New York - After more than four years, Compass is going public on the Brazilian stock exchange. But the IPO of the Cosan company can be considered an indication that the window for this type of transaction is open again.

“I don’t see a consistent recovery in the capital markets in the short term,” says José Berenguer , CEO of Banco XP , in an interview with NeoFeed at the group’s office in the global financial center, located on the 30th floor of 46th Street, known as “Little Brazil.”

Berenguer spoke about the banking business strategy and expressed concern about the Brazilian macroeconomic situation. According to the CEO of Banco XP, Brazil is in a cycle where high interest rates lead to a dominant fixed income market and a weak stock market.

With expensive credit, growth is limited and hinders the country's development at a time when the need for efficiency is a requirement brought about by AI, which is changing the productivity of the financial sector.

In the executive's view, the combination of high interest rates, "too good" fixed income investments, low participation of individuals in the stock market, and a still-sluggish capital market has created an environment in which investors prefer to remain idle.

At the same time, he sees a profound transformation coming to the financial sector through artificial intelligence and open finance. These are two forces that, according to him, can drastically reduce inefficiencies in the banking system and change how customers interact with money, credit, and investments.

“Today, we serve 5 million individuals and almost 90,000 companies. We believe we can reach 300,000 or 400,000 companies and another 20 million individuals,” says the CEO of Banco XP.

Next, read the main excerpts from the interview:

After accelerating, XP adopted a more cautious market stance. What changed?
In fact, we accelerated very quickly in 2020 and 2021. Then, we had to slow down. The market isn't doing wonderfully, and we decided to focus on what's really important, without trying to do 200 things at once. Today, we have surplus capital. Our Basel ratio is close to 20%, when the minimum is 13%. We understand that we should be working closer to 15%. So, we could accelerate, make acquisitions, and increase our balance sheet.

Does it make sense to make any acquisitions?
We don't think so. We've preferred to grow organically. We bought Modal a few years ago and, although it was a good deal, the integration challenge is enormous: people, technology, culture. If you make a mistake and buy an asset that doesn't fit as well as you imagined, you lose focus. So, we continue at our own pace, doing things with great care. Our client is sophisticated. Even in the corporate sector, they are demanding clients. The quality of service needs to be impeccable. If I give a credit card to an investor client and he goes on a trip with his family and the card doesn't work, that's it. This client has options. He presses a button and the next day there's a line of banks wanting to serve him. So, we can't afford to make mistakes.

What do you see today as XP's main competitive advantages?
The main advantage is the culture. A culture of getting things done, of solving customer problems, of being close to the customer. There is a lot of autonomy for the advisors and for the internal teams. The second advantage is the technology. We have very little legacy system. The bank is six years old. The systems are, by definition, new. The third advantage is the cost structure. We have 17,000 independent agents and about 500 independent offices. This creates a very efficient structure. Furthermore, the advisors are focused on the customer, without bureaucracy, without branches, without regional superintendents. They are on the front lines serving the customer.

"We can reach 300,000 or 400,000 companies and another 20 million individuals. We still have a lot of room to grow."

And what are the disadvantages?
On the downside, our corporate product portfolio is still being finalized. For individuals, it was already more mature. We also want to expand our sales structure. Today, we serve 5 million individuals and almost 90,000 companies. We believe we can reach 300,000 or 400,000 companies and another 20 million individuals. We still have a lot of room to grow.

Who does XP compete with?
We are focused on Brazil. We don't want international expansion. I mean, we have infrastructure here in New York and Miami to serve Brazilians and investors here who are investing in Brazil. Our focus is on individual investors and sophisticated corporate clients. So we're not going to compete with Caixa, Bradesco, Nubank, or Itaú. We are a niche player.

But can XP assume that it is also a large bank?
We are increasingly becoming a major player. Today, we must be the seventh largest financial institution or financial conglomerate in Brazil. So it's natural that there are comparisons with the incumbents. Investors are in a hurry, but they need to understand the time horizon. Those who buy stock to sell the following week will probably be disappointed. Now, those who look at the next 20 or 25 years, I think we have a very interesting value proposition. The thesis continues to be growth in the customer base, financial completeness, and all the disruption that is still happening in the Brazilian market.

What would this disruption be: open finance or artificial intelligence?
Open finance can be a game-changer for the financial system. The open finance agenda in Brazil is extremely aggressive and powerful. When clients authorize data sharing – and most do – we can do a much better job. We gain insight into the client's entire financial life, from assets to debts, including investments and inefficiencies. We can say: "This mortgage is expensive; there's a better alternative." Our work today is much more about comprehensive financial advisory services, often including estate planning, than just investments. Open finance is a killer tool. And now, credit portability is also beginning. This will reduce the financial system's "profit pool." XP was born with an open architecture. So, we are very optimistic about this scenario.

"Open finance is a killer tool. And now credit portability is also starting. This will reduce the 'profit pool' of the financial system."

Why?
It will be less costly for society and for the customer. In other words, it's a more efficient market. And a customer with decision-making power is music to our ears. I believe it will shift the focus for the customer and for the financial system as a whole. The customer will choose the best provider in terms of price, service, and quality of delivery. With open finance, they will be able to compare in a much easier and more fluid way.

And how does artificial intelligence fit into this structure?
I'm going to use part of Martin Escobari's [co-president of General Atlantic, an investor in XP] speech. Artificial intelligence will also change everything. Today, I see three types of companies. The first is the one that does small AI pilots. The second is the one that takes an entire process and says: "I'm going to reduce the workforce by 80% using AI." And the third is the company that is born with AI. XP is between the first and second stages. And it's very difficult to make that transition. Now, imagine AI analyzing the client's open finance data. The system can automatically identify opportunities, deliver that information to the advisor, or even directly to the client. Data is already important today. With AI, it becomes even more relevant.

What will happen to the autonomous agent in this new AI scenario?
The successful professional will be the one who knows how to use AI without losing human contact. Would you leave 100% of your investments in the hands of a robot? I don't think so. It's the same with medicine. AI can greatly help doctors, but nobody wants to completely give up the human factor. It will be the same in consulting. Personal contact remains essential. What changes is that the consultant will have much more powerful tools to communicate with the client.

How long will it take for this transformation to happen?
Very fast. If it depended only on willpower, perhaps we could accelerate even more. But there are concerns about cost, margins, and market reaction. Even so, I think this can happen in the very short term. The evolution is happening very quickly. Productivity is increasing significantly. Our risk is that a company will emerge that is already fully structured around AI. This creates a huge sense of urgency.

"Our risk is that a company will emerge that is already fully structured around AI. This creates a huge sense of urgency."

Is there resistance to the adoption of AI?
It exists. Internally and also among clients. Some people say, "But the robot might hallucinate." And it really could. I don't trust the tool 100%. I think it needs to be supervised.

Compass has gone public, breaking a four-year hiatus on the Brazilian stock exchange. Has the Brazilian capital market reopened?
No. Not yet. That was a specific operation. Fixed income is too good to be true today. There's no better product. With real interest rates close to 10%, plus tax-exempt products, investors don't want to take risks. Add to that the war, the election, fiscal uncertainty. Investors prefer to stay put. There might be a one-off operation here or there, but I don't see a consistent recovery in the capital markets in the short term.

To what extent have incentivized fixed-income products also unbalanced the market?
Absolutely. Individual investors have practically left the stock market. Even with the recent highs, Brazilian investors haven't returned. It's very difficult to compete with that. For rentiers, things are going very well. In February and March, when the stock market surged, the number of individual investors remained stable. Those who already have assets can preserve wealth with enormous fiscal efficiency. But those who don't have assets and are in debt suffer greatly. This dynamic is cruel.

"Individual investors have practically left the stock market. Even with the recent highs, Brazilian investors haven't returned. It's very difficult to compete with that."

Do you seem more pessimistic about Brazil?
We are living through a curious situation. Interest rates are very high, which should cause inflation to fall. However, with the injection of resources through Bolsa Família (a social welfare program) and other incentives, such as Desenrola 2.0 (another program), the Central Bank's task of cutting interest rates is more difficult. What worries me is: who can withstand interest rates at this level for so long? You can have high interest rates for a period to combat inflation. But three, four years of that? What business can withstand a 15% CDI (interbank deposit rate), plus spread, plus IOF (tax on financial operations)? It's very difficult.

Is the drop in interest rates not already contracted in?
I don't see interest rates plummeting anytime soon. There are many structural problems. At the same time, Brazil has many strengths: clean energy, oil, agriculture, protein, a consumer market. The country has everything it needs to succeed. But we need to start tackling the structural problems. Otherwise, we'll continue growing with the handbrake on.

How can we generate ROE given this scenario?
It's difficult because you have to have a product, but you can't stifle the customer. Overdrafts and personal loans cost what they cost because, in the end, the good payer is penalized by the enormous mass of bad payers. There's a financial issue that needs to be discussed as well. While it's possible to change pricing in high-income or private banking, in mass-market products you can't differentiate. It's a very cruel, very inefficient way that operates within the banking business of lending, but that's how it is.

What are foreign investors saying about Brazil today?
The Brazilian market seems cheap compared to the international market. There is interest. Short-term investors want to take advantage of this discount. Long-term investors are more concerned with the election and fiscal issues. But Brazil has lost international relevance. In the past, there were desks dedicated exclusively to Brazil in large global funds. Today, often the same manager covers Brazil and the G7. Even so, if monetary policy normalizes, the stock market could come back strong.

For you, the major macroeconomic concerns are war and elections?
 These are important factors, but I can't run the company hoping the war ends or that a particular candidate wins. What we control is our relationship with the customer, the efficiency of the product, the company culture, and the motivation of the team. The company needs to be prepared for any scenario. That's why perhaps this isn't the time to be extremely aggressive. We are working hard on the foundations to accelerate when the situation improves.