XP - Q2 2023

Transcript

Antonio Guimarães (Head of Investor Relations)

Good evening, everyone. I'm Antonio Guimarães, Investor Relations in XP Inc. On behalf of the company, I'd like to thank you all for the interest and welcome you to our 2023 Second Quarter Earnings Call. Today, we have here with us our CFO, Bruno Constantino, and our CEO, Thiago Maffra. We will all be available for the Q&A session right after the presentation. Whoever wants to ask a question, can please raise your hand on the Zoom tool, and we will attend you on a first-come, first-served basis. We also have the option of simultaneous translations to Portuguese. There's a button on the Zoom if you want to turn on the translation. Before we begin our presentation, please refer to our legal disclaimers on page two, on which we clarify forward-looking statements.

Additional information on forward-looking statements can also be found on the SEC filing sections on the IR website. Now I'll pass the word to Thiago Maffra. Good evening, Maffra.

Thiago Maffra (CEO)

Good evening, everyone. Thank you for joining us today on our 2023 Second Quarter Earnings Call. It's a pleasure to be here with you tonight. I would like to start with a brief introduction to this quarter's operational and financial highlights, and also give you a bit of context of where we are in terms of our long-term strategy we talked about in the last quarter. In the second quarter of 2023, we achieved a key milestone, surpassing BRL 1 trillion in client assets. Client assets have grown at a 30% CAGR since the IPO. Coupled with this historic milestone, we estimate we have gained approximately 30 BPS in market share in investments for individuals year to date, and approximately 60 BPS in the last 12 months, despite a very tough macro environment condition.

For the second quarter, earnings before tax was BRL 968 million, up 12% year-over-year, where our continued efforts to improve operation leverage resulted in 198 BPS of additional margin expansion. Net income was BRL 977 million, up 7% year-over-year, driving our net income margins up 91 BPS year-over-year. Annualized retail take rate was 1.3%, up 9 BPS quarter-over-quarter. Return on average equity, a key profitability measure for XP, rose 334 BPS sequentially to 22%, and our diluted earnings per share of BRL 1.83 increased 24% over the first quarter. Moving to page six, we were happy to see the market trends and our profitability improve in the second quarter.

Following a challenging first quarter, we have started to see a recovery in capital markets activity. We are pleased with the recovery in DCM volumes, and we have started to see some activity in the equity capital market as well. Specifically, we saw the follow-on offerings window open in late June and continued to see positive trends into the third quarter. On August 2nd, the Central Bank started its monetary easing cycle, cutting the Selic rate by 50 BPS, the first cut in 3 years. When we look to the second half of 2023, we are encouraged by a more positive market environment. We believe stronger capital markets activity and lower Selic by the end of the year should favor our core investments business.

However, the recovery may take some time as well, as it will depend on further interest rate cuts and also retail investors shifting back to riskier assets. On the profitability front, EBT and net margin improvements in the second quarter reflect better market trends, combined with strict cost controls. This operating leverage resulted in margin improvement in both EBT, a quarter-over-quarter increase of 123 basis points, and net margin, a quarter-over-quarter increase of 213 basis points. These improvements are in line with our focus to drive ROE over the next years, both through earnings growth and capital distributions to shareholders. Let's move to slide seven. We are very pleased with the positive momentum in our operating trends, such as client assets, active clients, and total IFAs. In June, we hit the historical mark of BRL 1 trillion in client assets.

With less than 12% market share in investments for individuals, I believe we are still early in our growth trajectory. IFA net additions were over 1,000 in the quarter, reaching more than 40,000 in total. This comes from several factors, such as new educational partnerships, helping to hire and train new investment advisors, lower churn in the IFA network, and overall improvements in our onboarding methodology for the FAs, reducing onboarding time from nearly 1 month to less than 1 week. With the potential market upswing in the coming quarters, we will keep focus on the quality and expansion of our sales force, both internally and externally. Next, to slide eight. This positive momentum in operating trends, coupled with our cost control discipline, drives the recovery in our financial results for the quarter.

As I mentioned earlier, our gross revenue has improved 3% year-over-year, totaling BRL 3.7 billion. Our EBT has improved 12% year-over-year, totaling BRL 968 million, and net income has improved 17% year-over-year to BRL 977 million. Moving on to slide nine. We kept making progress across our strategic initiatives. New verticals continue to grow rapidly, accounting for 11% of total revenue. We are pleased with this progress, enhancing our relationships with our clients and diversifying our revenue streams. Additionally, we had the closing of Banco Modal acquisition on July first, and it will already impact our results in the third quarter, but we do not foresee any material impact. We are very excited to have the Modal team joining us, and integration is happening as I speak.

Since day one, our teams are working together to explore XP and Modal best practices and enhance our service level and efficiency for better serving our clients. One of our main goals is to have everything integrated, including Modal's client base, using XP's backbone and capabilities by the end of this year. We believe this will provide us revenue synergies since XP's ecosystem has a strong cross-sell capability and cost avoidance over time. We'll provide on our progress in the coming quarters. On slide 10, let me highlight where we are in terms of long-term strategy we have discussed on previous calls. You might recall that we discussed three key areas of focus. First, leadership in investments. We have continued to gain market share in investments throughout 2023, despite the tough macro environment, reaching $1 trillion in client assets.

We also had the strongest net new IFA signings since the IPO, further expanding and strengthening our sales force. Second, superior product offerings. Melhores Cartões named XP as the best credit card in Brazil. Considering we only launched the product in May 2021, we are especially proud of this recognition and the success we have seen in the market. We launched travel platform into our cards experience, where clients receive extra Investback from in-app purchase. Third, client focus. We always put our clients' interests first. This is reflected on our NPS score that was 76% this quarter, one of the highest in the industry. We continue to differentiate ourselves in the market, offering premium quality and service levels throughout our ecosystem.

I believe it is one of our main competitive advantages over our peers, and we are 100% focused on maintaining and even extending this advantage in the future. Now, I will hand it over to Bruno to discuss this quarter's financials. Thank you.

Bruno Constantino (CFO)

Thanks, Maffra. Good evening, everyone. It's a pleasure to be here with you again. Moving on to slide 12. Starting with gross revenue, on the left part of the slide, quarter, we reached BRL 3.7, 12% growth quarter-over-quarter, and 3% growth year-over-year. The sequential growth in gross revenue has been led by retail, especially fixed income, with further detail on the next slide. In terms of mix between segments, retail has continued to gain relevance and represented 78% of total revenue, benefiting from our long-term strategy to become a full financial service platform, especially through our new verticals. Institutional and corporate and insurance services remain at 10% and 8% respectively. Other revenue has been stable over time, representing around 4%-5% of total revenues. On the next couple of slides, we are going deeper into retail revenue.

Starting with the slide 13, when we look at our core, we can see [audio distortion] to BRL 578 million, a growth of 74% quarter-over-quarter, due to higher volumes in both primary and secondary markets and narrowing in corporate bonds credit spreads. After a first quarter, relevant corporate credit events negatively impacting DCM activity, we saw a more normalized capital market in second quarter. As expected, we also had a sequential seasonal improvement of 9% quarter-over-quarter in the funds platform, reaching BRL 341 million, due to the recognition of performance fees, which tend to be recognized at the end of every semester. We had a stabilization in equity revenue, BRL 1.1 billion, flat quarter-over-quarter, with lower daily average trades for equities and futures, but higher volumes in structured notes. Moving to slide 14.

All of our new vertical products continue to grow well, reaching a total of BRL 398 million in second quarter, +54% year-over-year, and 9% quarter-over-quarter, representing 14% of retail revenue. The main highlight of the quarter has been cards revenue, which has grown in line with TPV to BRL 232 million, a growth of 40% quarter-over-quarter and 100% year-over-year. Cards penetration in total actives has also increased 288 basis points this quarter to approximately 24%. Coming back to total retail revenue, we've updated this slide to include second quarter results. Few key messages. One, XP is a cyclical grower company. Our retail revenue, which is BRL 1 billion behind the peak in 2021, has potential for upside as the market recovers.

Two, new verticals have a decisive role in diversifying our business. If we compare the last 12 months revenue with 2021 revenue, new verticals have increased approximately 156%, while our core has decreased 12%. In summary, potential for growth as the market recovers, plus a more resilient and diversified business model. Moving on to slide 16. Total SG&A, excluding revenues from incentives, has remained under control, reinforcing the annual guidance of BRL 5 billion-5.5 billion, leaning towards the mid to the bottom of the range. People expenses represented 72% of total SG&A in second quarter, and 70% in the last 12 months, keeping the ratio between people and non-people expenses stable over time, 70/30%.

We expect higher SG&A in the second semester compared to the first semester, due to seasonality and one-time low expenses in the first quarter, keeping our efficiency ratios improving, as we are going to show in the next slide. Cost discipline is key to improve our competitive advantage, the C-level of XP is aligned to achieve that goal in a sustainable way. The two main KPIs we monitor are: last 12 months efficiency ratio, defined as SG&A ex revenue from incentives divided by net revenue. Two, compensation ratio, defined as people SG&A divided by net revenue. We rather look last 12 months than quarterly numbers to avoid seasonal impacts. Both ratios have continued positive trend quarter. Efficiency ratio decreasing from 40.4% to 38.3%, and compensation ratio decreasing from 28.5% to 26.8%.

This cost control discipline has played an important role in our operating margins, which we are going to talk on next slide. Moving on to EBT, a good proxy for earnings power. This quarter reached BRL 968 million, a 12% growth year-over-year, and a 19% growth quarter-over-quarter. Our EBT margin has also improved in the quarter, increasing 198 basis points year-over-year, and 123 basis points quarter-over-quarter. This was driven by improving operating leverage and is in line with our annual guidance between 26%-32%.

On the next slide, our net income has also increased to BRL 577 million this quarter, up 23% quarter-over-quarter and 7% year-over-year, while our net margin has improved 213 basis points quarter-over-quarter and 91 basis points year-over-year to 27.5%. This has been a result of both top line growth and increase in operating leverage we talked about in the past few slides. Lastly, I would also like to highlight our return on average equity, that has increased 334 basis points sequentially to 22%. As Maffra stated in the beginning of the call, we are determined to gradually increase our, our ROE over the next few years, both through consistent earnings growth and capital distributions to shareholders.

Now, both Maffra and I would be happy to take your questions.

Antonio Guimarães (Head of Investor Relations)

Great. Thanks, Bruno. Moving on to the Q&A session, we have many hands raised, so as usual, we will attend you on a first come, first serve basis. The first one is Mr. Geoffrey Elliott from Autonomous.

Geoffrey Elliott (Research Analyst)

Hello, thanks very much for taking the question. The inflows, clearly they're better this quarter than in the first quarter, but they're still quite a bit below what we were used to seeing previously. Can you give us a sense, are you seeing inflows continuing to recover? Then can you point us to a normal rate of monthly inflows that you'd expect going forward?

Bruno Constantino (CFO)

Hi, Geoffrey, this is Bruno. First, when we think about the inflows, I'd rather think about total client assets, why is that? Is, total client assets surpassing the mark of BRL 1 trillion is more relevant for revenues than inflows. A point important to bear in mind. Second, inflows, as I have also mentioned in previous, it's a component of a total inflows minus outflows. Total inflows, they have been good. We had, like, all-time high in the last quarter, this 2Q, but so, the outflows have also grown as well, bringing the net inflow to a better number than the first quarter, but is still short compared to the bull market year. We believe individuals, they, they are lagging in the process of bringing money into riskier assets.

We are not there yet. We don't know when we are gonna get there, but it's a cyclical part of the business. Yeah, we, in the future, expect inflows, to grow, but in the short term, we don't have a guidance, and my statement is look at total client assets, more than, to inflows.

Thiago Maffra (CEO)

Good evening, this is Thiago. Just to complement Bruno here, one way I like to think about it is we are at the very beginning of the easing cycle in Brazil. If you think about the next, let's say, 1 year, 2 year, 3 years, we'll—In our opinion, we'll have another good cycle for investments, a good macro environment in the next years. For us, it's more important when you look the scenario than quarter by quarter, okay? What I'm trying to say here is, we believe we are very well positioned with the company, very organized to, to, to capture this good momentum that we have ahead.

It's hard to say if the net inflow will change this quarter, next quarter, in three quarters, but we believe that at some point, with this macro scenario ahead of us, at some point we'll have a good environment for investments again.

Antonio Guimarães (Head of Investor Relations)

Great. Thanks very much. Next one in line. Thanks, Geoff. Next one in line is Eduardo Rosman from, from BTG.

Eduardo Rosman (Senior Analyst)

Hi, can you hear me?

Bruno Constantino (CFO)

Yes, we can.

Thiago Maffra (CEO)

Yes, we can.

Eduardo Rosman (Senior Analyst)

So, congrats on the numbers. I have two questions. The first one is regarding your market share growth. The company has expressed, you know, the, the goal of doubling its AUC, but when we look to your market share in the core high income segment, you have almost 20%. So can you provide more details about your plans, you know, for expansion in this segment, as well as in the high net worth and also the lower income segment? This would be the number one question. The second question relates to your ambitions beyond investments. What's the company plan? You know, how aggressive you are willing to expand in loans, for instance, at the bank? You know, anything, anything here would be, would be appreciated, right? Thanks a lot, and again, congrats on the numbers.

Thiago Maffra (CEO)

Thank you, Rosman. The way I like to think about investments, as we mentioned, we have 11% market share of individuals, okay? 8% if you consider companies, okay? Itaú is, is the leader in the market with more than double that we have, okay? When you look the different segments, if you look high net worth clients, we have, I would say, about 5%-6%, in the middle, closer to the 20% that you mentioned. If you go to the retail clients, we have 2%, okay? The way of serving these clients in these different segments, they are completely different, okay?

One easy way to think about it, if you go to high net worth clients, you have an account load of 20, in the middle, 100-200, at the bottom, almost 2,000, okay? The strategy that we have for the different segments are completely different, okay? We start at the middle of this pyramid, okay? The affluent clients. That's why we have 20%, almost 20% market share, but we believe we can continue to grow here, okay? Of course, we have plans on the upper part and the lower part. The lower part, we have what we call digital first. Here, basically, is how you use technology, CRM, intelligence, data, to have a higher account load per banker, but at the same time, giving a very good service compared to the market, okay?

In the middle is more of the same, and at the top, we, we are talking about high net worth clients. Here, different from the other parts, is more personalization, more value added, so different strategies, and we believe we have the right path for these three different segments, okay? Completely different financials, KPIs, completely different ways of servicing costs and so on, okay? The second part about the new business, they are... We call the new verticals, okay? We mentioned pension, credit, insurance, and banking, basically. We have a lot more than that, that are new verticals inside the company, okay? Our asset management is growing very rapidly. We have the FX business, we have corporate, we have many other business that we don't give a highlight for them, but they are new, okay?

If you look, the percentage of these new verticals that didn't exist 3 years ago, now they represent 11%, okay? Growing 50% year-over-year. We believe we can continue this pace for a longer period of time because the penetration is still very low. If you look insurance, for example, 1% penetration, because we just launched the products. If you look credit, 1%. If you look, account, checking accounts, but looking, the principal accounts, it's close to 1%. The product that's most penetrated is credit cards, 19%, okay? We have cross-sell metric here that we look very close. Imagine that we have classified from 1 to 7 products, okay? It's the way we look with the sales people FAs, internal buyers, and so on.

This number is 1.55 today. Still very low because these new verticals, they are new, okay? In our opinion, here, we have a lot of room, like, to continue to penetrate the current customers we have, okay.

Bruno Constantino (CFO)

If I just may add, Mafra, to your point. The way we like to think, Rosman, so to your question about our ambitions, we have strong ambitions for the long term. That's for sure. We also believe a lot in execution and in focus. As Mafra pointed, many new products and services that we have launched in the past two to three years, we believe there is a lot of work to do to, you know, cross-sell and upsell in our ecosystem with our existing clients. Just bear in mind that we also added, with Modal acquisition, 500,000, given or taken, new clients into our ecosystem, as of today.

We are talking about a little bit more than 4.5 million total clients with that low penetration number that Maffra just mentioned. I think it's... There is a strong ambitions, but we need to go brick by brick, executing.

Neha Agarwala (Analyst)

Great. Thanks a lot, guys.

Antonio Guimarães (Head of Investor Relations)

Thanks, Rosman. Next one in line is Thiago Batista from UBS.

Thiago Batista (Equity Research Analyst)

Hi, guys.

Bruno Constantino (CFO)

Hello, Thiago?

Thiago Maffra (CEO)

Hello?

Antonio Guimarães (Head of Investor Relations)

Thiago, can you hear us?

Thiago Batista (Equity Research Analyst)

You hear me?

Thiago Maffra (CEO)

Yes.

Antonio Guimarães (Head of Investor Relations)

Yes, now we can.

Thiago Batista (Equity Research Analyst)

Okay. Sorry, guys. I have two questions, and sorry for the, for the issue. The first one, I'm trying to understand the dynamics for the earnings for next year for XP. Do you see room for further improvement in the efficiency ratio of the company next year? Probably next year, we will see a better top line. My question is, we will see this operating leverage in the company? The second one, about Modal. I think Maffra already mentioned that Modal should be zero impact in the earnings in the short term. Do you believe that Modal should be attractive for EPS in 2024? Or, because of all the changes, all the changes that we saw in the market, this should take a little bit longer to see a really positive impact on, from Modal on the XP earnings.

Thiago Maffra (CEO)

Thank you, Batista, for the question. About your point on the efficiency ratio, the, the way I like to see is, as we mentioned, we believe we have a better macro outlook for, for the future, okay? Again, it will take some time because it's not a 50 BPS cut that will make a total difference when you think about retail clients. Of course, if you think about capital markets, institutional clients, it changes faster, okay? We, we start to see follow on in the previous months. Retail clients will take more time, okay? When we look this positive cycle for the future, we believe we we can have higher revenue growth rates in the future, okay? We will have the company ready to capture this, this growth.

On the other part, we spend the last, I would say, 2 years, 1.5 years, inside the company, improving the level of governance, the way we manage the company. We have created the XP management system. We have created a lot of tools and controls that we didn't have in the past to manage the company. I believe we are better today for this new cycle than we were like a few years back. And we've done a cost control. When you put together like a good cycle that we probably will have ahead, combine it with cost control and better management and governance tools in the company, I believe we can have very high operational leverage in the future. That's what we have been talking about, with investors.

We believe we can increase our EBT margins close to the high part of the, the guidance in the next years. We can increase our ROE close to, I would say, 30 in the next years. Again, it's something that will take time, one year, two years, three years. That's the, the timeframe that we are in here.

Bruno Constantino (CFO)

Yeah. About, about Modal, yes, we believe it's gonna be accretive for our EPS on 2024. We, we have been executing the integration that started last month, and our goal here is to finalize all the integration until the end of this year. We are gonna give updates in, in the next, in the next quarters. Yeah, it's accretive and the momentum of the market getting better. Again, individuals take longer, so it's gonna be a gradual improvement over time. Modal integrated with XP, should benefit from that. Just to give you one example to make it tangible, what Maffra explained about the operating leverage of our business, I'd like to use the funds platform as an example.

The funds platform, in the second quarter of last year, had a total of BRL 175 billion of client assets. We all know that this year has been tough for the funds industry as a whole. Our funds platform has reached, at the end of second quarter, BRL 222 billion of client assets. Performance fees, we have more client assets in the funds platform as of today, than we had one year ago. Performance fees, the second quarter of last year was much higher than this quarter. We decreased the performance fees by 70%. That's one example of the potential of the operating leverage that this business has.

As the market recovers, if we get, for example, performance fees, in, in, in the next semesters to come, we have more client assets. These, it's, you know, just the tax and it's straight to the bottom line, higher in single individual, to make it happen.

Thiago Batista (Equity Research Analyst)

Okay. Very clear, Bruno and Mafra.

Antonio Guimarães (Head of Investor Relations)

Great, thanks. Batista. Next one line is Mr. Tito Labarta from Goldman Sachs.

Tito Labarta (VP and Senior Equity Analyst)

Hi, good evening. Thanks for the call, thank you for the question. A couple questions also. One, just first on the results. Looking at the other revenue line, in particular, BRL 167 million, although up modestly compared to 1Q, 1Q was impacted, I think almost BRL billion from Americanas. I was a little surprised that that line did not maybe improve potentially more. It was actually lower if you factor in the Americanas' impact. If you can give any color on, you know, what, what happened there and how that should evolve from here. Second question, you know, Bruno, Mafra, you talked about increasing ROE from here.

You know, kind of the main drivers, but also, yeah, how, how much essentially increase that ROE, and what are your latest thoughts on, on the capital returns? Whether buybacks, dividends, and curious what you're thinking there? Thank you.

Bruno Constantino (CFO)

Okay. I will, I will start with the other revenue. The other revenue is everything that is not in, in the segments that we, we highlight. We can have, you know, many different things there, Tito. When I, I made the presentation, I said, it's stable over time between 4%-5% of total revenue. It hasn't changed that much. Specifically in the second quarter, we did have a negative impact in, in revenues because of this impact that we had in our balance sheet. It didn't happen, and there was a negative impact, a little bit more than BRL 40 million, that it's a financial instrument, so impacted other revenue because it was not related to any, the other segments.

It, it can happen from time to time, those, different types of impacts, either positive or negative. That's, that's what happened in the second quarter.

Thiago Maffra (CEO)

Yeah. About the capital, about, about the ROE, I believe, as Bruno mentioned on the presentation before, we have a mix of two things. We already mentioned the positive cycle, the cost control, and so on, that will probably impact and increase profits in the next quarters. We also have huge excess of capital. Today we have more than BRL 5 billion, and we have a Basel index of, I would say, close to 24%. It's a combination of earnings growth and adjust in the capital structure for the future. That's, that's the combination that will bring us from, let's say, the current 22% to something closer to 30%.

Tito Labarta (VP and Senior Equity Analyst)

Thanks, Mafra. That's helpful. Any color just on when you could return some of that capital and, and the form of, of returning it, again, through buybacks or dividends?

Bruno Constantino (CFO)

second semester, we, we already mentioned in the first quarter, that we would return shareholders, either through share buyback or dividends or both, at least 50% of payout ratio that we did last year. We have already returned BRL 960 million in the first semester of this year, we are gonna return more in the second semester, we have not decided yet the number. Whenever we do, we're gonna announce to the market.

Tito Labarta (VP and Senior Equity Analyst)

Great. Thank you, Bruno. Thanks, Maffra.

Thiago Maffra (CEO)

Thank you. Now we have Daniel Federle, Credit Suisse.

Daniel Federle (Analyst)

Hi, guys, can you hear me?

Bruno Constantino (CFO)

Yes, we can.

Daniel Federle (Analyst)

Yeah. Thank you. First, congrats on the results. I would like to go on the revenues or the results part. We talked to some phase last month, which pointed to strong recovery in revenues in June, right? I'm trying to do a quarter breakdown months. How strong could June be compared to April, right? It could help us to understand how results could have reached already in the second quarter, considering, like, a full potential from June results, or any details you could share with us in relative terms, it would be good as well. Second question, SBC expenses came in BRL 30 million-BRL 40 million below Q4 or Q3, right?

This should this BRL 130 million from Q2 be a more normalized levels, considering the right size, right sizing you did in people, or it had some still cancellation effects from Q1? Thank you.

Bruno Constantino (CFO)

Yeah. Regarding your question about the months, we, we don't think it's the best way to analyze our business. There is a lot of volatility between months, even between quarters. You know, to, to take June compared to May or May compared to April and extrapolate that, it can be misleading, so I would not recommend that. To your question about the share-based compensation, we, we don't have a guidance, but I would say that, you know, the pattern around BRL 130 million-BRL 150 million per quarter, in other words, BRL 500 million-BRL 600 million per year, it sounds reasonable. It depends on, on the price action as well, because there is a component of the share-based compensation there is related to the price actions. The other part is hedged.

It's hard to, you know, state an exact number. Yeah, second quarter was a more normalized level than first quarter, which we, we announced that it had like one-off positive effects, reducing the share-based compensation and should not be extrapolated for the rest of the year.

Daniel Federle (Analyst)

Okay. Thank you.

Thiago Maffra (CEO)

Thank you, Daniel. Now we have the last question from Neha, from HSBC. Hi, Neha.

Neha Agarwala (Analyst)

Hi, thank you for taking my question. Very quickly, on the impact from lower rates, should we expect any negative impacts as policy rates go down, especially on the financial income part of the revenues? Second question is on competition. Any change in competitive dynamics, either more aggressive or competition softening, any, any trends that you could highlight? Thank you so much.

Bruno Constantino (CFO)

Yeah. Regarding, Neha, the lower rates, we more than welcome. It's, it's, it's a good macro environment, and it probably will generate a positive tailwind in our core, in our core business. Reminding that is a gradual effect, because individual investors, they tend to be lagging in that process, but it's positive. I don't, I don't, I don't see financial, you know, revenues being jeopardized by lower interest rates because market activity probably will enhance, so we're gonna have a very good environment, as we had in the, in the last positive cycle.

Thiago Maffra (CEO)

Okay. Hello, Neha. About the second part of your question, competition, as you would like to mention, in Brazil, the concentration is still very high. 80% of the investments is still inside the same 5 big banks, okay? When you look the macro environment that we had in the past 12 months-24 months, they were very positive for these banks because they can offer some products that we don't have here, as LCIs, LCAs, free of tax and paying 13.75%. It's a very, very good macro environment for this kind of products. The banks, they issued more than BRL 1 trillion in the last 12 months, okay? But this money is, most of them is with a very high liquid, most of them daily liquid.

Once the interest rates starts to go down, but again, it's not 50 bits that will make a difference. At some point, the individual investors, they will realize that they are not making 1% a month anymore with a very low risk, with daily liquid, and they will change the products, change the portfolio, reallocate the money. It happens in all the other cycles and will happen again. We have today more than BRL 2 trillion on this bank, CDBs, LCIs, LCAs, and so on, and we believe we can benefit once the interest rates are lower, okay? That's, that's, for me is the biggest point about competition in the last 12 months-14 months, okay? The level of interest rates and the, the bank products.

Neha Agarwala (Analyst)

Perfect. If I can ask, at what level of rates do you see money moving back into equities or new investors coming in? Maybe around 8%, 9%, or even 10% would be sufficient to see the move, in your view?

Bruno Constantino (CFO)

Hard to say. It's hard to say, Neha. Again, today, imagine that you are a Brazilian investor. You can invest at 13.25% with very low risk, daily liquid, so you can make 1% a month, okay. Doing nothing. So it, it will take some time, okay, for people to, to say, "Okay, I cannot do—I don't have this level of interest rate anymore, so I have to take some more risk. I have to buy longer products. I have to buy, a lower, credit quality." Okay. But we have products in Brazil with FGC guarantee, this kind of stuff. At some point, they will move.

Neha Agarwala (Analyst)

Perfect. Thank you so much, Thiago, Bruno.

Thiago Maffra (CEO)

Thanks, Neha. Thank you for your question. It was the last one, so we would like to thank you all for participating in the call. We will be available, the IR team, to discuss the results with you, with you later, and have a good night, everyone.