Q4 2024 Earnings Summary
- Management is confident in achieving 2026 guidance, relying on core investment growth, cross-sell initiatives, and wholesale banking, even under tough macroeconomic conditions.
- There is significant potential to improve productivity and unlock value in the Independent Financial Advisors (IFA) channel, leveraging the successful tools and processes developed for internal advisors.
- The company's strict expense management and commitment to efficiency improvements provide room for margin expansion, even as they continue to invest strategically.
- XP's capital ratio decreased due to a significant increase in risk-weighted assets, which grew around 12% quarter-over-quarter, primarily due to increased market risk exposure from adding BRL 8 billion in corporate securities, potentially impacting capital adequacy.
- XP's expenses, particularly bonuses and provisions, have increased significantly; the bonus line saw a "huge increase... comparing the last 2 years," and provisions are expected to rise to around BRL 100 million to BRL 110 million per quarter, which may pressure margins and make expense forecasting challenging.
- XP's growth guidance relies heavily on high interest rates and net new money; the company admits it is "not projecting a better macro environment" and is "prepared for a tough environment for 2025," which could pose a risk if economic conditions deteriorate further.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
EBT Margin | Q4 2026 | 30% to 34% by 2026 (currently at 28%) | no current guidance | no current guidance |
Payout Ratio | Q4 2026 | more than 50% until 2026 | no current guidance | no current guidance |
BIS Ratio | Q4 2026 | 16% to 19% by 2026 | no current guidance | no current guidance |
Revenue Growth | Q4 2026 | 20% CAGR until Q4 2026 | no current guidance | no current guidance |
Net New Money | Q4 2026 | BRL 20 billion per quarter | no current guidance | no current guidance |
Revenue Growth | FY 2026 | no prior guidance | more than 10% for 2025, with CAGR 12%-22% to reach 2026 targets | no prior guidance |
Expense Growth | FY 2026 | no prior guidance | around 10% | no prior guidance |
Payout Ratio | FY 2026 | no prior guidance | more than 50% for next couple of years | no prior guidance |
Capital Ratio | FY 2026 | no prior guidance | 16%-19% | no prior guidance |
Adjusted Net Income | FY 2026 | no prior guidance | BRL 4.5 billion, 17% expansion YoY | no prior guidance |
EBT Margin | FY 2026 | no prior guidance | 30%-34% by 2026, current margin 29% | no prior guidance |
Efficiency Ratio | FY 2026 | no prior guidance | improving throughout 2025 | no prior guidance |
Advisers | FY 2026 | no prior guidance | around 500 to 600 internal advisers in 2025 | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
2026 Guidance and Long-Term Profitability | Discussed across Q1–Q3 with targets for revenue CAGR (ranging from 19% to 22%) and EBT/EBITDA margins (30%–34%); Q1 highlighted challenges if macro conditions persisted, while Q3 and Q2 detailed improving efficiency and operational leverage. | Q4 emphasized strong confidence in meeting 2026 guidance with detailed margin expansion (e.g. EBT margin reaching 29.1% in 2024 and expectations to hit target ranges by 2026) and alignment with set profitability targets. | Consistent focus with bullish sentiment: The narrative remains steady across periods with an incremental boost in confidence and execution in Q4 despite earlier macro challenges. |
Investment Growth and Revenue Diversification | Q1–Q3 calls consistently stressed diversification into new verticals (e.g. FX, digital accounts, cross-sell initiatives) and growth in fixed income; retail, corporate, and wholesale segments were highlighted with strong YoY growth metrics. | Q4 reinforced growth in core investments (13% growth in core investments) and revenue diversification through enhanced cross‐sell initiatives and robust performance in retail fixed income and corporate services. | Continued expansion: The diversification strategy remains a core lever, with Q4 reinforcing prior growth narratives and maintaining a positive outlook. |
Operational Leverage, Cost Control, and Margin Expansion | Q1 through Q3 emphasized strict cost discipline, continuous improvements in SG&A/efficiency ratios and operating leverage that drove margin expansion (record-low efficiency ratios and improved cost control measures). | Q4 detailed further margin expansion (e.g. EBT margin increased by over 430 basis points YoY) and highlighted ongoing cost control initiatives—including strategic investment in technology and compensation costs tied to performance. | Steady improvement: The focus remains rock-solid across periods with Q4 showing incremental gains and reinforcing the company’s commitment to disciplined cost management and improved operational leverage. |
Net New Money Trends and Future Outlook | Across Q1–Q3, net new money (NNM) discussions ranged from modest growth (e.g. BRL 15 billion in Q1) to robust quarterly inflows (e.g. BRL 31 billion in Q3), with management cautiously optimistic about recovery amid challenging market conditions. | In Q4, XP reported BRL 103 billion in annual net new money with a 45% growth YoY, and set a quarterly target of BRL 20 billion in retail; the outlook was presented with renewed optimism and confidence in stable future inflows. | Robust and optimistic: While past periods had varied results, Q4’s strong numbers and clear targets point to an upward, resilient outlook for future growth. |
IFA Channel Productivity and Commission Cost Management | In Q1 and Q3, XP discussed efforts to boost IFA channel productivity—investing in training, technology and improving sales management—and noted that internal adviser productivity was outperforming IFAs; commission costs were managed through mix adjustments. | Q4 focused on replicating internal adviser strategies to improve IFA productivity, highlighted intentional reduction in lower-performing IFAs, and described continued improvements in compensation ratios through performance-based models. | Consistent focus with process optimization: The strategic emphasis remains constant but Q4 shows a sharper focus on technology and productivity replication to further optimize commission structures and cost management. |
Debt Capital Markets and Fixed Income Growth | Q1–Q3 consistently highlighted robust fixed income revenues driven by strong retail performance, innovative warehousing strategies, and a healthy DCM pipeline; detailed growth figures and market share in both primary and secondary markets. | Q4 acknowledged a potential decline in primary DCM volumes but underscored a dominant secondary market share; fixed income growth remained robust, backed by competitive product offerings and detailed growth metrics (nearly 50% YoY in fixed income). | Mixed but balanced: While primary DCM outlook is slightly cautious in Q4, the overall fixed income strategy remains solid, indicating resilience with a strategic pivot to leverage secondary trading strengths. |
Impact of Macroeconomic Conditions on Performance | Q1–Q3 reflected challenges from tougher-than-expected macro conditions (higher interest rates, persistent inflation, and fiscal constraints) with companies adapting through cost discipline and strategic adjustments. | Q4 reiterated that the macro environment has been more challenging than anticipated, yet emphasized that XP’s performance was in line with internal guidance due to proactive preparedness and internal strategy adjustments. | Cautious but adaptive: The company’s sentiment remains cautious regarding macro trends but shows consistent resilience by focusing on internal strategy and operational execution. |
Capital Adequacy and Risk Management Concerns | Q2 and Q3 provided detailed insights on capital ratios, dividend policies, and risk-weighted assets; XP emphasized conservative capital management and disciplined risk controls, with some mentions in Q1 of enhanced governance practices without deep metrics. | Q4 detailed a business ratio within target (17.7%), strong CET1 levels, and active risk management practices (RWA at 30%); the discussion included strategic dividend and buyback measures and upcoming regulatory advantages. | Stable and disciplined: The narrative remains consistently focused on strong capital management with Q4 offering additional reassurances through detailed metrics and strategic plans. |
Competition from Incumbent Banks | Q1–Q3 discussions highlighted efforts to differentiate through innovative platforms and financial planning tools, while acknowledging that incumbents were enhancing offerings in some cases; overall, XP stressed its competitive advantages. | Q4 acknowledged ongoing competitive pressure from incumbents, particularly around tax-exempt products, but stressed that XP’s innovation (e.g. technology, partnerships, and warehousing solutions) enabled it to remain well-positioned. | Persistent yet managed: Competition remains a consistent challenge, however XP’s strategic responses have evolved to leverage technology and product innovation, maintaining a cautiously optimistic tone. |
Credit and Loan Portfolio Sustainability | Q2 and Q3 focused on sustainable practices through risk recycling (securitization of part of the loan portfolio) and highlighted low expected credit loss ratios backed by collateralized lending; key metrics showed modest loan book growth and improved margins. | Q4 reported improved credit revenues (e.g. retail credit NII growing 79% YoY), low ECL-to-loans ratios (below 1%), and healthy growth in corporate securities, reinforcing the sustainability of its credit portfolio. | Sustainable and strengthening: The strategy of recycling risk and focusing on collateral-backed lending remains effective, with Q4 indicating further improvements and robust credit performance. |
Effective Tax Rate Impact | Q1 and Q2 discussions noted variability in the effective tax rate (ranging from 17% to 18.5%) driven by revenue mix fluctuations; there was recognition that higher-tax business segments could drive gradual upward adjustments. | Q4 confirmed an effective tax rate of around 18%, in line with normalized expectations, indicating stability despite revenue mix changes. | Stable and consistent: The effective tax rate remains on target across the periods with no significant deviations, demonstrating predictability in tax impact on earnings. |
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Capital Adequacy and Payout Guidance
Q: Is XP revising capital targets given RWA growth?
A: XP is maintaining its capital ratio target of 16% to 19% and is comfortable paying out over 50% this year and next, despite RWA growth driven by the expansion of wholesale banking. The RWA growth is natural as new high-ROE businesses scale, and the pace will normalize as the bank matures. -
Increase in Risk-Weighted Assets
Q: Why did risk-weighted assets increase by 12% QoQ?
A: The increase is mainly due to new Central Bank regulations reallocating credit spread risk to market risk. XP increased its book by BRL 8 billion in corporate securities and quasi-sovereign banks, adding risk to market RWA since these are booked in the trading book. -
Take Rate Expectations
Q: What is the take rate outlook for 2025?
A: XP expects a flat take rate for 2025, around 1.28%, consistent with the past three years. The company is focusing on delivering over 10% top-line growth without relying on take rate increases, acknowledging the pressure from fixed income's larger share. -
Competition and Regulatory Impact
Q: How do LCI/LCA regulation changes affect XP?
A: XP has developed partnerships and technology to effectively compete with banks in LCIs and LCAs. Any regulatory changes are not anticipated to significantly impact XP now, viewing the BRL 20 billion net new money per quarter as a floor, expecting higher inflows during the year. -
Focus on Independent Financial Advisers
Q: How will XP improve IFA productivity in 2025?
A: XP plans to apply the tools and standardized sales processes used with internal advisers to the IFA network to boost productivity. With internal advisers demonstrating higher productivity due to data-driven management, scaling these methods to IFAs is a main goal for 2025. -
Mark-to-Market Impact on Equity
Q: What's behind the BRL 0.5 billion equity mark-to-market?
A: The mark-to-market effect arises from balance sheet hedges of government bonds impacting equity due to accounting mismatches. XP will harmonize booking models under new Central Bank regulation 4966 starting in 2025, eliminating this effect in the future.