Hello. Good morning, everyone. I am Renato Lulia, Group Head of Investor Relations and Market Intelligence at Itaú Unibanco. Thank you very much for joining our video conference to talk about our earnings for the fourth quarter of 2023, which we are broadcasting directly from our office at Avenida Faria Lima at Sao Paulo. This event will be divided into two parts. In the first part, Mr. Milton Maluhy will explain our performance and earnings for the fourth quarter of 2023 and present the 2024 guidance. Right after we will have a Q&A session. During which analysts and investors can interact directly with us. I'd like to give you some instructions to make the most out of today's meeting. For those who are accessing this via our website, there are three options for audio on the screen, the entire content in Portuguese, the entire content in English or in the original audio. The first two options will have simultaneous translation. To choose your option, all you have to do is click on the flag on the top left corner of your screen. Questions can also be forward via WhatsApp. To do so, just click on the button on the screen on the website or simply send a message to the number, +55-11-939-591877. The presentation we will make today is available for download on the website screen, and also as usual on our Investor Relations website. I'll now give the floor to Mr. Maluhy who will begin the presentation on earnings. Then I'll come back to you to moderate the Q&A session. Milton, go ahead.

Good morning, welcome to our fourth quarter of 2023 earnings and the 2024 guidance presentation. I'll go straight to the figures so that I can bring you some more information and then we'll have enough time for the Q&A. Firstly, our earnings in the quarter totaled R$ 9.4 billion, a growth of 4% from the previous quarter. As a result, we delivered a consolidated ROE of 21.2%, with the 10 basis points growth in the quarter. In Brazil, ROE reached 22.2%. Moving on to revenue generation, our NII grew 3.3% in the quarter, reaching R$ 23.2 billion. Commissions in fees and results from insurance operations posted strong growth of 4.6%, reaching R$ 13.5 billion for the quarter. All this with sound credit quality indicators. The consolidated NPL over 90 days posted a drop of 20 basis points. The NPL for individuals dropped 50 basis points. These are major results that show an evolution in the credit cycle. We've ended the quarter with a Tier 1 capital ratio of 15.2%, an increase of 60 basis points. The individuals portfolio grew 1.9% in the quarter and 4.1% in the same year. The SME's portfolio grew 2.6% in the quarter and 3.5% in the year. The large corporate's portfolio grew 8.7% in the year. Thus, the total growth of the loan portfolio in Brazil was 5.7% in the year. In Latin America, the results were affected by FX. As a result, the total portfolio grew 3.1% in the year and excluding FX variation, growth was 5.3%. It was a year in which we focused on derisking of the portfolio and we've been working more intensively on target clients and reducing the portfolio's exposure to non-target clients. We posted sound growth in the segments on which we focus. The Personalite and Uniclass loan book…

Milton, thank you for the presentation. We will start now the Q&A session. And today we have besides Milton, we have Broedel, he’s, our CFO. He's going to be here with us in the Q&A session. Remember that we have both languages. We will answer the question in English and Portuguese. You can always choose your audio of preference, English or Portuguese. You can submit your questions via WhatsApp. Well, there is a long list of questions. Milton and Alexsandro Lopes, shall we start?

[Operator Instructions]

Yes. Good morning. First question we have on screen, Renato Meloni, Autonomous.

Thank you. Good morning. Thank you for the opportunity. First, in regards to the guidance, when you look at the interval that you're mentioning, the growth in the portfolio of credit and a margin of clients, then might be a reduction, might imply in reduction. Is that a real thing? Because the -- there is an expectation of the stabilization for 2024. And how should you or how are you looking at the dividends? And as here, if the growth in the portfolio goes to 9.5% can we have a similar payout? Any additional comments are great.

Thank you, Renato. Good morning. Thank you for the question. Let's clarify the guidance of the portfolio. First message. Portfolio of the guidance is, let's just say, the tip of the portfolio and the margin is the one that we realized. That means that the average portfolio all throughout 2024 and the information is not in the guidance, it will be lower than the financial margin with the client. So we have to look at the average of the portfolio because that's the margin that you can see in the guidance. That's the first aspect, second aspect. When we look at the records, we've been growing with a lot of quality, the margin. And it's important to look at the margin, not only associated with the Argentina effect, which explains another percentage point of growth. So isolating it, we would grow seven percentage point on average. It's important to consider the cost of credit, which has a nominal reduction. That means that our financial margin net cost of credit will have an expansion. Portfolio growing, cost of credit shopping. And you asked about the NIN. We are expecting, yes, stability of throughout the year and adjusted to the risk. We understand that there is an opportunity for some adjustments through the credit cycle. That depends on the mix of the growth of the portfolio that you can see here. That is growing above the average payout of the portfolio in the period. The cost of credit is higher and adjusted by the Argentina effect growing by 7%. Very important to clarify the dividends. That is of interest of everyone. What was our decision? Let's turn back time. Way back when we reduced our appetite in the risk management of the bank, we always talked about 11.5 that's the set of…

Second question, Gustavo Schroden, Bradesco.

Congratulations on the results not only of the quarter but the year. I wanted to talk about the guidance and since Milton already gave us a soft guidance of an ROE above minimum 20%. That would be the point that we have to start. It seems conservative to me on your side. So I wanted to discuss with you. Can you go over please on what should we expect of the guidance, the main lines? Where can we work more as the higher threshold, the medium threshold? Should we, well on my side we see the upside rather than upside in PDD taking on the NPL trajectory that we've seen but if you can just give us your true sense on those two lines and can we work above or below the guidance and can we assume the 20% that you indicated as the conservative ROE but I want to check you from you.

Thank you, Gustavo. I hope that you're right. We're going to work so that you're correct. Well, the guidance in the end it's our best estimate. We are coming from a budgetary procedure. We always have a temporary guidance. Well, we have the average point of these lines. The medium is always a good reference. If you look at the last quarter, we were running Brazil with 22.2% of ROE. Very strong. Had we unloaded the dividends in the way that you're seeing it right now, the results would be 23.4% ROE of Brazil. The effect of the dividend generates a basis effect that improves the ROE reduces the net result of the bank because of the working capital but it improves the relationship and it makes the ROE better. So I believe that we have to look at the year for the opportunities for growth of portfolio. The average is reasonable. There is the exchange rate in Latin America, which is uncertain. So taking away that, there might be some opportunities for the growth of strong portfolio growth, depending on the scenario, the perspectives, the credit cycle. So I believe that working above 20% is a great reference. We didn't give guidance of ROE. We are working above 20%. Can it be more than 20%? Of course, we're going to work to deliver an adequate profitability given the scenario and the opportunities therein. Because of credit, we've been very successful all throughout the cycle. You've followed the bank for many, many years. We had a difficult cycle. Some portfolios suffer more. In our case, credit card, very relevant portfolio, R$ 135 billion. The vehicles, very important, R$ 33 billion. Those two portfolios naturally, they suffer more. Now, the good news, it corroborates your vision with the cost of credit,…

Well, let's now we have Mario Pierry, Bank of America.

Hi. Good morning, everyone. Congratulations on the result. Thank you for taking my question. Milton, I wanted to understand your guidance of the growth of credit. Can you give us a breakdown? What are the lines that you expect higher cost? Because when you look, when you see, well, the macroeconomic scenario is positive, the bank has a great capital and the growth nonetheless seems timid. You're talking about a nominal growth of the GDP, 5.5%, 6%. A portfolio growing 8% seems a bit shy. I wanted to understand how do you see the product itself?

Thank you, Mario. Beforehand, thank you for the question. Thank you for being with us today. And I wanted to tell you, when we look at the portfolio, I'm going to do a deep dive. We hope that the companies, whether if it's retail or the big companies, they will grow above the average point that you observe. So they carry over that. The natural persons, they grow less in that relationship in the average of the GDP. And there is a relationship there. We expand, we will expand on the products that make sense in the target segments that we are growing above two digits. But here there is a double effect. First effect, the natural persons portfolio, there is a renegotiation drop, which is good for the overall balance of the cost of credit. But it's a natural offensive of the balance sheet. And second aspect, when we look at the portfolios, we have the decision of reducing nominally some portfolios, important reductions that saved about 200 points of delays in the over 90 delays. So if we kept the same mix of growth that we had in the pandemic, we would be running in the natural persons, something about 6.4, 6.5 of the late 200 points above. So when you look, you have the opportunities of growth. The portfolio of real estate has grown a lot in the pandemic with low interest rates, high demand. With higher interest rates, we see that there is less demand, even though we are keeping good market share of production, the nominal dropped. So, we see INSS, and there is a pressure, and we have the caps that we already mentioned. So, it seems that there are some effects that play against, like payroll loans, but some that are positive. In…

Next one we have here Rafael Frade from Citibank.

Good morning. Thank you for taking my question. Doing a follow-up of two points. First the NIN making it very clear that we expect a stability in the NIN but all throughout the last few years you always said that the liabilities margin has an important contributor for the improvement of the NIN and maybe last for ‘24 but the effect also throughout ‘24. Is that more of a detractor is thinking for the end of ‘24 and for ’25. And second question is a follow-up on the issue of cost of risk. I think it's very clear the guidance accommodates fluctuations but we wanted to understand more on the retail when we see the fourth quarter, the aforementioned side at the level of 2019-18 but you commented at the beginning that you have an important shift in the portfolio seems like this is a safer portfolio than ’18-‘19 so specifically in retail can we see an NPL formation for ‘24 maybe below what was the official records. Thank you.

Thank you, Rafael. Pleasure to see you again. Let me start by the NIN, liabilities are growing for us and we managed to grow in an important way you can see the net cap grew 70% of the last quarter we do not talk about the absolute numbers but these are strong numbers I can assure you, therefore there is always the interest rate effect but the volume as well combination of both generates an effect on the NIN, when you look at the margin of this quarter the volumes are very relevant. Second aspect, for the financial margin for the clients we do the hedge whether if it's working capital or liabilities. We do the hedges with longer vertices so it shows that in a longer cycle for better for worse we have a long better stability in remuneration there is a reduction in the margin. We can see the margin of the working capital reducing but there is the increase of the pay of the pays and the liabilities have been growing importantly. And there is the demand for the banks products which increase this effect. So we believe that 2024 we're going to have a great year for volumes. The rates from the application and the hedge of the bank they tend to be less sensible to the effects of the select rate and that highlights what I've mentioned. We've seen some reports that said that our line is very sensitive to the interest rate. This is another proof, seeing the cycle as it is, that our NIN is very stable regardless because we can work with both sides of the equation. The interest rates they tend to drop, but they will stabilize at a threshold of nine. We're never going to see a drop of interest…

Next question from Thiago Batista, UBS.

Good morning to everyone. My question is about efficiency. When we look at the bank's efficiency, Milton commented that you are the 40% historical minimum, good number when you compare to the bank itself or other banks, but it's still above some digital banks or traditional banks. Well, [inaudible] is not the same one, but in Mexico, they operate with better efficiency. Is it possible to maybe draw from 40 % and get you 35% or not? Or 40% is the absolute bottom? And if you allow me a second question, the credit card. We see that the level of the payments of Itau increased in 2023. So we had 81%, 85%, one lump sum payments. When we look at the Central Bank, that trend didn't happen while the data of the Central Bank. What is the difference? Why is it happening? Higher income makes a product. Can you tell us more?

Okay, let me start by the second point. Thank you, Thiago, for your presence. Credit cards. The explanation is mixed. In the end, when you look at our non-financed portfolio is higher than the portfolio of the market. In the last quarter, we have 34% of non-financed portfolio. So this is a very relevant number. I always say the effects of the interest rates of our R$ 135 billion of credit card portfolio, R$ 115 billion are noninterest. So R$ 20 billion is the finance portfolio. In the last quarter, the last month, there is a seasonal effect with more purchasing and more volume. So there's a trend of an increase in one lump sum and in the installments and noninterest, depending on the profile of purchasing of the population. The main explanation is mixed and there is the derisking in the portfolio, of course. Since we reduced relevantly the segments of high risk that were destroying the value for the shareholders, then we rebalanced the portfolio with more focus and the mixes that are more sustainable in the long term. And we don't look at credit card as a product isolated. We look at it in a global relationship with a client, taking away those products that you're a mono liner, open ocean, but in the bank, we have a relationship with the clients and we've been growing relevantly. And the fact that our portfolio is more affluent than the average of the market. So it takes our noninterest in regards to the interest to a higher threshold. We should see a normalization. There is a reduction in the propensity, of course, depending on the profile. And once propensity comes back, the finance portfolio will grow more in regards to the noninterest because of the seasonality of the last…

Thank you, Milton. Yes, we have a concern here, as Milton has mentioned, of looking at an efficiency program that generates effects on the long term, and these are consistent results. We don't want those efficiency levels to be a volatile indicator. We have periods, gains in some periods, losses in some periods, and that's the up and down effect, as we say. We have a variation, but we don't want that. We want gains that are consistent, gains that are recurrent. That point that Milton mentioned, the efficiency, it doesn't depend just, it's not an index, it depends on the mix of business that the bank works with. Structurally, the bank has efficiency indices that are different. Do we have a program that involves over 1, 000 initiatives? We have automation, cost reduction, digital processing, migration to the cloud, amongst other initiatives. The important thing is that this is a program from all the organizations. There is no silver bullet. All the initiatives are implemented, followed up. We have an important control of the budget as well, so that the initiatives that we implemented, they are not, the economies are not eventually used. And more important, which I believe is the relationship between the good management of cost and efficiency. You can see that the guidance, we are not doing the investments that we consider that are important to reach a certain level of cost or efficiency. Why am I saying that? Because sometimes the important investment, because of an accounting issue, they have costs that come earlier. You have the amortization of the investments and technology as well. So our discipline here is that this is a program is to be consistent all through all time. We don't give a specific guidance of efficiency, but we want to have efficiency levels that are sustainable, that are reachable, and they continue through all time. Keeping the modernization of our platforms and a higher focus on the client, client centricity, all these initiatives and the efficiency level, Thiago, is inserted in the context of management of the bank as a whole. It's not an objective that is independent. Having said that, we believe and imagine that there are important opportunities for improvement all through all time.

We have Bernardo [inaudible] from XP.

Well, good morning, Alexsandro, Milton. Thank you for the opportunity. I want to understand better the strategy for the composition of the funding of the bank over the last quarters. You've had an improvement in the participation of exempt instruments. And with a new regulation, these instruments should be more restricted for issuance. What is the reading of Itau about the impacts for the system? Looking at the businesses of wholesale and retail, what is the market stock that you estimate as well in these instruments post the changes? Thanks.

Thank you, Bernardo. This is a new issue. Of course, naturally, the resolution was published last week, we are naturally going over the details. What I can anticipate is, without a doubt, the exempt instruments have a participation in the funding of the system as a whole. They are growing out throughout the time. There is a creation of LIG which brought, you had the double backing of the LIG and LCI, which you could use, but the exempt in the interest, they are 15% of our capture. They are important, but they are limited to 15% of all the capturing volume that we have. And in that change, recent change, basically two thirds of our capture were not affected. So we are talking about a reduced impact. So we are talking about 4.5% of the total funding of the bank. These are the materiality. And it doesn't mean that the resources are leaving. There is a natural migration of resources. When you do not have the exempt from the income tax, you do not offer new products. And this is a systemic overview. The system as a whole goes through that. We're given a level of relationship with our clients and the capacity for generation of backing. We don't see the impact and the cost of capture of the bank. This is immaterial. And we will substitute by instruments of CDB and banking letters, other instruments that make more sense for the investor and that are going to have some impact in our cost of capture, but it's immaterial. So I believe that for the system, it's difficult to do an assessment. There is the mapping being done. There is a global level to see what is the level of impact because it depends on the generation of coverage,…

Next question comes from Tito Labarta from Goldman Sachs.

Hi, good morning. Thank you, Renato. Good morning, Milton, Alexsandro. Thank you for the call and taking my question. A bit of a follow-up, I think, to Thiago's questions earlier on efficiency, but slightly different perspective. When you look at the guidance on expenses, like core expenses, as you mentioned, below inflation, but you are growing above inflation this year, you had about R$ 3 billion, I think, in business and technology investments. For how long do you think you'll need to continue to do these types of investments? And I'm asking in the context of the competitive environment, just with increasingly more digital players becoming more and more relevant, just to think about how you're positioned. And somewhat related, but on the credit card, very strong quarter for credit cards, both on the issuance and acquiring. There's been a lot of competition there on both sides. How much of the growth in the quarter was just seasonally and how much are you maybe, given the credit cycle, looking a little bit better? Are you able to be a little bit more aggressive there? And also, a couple of your peers announced that they're trying to privatize their acquiring business. So if you can just comment on the competitive dynamics in cards, both on the issuance and acquiring side, given where we are today.

No, sure. Nice to see you. Thank you for coming, Tito. Good to see you again. So just follow up here, first of all, on the efficiency ratio. We're always going to be investing in the long term of the bank. So this is our long-term view. We're not looking for one or two quarters efficiency ratio. And this is the trend, especially on the technology investment. We doubled the force. So we had 8, 000 FDs nowadays we're running with 15, 000 FDs when you look four years ahead. But we stabilized now two years in a row. We do believe that we achieved the level of FDs that we need to do all the digitalization and the modernization of our platform. So our idea here is to keep doing this project. So this is very relevant because we have to finalize what we really need to modernize. We are two thirds of the journey so we still have investments to be done throughout 2024 and over. But the most important is that whenever we do the investments, we amortize the investment in the coming years. So you see a strong pressure coming from the investments we made in the last period coming those years and we are being able to absorb all this amortization in our P&L. We still believe that there should be another level of increase in the amortization. But then it should stabilize when we look a long term period. This is very positive because there we're going to be in a cycle where the level of investment will be much more similar in the coming years as opposed to what we observed in the previous years where we came from a very slow amount of investment and we had this curve of increasing the…

We have from JP Morgan, Brisbane.

Thank you for taking my call. And my question. On ROE per segment, it calls for attention retail improving, going back to levels above 20% of ROE. And when we do the decomposition of that result, it seems that it comes from cost of credit. I wanted to hear from you, Milton. The correct evaluation of that improvement of ROE is that an issue of mixed. You've talked about growing in segments Personalite, Uniclass because of the balance of that segment is higher in the ponderation of the ROE. And a consolidated ROE is higher in that segment. Are we seeing the ROE of the lower income improving where you know that the MPL of lower income is three, four times the higher income. And it's fair to say that in the process of the improvement of an MPL that lower income should improve more in the cost of credit. If you can comment on, how are you using these sub segments, and do you think it's sustainable that ROE above 20% we had a lot of debate in that period of how much is it structural or not that process how it's cyclical, it is, there were some caps in along the road and the payroll loans. So how do you see the sustainability of these ROEs above 20%.

Thank you, [inaudible]. Well, time is suffering. As I say, that was your doubt and we were not satisfied with it. The level of profitability we needed to work strongly to recover the profitability. There are issues of the market structural changes. There's a little bit of everything and we have to understand what is happening with the big variables. You're talking about the -- what -- you have the payroll loans. You have the cap of the retail and then there is the structural changes to credit card, the rotation. So there is a structural change. There is a dynamic of the fees changing. When you have the offering, you have the fee business pressure. There is a competition of the margin, and there is an expansion of the period. So the credit service relationship change, that business has a higher dependency and credit than they had before, for example, overdraft. And we've grown an insurance that has an increasing growing of, well, insurance. If we look at the three year window, through 93%, the profit in our operation. And this year, we will double the results over the last four years. And insurance is cross sell, business that helps with the profitability. To explain here, I told you that when we were questioned a few quarters below, we saw that it was the bottom, and then we saw the inflection point. What generates that inflection? Several aspects. There is the play of the generation of top line, which is important, so we have to work with the correct, mixed way, the correct client in a relevant way. We've done that with quality. There is the play of the cost of credit. You are right at the end of the day with all derisking that we are doing with…

Next question is from Rosamund, BTG. He couldn't connect but he submitted the question. Yes, WhatsApp. I'm going to ask you, Rosamund, your question. He submitted the WhatsApp and congratulations. Yes. Well, Rosamund asks the credit spread. It ended up at the end, higher than the average and the working capital is 9.5%. And the bank always guided that we should confer it for so they've given the vertices that we use. In that sense, can we say that the guidance is conservative for the NII, the credit portfolio is strong. So margin and guess.

Rosamund, thank you very much for the question. Certainly, you will see the recording later. But the main message for you is the portfolio, as I told you, we have to look at the mix of the growth. We have to look at the average balance of the growth and that's what has an impact in our line. Our vision is that the NIN will continue to be stable. The portfolio of companies tends to pull the NIN for a lower threshold. On the other hand, we have the working capital and the liabilities very well worked out. The volumes are strong. On the overall, we have an NIN that is stable with a small expansion and the adjusted line to credit. So portfolio and the average growing eight. So if we have an opportunity and we understand that it makes sense in a cycle of long-term, once again, without adventures, we will grow the portfolio so we will not lose the opportunities and we have certainly appetite and capital funding, human capital to continue very close to our clients. And growing in those segments that we've really focused, we do not, but we want to grow above two digits. When you improve the profile of your portfolio, you go to a mix that is less risk, which has less NIN. But the NIN adjusted to risk is better. That's what we observed to the market. That's our dynamic, if we can expand the NIN, the NIA in regards to the portfolio growing more, we will work diligently for that. But as long as the opportunities are clear, with a clear vision of portfolio management, client, and focusing on the clients.

Next question. Going back, now Daniel Vaz.

Well, thank you, Renato. Good morning, everyone. Congratulations on the results. I wanted to go back to the credit card. Well, in the release, we saw a reduction of 3 million of plastics to 38 of credit. So it seems clear the preference for the more engaged clients and Personalite, Uniclass. I wanted to explore more the strategy for ‘24 in the mass channel and the retail partnerships. The bank understands that the client is stressed. Is there just a transfer of risk to the other players or the system has reduced the credit for this client and is there space in your perception to increase exposure in these clients and increase the consumption in this product.

Well, thank you for the question. First, our expectation is that credit card portfolio will grow in this year. It's inevitable, there is the TPV, the invoicing growing, the growth of the market changing on the mix. That always happens when we look at the data, we see that the business is growing. Our business, we try to subdivide it in three big groups. There are the ones that have the bank, where we have a big penetration in all the segments, above all the higher income, the check-ins segments, not only in the existing clients, but in the acquisition of new checking accounts. So a big deal of our business is achieving new clients and increasing principality and engagement. Second point is that with the super-app, we will have an offering that is easier, more integrated, simpler for our clients that do not have an offering of full bank who have an access to the basis of clients that can be relevant. Mono liners, maybe they have a product and they don't have the credit card for the product. We have the capacity for offering with unique experience and the right clients, we know them, they have a credit record and they have a good modeling for the offering. But we always call the open ocean, we reduced in a very relevant way, because we still see the compromise, very big compromise of the income of the families, an over indebtment in the product. So in the end of the day, there is an over offering over the years, the number of plastics per CPF in Brazil is increasing and more than doubled in the short term. So with the credit card that today is a product that doesn't have a cost to be in a portfolio or in…

From Jorge Kuri from Morgan Stanley.

Can you hear me now? Oh, sorry. Thanks for that. Congrats on the [inaudible]. I wanted to maybe shift gears. I think you've explained in detail the results of the guidance. Maybe shift a little bit to the credit card regulation. Apparently, the 100% cap interest statement printed well kicked in January. And it doesn't seem to me that prices for revolving interest rates from cards are going to change at all, as a respond to that. I wanted to get your view on what the impact is on the business of this major kicking in. Also, what is the risk that the sponsors of the bill, six months from today, a year from today, look at prices and say, well, nothing happened, and the prices are exactly the same. And we did this precisely to lower prices. And what is the risk that happens, and then we go against the more round and potentially more aggressive caps for being implemented in order to really deal with that? And what is the industry doing to try to avoid that? Thanks.

Yes, well, thank you, Jorge. Good to see you. Thank you for your compliments. So just to go through, first of all, to give you a little update about the changing law that we saw at the end of last year. We spend and I’ve been telling for a long period, I would say almost a very dedicated as an industry, having conversations with all the possible stakeholders in the market, so this active, the Central Bank, the retailers, all the associations. We've been to the Congress, talking to a lot of senators and deputies, so we had a lot of discussions about this topic, and we had a very clear and simple diagnostic about what we saw as the main forces that were producing this level of anomalies and asymmetries in the credit card market, so as I was standing a little bit before here in this conference call, I was saying that we have R$ 135 billion as in portfolio, in credit cards, out of R$ 115 that there's no interest, so that is just to give you an idea how relevant it is buy now and pay later in Brazil, so it's very relevant, so our view is the following. There was a lot of headlines in the system saying that the banks are charging 450% per year in interest rate, and I was always saying to the press and to all the stakeholders that this is a futile rate, it doesn't exist at the end of the day for two main reasons. First of all, no one can stay in the revolving credit for more than 30 days, this is the first reason. The second reason, because you have a price amortization profile in the credit card that shows you that at the end of the…

Back to Portuguese, because now we have Arden Shirazi from Santander.

Good morning. Milton, Broedel, Renato. Thank you for the opportunity. My question is regarding the vehicle portfolio. We saw that there was an increase quarterly, year-on-year, talking to the investors and clients, we see that that market in general is more excited with that credit line. I wanted to hear from you. What is your mindset in terms of quality growth? What kind of markets are you working with? Thank you and congratulations on the results.

Thank you, Arden, thank you for the kind words. Vehicles business is something that we for many, many years had a participation that is very relevant and with all of this movement that has happened all throughout the market, we've learned a lot. We made new mistakes and we learned with the mistakes of the past. That's an evolution. We have a portfolio that is an adequate size. We've been working ever more focusing and servicing well our clients, regardless of the channel that they do the vehicle acquisition and the procurement of the financing, we expect a growth in that portfolio for ‘24, not very robust. I would say that is adequate to what we've seen. This is a portfolio that we are in the fourth quarter consecutive that we are reducing our delays above 90 days. There was a loss there and then there was a reframing in the market and we're reducing it relevantly that delays delinquency in this portfolio. This is a scalable business naturally to dilute the cost in this activity and we've been working strongly to digitize the journey so that regardless of the scale, we can operate more competitively. So within the defined appetite of risk, we can define the higher volumes depending on the cost of service that we're working. And I think that this portfolio we're going to see the needle movement throughout the years. We're looking in detail the portfolios that make sense. We are present in the market. We do not see and we think that this is a euphoria business because the big growth comes from euphoria, the big losses as well. So this is a very volatile portfolio that is not very resilient. There is a positive aspect I would like to recognize with the assurance that you can recover the vehicle through the de-trans or extra judicially recovered the vehicle. This is important, this is a victory for all, and this will improve naturally. But we always talk about that vehicle is an insurance with wheels, so when you recover, the asset is always difficult. We know that in Brazil, recovery of asset in assurance is a big challenge, will always be, and is very strong, and it's a big challenge. So we see the evolution in the assurance, and that can help us to have a recovery, an LGD better in this portfolio, and that allows us to do the expansion and the profiles of risk, then that's what's limiting. I don't see a big explanation for our growth. I don't think that the growth is going to be modest. R$ 33 billion, I don't think that it's going to be very relevant, it's going to be in that order of magnitude, maybe a bit above.

We're going to switch back to English again, because the next question comes from Nicolas Riva from Bank of America.

Hi, Renato, thanks guys, thanks Milton, and Alexsandro for the chance to ask questions. I have two questions, the first one on dividend, first, just to confirm, I'm looking at this right, R$ 11 billion that you announced as extraordinary dividend payments, that should come out of equity in the first quarter. So at the end of March, I should take out about 90 basis points of capital from your ratios just to confirm. And then in general, on your dividend policy, I remember that in the past you used to target a common equity tier fund of roughly 12% and 1.5% 81 bucket, and you said that you would pay in dividends, the excess capital on top of that, 12%, 81. Is that still the way you look at your dividend policy and your target for your capital structure? And then second question on the perps, so far you haven't been calling the perps the old is 6.18 and the old 6.5 which we said to higher coupons in 10. But if I look at market prices, you're basically trading at the call price at par, and you can call them every six months. It seems that the market is assuming that they are going to call them in the short term. Now, you're paying a coupon below 8%. And last week, we saw a Chilean bank, PCI, with better ratings because of the sovereign in Chile than you, issue an 81 on callable five at 8.25, so quite above the below 8% coupon you are paying on your perps. Is it realistic to assume that you're going to call the perps in the next call date, or at least if you can discuss a bit how you're thinking about the call option on the perps? Thanks.

Yes, sure. Thank you, Nicolas. Thank you for coming. It's a pleasure to see you here again. So let me start talking about the dividend policy. So in general, you are right in the direction. So your calculation is precise. So when you're taking consideration the R$ 11 billion, the impact we're going to have in the set one. It's true. We might see something around 100 basis point. We see that some volatility in the available for sale, securities that we have in the balance sheet, so the way we measure and the way we make our positions, we might see some consumption in the beginning of the year. So when you look one quarter, we're going to have the profits that we made in the next quarter. We might see, we will see the impact of this dividend and some volatility coming from available for sale that might consume a little bit, maybe 20 basis points in our capital ratio. So this is what you should see. And when you look in the long term, 12% is a good level. 1.5 on the 81 is where we are and where we have the policies very well established inside the bank. And having and looking forward 12 month or 18 months, depending on the level of information or uncertainty that we have, we're going to be calibrating to define where is the best level of distribution that we should do. So this is roughly 12% is where you have to keep your eyes on. The uses and the sources are something that you have to keep the eyes on, especially when you have some tax reform on capital, when you have discussions coming from the regulatory perspective, coming from Basel on the operational side or credit side. So we…

We're getting towards the end of our call. We have one last question in our list, in English, again, and it comes from Carlos Gomez from HSBC.

Thank you for having us. Congratulations, like everybody else, for the results and for the dividend, and thank you for making this a long call and allowing a lot of time for questions from the analysts. So, two things for one, you gave us the estimate about the impact of [Pac-03] which is 42 basis points, as you calculate today. Could you also give us the impact of the tax reform, as you said, as it is described today, what would the impairment of DTA's do to your capital today? And secondly, in the past, you have told us what your estimate for your cost of equity would be. If I recall correctly, it was around 15%, I could be wrong. Would you tell us where do you think it is today? Thank you.

Okay, Carlos, thank you for your words. And thank you for coming. It's always a pleasure to see you here. And we will take always the time to talk to the investor, a very relevant stockholder for us, and we'll take and invest a lot of time with you as always. So coming about your first question here. About impacts on the DTA, let me talk the DTA first, which is important. When we talk about 42 basis points, it's important to say that this has two elements, okay. The first one is the operational risk. The operational risk for us, we expect 100 basis points, but we have a phase in four years. So 25 basis points per year in the coming years, this is what we expect. So when we add to that on the credit side, there is some changes in the weighted assets. So this together may impact 42 basis points, but on the operational risk, we're talking about 100 basis points, 25 basis points per year in the coming years. This is what we are seeing. And the second element, which is important is, as if the reform was approved exactly the way we see, so it's seven plus [inaudible], corporate tax rate and social contribution, we would see something like 60 basis points in capital if we had to do an impairment. So this would be the size if we have a reform approved exactly the way the reform that is posted today in the Congress. So if there was this major reduction in the corporate tax and also the social contribution, we could see an impact on the DTA impairment around 60 basis points.

And the second was the cost of equity?

Just to follow up, there's a second question about the cost of equity. Just to give you the number, we are running the bank, the last quarter. Last month, we were seeing something around 14%, but looking now at the number of costs of equity that we approved in the board and that we are managing the bank is R$ 13.75. And this will be the cost of equity that you will observe, especially from February on. So you will have, in this quarter, a month with 14% of cost of equity and two months at R$ 13.75. So on the average, you will see something around R$ 13.80, R$ 13.85 in terms of cost of equity for the first quarter. This is the cost of equity that we will observe. We look, of course, to our model. We look to the south side, we talk to the buy side, and we make our own discussions in the committees to get to this level, so this is where we are now, Carlos.

Thank you, Alexsandro. Thank you, Milton. Well, with that, we will close the Q&A. Remember that we received several questions, Milton and Alexsandro, via WhatsApp. We are going to answer them all through the IR team, and with that, I wanted to give you the floor for the last message for the investors and analysts.

Thank you, Renato. Thank you, Alexsandro for the partnership in these discussions. Once again, we close this year that started with important difficulties, January 8th, 11th, January 11th, then there is the event of the other corporate that went through other issues. And we imagine that with all the changes that happened in the country at the beginning of ‘23, it was difficult to imagine how ‘23 would come up. I'm very happy to talk about these numbers and having this conversation with you with solid results, recurring results, consistent results, with good quality, and the important thing is what's inside the result. The result is a consequence of everything that we do in the bank. All the digital transformation, cultural transformation, proximity, client centricity has allowed us to deliver consistent results through long periods. I believe that we continue completely committed with this agenda, the digital transformation, cultural transformation, and all the client centricity has to happen every day. We discuss this every second, and we hope to deliver in ’24, a solid year with indicators of engagement and principality and client centricity and relationship that is very solid. But then we've managed to do so with a level of engagement with our collaborators that is very high, very high. The collaboration is high, clients are satisfied. So we have an engaged team, a great human capital that is focused in delivering the best bank for clients every day. This brings the results. Second aspect, we have our feet on the ground. We are very humble. We know that the past performance is not an insurance of future performance. Everybody is focused, disciplined, so that we can continue to deliver with a lot of quality in a market that is profoundly changing. Doing more of the same is not going to take us where we want. What we need is to have the capacity to reinvent ourselves every day. And this is the year of 100 years, September 27th of ‘24. So this is a symbolically very relevant year for us where we hope to deliver strong results and be prepared for the next 100 years. This will be our journey with a long-term view, governance that is very well established between the board, administration and all the committees. And this level of alignment and engagement has produced relevant results. Thank you for your time, for your presence, of course, and more so, for your trust. Trust as a client, investor, and we will work strongly every day to surprise you and continue to deliver the best bank possible for all of our stakeholders. Thank you very much. We will see you briefly and we will talk in the meetings and for those that I only see in the call. See you in the next call. Thank you very much. Have a nice day.