Brazilian brokerage XP looks for life after lockdown bull run

Like many digital brokerages that prospered during the pandemic as locked-down savers flocked to the stock market, Brazil’s XP has taken a hit.

With a range of products including a fund “supermarket” and often lower fees than the country’s handful of large banks, the Sao Paulo-based company has helped bring investing to the wider public since its founding more than two decades ago. is of. In the process, it has been lauded by analysts and consumers as a fintech leader.

But following the end of the bull market phase, the group, which draws comparisons to US retail broker Robinhood, has seen its market capitalization decline.

Listed on New York’s Nasdaq exchange, the company has lost more than half its value — about $15 billion — as shares hit a peak of nearly $50 in 2021.

High interest rates and economic uncertainty have pulled down the balance of money entering XP (pronounced “sheez-peh”), which is also into asset management and investment banking.

Profit, which nearly doubled every year between 2018 and 2021, was stable at R$3.58bn ($737mn) last year. As Brazil’s central bank raised its benchmark lending rate from an all-time low of 2 percent in March 2021 to 13.75 percent today, investors pulled money out of stocks and other riskier categories, and into safer fixed-income investments is given priority.

Yet the company’s chief executive said that due to the improving economic landscape and the combination of the company’s own operations, a turning point is now coming. The cost-cutting period is almost complete after some 800 redundancies — about one in 10 of the in-house workforce — were made this year.

“We’re starting to see a lot of key indicators that show, in my opinion, that the worst is over,” Thiago Mafra at XP’s headquarters told the Financial Times.

He pointed to the flattening of the interest rate curve and credit spread as evidence. “Risk aversion will reduce and we will start seeing people actually investing, buying a diversified portfolio. That’s when we start moving to normal levels again,” said the 38-year-old former hedge fund trader, who took over the top position two years ago.

Investor optimism is rising as the South American country’s economists forecast rate cuts in the coming months and upgrade growth forecasts. The local Bovespa equity index has rallied in recent weeks. Although it’s down from its late-2019 initial public offering price, XP stock is up more than two-thirds so far in 2023.

In terms of acquiring new customers, the company valued at $13.2 billion has a lot of room to grow. XP’s platform still holds only 11 percent of the retail investment market by assets in custody in Latin America’s largest economy, which remains dominated by the country’s top high-street banks.

In a statement of intent, Mafra said the company aims to nearly double its stake to reach the level of Itau Unibanco, the largest banking and financial group in the region, which he estimated at around 20 to 25 percent. Itau is also a major XP shareholder with an 8.6 percent stake.

In parallel to its core activity, the company has diversified into sectors such as credit cards, insurance and pensions.

Industry veteran José Berenguer, head of XP Bank, said this would reduce the risk of volatility. “We are an investment house. But selling other products to our customer base mitigates the impact of a downturn in the market,” he said.

However, for now, new business lines represent only about a tenth of total revenue.

UBS BB analyst Thiago Batista said of the effort, “It’s working but not at the pace everyone thought two or three years ago.” “In credit cards, they are expanding very rapidly. But it probably won’t move the needle.”

Founded in 2001 by then-24-year-old Guilherme Benchimol, who remains as chairman and a major shareholder, XP began providing classes to ordinary Brazilians on how to invest in stocks and bonds and selling brokerage services to them.

Its “financial supermarket” was modeled on the American discount broker Charles Schwab. Today, XP is a full-service group with 4 million active customers, and last month, assets in custody exceeded R$1tn.

“The company has been on top of restructuring its spending,” said Alexandre Albuquerque, an analyst with Moody’s. “They have adapted quickly to the new environment. Its long term prospects are good.

Nevertheless, XP’s net inflows fell 65 percent year-on-year to R$16bn in the first quarter, the lowest level since the start of the coronavirus crisis. Net income decreased 7 percent to R$796 million.

On top of the downturn, competition has heated up. Brazil’s traditional lender, which in the past typically only sold its own investment funds, has launched mobile apps and opened its platform to third-party products.

Fintechs such as digital lender Nubank, as well as investment bank BTG Pactual, have also moved into the XP space.

Some analysts question the group’s ability to continue effectively expanding its 13,000-strong network of financial advisors, who are employed on a freelance basis and considered one of its selling points to clients.

The issue attracted attention after a message sent by Benchimol to advisers was leaked, criticizing the performance and urging a “back to basics” approach. Mafra downplayed the importance and insisted that there was room for their numbers to continue to grow.

“We are very well positioned for the next years,” he said. “We are still a high-growth company.”

Additional reporting by Beatriz Langella

Like many digital brokerages that prospered during the pandemic as locked-down savers flocked to the stock market, Brazil’s XP has taken a hit.

With a range of products including a fund “supermarket” and often lower fees than the country’s handful of large banks, the Sao Paulo-based company has helped bring investing to the wider public since its founding more than two decades ago. is of. In the process, it has been lauded by analysts and consumers as a fintech leader.

But following the end of the bull market phase, the group, which draws comparisons to US retail broker Robinhood, has seen its market capitalization decline.

Listed on New York’s Nasdaq exchange, the company has lost more than half its value — about $15 billion — as shares hit a peak of nearly $50 in 2021.

High interest rates and economic uncertainty have pulled down the balance of money entering XP (pronounced “sheez-peh”), which is also into asset management and investment banking.

Profit, which nearly doubled every year between 2018 and 2021, was stable at R$3.58bn ($737mn) last year. As Brazil’s central bank raised its benchmark lending rate from an all-time low of 2 percent in March 2021 to 13.75 percent today, investors pulled money out of stocks and other riskier categories, and into safer fixed-income investments is given priority.

Yet the company’s chief executive said that due to the improving economic landscape and the combination of the company’s own operations, a turning point is now coming. The cost-cutting period is almost complete after some 800 redundancies — about one in 10 of the in-house workforce — were made this year.

“We’re starting to see a lot of key indicators that show, in my opinion, that the worst is over,” Thiago Mafra at XP’s headquarters told the Financial Times.

He pointed to the flattening of the interest rate curve and credit spread as evidence. “Risk aversion will reduce and we will start seeing people actually investing, buying a diversified portfolio. That’s when we start moving to normal levels again,” said the 38-year-old former hedge fund trader, who took over the top position two years ago.

Investor optimism is rising as the South American country’s economists forecast rate cuts in the coming months and upgrade growth forecasts. The local Bovespa equity index has rallied in recent weeks. Although it’s down from its late-2019 initial public offering price, XP stock is up more than two-thirds so far in 2023.

In terms of acquiring new customers, the company valued at $13.2 billion has a lot of room to grow. XP’s platform still holds only 11 percent of the retail investment market by assets in custody in Latin America’s largest economy, which remains dominated by the country’s top high-street banks.

In a statement of intent, Mafra said the company aims to nearly double its stake to reach the level of Itau Unibanco, the largest banking and financial group in the region, which he estimated at around 20 to 25 percent. Itau is also a major XP shareholder with an 8.6 percent stake.

In parallel to its core activity, the company has diversified into sectors such as credit cards, insurance and pensions.

Industry veteran José Berenguer, head of XP Bank, said this would reduce the risk of volatility. “We are an investment house. But selling other products to our customer base mitigates the impact of a downturn in the market,” he said.

However, for now, new business lines represent only about a tenth of total revenue.

UBS BB analyst Thiago Batista said of the effort, “It’s working but not at the pace everyone thought two or three years ago.” “In credit cards, they are expanding very rapidly. But it probably won’t move the needle.”

Founded in 2001 by then-24-year-old Guilherme Benchimol, who remains as chairman and a major shareholder, XP began providing classes to ordinary Brazilians on how to invest in stocks and bonds and selling brokerage services to them.

Its “financial supermarket” was modeled on the American discount broker Charles Schwab. Today, XP is a full-service group with 4 million active customers, and last month, assets in custody exceeded R$1tn.

“The company has been on top of restructuring its spending,” said Alexandre Albuquerque, an analyst with Moody’s. “They have adapted quickly to the new environment. Its long term prospects are good.

Nevertheless, XP’s net inflows fell 65 percent year-on-year to R$16bn in the first quarter, the lowest level since the start of the coronavirus crisis. Net income decreased 7 percent to R$796 million.

On top of the downturn, competition has heated up. Brazil’s traditional lender, which in the past typically only sold its own investment funds, has launched mobile apps and opened its platform to third-party products.

Fintechs such as digital lender Nubank, as well as investment bank BTG Pactual, have also moved into the XP space.

Some analysts question the group’s ability to continue effectively expanding its 13,000-strong network of financial advisors, who are employed on a freelance basis and considered one of its selling points to clients.

The issue attracted attention after a message sent by Benchimol to advisers was leaked, criticizing the performance and urging a “back to basics” approach. Mafra downplayed the importance and insisted that there was room for their numbers to continue to grow.

“We are very well positioned for the next years,” he said. “We are still a high-growth company.”

Additional reporting by Beatriz Langella