Alfredo Egydio Setubal - Executive Vice President Investor Relations Officer
Pedro Moreira Salles - President, Executive Board
Roberto Setubal - Chief Executive Officer
Marco Bonomi - Service Channel President
Márcio Schettini - President, Commercial Relationships
Itau Unibanco Holding SA (ITUB) Analyst Meeting Call November 12, 2013 11:00 AM ET
Alfredo Egydio Setubal - Executive Vice President Investor Relations Officer
Good afternoon. Thank you very much for your presence here. In a more – in another Apimec meeting in São Paulo. Today we welcome our fellows from Itaú Unibanco, institution which is working with us for the last 18 years. We have a good relationship not only in São Paulo but in all the regions at Apimec. And we have the website in the Investors relationship website we are all the time available for all the professionals and the investment markets.
Please make yourself comfortable. Remember to mute your phones in order to have a good meeting. Remember that you have a questionnaire for assessing this meeting and it is important for you to feel it out because it is used as a base for our next meetings and for - they are worth the best meetings in 2013. So I please – I ask you please to fill it out. And you should understand that Itaú Unibanco is running for this place. Itaú Unibanco is part of Bovespa and it has the sustainability index WMF. I welcome all the Internet participants, they are very important for our meetings and they are all the time participating together with us, it’s very good to have you here.
This meeting is a very important meeting for Itaú, Itaú has been a long-lasting partner and together with Apimec São Paulo we are discussing all these strategies and try to interact and share ideas between investors, whatever the side they are, after the corporate governance or and after the technical board opinion whenever that the capital market is more accessible for all the people especially for natural people. Today we have this very important panel is a very important table we have here, we have all the Directors from Itaú. And is very good to be here and take part of this moment which is so important for our careers. So today we have the President of the Executive Board, Pedro Moreira Salles, the CEO of Itaú, Roberto Setubal, Vice President of Investment Relationships, (Roberto) Setubal, Executive and Senior Director, we have Marco Bonomi as well, Service Channel President, Alfredo Setubal and Márcio Schettini, is President of Commercial Relationships.
Good afternoon. This is the scale for the year in a row that we are here in Itaú in the Apimec meeting. In this year we are reaching 22 meetings in Apimec in different cities in Brazil. We are offering you our figures under corporate responsibilities we have in the country. Besides that we have six road shows, international road shows, attending different conferences in United States, Europe and Asia and we have 100s of investors who are being served in our investor relationship portal day after day. Let me show you some figures very quickly, historical data of our bank and the way our profitability per share is increasing. We had a small decrease due to the macro-economic scenario and all the changes, the financial system went through and there were some turmoil on those indexes - the PL indexes. For example we are running down some equity indexes were also being decreased due to this new scenario. We see here the bank is reaching R$171 billion and our liquidity in our shares is reaching R$664 million in the average this year.
It’s a good notice this year it shows both in Bovespa and in the American stock market through our ADRs. The liquidity is very well balanced differently from other years when we were negotiating the New York stock market, I think is a result of the measurements the government has taken. We have more or less (28,000) shareholders, we have 85,000 natural people, we have some pension funds and 1,000 institutional investors in the – in different countries, our pension funds and some other companies representing millions of people who are shareholders of those funds.
We have a free float of almost 100% of the preferred actions or shares and we have 9% of ordinary shares. Itaú Unibanco and Bovespa will get more wage or more relevance due to the new way of calculation the Bovespa index is and that’s what announced by BM&F Bovespa in two stages, first in the end of the year and the second in May next year. So this is a forecast. We believe that we will move from 4% in their current portfolio for the first moment to 6% and in May something like 8% in the weight and a new index from Bovespa. So we will have a relative weight which is higher than in the past.
Our REIT buying program continues in this year, we have bought more or less R$1 billion bank shares and in 2013 we reached that hit and we are trying to serve all the different actions, all the different share programs for the bank shareholders and we are taking advantage of this moment where the shares are cheaper and we paid more or less R$28 and 18% and we bought 23 million shares sorry. If you are interested we issue a newsletter with all the operations and all the transactions that we have done in the previous month.
Let’s take a look at the way our capital, our equity is distributed, 33% of our shares are behold by Brazilians in book entry shares, 37% are - I mean 25% are in hand offering investors and 38% in foreigners and (indiscernible). Here you have the top 10 investors disclosed by our service, investor relationships, we have the main patent managers and the main investors in the country and abroad and all the different shareholders from Itaú Unibanco. It’s a good highlight for at the Itaú Asset Management we have these shares which are from passive – our – for the liability funds which are following the Bovespa index or any other index our shares are part of that. We are launching to-date a new website of investor relationships; I’m going to show you some of the features of this website which is on air now is a website which resembles more. The website of the bank is cleaner and it’s easier to navigate. The outside was little bit hard to navigate and there is the new one is easier to a certain fit.
So you can take a look at the statements and the shares and everything. We have three versions for tablets, mobile and desktop. We have new tools. We may create alarms to register to make some actions, we may search for a different information relevant data on these statements. It’s very straight-forward. You can create this small box on the bottom and you may store everything you need, download and you download them all in one click. You have some mail listing if you want to receive some news, if you want to follow what’s going on day after day the news and the information have, the new tools when it comes to searching you may search portal or you must say search by word I mean – we have the RSS or the automatic feed, if you want to receive the information automatically many tools are there to make easier than go website. As I said this is for all the platforms we have for all the devices and people are using now. And they could have access to allow our information.
We are pioneers when it comes to social media both in Twitter and Facebook if you want to follow our novelties you can just follow us on Twitter we are updating daily all this information in a very simple way. Today we have more than 7000 followers on Twitter and on Facebook it’s good to say that we were the first company to use Facebook on Investors relationship. We have more than 1,600 people following our news. So we are creating a huge volume of information for all the investors and shareholders and all the interested parties who are interested on knowing what’s going on Itaú.
Let me hand over to Pedro Moreira Salles. He is the CEO of the Itaú Unibanco. He is going to make some presentation. Thank you.
Pedro Moreira Salles - President, Executive Board
Good afternoon to you all. It’s a pleasure to be here as the President of the Board of Itaú Unibanco. Today I would like to talk about governance. What actions are being taken in the bank as part of the holding company or the executive board to improve our governance of this wonderful institution. This is very conceptual image, it’s about why working in corporate governance, I get to remember that a good governance will make the business going better, a good governance will take us to long-term success. And the institution grows and gets more robust and is more present in the air, society and of course we have more possibilities.
We may offer some benefits to all the people around the company whether they are customers or shareholders, providers, collaborators, regulators and the community itself. A little bit of background, if you remember the origin of the two institutions both Itaú and Unibanco they were born in the first half in the last century, one in the 20s and the other in the 40s, next year we will celebrate 90 years of existence, a few companies in the world may celebrate 90 years of continuous history as ours. In our timeline you can see here that from the inflation, stabilization we had in 1994 with an increase of acquisitions and mergers and partnerships. We have an effort in great scale and large scale of consolidation of banking in Brazil. In 2008 we had a merge from Itaú and Unibanco and that was a enormous effort and this effort is being held up to-date. We have some of the partnerships we have done in the last five years, in the lower line you see some acquisitions which were very, very relevant for our institution.
So we are continuing on this growth sequence, a growth that can be organic or through merger and acquisition and partnerships trying to explore all the opportunities the market is providing us and we are developing the institution even more. The governance of Itaú Unibanco is as follows. You’ll have to first remember this structure in the very beginning of the business. You see here on the left hand side of this slide the share structure, it was the source of IR family controlling Itaú’s 34% of capital and the 61% of own shares on the other hand we have the familiar Moreira Salles sort of the company (indiscernible) and both of them are creating PSIUPAR. PSIUPAR is a company which is exactly above the Itaú Unibanco Holding. We have 51% of the (ON) shares and 25% of all the equity of Itaú.
Remember, it’s good to remember that we had reached some agreements in the past. This is the best structure that we may follow being 50:50 at PSIUPAR. So what this brings in terms of the structure for us. I think the strengths that we have a very well defined control, a family control which is ensuring our long term view, vision, we have a commitment with a nice professional structure, we have a lot of shareholders base, we have enormous presence not only in the foreign investors but also we have more or less 40% of peer flow in the bank. And we have a professional governance that is getting better and better and is defining not only the current moment of the bank but also the future of this organization.
This shows an effort that dates from 2009 that has gained speed and has somehow become more intense as of last year in 2012 which was an effort to give life to the Itaú Unibanco for its (Super Science) Holding. Based on our discussions some things came up, things that clearly define the way we see the roles of the holding families. These three families that gathered on Itaú Unibanco and how the governance takes place in the everyday life of the bank through its Board of Directors.
Now I’d just briefly speak about the current discussion and definitions of certain points. When I say that we have to agree it means that we can now turn our back to difficult decisions and so we decided to discuss them in the forum to decide the positioning of the bank in the present time as well as in the future. So PSIUPAR we want and we do discuss the society structure, the shareholding structure that’s where shareholders get to a consensus and their views about the bank have a great impact.
Based on that define our vision and values as well as the mission of our financial institutions that’s also how we determine our dividends target and how we – where we discuss mergers and acquisitions that may transform our organization. So mergers and acquisitions of high value or great impacts on the design of the organization that may result from this process of mergers and acquisitions. That’s also a place where we nominate people to the Board of Directors and the CEO of Itaú Unibanco Holding.
That’s also where controllers meet as well as the families and where we evaluate the performance of certain members of the family that may have the position and also where we discuss the rules of access and admission as well as evolution within the organization. And finally these are of course only the main topics but that’s also where we discuss and approve our long term strategy which is in agreement with this control structure that has been defined and that gives our organization a long term strategic vision.
Now with regard to our Board of Directors there is a healthy overlapping here to discuss the strategy of the company within our Board of Directors. Once it has been defined and in agreement with PSIUPAR this is followed up by the Board of Directors. This is also where we make decisions on great mergers and acquisitions both for high value and also lower values. This is the role of our Board of Directors. This is also where we follow-up on the several business areas that makeup Itaú Unibanco and of course the business as a whole. That’s where we approve and discuss issues such as budget and the general supervision of our business.
Also within the Board of Directors there is a great effort to follow-up on the performance of our directors including family members and depending on those performance the Nomination and Governance Committee will follow-up on the evolution of those family members that may have a position at the bank. That’s also where the directors are nominated and there is also an important step which is the follow-up on the risk of the institution.
So the definition of our risk appetite, the discussion of our risk appetite as well and the supervision of how this is developing and hence been developing through our time year-after-year and if our budget is consistent with the risk appetite that has been defined whenever there is some change or if a business area distances itself from the risk appetite we discuss this to realign our views that’s also where we define and follow-up on the compensation models. This is of course a critical step in the alignment between executives, professionals and shareholders. You may see that there is a great focus on risk, on people and on culture here. I’ll talk about the Nomination and Governance Committee later, but of course we do follow-up on the main leaders in our organization and this is discussed in full detail based on the targets defined for the main professionals in our organization.
Now with regard to our governance structure below PSIUPAR we have our general assembly of shareholders and our Board of Directors which have many different committees, the strategic committee, the audit committee, the nomination and corporate governance committee which is just mentioned, the people committee, risk and capital management committee, the compensation committee, which is not the people’s committee and finally the International Advisory Board that gathers Brazilian and foreigners to discuss the internationalization strategy of our organization. After the members of these committees are elected we define the focuses of the board which is on people, culture, risk strategies mergers, and acquisitions.
Also a characteristic of our governance is the supervision that has been defined in our bylaws of the positions of President of the Board and Presidency of the Executive Board. And then we have the Executive Board and below it the committee of dissemination and negotiation. And then external and internal audits are independent on the executive, the internal audit response to the Presidency of the Board now with regards to the development of their work, their response to the audit committee.
One of the critical topics when we discuss governance is related to the planning of the main executive levels of our organization. Last year we discussed this in detail considering that the bylaws of our bank define that the limited age of our executive members is 60 years of age. So within the Nomination and Corporate Governance Committee we have defined a process which is not specific for this moment or situation but a permanent one to make sure we have good transitions whenever they are needed. This year in 2013 on the left hand side you may see the picture of how our organization is working.
The company Itaú Unibanco Holding has two operating companies that are not listed below them. Itaú BBA where you can find corporate investment banking and treasury and Itaú Unibanco S.A, where you can find retail, consumer credit, wealth management, insurance, and support areas of the organization as a whole. In 2014 everything will remain as it is now but in 2015 there will be a first major change which is the fact that the Presidency of Itaú Unibanco Holding has altered it’s bylaws so that the term would last for an extra two years time and the way that we found to be able to follow-up this transition and make sure it’s done at the right timing. In 2014 we’re going to have Itaú Unibanco Holding. Roberto is now the current CEO and he will become a CEO only of Itaú Unibanco Holding for another two years as well and below that there will be a retail bank and the institutional roles. The three main roles are finance, risks, and the legal department.
That’s how we can make sure that from 2013 to 2017 that is two years after this major change that will take place in 2015 we’re going to have been able to accomplish a good transition in the main leadership positions of Itaú Unibanco. With this governance process as well as this discussion process and the clear definition of the roles each position has and the different levels of this organization we get closer to our vision which can be seen here in orange which is to be the leader bank in sustainable performance and customer satisfaction. This is not only worth. We are here trying to make sure that all of these things listed below this orange sentence happens.
We have a great effort and dedication to implement a customer satisfaction centered culture. Having at the same time commercial focus and operating simplicity. We also want to maximize the return to shareholders which allows the growth of our organization, we also want to be the bank that chooses the best talents, retains the best talents, people who feel that they own the organization and they are proud to be belong to it. We also want to have a group with shared leadership with a broadness and deepness depth of talent and that’s why we have an absolute focus on Meritocracy. In order to be able to encourage this secret talents we want an environment that stimulates creativity, entrepreneurship and the debate of ideas. We also want to have a bank that has state-of-the-art technology not for technology itself but of course to add value in order to better serve our customers. And lastly but not least we want an organization that is a role model and it’s ethical a posture with customers, employees, authorities, the society and the market and that’s all. Thank you very much.
Roberto Setubal - Chief Executive Officer
Good afternoon everyone. I’ll start my presentation by talking about what was consolidated in our balance sheet and then Marco will talk about agents and he will talk about cards, credit cards, and he will talk about large companies and Ricardo will talk about technology and the things we are developing in these different areas. I’d like to start my presentation with the results of the second quarter of 2011. You’re probably wondering why we are now in 2013, why should I go back to 2011. The 2011 was a very important year to us that was the moment in which we had left a 7% growth a year in 2010 in the Brazilian economy and we had a fall to 0.9% yearly growth. In 2010 this has had a major impact on the balance sheets of our bank and I’ll talk about that.
But in addition to that we’re also just concluding our merger process which had been announced in the end of 2008 and we worked in 2009 and 2010 to implement this merger. So we were just concluding our merger and at the same time Brazil was reaching a economic downturn. It’s also important to remind you that there was great volatility in around the world. Europe seem to be a ball to explode and if the Euro was about to collapse. So that was the moment and that’s the result we had in that quarter. The second quarter of 2011 was quite good results R$2.3 billion profit and a return on equity of more than 20%.
But internally we were not satisfied, we knew that we could do better and then at that moment analyzing our banking operations we decided to change our strategy. We saw a world and our country that was quite uncertain about growth and we decided that we needed to reduce the risk profile of our portfolio. This is a general question we were wondering whether we should reprice our risk or reduce it and deciding to reduce risk ourselves always a difficult decision to make because at a first moment you will lose market share of the risky customers and you also lose revenue because you are not giving out loans for those segments of the economy and that impacts the revenue.
At a first moment that does not improve your results because the license that you would have in the following quarters are process that are – have already been contracted because you had been given credit at a higher risk so this has already forecasted these losses so we knew that our losses would go up and the revenue would go down so that was a very difficult decision but we made that decision and started to implement it in the second quarter of 2011. We finished implementing the adjustments of our risk policy in the first quarter of 2012 and throughout this period so that is more than a year ago we had finished implementing this policy, we have kept this risk appetite then since the first semester of 2012. We started the process right after the end of 2011. So we knew that our margins would go down because we would leave the risky areas because those are all the areas with greatest strides in margins. So we knew our margins would go down because of that but we saw this could be offset with a fewer expenses of provision for debt.
Of course when you make a decision like this it was hard to implement it without knowing for sure whether you are going to able to reach the point you want to reach later on. So as I said it was a very difficult decision to make but in order to help us to go through this period of adjustment in our risk appetite we wanted to have some compensatory policies to help us because our margins would go down and the losses, expenses would go up. So emphasize services revenue, we knew our credit portfolio wouldn’t go up because of the adjustments of our risk appetite we wanted to have more revenue coming from insurance, pension funds and services. A good policy is also to control cost so that’s what we did, we implemented a strict cost control policy to help us to go through that difficult moment and we also decided that our operations in Latin America would keep on growing continuously. So no adjustments in this area, we decided to keep on expanding our operations in Latin America.
So now we’re going to focus on the results of the banking operations. I was first talking about the consolidated balance sheet and here I’m talking about banking operations only. And I’ll later compare this to our third quarter results. So we decided to change the risk profiles of our portfolio so that meant to leaving risky businesses aside and focusing more on less risky businesses. Those unfortunately have a smaller spread and that’s why we would have an impact on our revenue. So what was our portfolio back then and how is our portfolio now. In terms of legal entities we can see that we have increased the share of large companies in our portfolio and decreased the share of small businesses because small businesses are riskier and the economic situation was harsh and larger businesses represent a lower risk.
We reduced the presence of vehicles businesses also in our portfolio. This is just a brief comparison of what happened in the period. Credit card was okay and it was kept, personal credit, there was a small reduction. We mainly improved consigned credit, you can see how this impacted the credit share in our portfolio, real estate was growing and it kept on growing so you can see that we concentrated our growth in smaller risk and smaller spread as a consequence area. And Latin America grew a lot as we intended to grow. So analyzing the growth you can clearly see that the greatest growth were in lower risk portfolios. Analyzing our 2013 balance you can see that this was successfully implemented, of course the bank was less subject to economy volatility, so we are now a safer and sounder bank that’s less vulnerable to the assibilations in the economy because their portfolio is not that risky anymore.
So the businesses we had a 14% growth as you can see here in the numbers. And personal credit, concurrent credit has grown 125%. And personal credit portfolio had a small increase and then a small decrease and it’s now just a bit above what it was in 2011. So the risk profile is now different compared to what it was a bit more than two years ago. Same for the vehicles portfolio. We have had a great reduction in this portfolio because the fold level was quite high so we adopted different measures as you can see here. On average we now have 38% upfront payment now and at the time there was only 35% upfront payment and part of it even 0% upfront payment, at least 20% down payment.
This improve the profile and the quality of credit since you’re only financing 80% now the guarantee covers still own during the whole payout of the debt. So that was an important policy adopted and at the same time we reduced the periods for payment because longer periods are riskiest. So we implemented this, more than a year ago the portfolio is still decreasing although the market has had a reduction for vehicles financing because this portfolio faced many problems during this period. What about the default index. The default index is an index, so a combination of the values that are overdue and also the size of the portfolio. So those were 15 to 90 days. It was quite stable but it has been dropping ever since. The short term overdue which was from 15% to 90% is now 3%. This is the lower figure that you may find here and the lowest since the merger of Itaú Unibanco. So the measures adopted have indeed led us to a great improvement in our default profile.
Now the most common default those that are overdue for more than 90 days and they take longer to react because when you adopt a measure the short term overdues react immediately but long-term debt it take longer to react to those measures. As you can see they have gone up and they have reached 5.2% in June last year and as you may see we’ve had a significant decrease of overdue indexes and we are now actually in the end of the last quarter we have had the lowest default levels since the merger of Itaú and Unibanco. So I think we’ve been able to reach the goal of reducing our risk profile and reducing default levels.
What about our provision doubtful debt? We knew that we would lose margins but what was the impact of this measure on our provisions for doubtful debt or PDD? When you see the gross margins it was 12.7%. We’ve had a small increase to 13.4% but ever since this peak we have only had a drop. Low risk portfolios also present lower margin so we’ve had a decrease in our margins but after the losses the net profit or net spread is now reaching levels that are virtually the same we had before this whole process has started. And they are now going up so we can see a trend to have this margin going up because quarter-after-quarter our loss is increasingly smaller so we’ve been able to compensate the reduction in the margins with reduction in losses. So the policies were well implemented, well dimensioned and we’ve been to reach our goals. I think these are the trends for the future as well.
Marco Bonomi - Service Channel President
What are those margins when it comes to profits. As I said before we were implementing different measures, new risk appetite for the end of the second quarter of 2012. So as you can see here the portfolio was growing at a time, slower base but it was growing anyway. So after we deploy all the measures and risk appetite such as the credit policies which are more rigorous and margin was going down. And why so? Although the level of credit operations were increasing we were losing some profits due to the spreads and different products and especially the mix of the products which were poorer. I’m working with products which are – which have less margin but they have less risk.
Let’s take a look. We have lost some profits R$2 billion more or less in a quarter which is not talking money. The good news which is important to highlight is that although we are going down in this peak we are going up again so the adjustment was done and from now I believe of the loans and of different profits coming from different products are going up. What happened with our expenses, the forecast for doubtful debts. It’s going up to R$6 billion in the beginning of last year and now we are seeing some reduction on different segments which were riskier, we have meaningful decreases on the forecast for doubtful debts which is the PDD. For all these margins that we have we see that we are having less losses and all these losses should be – should decrease in the future. So the strategy of changing the risk mix has worked very well. With this we have managed to increase our gross margin which was difficult to see here but it was growing again.
Today we have the highest margin in this period. It’s the highest gross margin or sorry net margin of this period. And the expenses on the other hand, on the PDD which were the credit losses, they are going down as I said but when it comes to the portfolio we see that the level we have reached is the lowest level of the whole series which is here, point eight. It’s a very good job we’ve done. This change in the risk appetite has allowed us to make it work for the bank. At the same time as I said before this period we were trying to push the increase on profitability.
We were looking for new sources of profit and incomes and you see here that we are doing very well on that since. We grew 38%. A lot of that is related with the credit cards because the acquisition of Redecard last year but anyways all this year you see here is growing including different profit we had on the coverage, we had good services. So what this means into practice. So these services more or less stable on the financial or the financing profits. It’s very dependent on the economy profile so if we change the balance of the bank we are restating the balance of the bank itself and we have today a less vulnerable profile to economic crisis.
So our profile is getting more stable everyday with less risk being assumed. In this period as I said we were doing lots of things to make all the things in the bank. At the same time we were doing these fine-tuning on the risk profile and the service increase. We have no space to increase our expenses otherwise our results would be very endangering. So we have a very rigorous policy on expense control, take a look at the different quarters we had and we have more than 9% of expense growth.
It’s below the inflation, it’s below the CPI and now we are controlling the expenses very well and that was very important or it to be more efficient and more productive and be more quality oriented. People think that cost reduction is about making services worse or a poor quality and I think is not like this. I believe you get cleaner, you get leaner and the processes get better and the qualities are of course improving as well. Also in this period we have a very rigorous control on expenses, the complaint level was low and the processes in the bank were being improved.
So this is very important for the bank. We do this in a very rational way. The lower the better we have the efficiency level evolution which is 53% of which is reasonable for the world standards, we had 50% in the second quarter of 2012 and now we are going up to 52%. This number doesn’t capture the risk. The ideal would be have those number going lower and lower also and we adjust these numbers at risk you see the –this number was the lowest in the series and for the blue column apply the same thing the lower the better.
If we adjusted risk it was not as it should be. The losses were very concentrated. Today we have a efficient level of adjusted risk very good which is better than the very beginning of this process. So when we take a look at the whole scenario with the expenses and all the expenses with various and all the custom all in the banks we know that we are making the bank more efficient on in quality and on efficiency and on operations and we are working on a superior level if compared with two years ago when all this process has started. At that time we had lots of doubts and questions and today we are feeling very well.
Our results improved very much with this. You see here if you compare this P&L you – I don't have to go deep on all these numbers, but as I said the margin went up and then got steady right, it was a profit coming from loans and credit. We are reducing our loan risks, we are controlling our expenses and the results at this time grew 40%. So with all these activities we have undergone, we have achieved a very good improvement in the bank and our result on the net equity improved very much. So it was a very good job we have done here.
Let’s talk about insurance. On the activities we have done on this area at the very beginning I said that we were trying to grow our profits with insurance. Our share in the bank on insurance is getting bigger and bigger, we have (electronic monitor) indexes which are better. Here in these indexes the lower the better as well. Take a look at the legal claim level we have 29% only which is a very low level probably the best level among different companies in the market. We have here a policy of low risk, we are operating on low risk all the time so therefore it’s very interesting all these figures. In this period we grew the profits by 42% and the expenses grew by 17%. Same thing low risk more growth efforts combined with controlled expenses and once again we had a very good result. As you saw in the previous slide there was a larger growth than the banking sales. So when you take a look at the insurance business we are growing 40% on that result.
When it comes to insurance we have a very good return and the investments now and the activities we’ve done so I think we are going very well. We have said many times that our idea is to grow in Latin America, we want to expand in this market which his very interesting for us, although we are relatively small in Latin America. Therefore Latin America itself – the Latin America is more now have market share for our bank. You saw that the credit portfolio in Latin America represents 8% of our total portfolio. You see here in this period the returned net profit was small but it is basically down on its size in this period.
So it was a very meaningful earnings starting to being a more and more relevant. The credit portfolio grew 134%. We have the exchange effect due to the Brazilian Real appreciation but we are doing a very good work with this, we are beyond or above the levels we are seeing here in Brazil. And in the countries we are at Colombia, Peru, Chile, Argentina, in Uruguay and Paraguay, well Argentina not that much but all these other countries are growing more than Brazil, the financial markets are expanding more than in Brazil. And this has contributed of course increasingly through our results.
This is our P&L. We have the mark, the financial margin with market which is all the things related, all the profits related when we operate with different corner parts in the market you saw that it was very more – was more volatile, you see here that all the tiding part is included here and financial questions, financial issues and this is very volatile, the exchanges are lot and our results from the second quarter, the performance was too low if you compared it with historical level so it oscillates a lot. And in this period it was very low especially. In this period we have a very significant growth which is the net equity of our investors and shareholders. We are paying new loan building of dividends. We bought and we rebought our shares and these results are very good for the bank and it’s a good return for the investors.
Our return on the profitability and on the equity is better. We are improving this even when we are injecting more capital to the market. The index of capital in the bank is very solid and we are very satisfied with it. With this I move into the last part of the presentation showing that our consolidated statement on the third quarter of this year as it compares with we have two years ago, it vary a lot, our returns got higher. And my idea was to show you that our strategy works very well. We believe we are following a trend which is more robust and more robust and more positive due to the low risk we have in our mix and the strategies and control expenses and we believe that the trend for the next quarters will be the same I believe the margin will go up and the risk appetite will be very controlled.
What do we expect for 2014 I mean we do not have figures here as we are finishing with the forecast but it’s not finished yet. We think that we need to keep our current risk policies you know that we have changed our risk policies a couple of years ago and I believe we are still to gather all the benefits of all the policies we have determined in the past. I believe in the next years we will see those inputs coming. So we are feeling very optimistic on this sense especially due to the change and the mix. The spreads will go down day after day also the net spread and losses show some improvement. We will witness some improvement in the trends of the bank and we believe we will focus on controlling our costs and expenses we believe we have to control in 2014, the efficiency we need to control or keep our level of expenses below the inflation which is a very tough exercise.
Creativity arises when you face this situation. When you have ambitious goals you should be creative. We have done marvelous things, trying to improve processes and we have done lots of interesting things. We believe we may improve even more our quality when it comes to the complaint index and the satisfaction index of the bank. We are doing better day after day and I believe efficiency states or leads the company to a better quality. I believe the company should have quality but in order to do so we need to have automation levels and efficiency levels which must be higher. So we will improve our customer service all the time and we will emphasize on cross-selling. Cross-selling is selling products and services to customers which – who are customers of the bank, existent customers.
We don't want to gather or capture more customers, we want to grow the number of customers following the trends of the market, but when it comes to quality and service we believe we have more to do when cross-selling. And continuing on this focus on efficiency and maintenance of our risk policies this is very important. This strategy has proven to be a range and the change has been very good over the last two years and we believe we will keep focusing on this path which I believe is the best path to reach and the best objectives for the bank and become a more sustainable bank even in harsh scenarios such as the one we have today even with lower risk.
In Latin America the strategy will be different. We will grow on levels beyond the market levels. We are growing in different countries. We have operations in and we are emphasizing all of those operations and of course we will look for opportunities, opportunities means acquisitions, acquisitions are not as easy as it seems because someone has to sell. If someone is selling and while our competitors involved and we of course, we understand that acquisitions should make sense for the investors, they should create value and bring value to our investors, we are not buying something for a very high price which otherwise wouldn’t bring any positive effects on our investors. So let’s see what opportunities the future brings and we will keep an eye on how to increase our operations in Latin America. So that’s it. Thank you very much for your attention. And now handing over to Márcio.
Márcio Schettini – President, Commercial Relationships
Just a quick reminder at the end of the presentations we will start our Q&A. Q&A will be only through the paper you are having in the front of you is only a written form. Well good afternoon. In this presentation I’m going to update you the different projects we have in the investments, we have done in the different segments we have when it comes to payments and credit cards. It’s a area which has been treated in the bank as a core business, a main business. And we are following different movements from different banks around the world. We are an reversal bank and we want to have a full portfolio of products and business. I believe we have paid an (indiscernible) through this and we are taking all the opportunities the segment is offering to the bank over the last years.
So when it comes to credit cards and payment we believe it’s a very important area for Itaú Unibanco and is only important for Itaú because it’s very important in the local arena in the Brazilian scenario. Brazil today is one of the biggest size markets when it comes to payment and when it comes to credit cardholders and that’s why recently and this area is receiving a special treatment from regulators and all these regulators are complaining all the governance process including all the different connections in (indiscernible) payments providing more safety, more transparency and more standardization as we now know the rules are being applied to all the players. So it’s a growing market at least from the operational side but it offers a couple of opportunities when it comes to the profile of the country, the user profile and the modernization level and automation level of the banks and the phone system the telecommunication system as we have to look up to those market that’s something very special. Today we have 14% of profits being generated on the universe of credit cards in the whole world and when it comes to capture when we operate through the Redeor Redecard which in Brazil is 12% of the total amount of income for us.
Let’s compare Itau Unibanco with other players in the world or the way of other markets very well developed. Today we’re in the seventh place when we compare ourselves with players in the world. If we were a bank operating in Europe will be the first place on the credit cards and the United States will be the seventh and when it comes Redecard this will be the eighth position on the global market. So, it give us a very privileged position in a few companies have such a big universe and all these tools and all these opportunities that we have since the time we assumed Redecard last year.
When we take a look at the profile of the results we’re generating today and we are coming comparing Unibanco with other players very well known players especially in the U.S. market as very efficient players. Today when it comes to generating profits and services we have a level of generating services and profits which is very comfortable and we have low volatility, we have an efficiency level which is very comfortable as well, it’s very consistent due to all the things we have done in last year. So when it comes to value extraction we have an adjusted profit, adjusted to the risk in our portfolio and now we are in a very good position which is confirming decision we have made when it comes to investment in last years.
Taking a look at the last five years I believe the history is very consistent. We have had many important decisions investments and the investments in the sector of credit cards. And as you can see here it follows a very important rational on what we have in the group on the priorities we have defined in the organization. So in 2009 after the emerge we started a disciplined process to integrate our technological platforms frankly extract as quick as we could the maximum efficiency of this operation. After that we will start a integration of the operations that are with seven platforms at that time operating in the former Itau and former Unibanco. And we started our operation zero mistakes and we are entering in the four year of this SSIs of seek more efficiency and prioritizing everything when it comes to the actions and decisions that should be taken.
We started 2011 with a full quality program with this zero error methodology with the Kaizen methodology we can relegate to the employees the capacity of solve problems at the same time executing all those decisions. In 2011 we had a very important acquisition to complete our partnerships it was 0.9% of the Carrefour Bank and in 2012 we started with a very important movement when it comes to the change of profile of credit cards functioning in Brazil. We negotiated a lot with regulators, with opinion makers or opinion leaders and with all the segments dealing with the consumer rights especially when it comes to a cool consolation of interests that work every where in the world unless Brazil. So we have Itaucard 2.0 and we are reducing our maximum rates and we are starting the process of re-pricing of our portfolio.
In 2012 in January we started our take over board and all the actions that were negotiated at the stock market a very, very good process very successful which finished 12 months later. We started 2013 with a very strict agenda we were gaining efficiency, gaining market share. It was a process very well discussed with all the regulations and all the consumer rights organization to bring more value to our customers and improve efficiency. We bought credit card we acquire this company in May this year and with this our segment of monoline is complete.
In 2013 we started a couple of initiatives which were the digital front as we call them. I'm going to detail a more of this term and the idea was to take of everything we deal in the physical world to the ecommerce and mobile payment. We launched our new brand Hipercard is a very interesting movement because in 2004 we bought the Hipercard activities. At that time it was an operation based on credit cards but it was more based on capture and we have today this brand which is the third brand in the market. We decided to go to the market and tell the market a bit broad access and the brand will be taken to up to some other card credit card issuers. We announced a new positioning holder a but which was Redecard formally known as Redecard that’s not only a change of brand or a mission or marketing movement its just new strategy for the last 12 months that were many investments on the infrastructure technology and fleet modernization and some more investments.
What do we have as a background of these movements and all these investments and decisions taken last five years? Itaú Unibanco now has raised a very privileged position a wider deal of what we have as the credit card market and payment market today we are putting all together. We are putting together the physical world more or less 1 million to 100,000 stores that are taking credit cards and all of them belong to the physical world. And we now understand that we have obvious different range of payments of this new context that we are dominating now and we are putting all this together with the new frontier which is the ecommerce and mobile payment. And this is gaining attention day after day and probably Mr. Guerra can give us more details on this. It’s only how the bank is understanding this new context in a very differentiated way understanding that in the world maybe four or five big banks may have the same penetration and relevance in all these segments.
After having the opportunity of bringing Redecard along to our group is starting to align the goals and priorities of our card issuance universe and everything else that we consider to the priorities and goals of rate capture and acquisitions business. So, we try to have a short list of priorities and projects to avoid loosing focus to our time and especially in the last 12 months we’ve been able to approximate to the card issuance and capture and acquisition networks. So, what’s our priority for the credit card business to evolve in our efficiency index this has already been mentioned this is about increasing our revenue and reducing our costs. We want to increase our market share of dealing this market share that has been preserved in the last five years after the merger. We also want to have quality and risk management as well as operating indicators. We also wanted to launch our own brand in order to have a close loop in management then open a new front which is called the digital front. So, we’re talking about 33 million active credit card accounts with almost 50 million customers been covered because each account may have more than one card given all these customers access to digital service and the possible of acquiring product digitally and doing payments digitally as well. This is a new agenda but that has also become a priority for our cards businesses.
Now capture and acquisition we wanted to have a synergy with the bank. The first semester of this year we had already put in place the operating and management integrations as we planned and we wanted to redesign the commercial coverage. Today our network has a division to manage channels and point of sales of the banks I'm talking about branches and legal entities platforms everything the bank offers has access and another division which takes care of the open market. And the network is probably then the first point of contact of the customer. So, this is a first moment of presenting or introducing our bank work possible future cross selling.
We also wanted to have a 100% mastery of our IT front and operating excellency. Now as we did for cards issuance for capture and acquisitions we opened a digital payment front and a service front we were able to approximate the agendas of these two worlds. So, from now on we’re going to have an even better alignment among all of these initiatives. So, about the issuance world, every time we talk about credit cards and holders either legal entities are individuals that hold credit cards we access them through three different channels and these diversity of channels and access is what gives a competitive ash to our bank and the Brazilian market we have our branch network.
This is the main priority channel we distribute products to legal entities as well as individuals this is what the bank execute and the monoline channel that’s where credit card fits. We have contact with the customer without any kind of mediators and our joint ventures they are significant, they have been well chosen and we are partners now with those that we want to be. So, when we gather all of these channels we see that two thirds of businesses come from outside our branch network. So, it means that we’re in the field capturing customers so that in the near future they may be approached by the bank or by the other businesses that we have as a whole.
In the last four years or even before that we’ve been growing according to all factors such as risk appetite and return evaluation, we’ve been able to grow portfolios even in harsh environment such as that in 2011 and 2012 also our revenue grew in the volume of transactions. This was done in a smooth way allocating do attention especially in the most critical moment such as in 2012 when we had to deal with important pressure regarding decrease in margins, discussing with stake holders, opinion makers and the press and we had already introduced Itaucard 2.0. But in addition to that we changed our maximum rate and increased our average rate in most of our portfolio keeping maintaining the margin that we were able to get three years ago.
So this whole process of profile changing including point of view in pricing was done in order to curve any possible impact on our revenue generation. We also had an improvement in the quality of credit. So, after three we can now say that our average loss per customer is smaller comparing our base line from 2011 to today’s results. So, we were able to anticipate most of the market movement and we were also able to reduce costs and achieve efficiency because after three years we were able to reduce by almost 35% our expenses and costs and in nominally speaking and actually speaking almost 40%. So, our profit or earnings portfolio grew significantly in the last three years due to the initiatives and decisions that were made in the last three years.
Now about our management model. In the last three years as of the moment that we integrated our operations from the technological and operating point of view we’ve put in place the agenda of the zero based budget. Each one of our managers have the responsibility of defending and prioritizing their budgets, revisiting businesses activities and projects. Thus we were able to advance in this agenda of simplification and error reductions so that we could eliminate redundancy and overlapping and rationalize processes as a natural result of all of these initiatives.
Now about the quality agenda as well as error reduction agendas. About three years ago we implemented the Kaizen approach in our plans and procedures and we went that beyond not our mangers but our employees were the ones who received the responsibility of reporting problems, suggestions, solutions and implementing them. Thus we have had this empowerment feeling on all our units and this division. This has given us the freedom to focus on what we should focus. This is just a small example pf what we had in developments after four years we are now investing 30% less in system development as compared to four years ago and we’re able to much more with the demand management being done in a more consistent and complete way involving all players. This also gives us quality and improvement of the evaluation made by our customers. I have two examples to show you here, the evolution of complaints at the consumer protection agency and the evolution of complaints on the website Reclame Aqui the main Brazilian website for online complaints that also manages most of the decisions in this area.
As of this moment we defined a more straight forward agenda. We also have the opportunity of investing in new business opportunities. I talked about Itaucard 2.0 and in the next slide I will give you further details about the initiatives on that. We launched our Hiper brand and we acquired Credicard. As I said previously this consolidates our strategy of having a significant presence outside our own channels in order to capture new customers. Itaucard 2.0 by the end of the year we’re going to have 1.7, 1.8 million active customers. We already have about 1.6 million cards issued and in 2013 this is going to account for more than 95% of our new sales. The complaint levels are lower than the levels with having for this launch is historically speaking and this even forces our belief in a new way of pricing our businesses. And at the same time a new way of interacting with our customers that key value in having a proud that although it has a different algorithm as compared to Brazilian standards its now comparable to European and American standards. So, the perception of interest rates is now better perceived by regular consumers.
An agenda that we have started to implement this year, the first deliveries have also happened in the second semester is the digital front agenda. In the card issuance world we can divide this into digital service so there is an effort to offer customers self service channels through smartphones and tablets they can solve 100% of their demand as far as digital payment initiatives that are being developed together with the network. We also expect to have new customers and businesses in the ecommerce and the mobile environment. This is a new agenda that has just started to be implemented we expect to have good results to deal with approved issues in the Brazilian market abroad as well.
Now our acquisition in capturing network about, 12 months ago we were concluding a 10 month process that had started in February 2012 and ended in November 2012 of our take over beat for announced share and Redecard shares. That was a significant investment for a long period of time we had to interact with investors and analysts of (AG) and Itaú Unibanco showing them what our expectations were what was the added value that we could identify in that operation and how we could be a part of this new configuration. We would not be able to do everything that we’re doing now if we didn’t have a 100% control over Redecard. After those 12 months the level of safety we have with regards to that investment with which was worth more than R$12 billion has been proven effective and now we have new opportunities that are better interpreted and treated by the group as a whole without any Chinese wall risk or the risk of not having the best governor’s practice being put in place by the companies or parties involved.
We’re now ending this third quarter in a very comfortable way with regards to the priorities defined for Redecard. We have now reached 1.5 million terminals given access to more than 2 million commercial establishments or institutions and being able to generate more businesses. We now cover more than 5,000 Brazilian municipalities that’s also an important opportunity for the bank as a whole.
One of the main priorities defined for Redecard was to redesign its commercial structure. We did that at the end of the first quarter and the beginning of the second quarter we had a structure that reflects the segmentation of the bank going from small shoppers and also retailers in the open market a third from Redecard customers are, customers that have relationships with the bank and the others aren’t so this is an opportunity for cross-selling to new customers that are originated consistently through Redecard network.
In the last years the segment has undergone important changes in 2009 there was an announcement that the market would be opened in 2010 and that would be put in place in the middle of 2010 until then the previous Redecard would only accept MasterCard and Diners. And it started accept Visa in the middle of 2010 after that there was important competition with pressure on margins. And then in 2012 we had the announcement of our take-over bid and that made us really careful to preserve our company and not offering exposure of our company in this agenda with all minority shareholders of Redecard. In the last four years then we were able to sweep the market share that we had until May 20, 2009 when we heard about that opening of the market and you can see here in the picture one of the main risks that we identified in the last years.
As the other two priorities I mentioned such as commercial coverage and bank integration we also wanted to advance an operating management. We had great advances in logistics, maintenance, machinery, service in return and today our quality indicators show that the first actions were effective and that we are now bringing Redecard to the quality levels that we wanted to have in the group as a whole.
And now their initiative that we started to work on in the beginning of the year was an initiative to support to this market of digital front both on ecommerce and mobile payments. A few days ago we made some announcements of the launch of E-Rede our payment gateway or virtual POS in which shoppers and customers may carry out their transaction their sales or purchase can be done in a safe and transparent way also for small businesses and autonomous professionals. We have launched our product called Mobile Rede with a card reader or either with typed transactions we can purchase and sell in a decentralized way following the trends that we could see in other countries.
We have also made investments in the last 12 years not that we were not making investments until last year. But now we’ve been able to focus and optimize our investments and technology and infrastructure and we’ve been able to replace 75% of our POS part in the last 12 years and 50% of them are wireless POS and we’ve reached almost 100% availability. Now Rede can process three times the total volume of the whole market or even eight times the total volume of Rede itself in its day of greater movement that reflects the investments that we’ve done in the last 12 months. So, it means that we are very aligned with the initiatives and priorities that we’ve previously chosen.
And finally a few days ago we announced a new brand and market positioning but more than that to tangiblize all of these initiatives which are connected to a broader strategy of our bank that sees the segment of the card and payments as a natural extension that can generate results in themselves and also present new customers market and channels to the bank as a whole. That was all thank you very much.
Marco Bonomi - Service Channel President
Good afternoon everyone. I'm going to talk about the retail banking which is the most the one that has the largest visibility what we’ve doing in the last two months and – two years sorry, and what we’ll do in the future.
The last slide shown by Pedro is also the beginning of my presentation. It’s very clear that we want to be the leader bank in terms of sustainable performance and customer satisfaction. How does this, how is this implemented in retail banking? First of all top culture and bottom line, we call this RGO coacher from our tellers to the CEO we have these an RGO coacher. This can happen through revenue growth, cost control, credit control and operating efficiency. Our tellers now do sales they have quality targets and sales targets the same applies to our managers and everyone knows the results of a sale that happens the results of each customer and thus we have a great alignment we have about 60,000 people working in the retail banking so it’s a great universe that needs very clear guidelines.
Our second pillar is customer centricity. This is how the tailor made Itaú is put into action, Itaú is tailor made to you and for you. So, we’re now customer centered that means that we discuss with our customer’s ideas and positioning and the action that the bank should take in order to be included in the lives of our customers in a simple convenient and transparent way. Creating a simpler relationship with customers in retail banking we call this the right product to the right customer at the right channel.
Now the third pillar is something that has already been mentioned cost efficiency. How can we achieve that? We have a motto which is to gain 10% for the activity a year, every year. And in order to do that we have short and medium term programs for innovation and continuous improvement programs. Thus we have actually been able to get these levels of efficiency year after year. We now have 26 million customers individuals and the operations of retail banking and almost 2 million legal entity.
Now let’s take a journey through our retail banking customers. In my life everything needs to be simple very simple that’s why I am a customer of Itaú, I pay my bills on my mobile phone, I withdraw money without my card or a pin number and there are branches that are open to me up until 8 PM. The world is changing that’s why Itaú is changing as well, tailor made to you, have been able to notice three things that are important innovations that have come to make the life of our customer’s easier.
The Itaú as we know with those orange branches has two segments one for legal entities and another one for individuals. We have 22 million customers with an income of up to R$4,000 per month almost 4 million branches and 21,000 ATMs in this network. 4800 people visit us every day, in peak days we may have 5 million or 6 million people and 40% of them are not holders of current account these are people that come to pay their bills in our branches and they have R$55 billion invested in our bank especially in savings account. More that 90% of those R$55 billion are in savings account.
We now have 750 branches that open on different times. We have differentiated working times Itaú’s branches open earlier close later. Our branches open at 8 AM in smaller towns especially where people wake up earlier and we close at 7 PM in large urban centers where people need more time to go to the bank and thus we can serve our customers at different times and not only on lunch time. This is part of our strategy of offering a tailor made bank.
We’re also developing a new family of branches in shopping malls. We now have about 100 branches in shopping malls they have been developed together with a British company that’s one of the companies that focuses, most focuses on innovation and technology for banking branches in the world. So, we have some branches in São Paulo country side of the city in the country side and they’re going to be implemented through out the country. We have a differentiated audience and we serve them from 12 AM to 8 PM because that’s the time people go to shopping malls.
Our life is changing and Itaú Uniclass is helping you change it even more. Our mangers have a reduced number of customers you talk about investments with specialists you have greater credit limits, you can solve everything fast when you go to the bank and you’re served with people who can solve your problems even by phone. Five exclusive services all together to you Itaú tailor made to you.
Itaú Uniclass is one of the great heritage that we’ve had in the merger of Itaú Unibanco. We’ve had Itaú personality and we also have the five star customers of Itaú. But we didn’t have any solution to translate the service of an intermediate income audience between retail and personality. So, Itaú Uniclass was positioned to serve this audience we have 3 million customers now at Itaú Uniclass. This is present in 100% of our branches these, this is an incredible operation we have R$95 billion in resources captured with those 3 million customers. We have 1500 branches with exclusive lines and tellers to serve these customers in 4500 relationship managers devoted to serve these customers.
The service was expanded last year after the first roll out year off those 600,000 customers we had to the 6 million customer we now have Uniclass has reached to the second place for customer satisfaction. The competitor A here as a British bank just so you know.
Personally there is our franchise of – customers it’s a spectacular operation we have today more than 705,000 customers with income of more than R$10,000. We have 170 billion on captivated resources. We have 300 exclusive agencies and 100 – 1,700,000 managers. We have the same consultancy agency which is developing our shopping mall agencies to develop this personality agencies they are very modern. We have more than 100 agencies. We are moving high there very fast step more than 10 of them per year and this year we have launched two new services which are very important and they put personality in a top condition of offering through its customers. The first system is the equity management service if they have more than 1 million of resources invested in the bank they have a second manager taking care especially for these customer investments.
For these customers we offer them a open platform with some products we have only in the private is not a full private platform but they have many products which, for these customers who are more sophisticated if compared with another customer investing lets say R$100,000. We have this session planning service and this service has three offices two in São Paulo, and one in Rio De Janeiro and we served more than 3,000 customers with those services. This 3,000 customers they had R$75 billion of resources invested in the bank.
The second main change we are launching in the personal Itaú bank is the digital agency. We have 400,000 customers who are fully digital. They are in touch with us only by internet on the phone outside the regular time. So, we have lots of executive experts they have lots of needs which are going beyond the regular relationship from 10 PM to – from 10 AM to 4 PM. So, definitely by looking at these customers and pay attention to their needs we have created a full digital service. We have an exclusive home page, we have managers servicing these customers from 7 AM to midnight. They have consultancy an advisory through the web chat both were early state investments and insurance policies and others and a communication between the customer and the manager is done by phone or by the messenger or SMS on real time.
So this is a new experience we have more than 12,000 customers and in 2014 we will have 25 new digital agencies and these will put us in contact with more than 25,000 customers in this platform. This is a huge effort which is combining the IT development of new business and some other areas. This puts personal Itaú once again in the leading position. This brand is the brand which shows the best satisfaction levels when it comes to top end the customers the competitor A is the yellow bank from the government which I will say the name. And we know we have personal Itaú as the main bank for the top end for more than 15 years.
I would like 400,000 grands of transfers a little bit more of investments. I would like to have gigalights of power. So, this is the right account for you. You’ll have more service, you can stimulate your credits, I would like a dozen of transfers, you should personalize your account just enter the website, access website and make your account look like you.
As I said we have three segments of companies that were joining the bank this year is what we call the (MP3 and MP4) are part of the retail bank now starting bottom up MP4 and before our small and medium size companies with billing up to R$1 million per year. We have 1.5 million customer on the bank on this conditions and this offering today is available in 100% of the agencies with more than 3,500 managers. This is a plan for companies of the operation we have in the Uniclass.
The largest amount of the owners of this companies are Itaú Uniclass bank account holders. MP3 is a platform where we have companies invoicing R$1 to R$8 million per year we have – 300,000 customers on the country with more than 2000 associate general mangers and this segment was coupled to the retail bank. It was wholesale bank that now is not anymore. So with all these operations 30 and below are signing to the MP3 and 30 and above are going to the wholesale bank.
We have more than 60,000 customers companies that they have more than a registration more than a legal entity and have more than 1000 mangers servicing these customers in Brazil. With the right account which is a new service we have is the best account we have created of these 90 years of history is totally customized account, customized by the customer. We have more than 300,000 accounts being sold in this year so it’s a new way to start relationship with little entities.
Looking at some figures of the retail bank, we notice the evolution of the bank product in last two years not only in natural person, natural entities but also in legal entities whether there has a lot above that the change and risk appetite we have and the enormous effort on improving efficiency and you see here in the chart in the left which shows that we are doing better than the inflation in this period. And another interesting piece of information we have is that the retail bank is doing funding on the operations of the bank as a whole. So, the retail bank has today a 380 billion resources and Itaú Unibanco has 387 billion on loans considering the operations or that international transactions of the bank. So, the retail bank is basically the remold of funding which is required for loans and credits abroad. So, this is a very interesting effect on a bank which has such as pulverized funding and has lots of costs for our operations.
We have developed our operations on consigned credit, our Analyst Day are asking all the time how the operation is going in this sense. After September we have more or less 600 billion our portfolio you see at our OBMG with 6 billion. And our resource are compared year-after-year at 94% of this year is a operational result. So it’s a very impressive growth. I believe I'm going to chase down these details on how we will lead this business in the future. The growth is very strong and this business is contributing with amazing results to the results we have in the bank as a whole.
We are the private leaders on when it comes to sourcing (indiscernible) and we are the leader when it comes to pension aid funds with 37% of market share of that business. We have 60,000 people working in the retail bank and this work force represents more or less 64% of all the people working in the Itaú Uniclass today. We have a distribution of this people you see that we have a nice balance between the commercial operational area on commercial we have 20,000 tellers and the remaining numbers are the amount of employees.
In the next two years have very clear cut goals all the four legal entities as well for natural person. We have enormous control on risk appetite that’s for closure and we want to keep it. On natural person we have a strong strategy on selling product difference and credit and we will follow our growth of more than 20% per year. Consigned credit should grow as well may be a base of 30% per year. Our client base will be expanded by 5% yearly maximum of customers more per year. We will keep selling products such as Maxi Bônus cell phone for low income customers and benefits 2.0 basically for those customers from retail earning from R$2000 to R$4000 we have 2 million, 12 million customers, 12 million potential customer for these service packages. We have more than 5 million accounts sold in this year and we have three years more to sell to all these customers. And we will offer our services and products in this period taking into consideration the concept of bank tailor made for you.
On the legal entity we now we have good prospectus here. We are integrating Rede (total) we have 400,000 new customers who are non-account holders of legal entities. But they are doing business with us and we are not counting on those customers who are part of Redecard. On total the right account is selling more than 200,000 packages three months. Just to give an idea the higher subside between the right account and the traditional account is around 20%.
We want to go in more technological on our legal entity accounts. It makes no sense to where would this customers in an environment which is not alone we believe 70% of this customer base will be somehow affected by this. We want to improve our efficiency when it comes to legal entities we have many progress in stages that well defined for the next year that will reduce 1 billion the costs of those operations. And last but not least we want to be the bank the perfect bank a one stop-bank for our legal entity. We are doing this in 55% of our customers we want to be the total or the one-stop bank for them, one-stop bank. We want to have them with our credit cards with power loans and we want to have the check accounts of this power loan of these companies. Thank you very much.
Unidentified Company Speaker
Let me talk a little bit about technology to all of you. Let me start with the digital channels. Let me show you how the bank is doing when it comes to digital channels 2013 was a very important year for us with the landmark because that year the usage of technological or digital channels sort of passed the use of physical channels. I'm talking here about internet and cell phone just compared with phone and physical agencies. So, the front is very interesting we have a very quick change on this mix and we have an enormous regulation for remote channels within the bank.
So, let’s break down this number, let me see what do we have here in terms of cell phones and internet. You see that we have some impressive figures here. When we talk about 2009 to 2013 the amount of customers using internet is getting higher, we have, we moved from 3% to 30% and the amount of customers using the phone the cell phone is doing even better. We are moving from 0 up to 2.5 million customers using this channel to get in touch with the bank. Today 30% of our customers using internet are using the bank a well through their mobile phones.
When we break down what is going on in the cell phone to a chase down of what’s going on, on this segment. You can see a very interesting trend when it comes to apps download whether tablet apps or cell phone apps we have more than 20 million downloads and from this 20 million, out of this 20 million 12 million were up to 2013. So, it’s an exponential growth and is very impressive. And we see the customer moving to this new platform. When you see the number of transactions made by the phone you see here very astonishing figures. This year we have more than 4 million transactions being done by the phone and these figures are up to September so this is a very relevant channel. From March to September we have sent more than a 100% more SMS messages to our customers. So this could be services related to shaking account or to credit card or to legal entity. So, you see that the customers are changing or is changing the, this behavior and is using more and more the digital channels.
That’s the real benefit behind it and why we want to work with the customer this way. This happened because we are using technology of the time thinking on the customer, we are not using technology by the fact of doing so. We are just trying to understand the needs of our customer and try to believe the same thing we deliver the bank through technology. We have cutting edge technology to do that. We have three pillars convenience, new tool and multi channel experience. These three are very important for our customer relationship. Convenience of course is very obvious its very odd, how can I believe what the customer needs on the time he needs and exactly what he needs how can I use new tools to deliver this new format the customer is asking for and when customer get that experience how can I create a platform using differing channels to serve my customer with the needs he may have.
So, once again breaking down this three pillars. We may understand that when it comes to convenience Marco has talked about this but we have a biometric solution which is being deployed and is very focused on the customer. We may withdraw money, we may do some push on the statements without using the card. So through biometry the customer may have access to all digital sections today for our traders that are here in Brazil and want to withdraw money through (indiscernible) and Unipay they have 18 Mogis for national we can support this different branch.
On convenience as Marco said we think the new model of personal Itaú we have so many models and today of course we are always working on continuous improvement that we have today a very interesting model when it comes to service lending on this internet and digital agencies. So, we have an ease of access of all these different possibilities on the website physical documents that otherwise would have to be taken in the office now it can be downloaded. We have a better capacity to be used the website. The remote channels of the years are together to make transactions in the bank to pay a given below hour to do some transfer. But the bank is going beyond it, you need to talk to your manager you have to talk with your consultant to understand what sort of product they may need. And what we do is to make available all this different possibilities on the remote channels and the results have been very good.
Here you see an example when the customer is surfing through his internet banking online they may request some help and they may understand how to use channel better. And last but not least we have some summarized information of the portfolio of each customer. Within new tools we have interesting announcements last week for example we have the Itaú (indiscernible) is a special app for smartphone both for android and for Apple and the customer may do some transfer between this different accounts in an easiest way. You may use the context he has in the phone to do the transfer. So he doesn’t even know the account number of the person the other thing he knows is the contact then the phone number and we have the service. Serve very smart way and very natural way for the customer, he is very used to this type of service to text someone else or to do some sort of communication with some other people who are using the same platform bed for fund transfer.
Another possibility is the bidirectional SMS, people who have not smartphone they can use the service as well. They may take a look at the balance the, different tariffs, the money available, miles accumulated and all of that. If you request the service to the bank the bank will reply to your message with the information you have requested. So, if the customer asks for the balance you will receive the – the information you requested for.
Within the neutrals yet as I said the channel shouldn’t be that transactional, it should be more interactive. So, we have a – a whole set of interaction we have video shed, we have messages which are not in real time. The customer for example may send a message to the manger and the manager will reply as soon as he can in the same way the customer has information available for consultation so. It’s very interesting when it comes to the tablets and the smartphones and computers of the customer. We have a huge effort trying to transform the relationship between the customer and the bank that we want to serve our customer the best way possible and the time he needs.
The third pillar access, we have a couple of examples here to understand how to use more than one channel to bring more convenience to the customer. The first example is the easy as of unlock and unblock the fund pin number. Many customers they have this possibility so today you may enter your pin number through the internet and this is very practical and very convenient to the internet user it’s not convenient to the others through the bank office. So, today with the security we have the customer will just confirm that he is actually asking for a new pin number for example and he can use the internet and he can, and we may leverage the use of the channel and have the results we had had so far increasing the usage of channels.
The second one is very interesting is buying new products through your manager, your digital manager. In the past you had to go to the agency and today you don’t have to do it anymore. You may buy something or you may acquire a new service and you confirm that transaction through the internet or your cell phone so we ensure safety and security and the customer has more convenience because he hasn’t have to go to the store. For given products you should send some extra documentation in order to get the product. Next year we will pick those documents remotely so you may call your manager, you buy the product and you confirm the acquisition in your cell phone and you send your documents scan to your manager, similar example.
To pay the different bills you have to pay is not cool for some people to enter obvious numbers in this space. So, we have now a reader which is an app you can click on this button here read the bar code and in the cell phone you have a message saying that the internet app is requesting some information about the BioCode so you click on the ad and then you can scan the barcode. It’s another example of integration on channels and brings more convenience to the customer.
To wrap up a little bit on the digital channels let me talk about the future. So far we have a nice mix but we do not want to stop here. We want to move on and bring more convenience through the remote channels. We have some pillars looking to the future and we have one of them which is very interesting which is the electronic payment. We have many fronts being created many pile projects and we believe it’s a very interesting pillar to enhance or make easier the payments to the customer.
The other one is the digital smart service to the customer the idea is to create an automated service. When you call the bank or when you go to the manager or you go to the bank office sometimes it will request some now that’s complicated or more common so we may think on artificial intelligence to help the customer out. So, we may have a chat or video chat to help the customer in an automated way without having another human on the other side of the line.
Geo localization is the third one we have some solutions when the customer is traveling. He may access the cell phone the app in the airport and may be its interesting because the customer may want a travel insurance or some other service or use his credit for abroad. We want to have a more safer security. We want to understand how can we create more security to the customer without affecting the way he navigates the service. We are still in different possibilities to avoid affecting the experience the customer may have with the bank. And three interesting initiatives where we are investing a lot, it’s a big day in cloud computing we are investing on these two technologies. Big data we have many investments to understand how can we run our business with more data and computing of course has to do with IT infrastructure helping we think in a different form our infrastructure have the could benefits that something we are investing in.
Let me talk a little bit about investments this is the number we have, we have about last year. The bank is doing investments around R$11 billion from 2012 to 2015 we have four different areas R$3 billion on the new data center, almost R$3 billion on the processing, R$800 million on acquisition of new software and R$4.6 billion on system development. You see major investment we have with these main drivers, how can we add more vision to the customer, how can we have more – best time to market, more control more efficiency to our operations we have heard that all the time more innovation and best service.
Finally I have the update our on how our data center is going this is the phase 1 we have two different buildings they are replicated. We have 83% of the works almost finished, we will finish maybe by the beginning of the 2014 and we may migrate the old data center to the new data center in Mogi City. Thank you very much.
Unidentified Company Speaker
Now I’d like to share with you my view on the positioning in the main challenges of…
Unidentified Company Speaker
Wholesale banking, we have Itaú BBA the corporate retail banking in which we serve large businesses, Institutional Treasury as of 2008 from the merger of Itaú and Unibanco the treasury activities are now managed by Itaú BBA and middle market the biggest mid-size – medium-sized companies that have been transferred to our management this year. We have 4800 employees and 23,000 customers and also a credit portfolio of R$237 billion, that includes sureties and guarantees. Starting with the corporate and investment bank Itaú BBA the role of Itaú BBA is to serve the three major groups in Latin America, for that we have 3000 employees who serve 200 financial institutions and 800 institutional customers worldwide.
The idea of the corporate investment banking is to be a one-stop shop. So, for these large customers we want to offer our products from mass products such as payroll, cash management and collection to a more sophisticated products of investment banking. Let’s see then our positioning with regards to these markets in which we act. Our revenues are broke down as follows. 51% of them come from credit operations spreads, 20% come from cash management fees, 14% account for investment banking fees and then derivatives and other products in general. Compared to our competitors we have a biggest portfolio credit portfolio with R$200 billion, we have the biggest market share of cash management with 33%. This is an estimate based on the financial industry survey and the financial industry we are the leaders, we’ve been the leaders for two years now and investment banking we’ve been isolating between the first and second positions in the markets of equity, capital markets M&A, local and international.
So, in the corporate investment bank depending on the market in which we work, our competitors vary, cash management competitors are therefore completely different from competitors we have for investment banking for example. And our strategies then to try as a bank that acts in all different segments try not to be generalist but a specialist in each one of the product and thus attempt to acquire the leadership position in all of them. And as such we have received recognition from our customers the financial industry panel is the most important survey that has been carried out for more than 20 years now. We have consistently gotten the first place in this survey with 95% customer satisfaction. On the picture here the right hand side you can see our brand compared to the competitors in different criteria, relationship banking we’re first place as related cash management as well, full services banking as well.
For wholesales banking we are the second place. And for credit operations bank we are in first place with – that is actually Itaú with two other banks. So at Itaú IBBA there is some position in market share quantitative market as well as qualitative evaluation by customers. Now, how about middle sized companies, this is just to show you the previous segmentation at Itaú Unibanco’s bank and how is now. We used to have the corporate investment banking with companies that had an yearly revenue above 300 – over R$300 million and then we would have small medium-sized companies number one from R$40 million to R$300 million. And number two from R$6 million to R$40 million. So, we got smaller and medium-sized companies number one and two, these two levels and transfer them to wholesale banking. So, companies from R$6 million to R$300 million revenue per year were then transferred to the middle layer in this new model.
The corporate investment banking accounts for 46% and the middle one accounts for 8%. So, we now have 54% of the credit risk of our conglomerate being managed by the wholesales banking. Now, with regard to market share, we have R$34 billion – 34% in cash management and 54% in credit. So, we are leaders in cash management, we have 34% market share here. And the revenues in medium middle-sized companies are made up in a simpler way, 54% credit and 34% cash management are the main revenues, the rest is divided and exchange kept through in other services. Now for middle-sized companies, we are also the first in terms of recognition and customer satisfaction as well as in many different criteria for brand positioning. We still have a long way to improve in these specialized bank by region in Brazil, our regional distribution is not as large as some of our competitors and we are seen as a specialized bank in small and medium businesses. We are here on average so I think there is a lot of room to grow here.
Now, the third activity that our wholesales banking performed which is Institutional Treasury. When we think about treasury, we usually consider positioning dollars, interest rates, shares portfolio, that we usually don’t notice that this is just a small part of treasury. Treasury is actually a great department that provides services to the whole company, it monopolizes market risk of the company so it does have to manage market risk within the group. It also manages liquidity of our group, see how much we need to have in cash to face periods of a lower market liquidity and so on. It also provides pricing for everything that comes in and out of the bank for intermediate savings account we capture resources and we make loans and these are – do not follow the same formats indexes and deadlines. So, it is the treasury’s role to price all of these operations. And in doing that it is a – it constitutes a very important part of the competitiveness of our bank being able to price these products adequately it will determine our competitiveness. Also, it is the treasury’s duty to this and match the assets and liabilities that we have in the accrual and tender market systems that have significant impact on our figures.
And last but not least, it is the treasury that carries out economic research that will give us projections to guide our budgets and many decisions that will be made at the bank. This is the treasury as a service provider but there is also the treasury that defines risk positioning in the market, you can do that in two ways, one as a result of operations done with customers and then the other one in a proactive way be defining positioning in the market. But this part of the treasury that is seen in the bottom line of our balance and this year this is quite below the expectations and below the average we’ve had in the three previous years as Roberto mentioned in his presentation. This result is usually volatile, what we have to do is to manage risk well so that we do not have large losses here but we expect this result to go back to the average that would had until then.
So, better wholesales banking and our positionings in the segment. Now I’ll briefly talk about the main challenges we have. We’ve been facing five major challenges and I’ll mention two of them. I’m not speaking many details about expanding our project finance activities in Brazil benefiting from the increase of investments in infrastructure that we can see in Brazil with auctions and compassions we want to expand our activities in this market, we are already a leader in it. And also we are going to adopt to the regulatory changes regarding equity specially risk capital or venture capital. The activities that we have to do and the treasury should not take up that much venture capital.
And finally contribution to the operating efficiency by implementing shared services. We’ve been able to do this partially with the arrival of medium-sized companies to our bank but that’s an effort that the whole group has to manage this in a strict and rigorous way. But the main strategic challenges which I will talk about are two, the expansion in consolidation in Latin America and the coupling and growth in the middle segment. External Units, now account for 10% of the results of the corporate investment banking. And they have been growing constantly in the last three years with 100 in 2011, 102 and 155 in 2013. Our international strategy has three fronts, the first one is represented by our bank in London and our activities in the USA and in Asia.
The goal of this bank is to have international operations focusing Latin America. So, we are in London not to compete with local bank but we have two key goals and also in the U.S. The first one is to support the operation of Latin America and multinational subsidiaries established in developed markets. And another goal which is even more important than the first I mentioned is to influence the decisions of the headquarters of multinational companies and developed companies that have subsidiaries in Latin America. This is one of the fronts our international activities. Another front is related to investment banking. In order to be a leader in Brazil and we already are a leader, we have to have a great capacity of distributing assets originated in Latin America to the whole world. We have more than 60 people between Research Analyst and Sales Analyst in developed countries and as well as in Asia and Middle East to distribute resilient situation.
Our goal is to be a reference bank in Latin America for international investors. So, when international investors think of Latin America Itaú IBBA has to come to their minds. And the third front where international activity is one that we have in countries such as Argentina, Chile and Colombia. In those countries we established ourselves as a bank to compete with the local banks so we have an activity that is as broad as the one we have in Brazil. So, we have banks with retail operations such as the case of Chile and others that don’t have retail operations such as Colombia. So, we have introduced ourselves in the market on our own. We hire bank building, invest some capital and start operate in those countries with the local companies. This has been very successful. Our presence in those market is naturally largest than the balance – the size of our balance in those market with suppose because of the size we have globally speaking we have naturally gone into large operations in those markets that’s how been able to compete for the largest operations and how we’ve been able to have this expansion in our international initiative.
In five years time, we forecast to have a 10% to 20% growth in the results of the international units of our corporate investment banking. The next steps are in consolidating our operations in Colombia, we have just started our second year and we have reached a $1 billion of assets and the breakeven is a bit over I mean positive for results. We want to expand our operations on Peru and Mexico is a very peculiar market, we have just started operations with a – an exclusive focus on investment banking for now. This international expansion is one of our two main strategic pathways. The other one are medium-sized companies the middle segment these 20,000 companies that have been transferred to our wholesales banking management.
Just to give you some figures, we have seven times more economic groups for 1000 more managers 10 times more credit forms. But the amount of assets is less than 20% and the average debt of these customers is less than 3% of what it is in the universe of these companies. We have a feeling this is a great opportunity. If I tell you that we already know how to make the most of this opportunity, I will not be telling you the truth. The greatest nature of this opportunity is to treat these middle segment customers with a focus on them and try to act with those customers not offering a pre-established range of products, we want to get to know them in detail and select the products that will be offered. We want to have better results by offering them a better choice of products and also by improving the credit offer. Of course, we need to offer better training for people that will be in contact with these customers. Credit will not be based on those credit approval models but we’ll offer an industrialized credit. This will make up the economic model with the trial or the judgment defined by the manager that serves that account.
We’re going to focus on this from now on. So, far we have just transferred these companies to our management that was already a great effort but from now on we’re going to focus in order to develop this activity and our target is to improve the results in this area by 30% in the next two years, these are our goals. Thank you.
Roberto Setubal - Chief Executive Officer
Thank you, dearest speakers for your presentation. Now I have important news to you. This week we heard we got the prize of the most Sustainable Company in the year. This is the first time a banking company gets this prize, that’s the most important prize for Sustainability here in Brazil. It is awarded by Exame Magazine. This acknowledgment have happened not because of any specific program to save energy, power or water but it’s more because of a collection of works we have. We are a bank that is focused on sustainability and then in all our activities we try to have a sustainable prospective for the use of electric power or the relationships we have with customers or the actions we have on Itaú Social Program or Social Itaú Foundation.
So, you have an idea of what it means. I’ll show you now a video that was shown at the Prize Award Ceremony. It shows you the modernity languages that is pretty much liked to the profile of our bank.
The world changes. The relationship people have with companies also does. And it also changes to our companies and industries, brands of banks, cars, foods, beverages. They face the challenge of being a part of people’s lives everyday. We are bank and our challenge is already embedded in our nature. You have never had a beard called Itaú, have never driven a car called Itaú or you have never had any energy drink called Itaú. We are part of a universe which is made up of rates, piece, figures concerns. But for a while now we have realized that calmness, credibility and expertise are no longer enough for us to reach people. We have realized that in addition of being in the top of the mind we have to reach people’s heart. So, we use our purpose in order to actually connect to people. Transformation is not about teaching or discourse, it’s about attitude real tangible true and relevant attitudes, attitudes that can start in a company but that will depend on people to take place and then it’s one of us will become protagonist of the transformation.
We have gone into Juan’s Paulo’s and Sandra’s lives and they have come into our lives. Thank you Itaú for this bike, it’s really cool. It’s really hard for me to organize my financials and I’ve heard statements of people who were successful through Itaú. So, one day I decided to tell my own story and then it worked and you served me. I always wanted someone to trust me. We’re still are made a bank tailor made to you but now we are made by you everyday on two wheels and the communities and the branches and the exhibitions, theaters, festivals, reading to children our company becomes alive. We’re a bank but a bank that believes it may inspire people to change the world, this changes the world.
Itaú Unibanco has not only been a partner of Apimec São Paulo or Apimec Brazil only in meetings and dissemination of results or debates of strategies. It has also together with other entities Apimec São Paulo, Apimec Brazil and IB the Brazilian Institute of Investors Relations. They have created CODIM the Committee for the Guidance Information for the Market (indiscernible) from the Department of Investors Relationship and Apimec São Paulo have worked together with other entities in order to create this committee so that the information can flow appropriately and transparently focused on the people that wanted to communicate.
There is a question over here. So, I’d like to take advantage of this great audience that we have today to introduce to you this committee the website is codim.r.br and you can get further information about this flow of information so that it will reach us in a clear and transparent way. Now Alfredo. You are now receiving a copy of the last newsletter. And now I’d like to invite Domingos Figueiredo the President of Apimec Brazil to hand out our Platinum Award to Itaú Unibanco represented by Roberto and Pedro. So, that we can celebrate the opening of so many different fronts which has been the goal of Itaú Unibanco in disseminating this information and adding to the financial market with this new opportunity of information.
Now we’re now opening our Q&A session.
Unidentified Company Speaker
This is a question from (indiscernible). He’d like to hear from Roberto about the international expansion apart from Paraguay and Uruguay.
What would be the priority first apart from Paraguay and Uruguay is the idea to expand in wholesale or retail banking? Is it possible to gain scale quickly in an organic way or through partnerships such as you did in Chile?
The operations of Paraguay and Uruguay are market leaders, we have strong operations in those countries, we have profitable operations there. We’ve been satisfied with them but the space to expand is not very big due to the size we already have. Chile is a market we like very much, it’s a financial market, it’s even largest than Mexico and Argentina although it’s a small country it is very organized and everything works out really well, it has sustainable growth, it’s been growing more than 4% per year from more than 20 years now it’s still growing, it’s a stable democracy a sound political system, a well regulated financial market. So, we really like it, we’ve grown a lot in Chile, we’ve more than doubled our market share since the day we started our operations and we acquired the operations of Bank of America actually in 2006 and we kept on growing. So, that would a priority market to us.
We’re now the seventh or eighth bank in Chile. So, through an acquisition we could maybe speed up our participation in Chile. Colombia is another market in which we started operating last year, it’s going quite well. We only have wholesales operations there but it’s interesting to see how our wholesales has been able to have strong operations and quickly in a competitive way in Colombia the size and the prestige of the bank helps a lot because then in those countries we can assume risk that local banks cannot assume because of their size. So, we’ve been very successful in those countries although we don’t have retail operations which limits the kind of activity we may have in those market. Our ambition is to have a strong presence in retail banking in those countries as well. And Mexico is the most difficult market, we’re setting ways to penetrate this market but is in our list of countries we would like to introduce ourselves.
We have entered Argentina but we are still uncertain because of its economical and political instability. The financial market is very small in Argentina. So, these are the countries basically. We do not intend to enter all countries of Latin America a small countries and small markets do not make sense to us because of the size our bank has it would be very complex to manage and it would make sense.
Thank you very much. Now, two questions for Marcio. The first is from (indiscernible). He want to know about the role of Central Bank of Brazil as a regulator, the capital market and then in credit card market what are the impacts of the new regulatory measures and this is part of payments in credit cards. And (indiscernible) from XP. He want to know little bit about the strategy of BBA it has open competitors and he wants to know if Santander is a competitor or no after the acquisition of the company the bank has to acquire.
Very good. On the first question about the regulation. We feel very excited about the first Central Bank has undertaken in the last 80 years. Today we have a very regulatory framework putting together all the needs and all the demands we have for the credit card market in Brazil. Understanding the background of this group for many years the operations here and the transactions here in Brazil, credit cards were done through non financial companies. From 1999, we have – we started to see some companies that were controlled by financial institutions becoming financial institutions themselves. And at that time the central bank has started to have more freedom to understand all the dynamics of credit cards and payment sectors.
Couple of years ago the Central Bank created a taskforce and a technical group with many people from CI and BDC formally known as BDC, today it’s an account. People from the treasury and some people from the government they called upon the banks and they called the different brands and the acquirers and the financial companies. And many people were involved on this research. In 2009 a public hearing was made and the result these research was made available for the society and at that time it is under registration and formalization of this process are started. We were trying to gain more efficiency, we have a buy poly on this on beside of capital business. And here in Itaú we were very happy because of that because our vision in our opinion now is it was to be heard by the regulator. We won’t follow some rules, identical rules for everybody and the rules will reduce the risks and the risks are not small.
We have an enormous billing when it comes to credit card and prepayments here in Brazil, we are talking about a very meaningful amount almost R$800 billion in different transactions in different means integrals. So, it was really important that the Central Bank as a regulator take this role and in a very careful way make these rules to be published and widely accepted. In this four and a half years since 2009 we have followed this process not only with the Central Bank but with different groups the senate and the congress and everything led to the Governmental Act 656 and to a different bills that we’re passed last year but the commission and the same happened with the levelization of the Central Bank. So we believe in these regulatory demand and we believe the objective of this is make this market more efficient and competitive and more balanced when it comes to resold sharing.
About the regulatory affairs I think Marcio said that we are the seventh market of payments in the world and there was no regulator at that time. So, that enormous risk in this market without a regulator we believe we were at risk in somehow. So, the fact of having this definition have the Central Bank as the regulator I think it couldn’t be better. The Central Bank of course are trying to push growth and safety visibility. So, the fact of having the Central Bank as the regulator is very important for everybody not only for the bank but for everybody, of course we feel more comfortable to invest in these activities.
Yes, and just to add on to this, we see a role and attitude from the regulator here in Brazil which is very positive we try to understand all the time what sort of benefits these actions may cause on the society. So, Africa and Asia and Latin American countries, they have issues when it comes to financial inclusion we have man processes such as financial education and with different layers of the society. So, those were the objective of the Central Bank, Central Bank for example were regulating all the payment accounts and all the different cell phone for example payments. And all the regulation on money laundry and different protections customer rights were extended to this framework of operations.
The other question was about our vision of our competitors, our main competitor today on capture an acquisition which is a public listed company, we’re talking about Cielo and specifically Santander Bank. Well first of all we do not feel comfortable about issuing an opinion on our competitors or any other company. It’s filling this space with us. We have very important competitors today, we believe in what Cielo is doing where it’s a structure on control and the proposal is fulfilling the expectations on its shareholders and employees and well that’s the only thing I have to say and Santander entrance I believe is welcome. They have been very efficient, they have conquered more or less 4% to 5% of market share. So, when they decided to create an operation out of this scratch and their participation in the senate. The only thing we have to say is that we acknowledge their work, they are doing a very good job.
Okay. Now this question is for Marco. Two questions, first of all Patricia from (indiscernible). Patricia talks about the support to the growth 1.2 million of new customers, how many agencies, how many branches should be opened up to 2015 and what’s priority. And when it comes to bank offices, she says that we have some avenues and some streets with many agencies from Itaú many branches. So, is this some sort of cannibalism between or among the different bank offices or not?
On the first question on the customer growth we have a good coverage today. We have more or less 325 new natural person accounts per month, out of these numbers two third parties 66% come from payroll and we have more than 300 new legal entities accounts per month. To grow 5% per year we do not need more bank offices. However, Brazil is growing a lot and it’s impressive the way the business is leaving the big centers and is moving towards the – in other country. And we are following that flow of wealthiness. And the third year in a row we’re opening more than 50 orange offices or branches in the countryside and more 12 personality branches in 25 in the digital world. The digital branches they serve because we may serve our customer that we have being personally paying and when you move off those customers from the physical agencies or physical branches, they may have more room for more customers. So, we are seeing this as strategy for the digital customers and for 2015 we are not sure – we’re not sure how we will be but the trend is to develop more and more new ways to serve our customers whose habits are changing. If you think of the bank in 10 years time, we will have more digital customers than today, customers going less to the bank than today.
The second point was about the avenues in all the states where we have many branches of the bank. That’s the product of acquisitions and all the different mergers we have undergone in the past. We know that we have a market share which is huge in the main cities in Brazil, this market share not only in branches but also in customers. Customers from the middle and top class in the Brazilian society prefer Itaú, that’s no secret for anyone. And the idea has changed a little bit the profile of our branch is creating an extended time of service where all the banks are providing six hours of service, we are offering 10. We have branches in the main avenues such as Copacabana Avenue or Faria Lima or Paulista Avenue or in the 15th Avenue in Curitiba we open up our doors at 9 A.M. and we close 7 P.M. So, out of this regular business time, we have only people only customer of Itaú.
So, of course this has moved the regular business time in our branches and business are of course being different. So, the agency is not packed it’s not crowded and the only thing we have at that time is our customers so that strategy is a winner and we have – that’s why we have a huge dominative branches. Believe it or not in this huge amounts are with the office branches they are fully profitable because our market share of service is growing bigger and bigger. We have three additional questions related with profitability and Basel indexes and I like to hear a little bit from you.
(indiscernible). He is calling up our attention he is saying that the Latin America meeting in 2004 that showed the bank was prepared for over 20% per year. And today the second quarter 2012 and the first quarter 2013 that 20% was kept in some historical period the accrued profitability was way beyond that. So, the question is, is this velocity valid to the future, is it sustainable and if it so how long it is.
Unidentified Company Speaker
Yes, we have kept the ROI in a very high level, it’s beyond 20% for a long time. I believe in the short time we may keep this ROI above 20%. However in the future we never know. If you see the next quarters maybe years I would say that we are doing well. Marcio from Colombo and (indiscernible) they talk about the Basel indexes. And (indiscernible) wants to know how the Basel III is going in the bank, what the impact and we have some impact on this subordinated debt in the reference equity. Basel III will be applied in 2015 more capital will be requested from 2019 on. The volume we have today allows us to work following the rules of Basel III that will be applied in 2019 or so.
We have the right amount of equity looking into the future. We have required amount of equity today. So, what we need to be is generate equity to finance or to fund the bank growth. So, with this ROI 21% as we distribute more or less 66% of that, we’re talking about an accrual of equity here 14%. So, if you distribute one third probably or one-third of this you have two-thirds to accrue. And in this space of 14% without problems, I believe we may have the volume for Basel III without reducing dividends or whatsoever. So, I believe the equity of the bank allows us to adopt Basel III and grow 20% per year which is very comfortable for today. And in the same vain rather from BTG as I said it considers that Basel III is very comfortable, if the ROI is above 20% well that’s kept in the future the bank will generate more equity in the next years.
So, how is this surplus of equity and the payout is going to be improved or M&A is the focus or the organic growth is the focus?
Unidentified Company Speaker
Well we have done a little bit of this, little bit of that. We have created a good organic growth, we have remarked some tiers. So, we have resources when it comes to equity surplus. Today we are going through a time where Basel III is requiring more equity than today. So, I believe the time will come where we need to use equity to fulfill Basel III rules. So, we have capital for Basel and for organic growth and maybe a little acquisition not that big. We have to issue some shares but I can’t foresee any possibility of increasing the payout, I believe we may have return above the capital usage and you see this I believe we will reinvest all the money and keep the distribution level. So, that’s what I see today.
Unidentified Company Speaker
All, right. And that’s the question from (indiscernible) about payout. (indiscernible) from Morgan Stanley. He believes that the NPL index which has reached under lowest level of all time even when the Brazilian economy were doing better and then in 2014 with this comfortable debt line with nice expectations. So, do you think this expectation is comfortable for the bank and what’s the recovery level of credit for the next year?
Unidentified Company Speaker
As I said in the very beginning of my presentation the risk has a huge gap. What we are doing today will impact our activities in two years time. So, we are harvesting what we have planted two years ago. So, as I said in the presentation we haven’t seen yet the benefits the real benefits of this. I believe the default levels will fall down and I believe for next year we will have a nominal reduction or I mean a rated reduction of the default. We have not had the figures but I believe next year the P&L will fall down less than this year of course but it’s still decrease and a profit growth as well. Following the same order of ideas do you think the increase on the unemployment may affect somehow the default NPLI levels in the future and do you believe that the credit recovery may help on the expenses control.
Unidentified Company Speaker
Let me talk about the credit recovery. Credit recovery is like this, first you have a loan two years after you have this greater impact on provisioning and when you do the high tops about two years after this provisioning. And then you have the recovery of working then it was hided off, as we have hided off a lot lastly. Resources from the P&L we will have a trend to recovery which is better in the future. So, we see the recovery is being in good levels upfront.
And the other question was about what again. The first part of it. So, about unemployment. Yes, unemployment in Brazil as we have many people in Brazil. We are going through a phase where unemployment is going up but the employment is going up as well, so we have more people under unemployment condition than today. And the number of vacancies here is increasing so we have more people employed and we have more wages and well we have more people going to the marketplace trying to get a job. So, we have more people than vacancies.
So when we have these employment increase even if you have some source on employment the situation is really tranquil from that perspective. And if we have an employment which is combined with the level would decrease in the level of employment would be concerned because of that but we have an economy growing at 2% or 2.5%, I believe the employment rate will go up 2 million of new employments per year and the unemployment may go up but that will be very meaningful somehow so it is not a concern for us.
Unidentified Company Speaker
Another question from (indiscernible). He wants to discuss about Eike Batista’s companies and the problems he has faced. He want to know if this is affecting you.
Unidentified Company Speaker
Well that question I was not expecting at all. Well, I think Candido will respond that one, will answer that question.
We do not have credits in the OCX or OGX which are the companies which are in trouble. In general terms the backdrop has more liabilities than assets has more assets than liabilities. So, if everything is managed well they might find a way out to pay all the debts. I’m enough paid but as they have more assets than liabilities, we see more selling to different investors. They have a new controller the more evidence case was PCA ABX. So, as the controller changes the credit perspective changes as well. So, those companies where you have more – where you have different controllers that is being transferred and then somehow the problem is being solved.
But Candido is thinking on his answer I don’t get concern. I account for CEA scenario future impact on the result of the bank.
Yeah, I believe the same thing, we do not have credit on the OLX and not in the CBR which was the OCX we have some credit being assigned to this year OSX which is for Oil Extraction and Exploration is a credit which was reduced meaningfully. And we have our own platform saying sure the yen is $1 billion so it’s financing $400 million. So, we have a surplus value on this platform to issue the payment. When it comes to the expectation of payment I will say that we have lots of provisions, we have more provisions than risk understood in risk. The strategy from now on is that creditors must find the group or must talk to the group to sell their assets as the assets they have in intrinsic value I believe it can sell this assets so they will have the MMX which is entering this bankruptcy law.
So, we may change the methods and the risk is not X I mean the risk will change the risk profile will change. And at the same time we have a profit generation for the company and they may face up a different troubles or problems they may have. It’s easy to understand that they will pay all the creditors but they won’t pay it bigger the CBR adopters maybe .
Unidentified Company Speaker
Thank you. We have two other questions. And if there are no other questions, after them I will close our session. Next question by (indiscernible). He is talking about a criteria used by the bank to define the Presidency age of limit at 62 as of date. Who is this question addressed to, to whom. It’s Pedro.
Pedro Moreira Salles
The government defines the elderly age and over 65. So, what criteria has the bank used to define the age limit. Well I mean there is no criteria for you to define a cut-off limit, it’s not scientifically based. So, when we have the merger the age limit for executives at Itaú was 62 and at Unibanco it was 58 so we scientifically reached the average of 60. And then you may ask why 60 and why should we define this age limit. This is actually a recurring question and there are a few reasons actually, if you actually believe in meritocracy and the selection of FIFO in partnership programs and if you want to offer opportunities you need to make the line move, if you don’t do that it’s really hard to have a young talent that has come to – has joined the organization at 25 or 30 years of age and that doesn’t see an opportunity to face challenges that are up to their talents in a decent time horizon.
So, balancing all this is very important. Our general rules create specific problems we know that. But if we create too many fractions it’s even better not to have a rule so that’s the conclusion we drew that we wanted to salvage the corrupt line in 60. And I think people do understand that. Also the financial activity is very demanding and loan hours, hard work many responsibilities we deal with a public liability, credit and after sometime renewing our talent is really important to get excitement and vitality in the organization.
Okay, our specific case is 62 resonate which were trying to find the best transition roll. Instead of reaching 60 years of age and having a whole generation reaching those age more or less at the same time we thought it would be best to create a space in which we would have the ability of supervising in adequate in smelly way if streakiness and diligence. The new people that would take over in the organization from that moment on. So, those rules doesn’t apply to Roberto who will apply from now on.
So, we believe that whenever you have someone reading important departments that would reach this age they will have the privilege or the opportunity of supervising a new transition process. And you should not forget the Board of Directors, they also have their rules. Unibanco it was 65 and we decided it would be 75 for the Board of Directors that gives some people the opportunity keep on contributing to the organization not as an everyday executive but working as a member in the Board of Directors that deals was all of those terms that I mentioned when I talked about governance. So, those were the criteria.
Okay. I have an important comment. I think renewal is really important as Pedro mentioned, we need to renew our team constantly. And as Pedro said the financial market is really demanding and I’d say that a minority of the executive remain at the bank until they are over a 60. They usually request to be laid or let out before that because it’s really demanding. But having the rule is good because it forces us to renew our team which is something the bank needs and it’s really important. So having this rule is something positive to renew and bring in new oxygen to the organization that is our duty to then generate new talents and create conditions for these new talents to arise and they always do.
Unidentified Company Speaker
Thank you, Pedro and Roberto. Now the last question refers to legal businesses with the question from our technical board. R$30 billion are just into public bank. And we see a movement on the part of private banks to retarget this fund. So, what is the perspective of Itaú Unibanco with this regard. When private bank when public banks were privatized they took on public assets and the law allowed for the maintenance of deposits and the public banks that were privatized for a 10 year period of time at most. We are passed this period. And so we have lost the legal deposits, there is only some funds left here or there but of course we would like to be able to compete for legal deposits with public banks it’s a good source of resources we would like to be able to compete for them but also other resources such as facts (indiscernible) and Banco do Brasil have access with privilege sorry it would be nice to also have access to those resources.
Okay, there are no further questions, I’d like to give it to brief announcement. The first one this medium gives us credit to the – a accredited analyst said at Apimec to renew RSCMPI certificates. Also, we’d like to let (indiscernible) know that she has lost a credit card and it’s not an Itaúcard, I'm not even going to mention the name of the bank (indiscernible). Let’s give her a new Itaúcard, what do you think Schettini. Talk to him to get your card back.
Okay. I want to thank you all for this day. We started with Itaú (indiscernible) at 10:30 and then Itaú at 2:30 P.M. it’s been a very fruitful day and a bundles of information consider your models, your calculations, re-evaluate, reformulate, do whatever you think it’s best place on what you heard today. I’d like to thank Roberto, Pedro and the other Directors who were present here, also our amazing audience which has have an spectacular role today. I had never been a part of such a selective panel. Thank you very much everyone, it’s been a long day, a lot of discussion and information but it was an important moment to get in touch with the market and investors. So, thank you very much for your presence and interest. Thank you very much.
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