Good morning, ladies and gentlemen. Welcome to Itaú Unibanco Holding Conference Call to discuss the 2020 First Quarter Results. [Operator Instructions] As a reminder, this conference is being recorded and broadcast live on the Investor Relations website at www.itau.com.br/investor-relations. A slide presentation is also available on this site. Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Actual performance could differ materially from that anticipated in any forward-looking comments as a result of macroeconomic conditions, market risks and other factors. With us today on this conference call in São Paulo are Mr. Candido Bracher, President and CEO; Mr. Milton Maluhy Filho, Executive Vice President, CFO and CRO; Mr. Alexsandro Broedel, Executive Director, Group Head of Finance and IR; and Renato Lulia Jacob, Head of IR and Market Intelligence. First, Mr. Candido Bracher will comment on 2020 first quarter results. Afterwards, management will be available for a question-and-answer session. It is now my pleasure to turn the call over to Mr. Candido Bracher.

All right. Good morning, everyone, and thank you for taking the time to attend to our first earnings call of 2020. I hope you're all well and safe. To start our presentation, let's move straight to Slide 2, please. Before discussing the financials, we cannot obviously avoid talking about the crisis we are all going through and its impact on our lives and consequently, its impact in our results. By mid-March of this year when the crisis broke out, it's true that an extension are becoming more evident as days go by, but they are not yet completely clear. So I would like to use today's first 3 slides as a segue to the presentation we did on April 6 in order to discuss and update you on the different initiatives we have put in place to deal with the impact of COVID-19 in our company and in our community. Since the very beginning, it became evident to us we needed to step up and act proportionally to the role we have in Brazil as the largest financial institution in the country and in Latin America. So we first began by making sure we could operate normally under very exceptional circumstances. We were very fast in moving 95% of all of our workers from central administration, call centers and digital branches to work from home remotely. On the brick-and-mortar branches, we have taken every measure possible in order to make our employees and clients safe. This has included, among other things, supply of masks, of safety equipment, implementing social distancing measures and reinforcing hygiene protocols. We also wanted to make sure our teams have the support and peace of mind to focus all their attention to serve clients. So we announced some additional measures, some such as a firm-wide job…

[Operator Instructions] Today's first question comes from Jason Mollin with Scotiabank.

I just wanted to follow up a little bit on the information you provide on the business model slide, Slide 22, where you're comparing the recurring net income from credit, trading, insurance and services and excess capital. So I don't think it's surprising with the cost of credit that you booked over BRL 10 billion this quarter that you're showing negative value creation. It is interesting you're showing recurring net income of 0 in the credit segment. If you can talk about -- we've seen this in the past in the last recession when you talked about this and how difficult it is, some of the commoditized products to make money in this environment even more so. But I was looking at this more from the cost of equity that you're looking at by segment to kind of understand how you're calculating this value creation.

Thank you, Jason. If I got your question right, I mean, you're asking basically about, I mean, in terms of value creation, which cost of capital we are using, right?

Correct.

We define our cost of capital on monthly meetings with the Risk Committee of the Board of the bank. And I mean, we follow, to be precise, we follow 4 different formulas we provided them and then we set the level of that. Before the crisis broke out, we were at 12%. Right after the crisis, we have tightened the level to 12.5%, and we are already on our way to going to 13% on this cost of capital. This despite foreseeing a significant reduction in interest rates, both internationally and in Brazil. But I mean when looking at the other factors of the risk involved in the transactions, we felt that it was adequate to have a higher cost of capital.

That's helpful. As a second question, if you could comment on the capitalization at the consolidated level. You mentioned and your presentation shows the decrease in the implication of the risk -- the increase in the risk-weighted assets, the tax credit. Another large impact was, of course, the payment of IOC and dividends. If you could talk about that dynamic clearly, you have a minimum in your bylaws. We've seen banks do rights offering, if needed, to enhance capital. Is that something that we should think about in this environment? Obviously, you started from a very strong position of capital, but it's not where you typically, I think, would like it. So would that be an option, rights offering?

No. At least we are not considering having this right now, Jason. I believe that this crisis so far has shown the adequacy of our establishing a high minimum level of capital at 13.5, as you know and we have been constantly repeating. So this has allowed for us to absorb the very large impact of the crisis. Just to encapsulate, I mean, we had the impact of a 69% dividend and IOC payout. We had a smaller profit in this first quarter. The RWA on credit, I mean, both because of growth of the portfolio and because of the foreign exchange change, also the impact of the foreign exchange in the overhedge strategy. So all this impacted and is responsible for the big impact in our capital level from 14.4% to 12%. On the other hand, just we made a very timely issuance of AT1, as I mentioned, which also benefited from the dollar. But looking at these many factors, so looking forward, the dividend pressure will be way smaller. I mean even according to Central Bank regulations, now we cannot pay more than 25%. I don't know how much the dividend payout will be, but certainly will be much lower than last year. The growth of portfolio, I mean, if you grow according to demand and our ability to serve demand, but we are not seeing a tremendous increase in demand. There was a first wave of higher demand when large corporations were looking for liquidity at the onset of the crisis, but we have seen a tapering of this phenomenon. And we see the demand as normal in corporations and companies and in individuals definitely a reduced demand for credit. And then on our overhedge policy and the policy of hedging our investments abroad, this is something totally under our control. So I mean, if we feel the need or the convenience not to hedge any more investments abroad in order to become less exposed to exchange rate variation impacts on our capital, this is something we can easily do. As I said, I mean, we run weekly stress test scenarios on capital. And the main variable examined there is the exchange rate and we can adapt to it. So I believe that with the tools, with our toolkit, with our present toolkit, it will be quite possible to do with the capital level of the bank.

Our next question comes from Tito Labarta with Goldman Sachs.

A couple of questions also. I guess, interesting Slide 17, where you show different expectations for the outlook for the economy and depending on when the lockdown ends. If you can maybe give some color, what scenario are you using to -- that you use to determine the provisions that you booked in the quarter, right? If you look at the cost of credit, 5.5%, pretty higher than anything we've seen the last 5 years and maybe can't get as high as with the global financial crisis. Maybe give some color on what scenario you used to determine that? And then if we look back in 2016, right, the cost of credit, it peaked at 4.4% in the first quarter and then sort of gradually started to come down. I know it's very difficult to predict at this point. But just based on where we are today, do you think it's a similar scenario where we are today, where you booked all of your provisions upfront and then maybe this can start to come down or do you think the risks are even greater, just at least to give some context on how that could evolve from here given what you're seeing as of today.

Okay, Tito. Of course, this is, I mean, more art than science, the answer to you. We are living a scenario with too many moving parts. Besides the variables which are in this table that we show on Page 17, you could also add the amount of public support, fiscal support that comes into the economy will also have an impact. And then you can ask or we do ask ourselves if a certain spot on GDP has the same impact on companies as the fall on GDP like we had in '15, '16, which was more gradual pace. We don't know the answer to that. So I mean, we prefer to play a bit on the safe side. Right now when we look at the perspectives of the lockdown here in Brazil, our perspectives are not very optimistic. We have the contagion index still close to 3.7, which would indicate that the peak is not too close from us. So lockdown could be extended. And what we think is that the longer that we have the lockdown, the slower the recovery will be because people will be poorer after the lockdown and companies will have suffered more. So taking all this into account, we are very careful in saying that we have peaked in terms of provisions. I think, I mean, we have to observe very closely, I mean, the evolution of the economy and the behavior of individuals and companies in the next quarters to evaluate how adequate the provisioning is.

No. That's fair. I appreciate that. Maybe just one quick follow-up on that. Looking at the coverage ratio where you showed 239%, a little bit below the peak, we saw at 248% in 2018. I mean, do you feel comfortable with where that coverage ratio is today? Do you think you still need to increase that a bit further? At least help us think about how you think about your coverage ratio in today's environment.

I think it will be natural to have a higher coverage ratio in this crisis because NPL 90 days tend to be postponed with the policy of renegotiating credits. So if we take this effect into account, and it's just natural to roll over during the crisis. So I mean the rolling over policy will be more intense in this crisis than it was in past crisis. So this reduces the denominator. And so I don't think it would be too strange to see higher coverage ratios because of this phenomenon.

Our next question comes from Mario Pierry with Bank of America.

Hello. Can you hear me?

Yes. I can hear you.

Okay. Sorry about that. Two questions from me as well, Candido. On Slide 3, you show that 850,000 clients had already renegotiated their loans based on the several options that you're offering to them. Can you just clarify to me what percentage of the clients that qualify for these offers then have already applied? How big is the balance of these loans that have been renegotiated in nominal terms? And if these renegotiations were done through the end of March rather than through today just so that we have an idea here on how much more renegotiations we can have. And my second question is related, I think, what you said on the outlook for NII going forward that it should grow in line with loans. However, as you mentioned, right, this is going to be a loan growth driven by the wholesale sector. And I would have expected then for you to have lower margin compared to the year ago. So I would have expected your NII to grow below your loan growth. So can you just clarify that for me?

Okay, Mario. I'll start by your second question. So you're right to say that the loan growth will be more on -- we expect it to be more on the large corporations than SMEs and individuals, so only smaller margins. But on the other hand, we expect the margin for large corporations, especially for corporations, to increase as you see reflected in the price of the bonds of these companies in the secondary market. And so it's an estimate, but I think that this increase will be able to compensate for the different mix in the portfolio. Then in the rollover, the amount that 850,000 clients have rolled over, approximately BRL 30 billion in contracts. I don't know the exact percentage that this represents of how much was eligible to. What I can tell is that on the first weeks, we were having about 85% of people paying and not for renewal. And the rollover was, I remember having observed that it was much smaller than what I would have guessed initially. I think that this proportion tends to grow as time goes by and the loan then persists.

And our next question today comes from Thiago Batista with UBS.

I have 2 questions. The first one is about -- actually one about the deposits. The funding side of the bank, especially deposits, increased a lot in the first Q. Can you explain a bit this movement to us if this was a kind of flight to quality, it was concentrated in the corporate side, the retail, so only to explain a little bit this very strong performance of the deposit side? And the second one, the second question is about the measures that Itaú and the other banks took in the last months. So the first one is the one that you just answered Mario about the postponement of installments. Do you believe it will be necessary to expand this type of grace period in coming months? And the second one about the BRL 40 billion fund to finance the paycheck of small companies. Can you give a view how you are seeing this fund, if Itaú is really using it, if this BRL 40 billion is enough, you need more money or less money from this fund?

Okay, Thiago. Thanks for your question. Let's go question by question. On deposits and the way they've been growing. I must say that we had before the onset of the crisis, we had already decided to increase our funding, our direct funding. We were seeing a tendency in growth in portfolio that we would need more funding, and we had already changed stance. We were paying higher rates and stimulating our sales force in this direction. And so it was a lucky move when the crisis happened. I mean, we were already well positioned. And I think, yes, I mean, there is a movement here. I don't know if you can call it a flight to quality, but you can certainly call it people becoming more conservative and looking for more conservative products and names. So yes, I mean, this is how I see it. And I mean, I see liquidity has not been an issue at all in this beginning of the crisis. As to postponement of installments, I think it depends very much on the sector the company is at. I think some sectors will have a faster recuperation than others, which may need a longer time to start selling again and starting to sell will take longer. So it will have to be seen. Even in the retail, it will have to be seen sector by sector and trying to understand each sector-specific needs and possibilities of recoveries. I mean, we may have sectors that will not recover. And then it makes no sense to extend. And your third question on the payroll fund, the BRL 40 billion. I think it's clear now that the BRL 40 billion was an exaggeration. I mean, the calculation was not correct. We are very actively doing this. I think it's…

Our next question today comes from Geoffrey Elliott with Autonomous Research.

First, just a very quick clarification. The BRL 30 billion of loan balances that have been rolled over, what date was that as of? Was that as of March 31 or is that as of something more recent?

More recent.

Can you say which date?

It's the last figure I have, Geoffrey. I don't know exactly which date, but it must not be more than 1 week old.

Got it. And then a broader question. You talked about delivering on lower expenses. And you've given a lot of examples on how the crisis is teaching you lessons on how to operate more efficiently, get people working from home, get account openings happening online. Can you give us a sense of how that changes your picture of what Itaú looks like once we emerge from this and any sense of what those expense saves, how large they might be?

Thanks for your question, Geoffrey. So I can quote many examples. So I mean we will be traveling more. We will be making less physical visits. We will probably be using less premises, less rental space. So there will be many effects like this, I mean, which will help. Possibly we will realize that we may close more branches than we had anticipated, not this year specifically, but as a general rule because branches may become less necessary because people have been digitized more. I mean, there has been an acceleration in the digitization process of people. I mean, these are basically the initiatives. I will ask Milton if he wants to complement on that because he personally runs this efficiency project.

I think, Candido, you mentioned quite all the opportunities that we have imagined here after this strong lockdown that we are seeing. Most of them come from the home office, the facilities that Candido mentioned. We also see less trips for our employees, not only locally, but abroad. We see opportunities in the, I would say, the footprint of our branches, somehow more clients being digitalized and using our channels, digital channels. There are more efficiency, which brings much less cost, much less people intervention. So we see many opportunities and we are working on that to guarantee that after this strong lockdown, we can take the opportunity to adapt our way of working in the way we are doing now. So that's a lot of things that we have learned throughout this process.

And our next question comes from Carlos Gomez with HSBC.

I had a couple of long-term questions. I had a couple of more long-term questions about how this is going to evolve. I mean, you obviously have a very large footprint in Brazil and outside. And as you mentioned, the trends are not necessarily good. Can you differentiate, are there particular regions of Brazil that have you worried versus others or particular countries in which you operate that have you more concerned than others? And my second question is more about the long-term effects of the crisis. In 2008 and 2009, there was a transformational event in Brazil. You merged. Itaú Unibanco was created. Do you envision anything like that going forward as a consequence of this?

Thanks, Carlos, for your question. Commenting on the regions of Brazil, as you know, in Brazil, the regions vary a lot. I think that the region which will suffer more from the crisis will be the northeast. It's more dependent on tourism. It's more on the coast. So I don't have the exact figure of how much tourism accounts for the GDP of the northeast, but it's certainly much more than in the southeast region or in the southern region of Brazil so. On the other hand, on the northeastern, there are more public employees than in the other regions and public employees will not be fired as opposed to employees on the private sector. So I don't have very clear answer to give you there. I mean, we are concentrated on the southeastern region of Brazil, which is the more industrialized, the services are more intensive and where the bulk of the GDP is made. And I think that the GDP of this region will suffer about the same amount as the average GDP of Brazil. As to perspectives of any consolidation because of the crisis, we are not seeing it, to be honest. I mean, there can always be, I mean, small opportunities here and there of small businesses, but even that is not in the radar right now. I mean, we are too focused on the crisis itself and on helping our clients go through this.

And outside Brazil?

Oh, sorry. Outside Brazil, maybe Milton, you can. It's for outside Brazil.

Yes. Outside Brazil, I think you'd see in the same part or the same line. We're always looking at opportunities abroad, but nowadays -- I'm sorry. Outside Brazil, hello, well, I think it's better now. Well, outside Brazil, we don't see any consolidation process as we speak. We are always open to new opportunities, of course. But in the countries where we are, we have a relevant position. We have the same agenda that we've been developing in Brazil, not only the cost efficiency agenda, but also the digital transformation. So we are very comfortable with the footprint and the size we have now. So there is nothing in the radar as we speak. We're always open, of course, but we don't see any consolidation process going forward.

Okay. And in terms of public health, are you more concerned about any of the countries in which you operate?

No. I think the countries where we are somehow we started the lockdown before we did, Brazil did. So we see Argentina and Colombia with a very strong lockdown since the very beginning. And when you look the figures in terms of the disease spread out and also the death, you don't see reported figures in any of the countries where we are. All very behaved, I would say. So we don't have any specific concern in any specific countries.

And our next question comes from Marcelo Telles with Crédit Suisse.

I have 2 questions. The first one, regarding the information you have in Slide 8 about the exposure to the sectors that are most impacted by the crisis. I just want to try to reconcile that number with what we've seen as for the Central Bank stress test. I think you mentioned here on Slide 8, I think your exposure is around 2.5%. The more exposed sectors in this crisis on your commercial portfolio, which I think equates to BRL 18 billion or a little over 5% of your total commercial portfolio. But in this stress test that the Central Bank provides for the system, it talks about direct exposure to sectors affected by the COVID-19 to be something close to 30%. So I was wondering if you could just help us reconcile why your exposure is so much smaller. I know that on Slide 8 doesn't seem to have the entire exposure. If you could share with us what are in your portfolio, what percentage of our portfolio is directly affected by the COVID-19. So if there is any relevant difference between your number and what would be implied by the Central Bank? And how should we think about your potential credit losses in those segments? And my second question with regards to your provisioning. You had more capital, right, than anybody else that allowed you to -- and you are more profitable that allowed you to front-load provisions much more than your peers. And going forward, how should we think about your capacity to continue to front-load those provisions? Is capital kind of like the main restriction going forward? I mean, you are at 10.3% CET1 ratio right now. Is that a level that we should think as kind of like the minimum you wanted to have going forward and therefore, perhaps provisions would have to kind of -- the amount you can provision would have to be enough not to go below that 10%? How should we think about your capital management policy in light of the provisions you're going to have to do in the coming quarters?

Okay. Fair question, Marcelo. Your first question, I don't have the numbers with the Central Bank study here. I can try to get them. I don't know if you can send them to me. But what I can only imagine is that what we've shown here, this 2.4% is 1.3% oil and gas, 0.9% tourism and leisure and 0.2% airlines. These are the most affected. But you have, for instance, non-food retail is a sector which is affected. We don't mention it here because it's not among the most affected sectors. So there are many other this year which will be affected, even auto industry, energy sector, sugar and ethanol sector. I mean, you would have to go the other way around. I mean, which are the sectors that are immune to COVID-19. And there are very, very few. So when we make our provisions, we are making our provisions in many different sectors. The sectors shown in Page 8 are those sectors which clearly are the most affected. There are other sectors which are affected by COVID-19 and probably this is what explains the difference between the figure here and the figure in the Central Bank stress study. But I'm not familiar or I don't have the data on the study right now to comment on. As to capital, in terms of capital, I have mentioned that looking forward, I mean, we see that we won't have difficulties in managing capital, in an adequate level. And as to further provisioning, we will provision as indicated by our model, expected loss model. And the capital shall be enough for that. I mean, results and capital shall be enough for that. This is, I mean, perfectly in our forecast. I mean, when we stress test for provisions and so on, we don't face capital limitations in order to do this. I mean I think there's enough space in our capital to do this.

So Candido, just a follow-up, if I may. So if your model requires, let's say, much more provisions than what you have so far. And of course, for the record, I mean, you are by far now the most provisioned bank in Brazil right now. So if you had to go below 10%, that will not prevent you from making those provisions as per your model? Is that a fair assessment?

No. The fair assessment is make the necessary provisions. If we need more capital, we will see how to get it. If we go below 10% or if we have some other form of capital, this will be decided when and if. I don't think that we will come to this situation.

And just one final follow-up. Would you consider issuing any long-term debt in this environment maybe to strengthen your LCR, which is good at 165%, but is that something that you'd see down the road?

Marcelo, looking forward, I mean, liquidity, and I must stress and so on, is quite comfortable. I mean, we don't see a problem there. So we are not considering any issuances right now.

This concludes today's question-and-answer session. For your information, all questions received via the webcast today will be answered by the Investor Relations department. Mr. Bracher, at this time, you may proceed with your closing statements.

Okay. So I want to thank you all for your interest in this conference, for the very good questions. These were very different results from the ones we are used to showing. Also, the precision we can offer in our answers is not what we usually like to. And we attribute this, I mean, to this very uncertain scenario we are all living. We hope that, I mean, in the next quarter things will be clear and the answers, we will be able to be more precise. So thank you very much for your interest.

Thank you. That does conclude our Itaú Unibanco Holding earnings conference call for today. Thank you very much for your participation. You may now disconnect.