XP Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 18, 2025

There are 14 speakers on the call.

Operator

Good evening, everyone. I'm Andre Papirillo, investor relations officer at XP, Inc. It's a pleasure to be here with you today. On behalf of the company, I would like to thank you all for the interest in welcoming you to our February call. This year was a record setting of results, and today it will be presented by our CEO, Thiago Maffei and our CFO, Victor Masur, who will both be available for the Q and A session right after the presentation.

Operator

If you want to ask a question, you can raise your hand on the Zoom too, and we will attend you on a first come first serve basis. We also have the option of simultaneous translation to Portuguese. There is a button below if you want to turn it on the translation. And before we begin our presentation, please refer to our legal disclaimers on page two on which we clarify forward looking statements and additional information on forward looking statements can also be found on the SEC filings section of the IR website. So now, I'll turn it over to Thiago Maphra.

Operator

Good evening, Maphra.

Speaker 1

Thank you, Andrea. Good evening to all. I appreciate everyone joining us for our fourth quarter twenty twenty four earnings call. It's a pleasure to be here tonight. Let's explore and discuss our quarterly results as well as our strategy in place to accomplish our goals.

Speaker 1

2024 was a positive year for us. Our results were aligned with our plan, bringing confidence that our ecosystem is complete and able to navigate through different weathers. This year, we also dedicated to increase our ability to deliver higher quality service to our clients, better segmentation, innovative products, sales chain expansion, and all of it with strict cost control. Our business is supported by our more intelligent and sophisticated tech platform, creating opportunities to grow the secondary trading, and as a result, we delivered higher profitability to our shareholders. As part of our culture, we celebrate our people commitment, highlighting partners with more than ten years working at XP.

Speaker 1

And last month, I completed ten years in XP like many other partners. So, it was special to see all the transformation we had during the last decade and imagine how many new growth opportunities we still have for the next one. Now, I will share with you the main highlights we accomplished during the year, starting with client assets that we achieved 1,220,000,000,000.00, posting a 9% growth year over year. We also reached 18,200 advisers, representing 5% growth year over year, and client base achieved 4,700,000.0 with 3% growth year over year. In 2024, gross revenues posted 18,000,000,000 with a solid 15% growth year over year.

Speaker 1

We also delivered sound EBT growth of 26% year over year, reaching R5 billion dollars And happy to announce that we achieved the highest quarterly adjusted net income since our IPO, posting BRL1.2 billion in fourth quarter twenty four, and a total of 4,500,000,000.0 for the full year, which represented 17% expansion year over year. On the balance sheet and profitability, we achieved 28.7 ROTE in 2024 with three seventy six PIPs expansion versus 2023, and or ROE market 23%, one hundred and sixty three bps expansion. This ratio year end was 17.7%, a comfortable level when considering the payment of R2 billion dollars in dividends or secured loan book growth and effects of higher interest rate curve in the end of the year. We will bring more details on this topic during the presentation. Regarding the adjusted diluted EPS, we posted 16% growth during the year.

Speaker 1

And looking ahead, EPS should grow faster than net income when we take into consideration the share buyback program we opened last year. Our set of results confirm that we are on the right direction to deliver our 2026 guidance. We will see more details on the next slides. Let's see how our business evolved since we presented our guidance in December 2023. We'll go deeper in each pillar on the next slides.

Speaker 1

Since our total revenues reached 18,000,000,000 during the year, representing 15% growth, to reach the top of the guidance is necessary to post 22% K year, and to reach the bottom is necessary to post 12% CAGR. When we take EBT margin in consideration, we posted two fifty six pips expansion, reaching 29% in the year. It corroborates that our plan is on track to achieve our target range of 30% to 34% in 2026. Now, on the right hand of the slide, there is a comparison from final year 2024 with thirty quarter twenty three, which was the reference that we set our targets for 2026. Analyzing the three pillars that comprehend total gross revenues, we see that core investments and new verticals are within the growth range and corporate and SMB is above.

Speaker 1

As a conclusion, gross revenues present CAGR of 17%. The same idea is related to ABG margin with a sound expansion during the period of February bps at 29%, what reinforce our confidence to achieve our goals. Moving to the next slide. Now, we retail investments. During 2024, the number one question to XP was net new money.

Speaker 1

And we have been addressing the question demonstrating our capacity in delivering around $20,000,000,000 per quarter in retail. This quarter, we posted the $20,000,000,000 in retail with 67% growth year over year despite the challenging macro environment. Comparing total net new money when corporate is included, we posted 26,000,000,000, representing 37% growth year over year. And when we compare the full year, we presented R103 billion dollars in net new money with a 45% growth. Considering only retail, excluding Modao's acquisition, it was a 33% growth year over year with BRL81 billion.

Speaker 1

Our target remains the same for 2025, net new money around BRL20 billion per quarter in retail. We understand that our two differentials set us apart from peers and will contribute to our continuous growth for the next years. Moving to the next slide, we will go deeper in our main levers starting with our complete product platform offering sufficient instruments to our clients according to their objectives. I'm happy to share our current fixed income capacity. XP is a fixed income powerhouse in Brazil, being the largest market maker for all fixed income instruments.

Speaker 1

It became a relevant growth engine in your ecosystem. It was built not so long ago. Actually, we doubled AUC size in the last three years. It is a big question if fixed income will perform as last year, But as you can see in the slide, traded volume to client assets ratio is steady during the years. AUC kept growing at a fast pace, and as a result, fixed income daily average traded volume skyrocketed, reaching 40,000 trades in 2024.

Speaker 1

To achieve this service level, we have to consider the powerful combination of the largest well trained sales team

Speaker 2

in the

Speaker 1

country, diversified and innovative product offering and risk management accuracy. Moving to the next slide, we see our new distribution channel model. Since 2021, we built a multichannel distribution channel in two main categories. The first one, B2B, which comprehends IFAs, wealth managers and RIAs, and the second one, B2C, that contemplates internal advisors, self direct model and private bank. These categories have demonstrated to be complementary, addressing client needs and support our commercial trust, posting continuously AUC growth.

Speaker 1

Important to highlight that the new distribution channels we launched during the last years already represent 60% of total net new money. As you can see on the right hand of the slide, our proprietary tools provide more intelligence to support advisors with daily activities. We do this by providing data, so advisors can manage clients' portfolios according to their objectives and simulate new strategies and performance. On the back of these new technologies and servicing model, we have our FA channel ready to accelerate even more in 2025, becoming adhering to this new concept to manage clients portfolios, improving loyalty and satisfaction. The adherence to these tools and practice it's very important.

Speaker 1

And one of the many examples that makes this clear is when we see that advisors who became adherent to our new commercial behavior increased their daily achievements by 11 times. This shows a powerful combination of tools and a new mindset in relationship with our clients. On the next slide, we developed a segmentation with accurate value proposition. As we can see in this slide, we have from digital to private. Other part of our better understanding of this new segmentation is based in five different dimensions.

Speaker 1

Number one, focusing what clients are looking for in the relationship with XP, from transactions and banking for digital clients to integrated solutions for private clients. Number two, advisory model with three different approach, objective based financial planning and wealth planning. Number three, investment options with proper pricing, sophistication and access depending on the client segment. Number four, banking experience, also with differentiated pricing and products, such as different credit cards matching our clients' expectations. And last, client support with increasingly higher personalization and benefits.

Speaker 1

For example, faster SLAs and participation in events and experiences. Additionally, we are also preparing new initiatives to launch during the year with this rationale. One of them, it's a new credit card experience that we expect to result in higher cross sell and share of wallet. We already saw that the new segmentation started to translate into better results. One from many examples is our private bank, which is performing much better in terms of inflows and client satisfaction than in the previous years.

Speaker 1

We are excited with the last month's performance and expecting a solid 2025. Now, moving to the next slide, we have financial planning. As we saw before, financial planning is an important pillar in our strategy. We are the only institution serving clients with a complete financial planning program to clients with 300 ks and up. Not only client based satisfaction increases, but also their loyalties.

Speaker 1

As first results, we can see on the right hand of the slide that clients with financial planning program increased two times insurance conversion, increases retirement plans conversion from 30% to 41%, and last but not least, increased our client net new money by 43%. And we are just in the beginning, more to be done in the next years. Moving on to the next slide, we will see more details in retail initiatives. Now, let's move to our cross selling initiatives. You can see that credit card grew 11% year over year, marking 13,100,000,000.0 in TPV during fourth quarter twenty twenty four.

Speaker 1

When we compare the full year, credit card grew 17%. When we look to our total penetration, we still see a good opportunity to increase our credit card client base, since we have only 29% penetration out of the eligible clients, and the larger banks are running around 50%. We are excited about our new launches during the year, and we expect the card revenue to grow around 20%. Life insurance written premium presented 37% growth year over year in the fourth quarter and 44% growth for the full year of 2024. This is other growth avenue for the next years since our penetration is about 2% and other players present close to 17% penetration in this product.

Speaker 1

When we compare life insurance revenues, it grew 27% in their year, which means that we are starting to reap the benefits from our own insurance company. This is because it takes three years on average to see the positive impact in this business. The first two years are more concentrated commissions and provisions. And for 2025, we expect an even higher revenue growth pace than the one we saw in 2024, which was 41%. On retirement plans, our client assets keep growing double digit posting 10% year over year in fourth quarter, a market 81,000,000,000.

Speaker 1

XP has 5% market share and the market leader 27%. As I said, in recent quarters, we are launching new initiatives as cashback sales force expansion to keep gaining relevance in this offering during the next years. As keep seeing more inflows, we believe we could grow retirement plans revenue by a double digit rate in 2025. Retail credit, NII, posted 79% growth year over year, marking BRL81 million in revenues this quarter. Since our lending in this concept is backed with client investments as a collateral, our ECL to loans is lower than 1%, which represents one of the lowest levels in the Brazilian industry.

Speaker 1

We expect this revenue to grow around mid teens for the year. On the concept of other new products compounded by FX, Global Investments, GISTOCON and Consortio. They presented 103% growth year over years with revenues marking $213,000,000 this quarter. It demonstrates how many opportunities we still have to capture through cross sell in our retail client base. Not long ago, it was close to zero, and looking ahead, this concept should cross the 1,000,000,000 mark per year.

Speaker 1

And moving to corporate and SMB, as we have been talking about our complete ecosystem, wholesale is an important part of our growth engines. 2024 was a record setting year for this segment. Now, let's see how it performed on different divisions. Starting with GCM, it was a strong year, posting 31% growth in volumes compared to fourth quarter 'twenty three, marking 9,300,000,000.0, coupled with market share gains achieving 13%. As a result, we were top ranked in GCM, agribusiness credit notes and real estate funds.

Speaker 1

It is possible to gain even further market share since XP is the largest investment platform in Brazil with dominance in secondary trading. In corporate credit secondary trading, XP represents more than 50% of the local market. Regarding XP, institutional broker dealer, it's another highlight. Given our distribution power and quality in execution, we are gaining market share continuously during the last years. In the end of twenty twenty four, XP posted 16% market share, which is getting closer and closer to the market leader.

Speaker 1

Other relevant growth avenue is corporate securities. Few years ago, it was a completely different story. Now, our capacity to originate, warehouse and distribute corporate credit is in a new level. XP is a relevant player, and more important than only size is the benefit of our unique loop to recycle our expanded loan book to our retail and institutional clients. Our turnover on it is two or three times per quarter.

Speaker 1

This quarter, our corporate secured book increased 9,000,000,000, mainly high graded names marking 32,000,000,000. It means that we distributed a large portion of Digi's book last quarter, and we also originated a larger one. Our competitiveness is supported by relevance as the largest corporate credit broker in the country. On the rev achieves, we keep evolving our offering while increasing penetration, you would see the rev achieves. And this was another quarter that we kept our fourth ranking position compared to tenth two years ago.

Speaker 1

As we presented last quarter, EXP is the leader in interest rate swaps, a true differential of our ecosystem. On FX, XP also sustained fifteenth ranking position from forty first four years ago when we started. When we look to issuer service and corporate, total revenues posted 45% growth. And when institutional concept is included, just three business grew 16% year over year. We are confident that our strengths, will excel the challenging scenario, marking another solid growth in 2025.

Speaker 1

Moving to the next slide, we will see XP growth potential. We acknowledge that our business evolved in a complete ecosystem, and more and more, we have received questions regarding our growth potential. Therefore, I would like to share with you a rationale that supports our plan for the year. It is important to bear in mind that XP business model benefits from a natural growth from total AOC. Today, as we speak, roughly 65% of total assets are allocated in fixed income directly or through funds, which cooperates to expect growth close to select rate for this client assets.

Speaker 1

Additionally, we incorporated net new money, then a combination of both translates to a potential double digit growth in AUC and consequently should support revenues growth. Regarding new verticals, as I presented earlier, we are confident that we are at the very beginning of the potential cross sell penetration. During the year, we grew 32% and we expect to keep growing at this fast pace in the next years. Another concept which supports our growth is relate to float from our clients. By design, the performance will be at select rate pace, pointing again to a double digit growth.

Speaker 1

Next pillar is the issuer service, focus on GCM. It is true that in 2024, Brazilian industry had the all time high GCM volumes, and it's too soon to affirm that's not going to be also a solid year for GCM in 2025. Just in case, if the total GCM volumes for 2025 materialized in lower levels than last year, Our plan is to expand our market share and benefit from a new level of Brazilian industry, which is way higher than years ago. Our distribution power is the most important differential to participate in many issuance mandates. Coupled with that is our lower cost of capital, which Victor will present more details ahead.

Speaker 1

Finally, corporate revenues go hand in hand with issuer service, providing derivatives and credit to our clients. XP is becoming more relevant in wholesale business since our recycling mode results in higher distribution capacity to our retail and institutional channels. So, even considering institutional revenues with lower pace as part of this concept, both should post double digit growth. Just as a reminder, we already expected a softer primary offerings volume in GCM for the first quarter twenty five due to the seasonality, but this should be offset by a higher activity in the corporate bond secondary market. But compounding all these factors that I just mentioned, the endgame should be total revenues growing more than 10% during 2025.

Speaker 2

Now, I will hand it over to Vitor, so he

Speaker 1

can discuss this quarter financials. Thank you.

Speaker 3

Thanks, Mafra. Good evening, everyone. It's a pleasure to be here with you. Let's start with gross revenue. Total gross revenue posted 15% growth in 2024 and four percent growth quarter over quarter.

Speaker 3

Retail fixed income and corporate issued services were the highlights of the quarter. The strong performance in retail fixed income reflects our growing ability to deliver fixed income products and enhance our market making capacity. In parallel, corporate issued services benefited from our warehousing strategy, which aims to meet client demand in the first quarter of twenty twenty five, while mitigating the expected weaker seasonality. When we compare the gross revenue breakdown on the right hand side of the slide, in 2024, retail maintained 75% of total revenues and corporate and issued services gained space against institutional revenues. Let's move to the next slides with more details on the different segments.

Speaker 3

Retail revenue posted BRL11.791 billion, a 14% growth in 2024 and market BRL35690 million in the fourth quarter 'twenty four, presenting 2% growth quarter over quarter. As expected, fixed income was the highlight in the year and in the quarter, achieving BRL347 billion the full year, with 49% growth and BRL985 million in the quarter, posting 5% growth quarter over quarter. Important to highlight, as Mahfra mentioned earlier, fixed income is a relevant component of our ecosystem and the results in retail are completely connected before distribution capacity and are relevant in secondary trading. I also would like to highlight those new vertical products presented more than 30% growth in the year, which means we are on track with our plan presented in our Investor Day in 2023. Moving on the next slide, Corporate and Issue services became an important contributor in our ecosystem, posted BRL2.289 million, marking 4% or 5% growth in the year.

Speaker 3

In the quarter posted R599 million dollars which represents 9% growth quarter over quarter, marking a sound 4% or 5% growth in the year. Issuing services delivered solid results again on the back of this same activity, achieving R1,324 billion dollars with 46% growth during the year and reached R337 million dollars in the quarter, a 5% growth quarter over quarter. On the back of a stronger quarter for issued services, corporate division was able to capture cross selling opportunities mainly if derivatives. Corporate posted R260 million dollars in the quarter with 14% growth quarter over quarter. Looking to the full year, it represented R965 million dollars a 4% or 5% growth year over year.

Speaker 3

We have been talking about our warehousing strategy and recycle mode for some quarters. To provide you with the clear view of what robust engineering we have in the fixed income arena, the engineering starts with origination investments banking, allocating a part of our issuance in your book and the offering in your retail institutional clients. This was another quarter in which we not only distributed most of the previous quarter book, but also build a new portfolio if competitive products to meet client demand in the first quarter of twenty twenty five, mitigating expected seasonal impact. This approach mirrors the strategy we executed in the second quarter of twenty twenty four, enhancing our competitiveness by offering high return products compared to traditional time deposit and tax exempt notes from large banks. Our security books achieved R32 billion dollars representing 4% growth quarter over quarter.

Speaker 3

Moving on the next slide, we will explore our SG and A and efficiency ratios. We believe our competitive edge is driven by our ability to continually invest in our core business, new technologies, expansion of our advisor network and product development, while maintaining strict cost and expense control. Unlike our competitors, we are born digital, which position us to sustain growth while improving efficiency. As a result, we grew 15% in total revenues and 10% in SG and A during the year. Total expenses posted BRL5.927 billion.

Speaker 3

Just a reminder, we incorporated Banco Model in the second semester of 'twenty three, creating a new baseline for the full year of 2024. So when we compare 4Q twenty four and 4Q twenty three, the SG and A grew only 2%. At the same time, we also launched several new products, introduced our financial planning platform and hired close to 800 new internal advisers. Looking to 2025, we have new rounds of investments to enhance our platform, improving our banking product offerings with better segmentation than the full year carry of the new internal advisers higher in 2024. Moving to efficiency ratio on the next slide.

Speaker 3

As we can see on the right hand of the slide, we improved the efficiency ratio in 157 basis points during the year, achieving 34.7%. We also improved this ratio in 78 basis points in the quarter. As mentioned in the previous slide, our goal for the year is to enhance our efficiency while continuing to invest in strategic areas. We expect our efficiency ratio to improve throughout the year. Let's delve into EBT now.

Speaker 3

As a result of our assertive strategy to provide new and innovative solutions, together with our strict cost control drove an unprecedented EBT and EBT margin expansion for the year. Along with these actions, we also organized our corporate structure, decreasing maturity our cost of capital and funding, benefiting both wholesale and retail banking business, and also better position XP to compete in those markets. So our EBT responded those decisions during the year, presenting 26% growth and achieving R949 million. In the quarter, EBT totaled R1,289 million, posting 6% growth quarter over quarter and 30% growth comparing to the 4Q twenty twenty three. Our EBIT margin market 29.1% for the year, posting a strong increase of two sixty three basis points.

Speaker 3

In the quarter, EBIT margin was 28.7%, sixty six basis points higher quarter over quarter and four thirty basis points expansion compared to the 4Q 'twenty three. For 2025, our efforts will be to expand our ecosystem, capture the benefits of a larger business and target our commitment to 2026 to deliver EBT margin between 3034%. On the next slide, we see the adjusted net income. 2024 was a year with more ups and downs than average, even for Brazil. Remember that in the beginning of the year, macro expectations were different from the 2Q twenty four and way different from the last quarter of the year.

Speaker 3

We did what we said and delivered results aligned in the fourth twenty twenty six guidance released in December 2023. And the adjusted net income in the year achieved BRL4.504 billion, a 17% growth year over year. And in the quarter, it was BRL1210 billion, excluding the one off impact, representing 2% growth quarter over quarter. As we talked during the last two quarters, it's important to remember that our estimates on normalized ETR was around 18 and it was the case. Since in the quarter market, 17.9% and in the year, 18.7%, we expect the effective tax rate to remain around 18%.

Speaker 3

Let's move on to the next slide to talk about capital management. As we have commented last quarter, we started to provide full view on capital and risk weighted asset figures. Looking at our base ratio, it stood at 17.7% at the end of twenty twenty four. As a reminder, we distributed BRL2 billion in dividends and have an ongoing share buyback program. As we previously highlighted, turnover

Operator

volume

Speaker 3

and fixed income reached all time high, driven by our investments in secondary trading technology. We remain highly optimistic about this trend, which gave us the confidence to expand our books by R9 billion dollars of high quality securities. This strategy allowed us to capitalize on the widening credit spreads at the end of the year, enabling us to warehouse those assets at a more competitive level. Additionally, it's important to note that half of the volume was related to tax exempt notes from credit sovereign banks supported by the launch of a new product in Brazil, the development credit notes. Similar to the second quarter, we expected to sell these assets in the first quarter of twenty twenty five, helping to offset the seasonally weaker DCMA activity during that period.

Speaker 3

With that in mind, we are confident in for capital level and there are no changes to our guidance. We continue to target a BIS ratio between 1619%. It's also important to highlight that DXP holds a higher proportion of CET1 capital at 16%, way above local peers. Additionally, we expect the implementation of the new 04/1966 regulation from the Brazilian Central Bank to have a positive impact in your risk ratio over 2025. On the right hand side of the slide, we once again presented our RWA to total assets ratio at 30.

Speaker 3

The observed shift in the breakdown between credit and market RWA was driven by the increase in our warehouse books. Since the third quarter, credit spreads in the trading book have been accounted for as market risk. Despite this, our business maintains a comfortable average daily VAR reaching 16 basis points over action or R32 million dollars in absolute terms. Our capital strategy results in a conservative base ratio, while supporting higher profitability and return to shareholders, as we are going to see in the next slide. This slide summarizes our capital distribution for the past three years, reaching close to R10 billion dollars in dividends and buybacks.

Speaker 3

This year, our total payout ratio was 74%, if R3.6 billion dollars capital return. Looking to the next couple of years, we maintain our goal to deliver more than 50% payout ratio. Now, let's see our EPS and IoT. Our earnings per share evolution continues to post a solid growth and achieved $8.28 a 16% increase year over year. Same trend that we see in RoTE and ROE.

Speaker 3

RoTE achieved 29.2% in the quarter, representing 78 basis points higher quarter over quarter, and ROE posted 23.4%, if 40 basis points higher quarter over quarter. During the year, RoTE market 28.7%, three seventy six basis points higher year over year and ROE achieved 23%, if 164 basis points higher than last year. And now moving to my last topic, the new corporate structure. We mentioned last quarter that we conclude the corporate restructuring in Brazil, where the bank became the parent company. As a result, as we can see in the slide, the cost of capital is 35% lower than before since we issued AT1 and T2 during the year.

Speaker 3

We could only capture part of these benefits in 2024, and we only see the fully loaded impacts of lower cost of capital and also material lower cost of funding in 2025. Now, moving back to Matra, so he can do his final remarks, and then we go to the Q and A.

Speaker 1

Thanks, Victor. So, before moving to Q and A, I would like to reinforce four topics. First, our all weather ecosystem showing that our business go way beyond equities. 2024 was a challenging year, but we presented solid results demonstrating that our growth strategy is well positioned to deliver our 2026 guidance. Second, our retail net new money during the year was 81,000,000,000, reaffirming that our target to increase 20,000,000,000 per quarter is on track, also for 2025.

Speaker 1

Third, we understand that our true differentials are still intact. We are continuously evolving our product platform, our multichannel distribution, our new segmentation, and our value added service, supported mainly by financial planning. All of these set as a part of other players for the long run. And lastly, our capital discipline translates into conservative approach, more efficient and with higher return to our shareholders. During the last three years, XP distributed dividends and executed share buybacks programs close to BRL10 billion.

Speaker 1

And we will keep working to increase our profitability during 2025 and the next years. Now, Andre Paradisi will start our Q and A session.

Operator

Thank you, Mafra. We're going to start, so the Q and A. The first question is from Thiago Bautista, UBS. Thiago, you may proceed.

Speaker 4

Hi, guys. Are you hear me?

Operator

Yes.

Speaker 4

Okay. Congrats for the results. I have, two questions. The The first one on the, capital or the BIS ratio. This quarter, we saw a big increase in the risk weighted assets, if not wrong, around 12% Q over Q, mainly on market risk.

Speaker 4

Can you comment about, this movement? And the second one about the internal advisers, you mentioned I mentioned, after in the in the first pages of of the press release that, they represented represented about 60% of all the net new money of the year. And they are, about 15% only of your, Salesforce. Can you comment on why, those guys were are so much more, efficiency, efficiency, than, the overall Salesforce. And by the way, congrats for the the beginning of your the press release, the short page that you you wrote, I think was very, very good.

Speaker 2

Thank you, Thiago, for your question. So I will start with the second part of the question and then, Vitor, will take the first one. And good evening again to everyone here. So the 60%, of net new money is not only from internal advisers, but internal advisers. Remember that we have three channels today.

Speaker 2

We have internal advisers, the IFAs, and the RIA model that's basically the wealth managements and and consultants. Okay? So when we talk about the 60% is the, what we call, the wealth service channel here, okay, and the b to c. So the two together combined is 60%. So but about your question about the level of productivity, yes, when we compare the internal advisors versus the the IFAs, it's very different.

Speaker 2

Okay? The level of productivity of the internal advisers, it's much higher. We have some hypothesis here, but the main one, I would say, that's the the way we manage the the sales team here. We have, all the datas, all the index, level of of activity. So we control the sales process, in a much more, standard way than than the the FA offices.

Speaker 2

Okay? But all the tools, all the intelligence, all the technology, everything that we develop for the internal advisers, we also provide for the IFAs. Okay? So everyone, here at XP know that knows very well that for me, the channel that they will focus more in 2025, it's the inter the the IFAs, the b two b channel, because I believe we have a hidden potential here to unlock value this year because it's basically how we get all the tools and all the techniques, the sales process that we have developed for the internal advisers and how we scale that for the the IFA network. So that's my main goal when we talk about, channels for 2025, and I believe we can help the the IFA's even further, to increase the productivity.

Speaker 3

Thank you, Mafra. Thank you for your question, Thiago. Just remembering here, since the third quarter of the year, credit spreads risk is allocated at market risk by the new central bank regulation. So when we increased our book in R8 billion dollars of corporate securities and quasi sovereign government banks, we added risk at the market RWA, not at the credit RWA since everything is booked in the trading book.

Speaker 4

Clear. Thanks for the answers.

Operator

Okay. Next question is from, Eduardo Hosman from, BTG Eduardo, you may proceed.

Speaker 5

Hi. Hi, everyone. Congrats on the quarter. I have a question regarding competition with the banks and regulation. I think earlier last year, we saw the regulator adjusting, right?

Speaker 5

The rules on instruments with tax benefits, such as the LCIs and LCAs, which traditionally give, you know, the the large banks an advantage. Right? Is I think this impacted their ability to supply the market. And we saw, I think, an improvement on on the fixed income market outside, you know, the these banking instruments, I think. And this naturally, I think, helps you.

Speaker 5

Right? So but on at the end of of the year, we saw kind of a a big reacceleration in the issuance of these, these banking instruments, you know, with tax benefits. So I wanted to know if you can explain to us what happened, you know, and additionally we've been seeing some reports in the press, you know, talking about, potential relaxation of these rules. So if you could share your thoughts on this, if you think it, it happens or not, and if, if it does, you know, how that kind of, might impact, you know, your business. Thanks.

Operator

Hi,

Speaker 3

Osman. No. No. You can. You can.

Speaker 3

No.

Speaker 2

So I I will start and then you can complement myself here, little. So to be honest, the scenario with high interest rate, it's it's very clear for everyone that it's, it helps the banks a little bit on the competitive side. But, I would say, especially in 2024, competing against, if we go back one year or a year and a half, it was very hard for us to compete against the LCIs, LCAs, and so on because we didn't have, I would say, the amount of these instruments that we need and not even the right price or the same price as the banks. Okay. But we have been working very hard to find ways to replicate, to do partnerships, to warehouse, to do revolving lines, to do repo.

Speaker 2

So I would say that we have developed ways, technology, and and instruments, to to compete against the banks. So, I would say that's not a % the same, but today's very close. It was a big problem if we go back to 2023. It's not that big when we look today. So I don't think that, any change in regulation would have a big impact for us right now.

Speaker 2

And again, we expect this year, I would say that the 20,000,000,000 that we we are saying here is today we see more as a floor, than as, like, the target that should be the floor and we should deliver, like, higher net new ones during the year.

Speaker 5

No. Great, Mathra. Thanks a lot.

Operator

Okay. Next question is from Guilherme Grespen, JPMorgan. Guilherme, you may proceed.

Speaker 6

Thank you, Umafar and team. Congrats on the results. Two questions on my side. The first one actually on on the balance sheet. We saw a half a billion mark to market on on the equity side.

Speaker 6

If I imagine it's related to securities on on the fixed income or housing. If you could just put a little bit more color on that. It was surprising to us. We understood in the past that there was a hedge whenever you basically warehouse the security. We thought you basically do a hedge against the inflation linked at bonds, and you're basically exposed only to the corporate credit risk.

Speaker 6

But by the comments, we understood that the market to market impact here was the Seliq, the real rates in Seliq moving up. So So if we can explore just a little bit the dynamics of this warehousing exposure to macro dynamics, and if we should expect a reversal of this market to market in the first quarter. And then my second question is just related on capital. You probably when you look at return on tangible equity, it's running basically at 30%. Right?

Speaker 6

And the risk weighted assets is growing at 35. So basically, the the conclusion top down conclusion here we we reach is basically you're not generating organic capital in in this pace of growth of RWA. And and when we try to do the math, I think there is a guidance of more than 50% payout for the next two years. It seems you're gonna fall below the 16% range that you had before. At the same time, there was, in the final remarks of the slide, a few CT one numbers was not clear to us if you're revising the target or not.

Speaker 6

But just if you can help understand the math and the moving parts behind the capital, because to us, we couldn't match kind of the payout that you are guiding to the capital generation we are seeing today. Thank you.

Speaker 3

Okay. Thank you for question, Jeremy. Starting if the OCI, that's not that does not confirm the warehouse books. Those are balance sheet hedges, so just trying to give some color here. That's MTM of governed bonds that goes against equity.

Speaker 3

But the bonds are hedging several assets and liabilities that are booked at amortized cost. So basically, we have a distortion in your own side since one component is going to action and the other one is not. To give you example, real example here, imagine that we have an inflation linked loan booked at amortized cost. And the hedge is against an N10B at available for sale going to OCI. Our P and L is zero, but the first one is not going to the action.

Speaker 3

The second one is going to the action. We will take advantage of the new central bank regulation, the 4,966, that starts to starts live in 2025. And we will harmonize those booking models for hedges and and balance sheet and should eliminate this effect for the future. I don't know if it was clear.

Speaker 6

Yes. Super important. So actually, you have unrealized gains in the held to maturity of 500,000,000.0 as well.

Speaker 3

Exactly. At amortized cost, my loan portfolio, emissions that I had against market and then you go.

Speaker 6

No, that's clear. That's important and super clear to answer.

Speaker 3

Okay, great. Going to the RWA question, it's important to reiterate that RWA growth has been driving primarily by the expansion of the wholesale banking franchise, which is relatively new. We are gaining market share and deliver higher ROEs than our peers. And most of wholesale banking business has derivatives, the market making, warehouse, and you choose what business lines. You're first starting if dragging your capital, then you realize your gains over time.

Speaker 3

So as we are scaling the business, it's natural that RWA grows. But if you compare the growth of the RWA, if the growth of the business inside corporate and corporate banking, we are growing our revenue faster than the risk. And also, our bank will reach maturity at some point in the future. And the pace of evolution of the RWA will be more normalized if the growth of the revenue.

Speaker 2

And just to compliment Victor here, because you mentioned that if we were changing the guidance for payouts and and for the next year, no. We are very comfortable that we are going to to pay more than 50% this year in the next one.

Speaker 6

Okay. And just to confirm, the capital ratio is still is 16% to 19%, right, the target?

Speaker 3

Yes, it is.

Speaker 6

Okay. That's clear. Thank you.

Operator

Okay. Next question is from Gustavo Sherodin, Citi. Sherodin, you may proceed.

Speaker 7

Hi. Good evening, everybody. Thanks for taking my questions and congrats on the good year, challenging year and you developed good results. But before I make my question, just a follow-up on the first question about the IFAs and the internal advisors. Mafra, you mean when you say that your main goal in 2025 is to focus on, IFAs, you mean that the idea is to replicate all the tools and techniques that you applied for, that you applied on on on, internal advisers and gain productivity.

Speaker 7

I need to have the same productivity in IFAs. That's the the the idea here. I'm trying to to understand better what you mean when you say that the main goal is to IFAs and using the techniques and tools from internal advisors. My second question is about the take rate. So going back to your business, you were clear in saying that you should expect net new money at $20,000,000,000 per quarter in 2025.

Speaker 7

So it's part of our equation. So if you could share with us that what's the take rate implied in your expectations for 2025. I believe that as the fixed income gain share, it puts more pressure on the take rate. So how the company thinks about take rate? What should they expect in 2025?

Speaker 7

Do you think that this $133,000,000 is the best guess we can have? Thank you.

Speaker 2

Yes. Thanks for the question, Gustavo. Starting from the first question, just to make it clear, when I say my main goal when we are talking about channels, okay, because I have other goals here. But when we talk about the three channels, the main one that they will put more effort, easier, it's the b two b channel. Okay?

Speaker 2

And why? Because if we go back to 2021, one of my goals when we talk about channels was to diversify, the the channels. So back in 2021, I would say that the the and I don't have the precise number here, to be honest, but I would guess, the IFA was about, like, 80%. Okay? More or less here.

Speaker 2

And today, it's 40. Okay? But so I spent a lot of time, working side by side with internal people here with the leaders to develop the the b to c channel and also to develop the the corporate channel. Okay? So I would say that these two channels, they are in a very good shape today, okay, growing, we have the right leaders, they are performing well, the returns are very good, and now it's time to put more effort in how we increase the productivity and how we deploy the same techniques, the same technology, the sale the same sales management, tools we have on the IFA channel.

Speaker 2

So it was exactly your question. But again, just to make it clear, it's not my one goal for for 2025 is talking about channels, okay, not about every everything at the XP. And for the second question, if we look, the take rate for the past three years, it's around 1.28. Okay? The guys here, they can help me, but it was 1.28, one point two eight, and probably 1.29 this year, okay?

Speaker 2

So it has been flattish for the past three years. When we say that this year, we are going to deliver more than 10% growth on top line and 10% for me is conservative here, we should deliver more, okay? It's considering the same take rate. We don't we are not projecting higher take rates for the near future. Yes, we believe we are like close to the end of the cycle because of the changing mix, because if we look the last three years because of the high select rates, volatility, and so on, all that you see moving from higher ROA products to fixed income products with much lower ROA.

Speaker 2

We believe we are at the end of this cycle. We don't know if we are there yet or not, okay, But we are close to the end. But we are not projecting that on on the internal budget or on the the numbers that we are showing here. So we are expecting flat take rate for 2025.

Speaker 7

All right. Super clear guys. Thank you.

Operator

Okay. Next question is from Tito Labarda, Goldman Sachs. Tito, you may proceed.

Speaker 8

Hi, thanks, Varisci. Good evening. Mafra, Victor, thanks for the call and taking my question. Also, two questions also, if I may. Thanks for the revenue guidance on 2025.

Speaker 8

And Mahfraj, you mentioned you think it's conservative, but just I mean, it does need to be a little bit higher to get to that 2026 guidance. So just to think about where the upside to that 10 could come from. I mean, you mentioned maybe you're getting close to the end of the cycle on the mix shift. I mean, I guess, do you need to see equities do better? Do you think there's enough growth in just like the fixed income and the new verticals, particularly given that the base is going to be higher in 2025 to get the growth in 2026.

Speaker 8

But just to think about where upside to that 10% growth, where could that come from and do you need it to deliver on the guidance? And then second question, just on expenses, right, I mean expenses growing around 10%, you're still guiding for some margin expansion. Is that 10% growth sort of the right level of growth? How much flexibility do you have there? Is there any other cost cutting that you could do to keep the growth a bit lower?

Speaker 8

Or just how should we think about expense growth for this year? Thank you.

Speaker 2

Thank you, Chito. The first question, the way we have been presenting the company, the way we manage the company is in on the three verticals, investments, cross sell and the wholesale bank. If we look what we did last year, and again, it's important to remember where we came from back in 2023 when we did our guidance and when we did our internal budget. FX, BRL was supposed to go to 4.5, interest rates going to 8.5, nine. So, Equities, EvoViz was supposed to go to 150, and the environment in 2024 was completely different.

Speaker 2

Okay? And how we managed to deliver, I would say, a % of our internal budget and the guidance we gave, because we have we were prepared for a tough environment. Okay? We are not expecting a better environment, and we are, again, prepared for a tough environment for 2025. So we are not projecting a better macro environment.

Speaker 2

We are working only with levers that we control here. So, and if we look the three verticals that I mentioned, investments grew 13% last year. Remember, our business here, the AUC, grows close to selling rate because today 65% of the total AUC is in fixed income linked somehow to select rate. Okay? And so if we expect the select rate of fourteen, fifteen, for this year, we should grow, or you see close to that number.

Speaker 2

On top of that, we have another 80 to a hundred plus billion reais here in that new money. So another eight to 10% growth, in AUC. So when we look here, it's hard to not do a math that we don't deliver another 13% year growth in the core investments as we did in 2024. Moving to cross sell initiatives, we delivered 32. We mentioned some, I would say, not guidance, but some projections here for some of the business lines, credit cards, insurance, and so on on the presentation.

Speaker 2

So in our internal projections, it's almost impossible to not deliver the the same numbers we're delivering in in 2024. Okay? And when we go to wholesale bank, we are growing 45% when we take out the institutional business that's more mature. Okay? So again, we are we are continues to grow this year.

Speaker 2

Not sure if at the same level, but close to this level. So when you do the math, remember to achieve the guidance, we have to grow a CAGR for the bottom of 12% and for the top of the range, 21, 20 two percent. Okay? So we delivered 17% last year, and we are on the same pace for this year. Okay?

Speaker 2

So, for us, we are on track to deliver the guidance. We don't see, anything to change the guidance or to to say that we are not going to to reach the inside the guidance. It can be in the middle, it can be on the top, or it can be more close to the bottom, but it depends a little bit, how it goes these next two years. But we are very confident that we are today from the middle and up, okay, of the guidance.

Speaker 3

Thank you

Speaker 2

for

Speaker 3

the question. I will take the one about expenses. First, I would like to give you a color on how we manage expense in the company. We have everything in a very low latency. So efficiency ratio management is a daily task for the company.

Speaker 3

We project every business line revenue, expense, costs at every for every segment that we have at the company. What we are committed is to keep improving the efficiency ratio over the year. So if the revenue is larger, we have space to invest more in areas that are strategically for the company. If the revenue is going near the bottom of our 10% indication that we gave here, we will manage the expense to fit and deliver efficiency ratio improvement over the year.

Speaker 8

That's no, very clear. Thanks, Victor. Thanks, Wafra.

Operator

Okay. Next question is from Antonio Huat, Bank of America. Antonio, you may proceed.

Speaker 9

Hey, guys. Thank you for your time. And so I have two questions, if I may, one first in the quarter. So if you could please help us to understand the headcount here. So we see an increase of about 200 on Q on Q on headcount, but total advisers falling 200.

Speaker 9

So this means a greater contribution from internal advisers. And also following up on on that soft guidance of, 10,000 internal adviser, is this still up? How should this behave over the next quarters? So this force on headcount and D2C. And now also a second one, a more strategic one on new products.

Speaker 9

We note that a relevant part of the guidance for us on 02/2025 and EBIT '26, is related to deployment of banking products and cross selling or consortium cards. And I'd like you to explore a little bit the challenges of doing so, considering that many of your IFAs already distribute these products, not necessarily from XP, this would be great. Thank you.

Speaker 2

Thank you for the question, Antonio. So the first part of your question, about the the the number of people, the headcount, okay, we have been deploying, I would say, about 50 to it depend it it varies a lot, month to month, but I would say 50 to 80, internal advisers per month. Okay? So I would say for, 2025, our goal is to add, around 500, six hundred, internal advisers. Okay?

Speaker 2

So the 10,000 advisers internal advisers, it was it was more an aspirational, goal than than a strict plan. So we are edging, I would say, 500, six hundred, GZR. We can accelerate or not just accelerate, depending on the the environment, on the KPIs. We have, all the KPIs for all the cohorts if they are doing well. We go faster.

Speaker 2

If not, we adjust and, some things and and before we we move on. But that's that's the number. Okay? So out of the 200, I would say a hundred and something, a 50, a 30, they are internal advisers and the other people, they're all around the company. Okay?

Speaker 2

You mentioned there was something else about the the decreasing number of total advisers. Yes. Remember that I mentioned that the main difference of performance from internal advisers and IFAs was, the sales management techniques, tools, and and so on, okay, that we use. But for me, the second one, it's, I would say the quality of the the advisors. Okay?

Speaker 2

So we have expanded, really fast in the past, and now and we have what we call here, a curve a, b, c. Okay? So the best ones, they are a, then we have the the b tier and and so on. And we have been very focused on having only the best ones. Okay?

Speaker 2

So we are intentionally, decreasing the number of IFAs in some case. Okay? And the second point, and and that more focus on on IFAs. Okay? Not we have we do the same, methodology for internal advisers, but that's our daily business here.

Speaker 2

But we are also very focused on doing that on the the IFAs. And the second one, talking about IFAs, remember that there was a changing regulation, I would say, mid year, last year, okay, that the IFA now, they can be, employees. Okay? They they can they can be under label, agreements in Brazil. They could not, be employees in the past.

Speaker 2

They had to be IFAs and partners. But with this change, we are starting to see some of the IFA offices changing IFA's from the independent model to the employee model. Okay? Especially, people that are not actually IFA's. They are like, guys that work, at tasks, back office, and some other, tasks.

Speaker 2

Even these guys in the past, they were most part of them, IFAs. And even some advisors in some of the IFA offices, they are becoming employees. Okay? We have, I would say, one big one that all the IFAs, they become employees, in the last, two quarters. So that that's why you see the number of IFAs decreasing.

Speaker 2

Folks on Qualitro, IFAs, and they changing from IFA to employees. And and about the what was the second part? The oh, okay. The the cross sell products if they when they produce outside of XP. Right?

Speaker 2

There are some ways of, try to mitigate that. The first one, imagine that an IFA is much smaller than XP. Okay? And when we launch a product and we do the partnership with the players to be a marketplace, we have much better agreement with these, companies, than the IFA is isolated. So, for example, life insurance, when we started, as you mentioned, a lot of IFA's, they already did life insurance, especially whole life insurance with, all the players that you guys know very well, that are global.

Speaker 2

And but today, all of them, they do with us. All of them. Okay? For some reasons. First one, we have better agreements than they had before.

Speaker 2

So they make more money doing to us than directly with these partners. Second one, we have better experience because remember, imagine that you were an XP client, two years ago and you buy a whole life insurance. You had to go to the insurance company, open an account, wire money to this place. You could not see your life life insurance policy integrated in your financial planning, in XP app, so it was a mess. The experience for the client, the final client, was a mess.

Speaker 2

The third one, imagine that you are an IFA. You have to open a new system. You have to go to five different insurance companies. You have to go there, input all the data, everything, and to get a quote. Okay?

Speaker 2

Then you get back this quote, and you have to go through a lot of different systems. Now we have one marketplace at XP. Okay? We have our own insurance company, but we have other players. Our concept here is always to be, an open platform, no matter for each product, and you can do everything on what we called here the hub.

Speaker 2

That's the tool for the IFA's to sell everything from investments to to life insurance. You go there. You do one quotation. You do everything through the system, and everything is integrated for both the IFA and for the customer. Okay?

Speaker 2

And the fourth one, today, we have agreement, exclusivity agreement with, foreign investments with 90 plus percent of the IFA offices, and we have almost the same thing for all the other products. Okay? When we do an investment in equities or when we do a prepayment agreement with an IFA, we have exclusives for today for all the products. Okay. So, of course, for some products that we don't have, we cannot ask them to do with us because we don't have.

Speaker 2

Or, of course, we we have completely different financials for them, we will have to discuss. But again, remember the first point, usually, we have better agreements, we have better experience, and we have exclusivity agreements. So, it's it's very hard for them, like, to do outside. Just to give you an example, in three months that we start consortium, we did like more than a billion rising in premium in two months, three months. Okay.

Speaker 2

So it's growing really fast.

Speaker 9

That's super clear. Thank you for the comprehensive answer. Thank you.

Operator

Okay. Next question is from Neha Arghawala, HSBC. Neha, you may proceed.

Speaker 10

Hi. Thank you for taking my question. Just a very quick one. You mentioned about, changing the credit card proposition. Could you just elaborate a bit on that?

Speaker 10

What are you changing for the credit card? Any new features you're adding? I believe you can will continue to focus on your captive client base and not go open market. Thank you so much.

Speaker 2

Thank you, Niho, for your question. Backwards, we are not going to open markets. Okay? So we are focused on our current customers here, so don't worry. That's the first part of your question, if, you get the products we have today, we're we have basically two.

Speaker 2

What we called, one that's basically for small clients, okay, with clean credit, and we have what we call the XP finish. Okay? The one with, InvestPack, of 1% and so on. Now what we are doing, remember, if you go back to the presentation, there is one slide that we talk about segmentation. I know that's very common for banks, but as we are born, more on affluent customers, we didn't have retail clients and private banking clients, okay, in the past.

Speaker 2

We used to do the same value proposition from the middle to the clients on the bottom and to the clients from the top. Okay? We start to change that two years ago, and today we are much more mature. We can deliver different products, different pricing, different SLAs, different service. We have different financial planning, wealth management, and so on for these different segments.

Speaker 2

And when we go to cards, it's the same thing. This year in 2025, I would say, early second quarter, we are going to release some new cards, okay, folks on, I would say, the unique clients, that we call the XP unique here clients with more than 3,000,000 realizing in AUC and also another card for private bank clients, okay? So with different value proposition, different invest back, different benefits, so a more suitable card for these clients. Okay? And we believe it's going to be a notch above the market, something that's really new that there's no equal value proposition, especially for the private bank clients in Brazil.

Speaker 10

Understood. Very clear. Does it would would that require additional investment? Should we see OpEx or CapEx increasing because of these changes? Any material impact?

Speaker 2

Nothing nothing material. Of course, they will have as they have more benefits, they will have, little bit higher COGS. But and, when we model that, the revenue expansion, the higher interchange that we have, better cashbacks from Visa and so on, you should not see anything meaningful.

Speaker 10

Perfect. Thank you so much, Barbara.

Operator

Okay. Next question is from Marcelo Mizahi Bradesco Bebe. Mizahi, you may proceed.

Speaker 11

Hi, everyone. Thanks for the opportunity. So my question is regarding the expenses. So, you guys said about, to gain efficiency. So the goal is to gain efficiency in the next year or the next quarters, I don't know.

Speaker 11

But the point is in the last quarter, we saw a huge increase on the line of the bonuses. So the amount of bonuses was very huge comparing the last especially in the last two years. So it's how can we predict that? So, expenses, we have to predict that. So, margins, EBITDA margins gaining, growing year by year, quarter, quarterly, quarter by quarter or, annually.

Speaker 11

And another question is regarding provisions. In the last quarter, we saw an increase on provisions again. So to be clear, this is the level that is recurrent. So around 100,000,000 EIS is the level that could be recurring to the next quarters?

Speaker 1

I will take this sec are you hearing me?

Speaker 4

Yes.

Speaker 2

Okay. I will take the second part of the question, or the second question about the provisions. Remember that in the past quarters, Q2 and Q3, we mentioned that the level was not very correct because back there, we had some other positive impacts on the same line. It was in Q2 and Q3 something about R40 million to R50 million and we said that the correct level should be around R90 million per quarter. Okay?

Speaker 2

So that was the speech in the last quarters. I would say that as we are growing the business and the loan book a little bit, we should be closer to 100, 1 hundred and 10 in the next quarters, Q1, Q2 and so on for 2025. So not a big increase, from 90 to to 100, one hundred and 10, but a small increase as the loan book is growing.

Speaker 3

Taking the expense questions, I think that you should also look at compensation ratio, and both compensation efficiency ratio are at an all time low, and they should keep gaining margin over the year. We may have one quarter or another quarter if slightly higher number if take third quarter, for example, where we have our annual event, it may have a bit more. But over the year, we should deliver again in both of those indicators. And about the expense compensation expenses in the fourth quarter, As MAPFRE said, we reached 100% of our internal budget. And basically, that is a performance metric that we have.

Speaker 3

We have an S curve in remuneration. And when we reach our goals, we need, we pay more our team and our partners, basically. That is it.

Speaker 11

Okay. Okay. Great. Thanks for, for your answer and thank you.

Operator

Okay. Next question is from Danielle Vas, Safra. Danielle, you may proceed.

Speaker 12

Hi, everyone. Good night. And thank you for the opportunity of meeting questions. Two on my end here. On the Waterfalls light that you you showed us, the the contribution by segment two to reach the 10% growth in in 2025, '2 points caught my attention.

Speaker 12

First, the DCM contraction that you expect for the market, this might be directly linked to your market share gains. Could you could you share with us what is your assumption for the the system system contraction in in issuances. And second, the the the growth above 10% in corporate and institutional. Given that institutional business in Brazil has been struggling to to grow and funds we're not seeing so so many good, good good, projections for net new money still in the funds. What is your breakdown that you are assuming between these two segments?

Speaker 12

Are you expecting any any growth to institutional business in 2025? Thank you.

Speaker 3

Hi, Vas. Thank you for our question. Starting with the DCM activity, it's too soon to say that the same activity will be lower over the year. We were seeing the pipeline a bit weaker for the first quarter as it is expected. You have summer vacation, carnival and then you go.

Speaker 3

And if you look at our presentation, we gave a color that we are housed at R8 billion dollars to R9 billion dollars in corporate assets and taxes and private sovereign government banks to have products to offer to our clients even though if our primary offering was a bit weaker. So we expect fixed income to keep performing very well during the quarter. Okay, perfect. And institutional growth, as MAPFRE said, is a more mature line and it's more trailing if IBOVESPA volumes and the size of the industry of funds. So there's no surprise here.

Speaker 3

If it's another tough year for institutional investors, probably this revenue line will behave the same as last year. What we are seeing that may take a catch for the next question also is when we analyze our clients' portfolios, we see that the movement that we call silicaization should be near to an end for this level of interest rate. So basically, what that means, we suffered a lot over 2022, 'twenty three and 'twenty four if mix of change or in mix of products. Basically, clients moving from equity funds, hedge funds, equity trading to fixed income. This made a compression in your take rate for investments that we compensate by the growth in the fixed income platform.

Speaker 3

But now those lines should be stable or a bit lower and if the markets improve a bit recovering over the year. And also the fixed income funds, the funds platform, they grow Celiq plus something. So we keep confident that we will keep delivering results in both of those lines. And if you look at the corporate business line, basically, the one of the main products that we have at the corporate business line is cross sell products in the fisheries services. And when you go to our DCM capacities, we are top three in the hanking, but we are top one in tax exempt corporate bonds.

Speaker 3

And those bonds, they are issued in inflation. And the companies hedge the inflation exposure against our market making desk. So we expect that those taxes and corporate bonds keep a more sustainable pace of emissions over the year. And the corporate should keep tracking the issued services revenue and we expect both of them to be flattish over 2025. If corporate, that the only products not only inflation linked should outperform.

Speaker 3

You have energy, you have foreign exchange, other kind of derivatives. And so it should keep the growing pace of 2025 2024, sorry.

Speaker 12

No, thank you. That's very helpful.

Operator

Okay. Next question is from Renato Meloni, Autonomous. Renato, you may proceed.

Speaker 13

Hi, everyone. Thanks here for taking the question. I wanted to go back to the slide where you're showing the growth, revenue drivers, right? And specifically here on the DCM. So going back to your last answer, you're saying you expect volumes, of DCM still flat, but you still had a bar there showing, like, lower DCM volumes.

Speaker 13

So I'm still trying to figure out here what's what's the assumption there, or if you're also assuming that you're gonna have lower fixed income take rates on the, on this market this year. And then if you move to the next bar that you said, like compensating that for higher market share gains, how much market share gains you're embedding on this assumption here? And what gives you conviction that you're going to keep gaining market share in a more competitive market? Thank you.

Speaker 2

I will take the first part here and then Victor can compliment myself here. But I would say that the point here is, when we talk about the the 10%, more than 10% there, as I mentioned, it's in my view here is more like a floor, than the target. Okay? If we take in consideration that the GCM volumes, they are going to decrease. Okay?

Speaker 2

Of course, there is some impact on the on the the year. Okay? But they are not as relevant because as as Vitor mentioned, we have a whole ecosystem around fixed income in the company. We have 50% market share in the secondary market of corporate bonds. Okay?

Speaker 2

Today, we have a volume, traded volume from retail clients to institutional clients that's much, much higher than three years ago. But so in our view, even though we have a slower primary market that again for us is too soon to say that the primary market, especially for us, remember that we are different from the banks. We don't compete in all the business lines with them. We are much more strong in products that are related to retail that are tax exempt. So that's why we believe if the market shrink, we will have more market share.

Speaker 2

Okay? Because the type of products that we are the main issuers, and that we have a powerhouse to distribute, they will not decrease on the same pace or percentage as the market. So and we are developing a lot of new business line here on capital markets. As Victor mentioned, when we look corporate, we grew when we take out the institutional business 45% last year, 45. Okay?

Speaker 2

So we are not going to decrease to zero or decrease to 10% this year. If it's not 45, it's 30. It's 35. It's 40. Okay?

Speaker 2

So because this business, they are very new. We just started many of them. Okay? When we look energy, we started the the the business two years ago. So we are at the very beginning.

Speaker 2

When we look, some kinds of derivative, we just started. When we look, fixed income for Latin America, we just started. Okay? So we have a lot of new business lines on corporate that gives us a lot of, assurance that we are going to deliver numbers close or around what we delivered last year, okay, despite a lower GCM, if it happens. Again, the q one, it's not a proxy for the year.

Speaker 2

Okay? Because every year q one, it's a lower level of activity for GCM for the past three years. We already predicted that, and that's why we one of the reasons why we increased the books as, Victor mentioned because we knew that now we need products to sell, okay, in Q1. And the secondary market and all these other corporate products, they will more than compensate the lower level of primary GCM in Q1. So we are very comfortable that, we are delivering the same level.

Speaker 2

When you look all these products combined, GCM, corporate, credit and so on, we are being able in Q1 to deliver the same level of revenues or even a growth.

Speaker 13

Got it. I don't know if Peter is going to do a follow-up.

Speaker 3

I think the last point here that is important to mention is the corporate restructuring that we just finished in the fourth June. Basically, we started that in 2024. It took us the entire year to conclude all the process. And the last approval from the Brazilian Central Bank was November. So basically, we didn't have one single quarter of the fully loaded benefits of this new structure in the company.

Speaker 3

So over the year of 2025, our bank has a considerable more competitive capital and funding prices, which will allow us to compete for business that we couldn't before, also helping to explain our confidence in the gaining of market share.

Speaker 13

Perfect. That's well understood on the market share. And here on our side, should we assume that fixed income take rates will come down, this year?

Speaker 2

In our view, not. But why do you believe it's going up?

Speaker 13

They've been, going up. I think part of that was also due to, mark to market. So I have some concerns if that will continue at the same level or as the market comes down a bit. We'll also see some, some compression there.

Speaker 2

The part of the mark to market, last year was a very small part of the whole fixed income business, very, very low. So we don't have, any directional or proprietary positions on on credit spreads. So that's not our business. So, you don't need to to project a lower take rate because of that.

Speaker 13

K. Thanks. That's, understood and very helpful. Thanks, guys.

Operator

K. Thank you all for your participation. Today was a a long call, one hour only in q and a. So, I mean, we're going to be more than happy to answer further questions through the IR team, and, management is always available to see you in the next quarter.

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Earnings Conference Call
XP Q4 2024
00:00 / 00:00
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