Good morning, and welcome to the second quarter of 2022 results conference call of Banco BTG Pactual. With us today, we have Roberto Sallouti, Renato Cohn, Julia Rocha. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the bank's presentation.
After Banco BTG Pactual's remarks, there will be a question-and-answer session for investors and analysts when further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. Today, we have a simultaneous webcast that may be accessed through the website www.btgpactual.com/ir in the platform. There will be a replay facility for this call from August 9th.
Before proceeding, let me mention that this call may contain forward-looking statements relating to the prospects of the business estimates for operating and financial results and those related to the growth prospects of Banco BTG Pactual. These are merely projections and as such, are based exclusively on the expectations of Banco BTG Pactual's management concerning the future of the business.
Such forward-looking statements depend substantially on changes in market conditions, government regulations, competitive pressures, and performance of the Brazilian economy and the industry, among other factors, and risks disclosed in Banco BTG Pactual's filed disclosure documents, and are therefore subject to change without prior notice. Now, I'll turn the floor to Roberto Sallouti, who will begin the presentation. Mr. Sallouti, please go ahead.
Thank you very much. Good morning or good afternoon to all of you. Thank you for joining our call. If we please start on Page 3 of the presentation. We are very, very satisfied with the quarter results. We had another quarter of record revenues and net income. Our revenues grew 20% year-over-year, reaching BRL 4.5 billion for the quarter.
Our net income grew 27% year-over-year, reaching BRL 2.2 billion. We had, in the quarter, an annualized return on equity of 21.6%, slightly above what we had in the first quarter, which was 21.5. Turning to Page 4 , this quarter, we had continued to have very strong inflows and a continuous increase in our assets under management.
We're very convinced that this demonstrates just a success of our long-term strategy of making sure that clients are being served with products that are suitable to them. Always having their long-term interests in mind. Always giving them excellent service and a great technological platform. We see that even in more challenging markets, we continue to attract resources and to be able to increase our assets under management. In the quarter, we had BRL 71 billion of net new money, which took our assets under management to around BRL 1.1 trillion. Our assets in wealth management grew 22% to BRL 463 billion. In our asset management units, assets grew 21% to BRL 605 billion.
Turning to Page 5, we talk a bit about our funding, capital, and credit portfolio. We continued to expand our funding base in the quarter. We kept very strong and robust capital ratios, and we're able to continue to expand our credit portfolio with great quality. In the quarter, our unsecured funding grew 29% year-over-year, reaching BRL 165 billion. We ended the quarter with net equity of BRL 41 billion and a Basel ratio of 15.2%, slightly above the 15% that we finished in Q1. Our credit portfolio grew 36% to BRL 118 billion, BRL 20 million of which in the SME business line. Turning to Page 6, we talk a bit about more details of the quarter results.
As I mentioned, BRL 4.5 billion in revenues, BRL 2.2 billion net income, ROE of 21.6%. We kept in the quarter our cost income ratio in the lower bound of our historical range, around 39%, and our corporate comp ratio is at 121.6%. We finished the quarter with total assets of BRL 454 billion. As I mentioned previously, net equity of BRL 41.4 billion, which is an increase of 18% in the last 12 months. In the last 12 months, basically had our net profits, we paid dividends, and that was the amount of equity that we grew. During the quarter, we had a low VAR compared to our historical base of 34 basis points.
Turning to Page 7, we talk about the performance in the first half of this year, which we think was extremely strong, robust, and leaves us very happy, not only with the results, but also with the perspectives for the future. We had revenues in the semester of BRL 8.9 billion, which grew 35% compared to the previous year-over-year, six months ago. Net income grew 45% to BRL 4.2 billion. For the semester, we had a return on equity of 21.5%. In the semester, we continue in the lower bound of our cost income ratio at around 39% and 22% comp ratio, and with a VAR of 33 basis points. Very similar to what we had in the second quarter.
Turning to Page 8, we see the revenue breakdown by business unit, and here we continue to see a very balanced distribution between businesses that are more market related, businesses that are more related to corporate and investment banking, and businesses that are related to investment management. What makes us very satisfied is the very strong growth in our stable client franchises.
More specifically, wealth management, asset management, and credit would have grown respectively 78%, 20%, and 38% in the last 12 months compared to the previous 12 months. As we have been pointing out over the last few years, this is exactly what we wanted to do. A more balanced distribution, a bit larger contribution from the stable and predictable client franchises, which makes the quality of our earnings more robust and more predictable.
This is exactly what we're seeing reflected in our credit spreads and in our, the price of our equity. On Page 9, we talk about the advancements we had on our ESG agenda. We issued BRL 1.9 billion in sustainable deposits, more than doubling what we had issued in the previous quarter. We continue to have significant issuance in ESG labeled DCM issuances. We issued $1.1 billion. We launched our ESG EM bond fund.
We consolidated the group's social, environmental, and climate policies under BTG Pactual. Now all of our entities, including Banco Pan, comply with our guidelines. We had important recognitions from Global Finance, especially for our business related to investment banking and of environmental finance, where we were awarded for our reforestation fund and as a sustainable investment award.
Not only did we have the ESG awards, but on page ten, this semester, we actually had a record number of awards, and some of these were first-timers for us. We have been elected best investment bank in LatAm, emerging markets, and Brazil for a few times now, but this is the first time that we were elected the best bank, overall bank in emerging markets in Latin America and in Brazil by Euromoney.
So this made us very proud because we see this as the recognition of the expansion of our business lines, where we're seen as a complete bank now, offering different banking and investment services. In sales and trading, we basically completed the grand slam in the Institutional Investor Awards. We were number one in all of LatAm and Brazil related categories in research, sales, trading, and corporate access.
In investment banking, we continue to have recognition of our overall franchise and our advisory and M&A activities. In wealth management, we continue to get the best private bank in Latin America and Brazil. What made us very happy, it's the first time that we were recognized for our digital services, both by Professional Wealth Management and by Euromoney.
This shows the quality of the technological platform that we've been building to serve our customers. This was also reflected in the Global Finance Award that we got for our SME business, recognizing the strength of the franchise we're building here. With that, I pass on to Renato Cohn, who will talk about each of the business lines before we go to the Q&A section.
Thank you. Thank you, Roberto, and good afternoon, everyone. Thank you for being here. Speaking specifically about all our business lines, we start at Page 12 with our investment banking, where we saw solid revenue generation supported by our leading position in industry rankings. Our revenue reached BRL 485 million, which is a growth of 40% when compared to previous quarters.
Specifically in DCM, we continue to deliver solid results with improved market activity, and we also see a strong pipeline for the current quarter with a few deals already forming the pipeline for the fourth quarter. In financial advisory, we recorded good revenues during the quarter, and it's similar to DCM, we also see a strong pipeline to be executed in the next couple of quarters.
ECM provided stronger contribution than in previous quarters, despite a slow market activity with very few transactions coming to market. We managed to participate in the most important of them. Good contribution from our ECM division to the overall investment banking revenues. As we mentioned before, we maintain our leading position, as can be seen through the prizes and awards that we got. We got Best Investment Bank in Brazil and LatAm by Global Finance and LatinFinance. Once market activity picks up, especially in ECM, we'll certainly benefit from it.
Again, strong results, with our investment banking with a 40% increase in revenues and a strong pipeline for the next couple of quarters. Moving to Page 13, we go to our corporate and SME lending, where we have the third consecutive quarter of record revenues with high quality credit portfolio. Revenues grew by almost 8% during the quarter, and 34% year-on-year, reaching BRL 878 million.
Total portfolio grew by 6% during the quarter, and 36% year-on-year, reaching BRL 118 billion, which is still a conservative number as it represents only 2.8 times our equity. As in previous quarters, we continue to steadily grow our portfolio while maintaining the same credit quality, similar credit spreads, and adequate provisions. Specifically on our SME, our portfolio grew by 3.2% quarter-over-quarter, and almost 40% when compared to last year. We continue to operate mostly in supply chain financing products, so ultimately, we are exposed to the same type of large corporate credit risks from companies that we know very well and that we follow closely throughout the years.
Again, very good results with steady portfolio growth while maintaining adequate provisions and a conservative approach. Moving to sales and trading on Page 14, we saw strong results driven mostly by client activities as we maintain a conservative risk allocation. We produced revenues of BRL 1.31 billion during the quarter, which is a very small reduction from the record previous quarter.
As we mentioned in the previous quarter, with the growth of our business' franchise producing new levels of client activity, we are seeing strong contribution from flow and commission-based revenues. Again, similar to the previous quarter, we maintain a conservative approach, which can be seen in the right chart with our VaR stable at 34 basis points, which is below our historical levels. Finally, I would like to highlight that we're ranked best bank in research, sales, trading, and corporate access, so basically all main categories of institutional investors. Moving to our asset management on Page 15, where we saw strong revenues and consistent net inflows, including in our managed funds.
We produced BRL 404 million in revenues, which is a 30% increase in the quarter, and 50% increase when compared to the second quarter of last year. This was achieved by a combination of growing management fees and a strong performance fee that we collected during this quarter. Also, we produced strong net inflows with BRL 41 billion in new money during the quarter and a total of BRL 138 billion during the last 12 months. Assets under management and administration reached BRL 605 billion, a 20% increase when compared to the second quarter 2021. Most of the flows continue to migrate to fixed income strategies as a consequence of higher interest rates.
Within our managed funds, we also managed to have good inflows to new alternative products that were launched during the quarter. As we have a complete product offer with our Asset Management, we are confident that we can continue to keep and attract new clients during the different economic cycles. Moving to Page 16, our Wealth Management divisions. Again, we have the record number, which actually is the fourteenth quarters registered consecutive record revenues. Revenues reached BRL 621 million, which is almost a 10% growth quarter-over-quarter, and a 65% growth when compared to the second quarter last year.
New money almost BRL 30 billion, similar to the number we reached in the previous quarter, and a stronger number considering the challenging macro scenario and recent market volatility. Despite negative performance of markets, especially in equity markets, our AUM grew to BRL 463 billion as our clients maintain a higher share of their portfolios allocated to fixed income strategies. We were also ranked best private bank in LatAm by Global Finance, and best private bank in Brazil by World Finance, and also best digital bank in LatAm by Euromoney, among other recognitions. Moving to principal investments and participations on Page 17. We had Banco Pan and Too Seguros that continued to deliver solid results.
In principal investments, we posted revenues of BRL 46 million, and this came as a result of lower contribution from our global market strategy, combined with higher internal cost of funds as a consequence of higher interest rates. Obviously, this is compensated by higher revenues recorded as interest and others, which grew during the quarter. In specifically in participations, Banco Pan produced BRL 77 million profit, which is already net of BRL 39 million in amortizations and Too Seguros contributed with a BRL 21 million profit. Moving to expenses and main ratios on Page 19. We maintain our cost income ratio below historical levels at 38.7% even as we continue to grow our client base. We record a stable operating expenses with a small 2% increase.
As our revenues grow at a higher pace, we keep improving our operational leverage and obviously our profitability. Total compensation costs were stable with similar amounts for salaries and bonus provisions when we compare to the previous quarters. Administrative and other costs at a higher increase as a combination of some one-offs and some recurring increases, mostly in technology as we continue to invest in developing our business. We don't expect similar increase for the next quarter, but rather a stable or low single digit growth. Our effective income tax rate was at 19.6%, similar to previous quarter. Moving to our balance sheet. Our total assets reach BRL 455 billion, which is a little over 10x our equity.
We maintain a very high liquidity level with almost BRL 60 billion in cash and cash equivalents, resulting in an LCR of 228%, which is higher than the previous quarter and way above the regulatory minimum of 100%. In line with our liquidity, our unsecured funding continues to grow at a higher pace than our credit portfolio, bringing our coverage ratio to a comfortable 182%. As I mentioned before, our corporate lending portfolio stands at 2.8x our net equity, so way below our peers, which are at 5x, 6x or 7x their equity. With a lot of room to grow. Moving specifically to our unsecured funding on Page 22.
We'd like to highlight that we reach BRL 165 billion in unsecured funding, which is a BRL 10 billion growth over the quarter and a 30% growth during the last 12 months. Also important to mention that we already have 23% of our funding coming from our retail clients. If you consider Banco Pan's funding base, almost 30% of our funding comes from retail clients. Just reminding that these numbers last year were for BTG Pactual standalone was only 13%, and if we included Banco Pan we would be at 19%. We continue to grow at a fast pace, improving our and diversifying our funding base, which obviously means that now we have a much more stable, cheaper and again diversified fund.
Finally, we also saw an increase in our demand deposit base reaching BRL 12.2 billion, which is a 13% increase during the quarter and 65% increase when we compare to last year. Moving to slide 23, we can see our Basel ratio increase to 15.2% and our Common Equity Tier 1 increased to 13.2%. As our profits continue to add to our equity and we maintain a conservative approach and efficient VaR allocation. Our average VaR, as we mentioned before, slightly increased to 34 basis points, but was kept at below historical levels.
As we've been highlighting during the quarter, we can keep our growth momentum in all our businesses franchised, as most of them do not consume capital, so we can maintain a high level of profitability and still keep comfortable levels of capital and a strong balance sheet. Once again, we're very happy with those results. Unless Roberto, you have any additional comments, we can move to questions.
No, thank you. Let's open the Q&A session. Thank you.
Thank you. The floor is now open for questions from investors and analysts. If you have a question, please press star one on your touch tone phone at this time. If at any point your question is answered, you can remove yourself from the queue by pressing the pound key. Questions will be taken in the order they are received. We would ask you to please pick up your handset when you ask your question in order to ensure optimum sound quality. Please hold while we poll for questions. Our first question comes from Thiago Batista with Banco UBS . Please go ahead.
Yeah. Hi, guys. It's UBS. I have two questions. First of all, congratulations for the results. Very strong figures again. My first question is about the ROE of BTG Pactual. The ROE is already above the guidance, around 22%. When you guys look for the medium term ROE of the bank, what's the level we can expect? Or in another way, what are the main forces that you see impacting the profitability trends of BTG Pactual in the medium term?
My second question is about Braskem. We saw recently in the press some articles saying that BTG would be interested to buy Braskem. So if you can comment about it, I'm not sure if you can. If it's possible to do an acquisition of this magnitude, considering the current capital position of the bank. I'm not sure if this deal would be done in the bank or in a special fund, but if you can comment about this potential deal.
Thank you, Thiago. On the ROE, we have not changed the guidance as we always say that we always manage the bank, seeking above 20% return on equity. The truth is, we have invested a lot over the last few years. These investments are only now starting to mature. They continue to bring consistent growth in the more stable business lines, more specifically Asset Management, Wealth Management, and credit, which we expect to continue.
This gives us, let's say, three lines which will depend more on the markets or level interest rate. Of course, interest and other, that depends directly on the level of interest rates. Investment Banking, which I think we have shown that the combination of strong franchises in the sub-markets allows us to have a robust performance in different macro-scenarios.
Of course, when markets become favorable, we expect to benefit from that. We also think that Sales and Trading has proven that it's growing with the client franchises as we develop new market segments or expand into new products. Having said this, it's a combination of these different factors, but we continue to expect that all the investments that we have done will continue to gain operational leverage and continue to contribute significantly to the bottom line. Of course, we have to see, given that our capital is basically cash, how this will happen at the same time that interest rates at some point in the near future, we expect them to fall. Then one will probably compensate the other, or one will be stronger than the other, and that will determine the final ROE.
We have to kind of analyze the timing of these different movements over time, but independent of timing, we still continue to expect to produce a higher than 20% ROE in all the different scenarios, right? We've done that in a moment that markets were on fire, but interest rates were too. We've done this in a moment that markets were more challenging and interest rates were increasing gradually to the level that they are now. That is what we liked about the business. We are not. We prefer not to give anything more specific that we have been giving in the past, even though I think that we are very, very optimistic with the development of our franchises, with the stability and the robustness of our business.
On the second point, as you probably know, you have to be very careful with what you read in the media. As we have told you, Principal Investments has basically become a seeding business for our Asset Management business. Of course, when there are exceptional circumstances, like there was the capital increase of Eneva, we are very bullish with the prospects there.
We did not want to be diluted, so there we kept our participation, but we did not do anything additional. Additional equity was done at the partnership holding company, but not at the bank. If there's anything related to Braskem, you should probably expect it to be something related to credit, maybe something special situations. We do not expect to be increasing the principal investments other than the seed capital that we have for our funds.
No, very clear, and thanks for the answers.
Thank you, Thiago.
Our next question comes from Tito Labarta with Goldman Sachs. Please go ahead.
Hi, good afternoon. Thanks for taking my questions for the call and congratulations on the strong results. A couple of questions also. On, you know, the asset and wealth management business continues to be, you know, very strong. That new money remains very resilient. As you mentioned, I think benefiting from increased flows into fixed income. If you can maybe give us some more color on, you know, how this can continue to evolve from here. I mean, you seem to be taking market share. Maybe can you give some color in terms of the split between fixed income and equity? How much more is going into fixed income now because of higher rates?
In terms of your ability to continue to gain market shares, just given all the investments you've made in that business, is there anything specific with how people are investing and managing that? Just to think about sort of the sustainability of that new money and how it goes from here and if rates eventually come down, how that could impact it.
And then second question on the sales and trading, you know, continue to be very strong. Can you give some color, like how much of this is becoming more and more recurring? I mean, you mentioned some of the growth and the client activity. Any color on the split between how much sales and trading is like institutional versus retail and yeah, it's. You're running well above the guidance you've given in the past. If you can help us understand a little bit how much of the Sales and Trading that we're seeing today is recurring and what to expect going forward. Thank you.
Thank you, Tito. Starting with your first question on the net new money. Let's speak differently, separately between Wealth Management and Asset Management, because I think there are different dynamics in each of these. In Wealth Management, of course, before interest rates started to hike, we were very benefited from the financial deepening that was happening in the markets, where clients were seeking credit risk, duration risk, equity risk, and liquidity risk, given the level of interest rates. As this shifted and interest rates increased strongly, clients shifted their allocations, and they only kept looking for or mainly kept looking for credit and duration risk with less interest in equity and in liquidity risk.
However, I think we had the opportunity to show clients the benefit of having a specialized platform, of the technological offering that we have, of the advisory and product offering of the service. Even as we had this shift of less equity, less liquidity risk, we were able to continue to attract resources given the level of services, the product, and the technological offering. I think this was something that the market was in doubt how clients would behave. I think we were able to show that we think this is a trend that will continue. This trend tends to accelerate when interest rates are decreasing. Even at high level of interest rates, we were able to continue with this trend, although at a slower pace than what we had previously.
When you go to Asset Management, what we are seeing, and it's the same thing across the market, is a shift from the hedge funds and the equity funds into credit and fixed income funds. In our managed funds, we saw this. We had very strong inflows into money market and into our credit funds. Specifically in our managed funds, we're also quite successful in attracting flows to alternative investments. This, I think, is not something industry-wide. This I think is more specific to the franchise. Given the very strong performance of the past vintages, clients have decided to allocate to the new vintages that are being fundraised.
At the same time, what we are seeing that even though the industry as a whole is not growing and some of our fund administration clients of course has have lost managed assets, given the depreciation of markets or given the client flows, this has been compensated by new clients that we are gaining in our fund administration business as we gain market share. The fact that in asset management that we have a full product offering from fund administration all the way to alternative and liquid investments allows us to always to have a more resilient business that is not so dependent on specific flows or specific products.
Oh, sorry.
Once again.
My phone just reminded me you have another question on sales and trading. On the sales and trading side, we don't really have a breakdown of how much is retail, how much is institutional, because at the end of the day, even though flows come from different types of clients, we manage them in single books. It's very hard to see that. We manage the books by market risk specialization. The truth is that I think the results prove that you're right. Probably, a more correct guidance would be the average of the last four quarters plus minus the historical band that we signaled seems to reflect more the growth of the client franchises as we increase our product offering and as we penetrate new market sectors.
All right. Thank you. That was very clear.
Thank you.
Our next question comes from Gustavo Schroden with Bradesco BBI. Please go ahead.
Hi. Good afternoon, Roberto and Renato. Congrats on the results. I have a couple of questions as well. First question is about the investment bank revenues, especially on the DCM. We saw a strong recover or rebound in the DCM activities in the second quarter post a weak first quarter in this segment. I want to understand what has been driving this recovery in the second quarter. I'm trying to understand how sustainable this level is. I could see that Renato mentioned that the current pipeline is still strong.
I wanna understand what's been driving this strong growth and this improvement in the number of deals in the DCM, if it is related to companies' appetite for credit for this type of credit increasing, so it's related to liability management from companies. Yeah. Just to try to understand what's behind this growth and how sustainable it is. The second question is related to the corporate lending business. I think that we saw SMEs at the same percentage of a total loan book versus last quarter. Something about 17%-16% of the total loan book.
My question is this, should we understand that it is the sustainable level of SMEs as a percentage of a total loan book or is just related to the macro conditions? When we see, let's say, better micro conditions, so this percentage should increase, I mean, when we see better micro conditions. That's my two questions.
Okay. Thank you, Gustavo. Going first to your first question, in investment banking as you mentioned, we had a weaker first quarter where we had, during the first quarter, we still had strong revenues from both ECM and M&A, but very weak revenues from DCM. Now, in this quarter, basically all the revenues improved, ECM improved, M&A improved, but we also had some good contributions from DCM. When we look ahead, as I mentioned, we see strong pipelines both in DCM, as we see the number of transactions that are in the pipeline as increasing.
Also, the volumes there are increasing and market accepting more and more transactions with the higher interest rates and obviously clients looking into more fixed income securities. Good pipeline for DCM. In M&A, we see some counter-cyclical balance with the lack of activity in ECM. We also have a good pipeline, and there are obviously the time to execution usually it's a little bit longer. We are seeing the pipeline to come to market more between the third and the fourth quarter. We are good.
All in, we are confident that we can maintain similar levels in revenues with the investment bank, and depending on markets to reopen, which we don't expect to be in the third quarter, but maybe in the fourth quarter, revenues could improve even further. Now, moving to your second question on corporate lending and specifically on our SME growth. I think this is just one quarter where our SME grew in line with the total credit portfolio growth. This is just, I think, a short-term observation. We don't see any difference in past trends. Obviously, it can be quarter-on-quarter, this can change from time to time.
We are always seeing the possibility of growing our portfolio steadily with the same time spread. Just reminding that we are operating in this single product, which is supply finance based. We expect that once the credit chamber with the central bank improves and start working properly, that we'll have additional products and obviously this will help with additional growth.
Oh. No, thanks. Thanks for the answers. If I may, just wanna follow up on my first question. My first question related to investment banking, but more specifically on the DCM. I'm asking about the DCM because I agree that we saw some improvement in M&A as well. My point here is in the number of transactions. We saw 33 DCM transactions in the second quarter versus 15 transactions in the first quarter. It's a huge increase. I'm just trying to understand what is behind this strong growth or what kind of operations are we doing and.
Actually, I think you will be surprised in the third quarter. We think, it will be even higher than the second. In my view here, this is the attractiveness of the high level of interest rates, with some specific incentives for the infrastructure developers or for the products, linked to real estate or agriculture, which at the end of the day allow Brazil to be having a record number of investments, even though the public sector investment is at a, I don't know, 20-year low. We're at a 20-year high of overall investment as a percentage of GDP. I think this is a combination of various things, among them the robustness of the private capital, debt capital markets, and sincerely the level of interest rates. This combination has allowed for this.
Sincerely even if, let's say, we go to long-term real interest rates of somewhere around what they're considered neutral, let's just say anywhere between 3.5% and 4.5%, we think that as long as we continue to have disciplined balance sheets by the public sector banks, this is something that's here to stay. Sincerely, I think it's personally, I think this is a conquest of the Brazilian society, where we have capital markets financing investments, which allow us to increase potential GDP for the country.
Very clear, Roberto, and thanks for the answers.
Thank you. That brings us to the end of the question and answer session. I will now return the floor to Mr. Roberto Sallouti for his closing remarks.
Well, thank you once all of you for joining our quarterly call. We hope you have a great week. We look forward to seeing all of you at our next quarterly call, and hope you have a great rest of the day. Thank you very much for joining.
Thank you. This thus concludes today's presentation. You may disconnect your line at this time, and have a nice day.