the IOC, especially for banks due to the capital base that we need. It’s not a tax planning. It’s because the level of capital we need to retain in the operation has to do with regulatory issues. So that’s why we have a very capital-intense activity in Brazil. So our view is that, we have to wait and see. Of course, we always heard that the idea is to be a neutral reform, talking about the IOC. So, if there is any change in the IOC, we heard about the ACE that it’s something that it’s a practice in Europe, especially and you know that. There are other ways of doing that. You have somehow to reduce the corporate task. Otherwise, I think it’s going to produce an effect that it’s not positive at the end of the day for the society, because you have a risk to pass through to the prices and the cost of credit might be impacted by the increase of the reduction of the IOC. So I think it has a relevant role in our tax payment at the end of the year. I think the government has that very clear. And you won’t produce the effect of the pass through of the reduction of Selic. If you do a major impact in the IOC, I think, will be a re-pricing in the industry as a whole. So we are constructive. So at this point, if you ask me, I think the government will try to do something very, very balanced and neutral in terms of tax impact for us and for the industry. So this is our review, I’m talking about the financial industry due to the impact and the level of tax that we already paid, the level of corporate tax that we have in Brazil, 45% plus the other taxes that we have, it goes more than 45%. So I think the IOC has an important benefit, especially for the price of credit and impacting the consumption in the activity, so on and so forth. So I’m constructive about this topic.

Thank you, Milton.

Next question. We have Daniel Vaz from Credit Suisse. Hello, welcome.

Thank you for the opportunity to ask the question. Now I wanted to direct for – the credit for the retail. The portfolio is growing 9% per year still. So there is a high income, average income is growing double-digits, right? So we have that massification operation. So, we need to understand the profile of the curve in those segments. Can you continue to grow double-digits in the high income? And thinking about the mass, should there be an improvement in the risk indicators? What is the strategy of Itaú to regain share in that segment or not gaining the segment, not gaining anything in that segment? If you can give me that opinion. Thank you.

Well. Thank you for the opinion and the question. There are few things. Well, we are growing above double-digits and the target high income. Well, of course, that there is a lower demand than what we want than it could have been. So there is a cycle of reduction of rates. The demand tends to grow since these are clients with less credit demand. So they take credit in a very specific line. The increase of the demand will come, and there will be a natural elasticity with the interest rate. We can see that we’re growing. And it’s not a credit, it’s the engagement. It’s important to lead the lever of the credit, because the standalone credit it’s a lever. It’s a lever for the penetration of the engagement with our clients. And what creates value is the vision of the client and the relationship as a whole. So we can see in the wholesale an opportunity – in the retail, an opportunity to grow in individuals and companies. We have an opportunity to advance in clients. We didn’t explore the full client, full bank offerings for the client. We always service a client with one product, a variation of one product the relationship with the client, but we have the modernization of the platform and without these solutions, we couldn’t do this engagement and this cross-sell that is so important. Well, give a full bank experience where the basis of the clients that already have a relationship with the bank, and we know the behavior. So this is the great opportunity that we see. We have a lot of work done there. Well, thinking about the Itaú Day, we’ve already given an opinion, and we will continue having results on that. And should there be anything relevant, we…

So next question will be from Yuri Fernandes from JPMorgan.

Hi. Hi, everyone. Thank you for the results. I got a question about the networks. I think that you’re the leaders of the market. We don’t have the share, because we don’t have the industry data, but it seems that you’re the leaders. So I wanted to see your strategy of the REDi4 network? We see an increase in the revenue, but we know that this is very competitive. I know that you have a customer centricity or opinion, and we have to separate just the acquiring products, but we have the Selic cuts that should benefit the industry. So being very practical. What is your opinion in the price? The network should be more aggressive? So can you give us some color in that operation?

Thank you, Yuri. I think that the numbers backs publishes the numbers on August 10th, the data will be public. We will know the results, but I wanted to tell you a few things. Individually, we have to look at the balance of the network. We cannot compare anymore, because REDi4 some time it’s not a vehicle that is separate, independent of the bank, and it is something that is completely integrated. And a couple of charge strategy. We talked that in Itaú Day, this is reporting directly with Andre Rodrigues and it is completely integrated in the structure. So, this is the vision of the client, yes, therefore going to be leaders, a second. That’s not what moves us. It’s not the market share, per market share. And I can say that I’ve sat in their – in that chair 10 years ago, I was there. And I know the dynamic. I know how much the invoicing of big companies affect us and our strategy has not been renting market share or gaining market share, because if that’s the fight, this is a fight per price, this is a fight for negative margins for contribution, with the only objective is to increase the market share. And this is not our objective. And that’s why we gave more disclosure in the growth of revenues than the market share itself. I think the market share is a consequence of our capacity to – for capillary to be close to the clients to deliver value. We’ve done the very important review of the strategy of credit of the network that is very good. We have an integration with the bank of retail, which is working, and this is not brute force. This is the important thing. It’s not getting more people, more…

Thank you very much. Next question, we have Rafael Frade from Citibank. Welcome.

Hello, everyone. Milton, I think that you did a very clear case on the capacity, your capacity out throughout the cycle of always managing well, the reduction in increase of the interest rates in the financial margin. But recently quarter, third quarter we’ve seen the margin with the liabilities that is indicated by you as a beneficiary of the increase of the spread. And there, well, that line, we are going to see the opposite with the reduction of the interest rate. So how should we think about that? Is this going to – not allow the reduction of NIMs or there will be a higher impact so the margin of the liability it was very significant and maybe it can be a by end with a reduction of the interest rates.

Well, liability is something that is very present in our capacity. In our work of attracting resources. We always capture the investments and resources of clients and there is a double effect. It’s not just a Selic rate, but the volume effect that we’ve done, we have an increase in the platform of the offerings. We have a migration with – for the fixed income with the interest rates. We have more products of fixed income in the bank, and we are ready to have the client without conflicts due to the profitability of the product. Now the way that we do the hedging of our liabilities, it doesn’t allow us to be susceptible for the short-term movements. One side or the other, we had the pass through of the interest – of the increase in the interest rates, we didn’t capture that in the line, because we do a dynamic hedging with the long deadlines and several vertices, and we manage that all throughout the cycle. So, on the side of the increase, we didn’t capture a 100% of the increase that was a process that is still happening. And when we get into a reduction cycle, it also – well it’s a long cycle. So we can have those effects captured. So that allows us to have flexibility and time so we can do the active management. And in the moment that the interest rates drop. On the other hand, you start to have a better capillarity, in credit you’ll have other opportunities that the cycle has cross-sells with insurance. For example, if you see the one that takes a loan, it’s associated to the credit. So the more credit you capillary the most, the more you get that, since you have a reduction in adjustment in the portfolio, naturally, you’ll have the insurance business that grows 25% than it had in the first quarter, a bit of a slowdown in the loans. So the opportunities are one side or the other. And so that’s when you look at the long series, we have cycles of increase in interest rates and drop in interest rates, and we could defend. And the adjustment, it’s a mix of the wholesale and retail mix in retail – the adjustment of credit that happens slow case by case for the working capital adjustments that we do as well. So the bank can anticipate these events and protect itself in situations of more skewed cycles, one side or the other. So, we always have an additional challenge on one side or the other, and this is the compensation that we will do in the management of the portfolio.

Thank you, Milton. Next question, Mario Pierry, Bank of America. Hi, Mario.

Hi guys. Congratulations on the results. My question is also on the regulatory side. Well, we continue to hear a lot of satisfaction on the government on the interest rates of the credit cards. I know that the banks are working, but it seems that the news is always in the newspapers. Every single week there is a de-satisfaction of the government. So I wanted to understand on the potential – well, the interest rates or the credit cards, how are the talks? How do you expect that this will be developed? And also, I wanted to explore more of the impact of the dis-enroll impact? How do you think that it impacts your operations?

Thank you very much, Mario. Thank you for your question. Good to see you. Let me give you a few comments. First of all, the cap of the credit card, it’s not a cap, it’s rotary credit in the interest rates of the credit card. What we invested the most over the last few months, was simply in being able to share with the market, it’s not the banks. The market is, the government is Central Bank, the – well the retailers, all the stakeholders, I mean, so we can start with a common point from all of us. The inception has to do that. Diagnosis is important. Fabra burned some banks did the work. Fabra Bank is taking part in this process, discussing in a very open way in this. And I think that this was very positive and constructive, Congress, government, regulatory. Well, we have retail, everybody – credit card companies, everybody knows about the challenges that we have. Some numbers, we talk about the interest rates of the credit cards rate 400%. Well interest rate of credit card in the individuals portfolio, international is 3% of the results. So, if we have – we have another 2%. So we’re discussing 3% of the whole portfolio. No client is 12 months in that rate because of the regulation of the Central Bank defines that after 30 days, you have to offer something better. More deadlines, better conditions. So the client in the [role] [ph], it’s on average, 18 days staying at the credit card. So that rate is virtual. It’s simply annualized, but it’s not a real rate that is practiced. But it is the one that is published and it generates discomfort. Another information in Brazil that is relevant, 75% of the credit card portfolio does not…

The next question is Bernardo Goodman [ph] from [XP] [ph]. Welcome.

Hi, everyone. Good morning. Thank you for the opportunity. Congratulations on the results. In regards to the guidance, it seems fair the review for the tariffs and the services given the starting point in the first quarter, but Milton was commenting on the expectation for the recovery in the capital markets activities. That guidance can be reviewed with a possible reacceleration that is stronger with the regaining of the GCM-ECM activities. Can you comment on the expectations for the investment bank for the second semester? Thank you.

Thank you, Bernardo. Thank you for taking part in our call. Thank you for the question. Now, we’ve done an exercise of sensitivity and a review of the guidance. So, our best information is that we can navigate the next two quarters within the same range within the new range that was published, considering a replenishing of the activities. We are expecting good activities in the second semester, but not enough that we can recover in the first semester. So basically, three lines that are suffering here. We have the activity of the market of investment banking, the capital markets, all that you commented, we have the performance fees of the funds we are going through a process of a more difficult activities in the funds, it’s more difficult to win with the market with high volatility. And in the second semester, we – well, the performance fee, it depends on the market depositions, the managers. It’s very difficult to foresee. There is a third effect has to do with the credit, which is the insurance for the loans. It is intrinsic. It is very much involved in the operation of FER credit. So as the credit activity restarts, we have an expansion also of the loans. We do not think that this is going to be enough for the recovery of the first six months of the year. So I don’t see a change in the guidance in the next quarters, I would love to come here and say that we’re reviewing the guidance going up, but this is the best information that we have today. But now within the geography that has been set between 5 and 7, which is what we published, I think it’s reasonable that the bank that is going to be within those thresholds. Any positive surprises, I think that the range will accommodate.

Milton, before we give the floor to Gustavo, I – Mario Pierry asked two questions about the capital of the rotary and disenroll. And if you can answer about disenroll? Mario?

Well, let’s go back to the point, sorry. Disenroll is two points that are important. First, the engagement of the clients is very good. The awareness level that was created is very solid. And we’ve seen – we’ve realized that there is an increasing demand in several channels seeking those agreements. We renegotiated over 200,000 contracts. We actually have about 600,000 individuals that are on the blue, no longer in the red. And the number may be is even over 700,000 individuals. So the effect on the bank, we are going to see the dynamics in September, the bids on the Range 1, on the Range 2, the stimulus is already there so we expect something in the Range 1. This is not going to be sufficiently enough from the standpoint of the bank to fit with the cost of credit or the delinquency indicators, I don’t think that there’s going to be a material impact. But I think it’s positive for the society. It has an impact that is relevant for the clients and they help them in the very difficult post-pandemic cycle. So yes, we expect the result. I do not see materiality in the results in terms of financial highlights. It’s very uncertain because we’re going to know the – how the dynamic of the bid is going to be from September onwards. Maybe I can give you in the future, more contracts, information, more volume information, but what economically that means we have to wait for the next quarter, because I need more data.

Okay. Thank you, Milton. And now we go to the next question Gustavo Schroden, Bradesco. Welcome.

Hi, Renato and Milton. Thank you for the opportunity. I’m going to change gears. Let’s talk about efficiency. I think that the bank has done an excellent work in that. Well, if you look at a number of 37% of efficiency for a bank of your size and robustness of Itaú, it really calls your attention to the numbers. Milton, I wanted to understand if there is a target? If there is any objective here that we can work with for the next two, three years in terms of efficiency? Can we think about 35% something in that matter? I know that there is a right side of the revenue, but getting the revenue as it is, just thinking about cost, can you still do something maybe to seek the 35% or even something lower?

Thank you, Gustavo. I think that in the end our objective is to continue to improve. If you ask me if it’s 35, 36, where is the stabilization it depends. It depends on the dynamic of cost and revenue. We are working diligently I think that the revenues have followed us all throughout the cycle and the agenda for cost as well. So that’s why we have the core cost that we show, and we absorb, we run the bank, the inflation we saw the cost of customer service, the reduction is very relevant. So the investment. Digital investment of the bank has as an objective to deliver the best value proposition, a better experience for the clients and offering that is more customized, but also, we have the objective of the cost of service in a market that is ever more competitive. So we need to advance. I’m not talking about a remote bank. No, this is not it. But being a digital company is to service the clients in an optimized ways and in a way that technology allows you to do so. So we are still in a redundancy phase, operationally speaking, as you migrate to the cloud, you still have systems. Legacy in the data center that are old, so you have operational efficiencies that will be captured. We still have opportunities for advances in the business model structure, the model of service for the clients, I’m optimistic. I think that this is an agenda that we will continue to work with, with a lot of emphasis quarter after quarter. And we, regardless of the top line, cost is something an agenda that has to be present all throughout. Well, every day. So once again, I’m constructive. I don’t know if the stability will be 35, 36, where it will land, but that’s the ballpark. And time will tell, it will really depend on the dynamic of top line. And another thing, is that, when we give the disclosure of costs, we first get all the costs in there. So we have expenses – we don’t have expenses and other expenses. It’s all expenses. So the other segment that is important, the numbers can be seen is that within our cost agenda, we do not forgo all the provisions that are adequate, all the PROs, the labor expenses. So I mean all of that is cost for the organization. But always with the provisioning level that is very adequate. If you look at our Patrimônio lines, our [inaudible] lines, well that delivery of cost has no relation with the reduction of structural provisions that we understand that are important for the bank. So regardless, we continue to deliver powerful results in advance. So I think that it’s important that we understand our provisions in those different lines. And we can follow-up on those lines. We have solidity on the long-term, even though that might sacrifice an efficiency indicator from one quarter to another.

Thank you. Next question, Thiago Batista, UBS. Welcome.

Hi, guys. Welcome – well thank you actually. My question to you is credit card. Well you commented that you had a drop, leaves I mean we can see the EAH, the first drop that in the first year. So, I wanted to understand if the drop in the clients was because of a change in the mix and the high income? Or is it the same base and you could see that improvement? Well also with that, when I look at the profitability of your business this quarter was single-digit. I think it was 10 and then it dropped quarter-on-quarter. So it was single-digit this quarter. That improvement in profitability goes through credit card? Is credit card relevant actor in credit?

Well, several questions here. Let me do a deep dive then. We look at the financial system, national system and expansion of the delinquencies, above 90 days. So when we look well, ours, we reduced it 20 basis points. So we are outside of the curve of the behavior of the market. So the portfolio drops also nominally, the finance also drops. And so it shows that the denominator effect has a role and we’re still reduced. Well, there is a mix effect that is very important. I think that we did a de-risking of the portfolio, and we are growing in the segments. That we have a level of return that is more healthy for the portfolio. So the new works that are going to be produced through our time, this takes time. It’s difficult for you to take – to change the portfolio from that today. But all of those periods, well, we have the MOBI 30. All these are indicators that are healthy. So we have the mix that is important here for the de-risking of the portfolio than just looking at the same base and imagining how it would work. And since our low-income operation in the end as one of the levers as a credit card, and as I said, if we kept a constant mix, credit card has a role in that mix, we would have worsened our delinquency indicators in 180 points on lower profitability and the business of credit cards has to be separated. So the – with the checking, so it’s been growing, it’s been – it’s very adequate. We’re very happy with the results. With the market that is the open option, we have an adjustment in the portfolio. It suffers less and the finance in the middle of the…

Thank you, Milton. Now next question from Rosman, BTG.

Good morning, everyone. My question is a follow-up of Thiago’s question and also the answer of Milton. About the client of the Open Ocean, Open Sea. We’ve seen the banks suffering with the open ocean, the finance, there is a digital bank that has performed better so far. So I wanted to understand what is the relevance of that client that is the Open Ocean, Open Sea and the results of Itaú Bank. I think that the number is small, if you can quantify, please? And how do you work to transform this client in a full bank being the main one? Do you need a migration to apps, the system is ready for that, all the technological background is ready set up. If you can tell us more about that theme?

Sure. Hi, good to see you, Rosman. I think that the first message here that I think that is important to share is that, that client, if you look at the bottom line of the bank, the last line, it’s a client that added very little value to the results. It’s much less RGO than what we’ve seen in the typically operations in the past would always return the cost of capital. So it’s a detractor for the ROE, but it helps and generates value in terms of scalability for the operational results. And obviously, with this cycle, the external channel is more challenging, not just for credit card, business vehicles of their businesses that depend on the exclusively on the external channel. So there is a reduction in the contribution for these clients for the bank is specifically in terms of profitability, even though there is a positive income, the profitability as an offender. And so we could – regardless, we could absorb all these effects in the balance sheet, as you can see. So I see that on the other hand, there are opportunities for you to transform a client that you have a single opinion or view of a product, and then we can engage in the decline, and you can be the main bank of the client and not the accessory bank. Because the accessory bank, we have an effect in credit card term of sudden death. So you have a client that is using your credit card until the day that they cannot pay the credit card, in the drug, and they are going to use the other six credit cards that they have. So the relationship and the engagement with the company is key. If you’re a bank that you centralize, we have the…

Thank you, Milton. With us Tito Labarta from Goldman Sachs. Hello, Tito. Thanks for joining the call.

Hi. Thanks, Renato. Hi, Milton. How are you both? Thank you for the call and taking my questions. My question, just a little more color on the NII. Very good performance on both the market NII and the client NII. This quarter I guess, in the context of rates coming down now, how should we think one about the market NII? And how that will evolve in a lower rate environment? But also the client NII, right, as you potentially accelerate loan growth into next year. Should the client NII growth or benefit from a lower rate environment as you grow the loan book more and maybe the mix could potentially help if asset quality begins to improve? So just to think about both the market and client NII in the context of a lower rate environment into next year.

Thank you, Tito. Good to see you. I think a little bit and what I was mentioning before. I think you have to look both sides, okay? The investment side and also the credit side. And we’ve been able to deliver a good performance throughout the cycle, because we’ve been balancing a lot to the portfolio decisions like that. So in one way, you have some positive from the investment side with the interest rate going up, you have more volumes with the interest rate going up. But then when you go in a cycle, when you have a reduction of the interest rate, you will see an opportunity in credit coming in front of us, where you can calibrate it, you can bring a more balance to the mix of the portfolio. You can take more risk. You can go to product, the mix of the retail can change, the mix of the wholesale can change. So then it’s always a play of taking a little bit more risk in a scenario that allows you to do so with better spreads. Then in the other side, you may lose a little bit of the benefits on the investments on the liability side. So, this is the balance that we’ve been pursuing. I think in the mid-to-long-term, it’s better for us to work in an environment where we have a lower interest rate. So it’s not true when they say that interest rate, high interest rate is good for the banks. It is good in the short-term. You have some benefits in the short-term. But the cost of credit and the capability to increase portfolio reduce so strongly the cost of credit increase and the capability decrease. That at the end of the day on the balance of that, you…

Thanks, Milton. Actually for the next two questions as well we’re going to see in English. As the next question comes from Nicolas Riva from Bank of America. Hello, Nicolas.

Hi, Renato and hi, Milton. Thanks for the chances of questions. I have two questions. The first one on capital. So, Milton, you alluded to this positive impact you’re getting on capital beginning July 1st, from some changes in operational risk, lower operational risks and you estimated the positive impact of 100 basis points. If you can provide a bit more color on actually what is changing regarding operational risks? So that’s my first question. And then my second question, I know that I have been asking this. I think Natalia has also asked this in past earnings calls, but if I wanted to ask, I wanted to confirm if the strategy around the call options on the Tier 1 and the Tier 2 bonds still hold in the sense that with the Tier 2 bonds, with the 2029 and the 2031, if we should still expect that what’s most likely to happen is that you would call these bonds, being that they start losing capital treatment, if not called? And two, with the AT1 bonds, if we should expect that in that case, you would only call them once you can issue a new per at very similar coupons to the ones you’re currently paying on the bonds? Thanks.

Thank you. So on the operational risk, it’s your first question. I think there was a public consultancy coming from the regulator telling us how – and this is not a Brazilian discussion, is a Basel A discussion. And, of course, there are some specific items for Brazil and some discussions that we are having with the regulator as well, to avoid double accounting for some specific topics, just to give you an idea, when we do labor provisions and when we do tax provisions, at the end of the day, some operational risk. But as those are two very relevant lines for the bank, we do on an expected loss provision, we provision in the balance sheet. So there is a discussion in the Central Bank, there is this ILM that an index that can be one or can be more than one depending on how the Central Bank regulates that. That we say that it’s a double accounting, because whenever I provision, and I expected loss model, I take it from capital. So if I take that in consideration, when I look my statistical loss going back, then I will be double accounting. That’s why we discussed this ILM equal to 1. And then the Central Bank can regulate the level of provisions in Pillar 2 of Basel A and Basel guaranteeing that we have the sufficient capital for those lines and those specific provisions. So, I think this is the major impact. It’s an evolution on the regulation, it has to do a lot with your historical, has to do with new models. I think it’s an evolution that is happening worldwide and it makes senses, and we believe so. But we have some comments that, of course, the industry throughout Fabra bank and also the banks…

Thanks, Milton. And just before we move to the next and last question, I just want to acknowledge that we got a question via WhatsApp from Alexa Houter from Jefferies. And she was asking the same question about the AT1s. Therefore, we would pass the question to you, but because Nicolas has already asked, so we’re going to take that as answered. Synergies, exactly, efficiency. Right so the last, but not least, we have with us Carlos Gomez-Lopez from HSBC. Hi, Carlos. Good to see you. And thanks for joining the call.

Thank you for extending the call and taking my question. So I’m going to a minor issue. It’s also about tax. Can you comment on the possible effect of the first the reform on indirect taxation and whether it changes how do you manage the bank or in the future, what your expected cost base? Maybe do you see anything tangible there? And also related to tax, as part of the tax discussion, is there a possibility that they will review the way in which your foreign subsidiaries are taxed and therefore, how you envision your foreign business? Thank you.

Thank you, Carlos. Good to see you again. Thank you for your question. On the VAT reform, we have to separate the bank, I would say, in three major business lines. All services fees and so on, we are in the general provision. So whatever it’s the rate, if it’s 25%, that’s what’s been saying. We don’t have the numbers defined yet. We’ll be paying 25% on services and fees and it’s going to be exactly like any other company, a drugstore or anyone. So what makes this complete – make complete sense. But then we have two other provisions that we are in a special regime that’s to be regulated. One of them is this spread. As you know in no country – in any country that was – the VAT was implemented the spread is not taxed. And today, just to give you a number, the cost of credit, the rate that which are from our clients, 20% of that is explained by the physical [inaudible], which is the actual regime where we pay 465 over this spread. So the VAT on that side, what we’ve been hearing is that the idea is not to enhance or to increase that through the VAT, because imagine what would happen if the 465 goes to 25%, even if it’s in a non-cumulative regime, it’s still a huge increase. So this is not the idea. This is what we’ve been hearing, because this will produce the worst possible effect that will rose to price and then we will impact very strongly the activity. So this is the second one. And the third one it’s the payment ecosystems and it’s in a special regime as well. And it’s very easy to explain. So we were discussing about interest rate on credit cards,…

Thank you –

Well 14 questions. It was the last question. And with that, we will close the Q&A, but also, we recall the earnings call, but before we say goodbye, we’re going to answer all questions that we received via WhatsApp. We got a lot of questions. Thank you very much for all of you that were in our call. Milton, the floor is yours for your final thoughts.

Thank you. It’s always a great pleasure. Thank you once again for being here, taking part in our call. And it’s good that we have an open communication, transparent communication. I just thank you about the recognition that we got and with a lot of humility, this is the word. Everybody is certain of the challenges. Everybody is working with a lot of energy to continue to deliver the results and surprising our customers. This is our agenda for transformation. So thank you for your time, for your questions. Always, I would like to thank the 100,000 Itaúbers that do a strong work with high levels of energy, and we are at a special moment, very happy with what we delivered, but certain that this is a never-ending game. It’s not going to be over the next – this quarter. It’s going to be over the next few quarters. We’re going to discuss the perspective. The provocations are always welcome with focus and discipline and energy, so we can deliver that level of profitability and performing above the average of the market. Thank you very much, and we will see each other in the next earnings call. We will see each other in the bilateral meetings. Thank you.