Banco BTG Pactual S.A. (BSP:BPAC3) Q3 2024 Earnings Call Highlights: Record Revenues and Robust ...

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Wed, Nov 13, 2024, 12:12 AM 4 min read

Revenue: BRL6.4 billion, 14% growth year over year.
Adjusted Net Income: BRL3.2 billion, 17% growth year over year.
Return on Equity: 23.5% for the quarter.
Net New Money: BRL78 billion in the quarter; BRL47.3 billion in wealth management, BRL30.6 billion in asset management.
Wealth Management Revenue: BRL1.007 billion, 27% increase year over year.
Asset Management Revenue: BRL606 million, 30% increase year over year.
Credit Portfolio Growth: 31% year over year, reaching BRL210 billion.
Unsecured Funding Growth: 33% year over year, reaching BRL256 billion.
Cost-to-Income Ratio: 36.4% for the quarter.
Total Assets: BRL611 billion.
Basel Ratio: 16.4%.
Investment Banking Revenue: BRL380 million, 32% decrease from the previous quarter.
Sales and Trading Revenue: BRL1.672 billion, 20% increase from the previous quarter.
Corporate Lending and Business Banking Revenue: BRL1.712 billion, 30% increase year over year.

Warning! GuruFocus has detected 5 Warning Sign with AZN.

Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Banco BTG Pactual S.A. (BSP:BPAC3) achieved record revenues and a 23.5% return on equity for the quarter.
The wealth management unit posted record results with BRL47 billion in net new money, all of which was organic.
The asset management unit also reported record revenues and strong net new money of BRL30.6 billion.
The company expanded its credit portfolio while maintaining solid capital ratios and a strong unsecured funding base.
Sales and trading business units delivered strong results, reflecting the expansion of client franchises and efficient allocation of VaR.

Negative Points

Investment banking revenues decreased by 32% compared to the previous quarter due to a reduction in DCM transactions.
The corporate lending and business banking unit faces tight spreads in the high-grade market, limiting growth in that segment.
There was a reversion of provisions related to Americanas, impacting the financial statements.
The energy business's impact on capital allocation and Basel ratio raises questions about its fit within the bank's core operations.
The market environment remains challenging, with uncertainties in both domestic and international markets affecting business performance.

Q & A Highlights

Q: Can you confirm if the Americanas event had any impact on the bottom line? Also, what is the potential impact of the implementation of Resolution 4966 on BTG's capital? A: The Americanas event had no significant impact on our bottom line as we had adequate provisions. Regarding Resolution 4966, there will be no impact on BTG standalone, but Banco Pan might see an impact of approximately BRL1 billion.

Q: Your sales and trading performance was strong with a historical low VaR. Was there any non-recurring impact this quarter? Also, how did the sale of power plants to Eneva contribute to the results? A: There were no one-offs in the sales and trading results; they are recurring. The Eneva transaction was settled in October, so its impact will be recorded in the fourth quarter.

Q: How sustainable are the sales and trading results going forward? And what are your expectations for investment banking results? A: Sales and trading results are more stable due to the growth of client franchises, but they still depend on market activity. For investment banking, we expect DCM and M&A to continue driving results, with a strong pipeline for the fourth quarter and 2025.

Q: Can you provide more details on the strong net new money in the wealth management business? Also, why is there no impact from Resolution 4966 on BTG? A: The net new money is consistent with our historical performance, not driven by any specific factor like CDCA issuance. As for Resolution 4966, BTG already uses a similar provisioning method, and our focus on large corporates means no impact.

Q: With the increase in SME bankruptcies, does this change your expectations for SME lending growth? A: Our current SME exposure is in low-risk lines like supply chain finance and credit card receivables. We don't have significant clean SME exposure yet, so we're not facing the challenges of increased delinquencies.

Q: How do you view the energy business's impact on the bank's capital allocation and Basel ratio? Is there consideration to move it to the holding level? A: The sales and trading part of the energy business is integral to the bank. The Eneva legacy position is now more liquid, and over time, we expect to reduce this position without moving it to the holding level to avoid conflicts of interest.

Q: What are your preliminary views for 2025, considering the expected rate changes? A: We anticipate a similar scenario to Q2 2024, with interest rate increases already priced in. We expect to continue benefiting from operational leverage and market share gains, potentially leading to slight ROE expansion.

Q: Can you explain the growth in corporate and SME lending, and how you're managing yields in a tight spread environment? A: Growth is driven by penetration into new segments and geographies, benefiting from a lower cost of funding. We're cautious in high-grade markets but see opportunities in other areas.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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