Good morning, welcome to the second quarter of 2019 results conference call of Banco BTG Pactual. With us here today, we have Roberto Sallouti, João Dantas, and Pedro da Rocha Lima. We would like to inform you that this event is being recorded, and all participants will be in a 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 their website, www.btgpactual.com/ir, and the platform. There will be a replay facility for this call from August 13th through August 19th.
Before proceeding, let me mention that this call may contain forward-looking statements relating to the prospects of the business, estimates for the operating and financial results, and those related to the growth prospects of Banco BTG Pactual. These are merely projections and such as 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 the 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 over to Mr. Roberto Sallouti, who will begin the presentation. Mr. Sallouti, please go ahead.
Thank you very much. Good morning, everyone. Starting with page three, we would like to mention some of the highlights of the quarter. A quarter which we are very satisfied with the results. Starting with the highlights, first thing to mention is that we successfully concluded the follow-on offering of 55 million units, which at the time was roughly 2.5 billion BRL. With that, we were able to increase the free float, increase the liquidity of our listed units, BPAC11, and adhere to the level 2 of governance of the B3. In the second quarter, revenues were up 47% quarter-over-quarter with a strong performance by all of our franchise businesses. Once again, here is what makes us very satisfied is that the strong performance was from all of our different units.
Specifically, in asset management and wealth management, our AUM has been growing at over 30% year-over-year. With the leverage that we're gaining on our platform, the operational leverage which we are exploring, our cost income decreased to 40%. As we continue growing, we expect this level to continue, especially as we continue growing the businesses as we have. Finally, we consolidated our digital retail unit, which we put under the leadership of Amos Genish, and we continue to be very excited with the growth opportunities that this unit brings to us. Turning to page four and speaking specifically about the results of the second quarter, we had revenues of BRL 2.18 billion and an adjusted net income of BRL 1.03 billion. This gives us an annualized return on equity of 20.6% for the quarter.
If we exclude the capital allocated to EFG and Banco Pan and only consider the capital allocated to BTG Pactual, the return on equity was 26.2%. This gives us a net income per unit of BRL 1.18. As mentioned previously, our cost income ratio for the quarter was 40% and our comp ratio was stable at 23%. We closed the quarter with total assets of roughly BRL 174 billion, Basel ratio of 15.1%, and shareholders equity of BRL 20.4 billion. After the end of the quarter, we also declared interest on capital or JCP, which will now be paid at August 15th. Turning to page five, when we talk about the results for the first half of the year, we had total revenues of BRL 3.66 billion and net income of BRL 1.75 billion.
This gives us a return on equity for the period of 17.8% and on the core business of BTG Pactual, an ROE of 22.5%. Cost income for the semester was 42% and comp ratio stable at 23. Turning to page six, you can see the revenue breakdown by business unit. What makes us very satisfied is the equilibrium that we have between the various types of businesses in our bank. For the semester, roughly one-third of our revenues came from our business units that do not use capital, so asset management, wealth management, and investment banking. One-third of revenues came from sales and trading, and one-third of revenues came from credit and the other business lines. We really like this diversification and we expect this trend to continue over the next few quarters and years as we continue to grow our client franchise businesses.
Turning to page seven, you have a bit more detail of what I mentioned previously of the return on equity of our core capital allocated to BTG Pactual, trading 6.2% in the quarter, 22.5% in the semester. Of the capital allocated to Banco Pan, 12.5% for the quarter, 11.2% for the semester. This is a bit higher than what Banco Pan shows as ROE. They showed for the semester 11.2%, and this is because Banco Pan is booked in our balance sheet at 90% of book value. Finally, EFG, flattish for the quarter and 2.2% ROE for the semester, and this reflects the results of the second half of 2018 for EFG. With that, I pass the floor to João Dantas, who will talk about each of our business units' performance.
Thank you, thank you and thanks everyone that joined our call. We're going now to section one to discuss the performance of our business units. Just before we turn the page to Investment Bank, just an overarching comment around our performance in the quarter. I think it's not common to see all our areas delivering exceptional performance. It's fair to say we're hitting on all cylinders, if you will, and this is a nice quarter to observe how the bank can deliver stronger results in moments like that. We have had this benign environment and a regain of confidence from investors and clients, and this has allowed us to really deliver at full speed. Turning to page nine, we start with Investment Banking. We reached BRL 186 million of revenues in the quarter, slightly higher than the first quarter.
This is one of our highest investment banking revenues ever, including the second quarter of 2018. It's also one of our highest investment banking volume of activity ever. That's true for M&A, for ECM, DCM, and for project finance. Just to give an example, for DCM, while in the first quarter we had seven deals, we closed 24 deals in the second quarter. ECM, from four to nine deals. In M&A, from four to 14 deals. We haven't seen this level of activity for a long time, and we are very optimistic that this level will maintain. We have reached this high level of revenues without any particular jumbo deal in the quarter. It's been really a diversification and the consequence of us reaching a very strong market share in the industry, not only in Brazil, but also in Latin America.
In M&A, we are the number one in number of transactions in Brazil and Latin America. In ECM, we are the number one of number of transactions in Brazil and Latin America, and also the number one in volume in Latin America. Our market share was particularly strong on the private sector. We haven't participated much in deals that involved public government-controlled companies selling assets or government-controlled assets being sold. We're very happy with the performance and the results that we are delivering. Turning to page 10 and starting from the graph on the right side, we see that the portfolio of corporate lending went from BRL 26.1 billion to BRL 34.2 billion in one year. It's a 31% growth. We have a portfolio of corporate lending that is equivalent to 1.7x our book value, which means we still have space to grow our corporate exposure even further.
We have provisions of 4.7% of our total portfolio, which makes us very comfortable. With the portfolio growth of 31%, it's important to note that while we grow, we have been able to maintain the credit book quality. We're basically deploying credit to the same segment, to the same quality, and with the same level of collateralization that we have always done. We've maintained the credit book quality throughout. Underlying revenues are also growing slightly less than the total portfolio, which means that we continue to have the ability to deliver stronger results. While the running costs are also compressing in terms of total revenues, which allows the corporate lending business to maintain its net contribution to our ROE. We did have some transactions in special situations that have materialized, and we captured revenues out of that.
Moreover, special situations has been performing very well and continue to be a source of interesting opportunities for capital allocation for us. A final comment, the SME lending book, it starts to kick in. That business is being conducted under the leadership of the digital retail unit, and it's now starting to show strong opportunities and possibilities for us to capture corporate lending growth in the SME space. Turning to page 11, here we have sales and trading. In the quarter, we have reached BRL 886 million of revenues in sales and trading, one of our best quarters since our IPO. Of course, we increased the market risk and balance sheet usage for sales and trading.
As we saw, benign markets allowing us this significant increase in volumes and a relevant progress in the quarter was made in terms of the interest rates convergence and valuations in Brazil. It is important to say that the pension reform approval is a monumental milestone for the country, and we remain confident that that approval will be achieved. Following that approval, we believe that the economic team, backed by other ministries, will be capable to comprehend further what hinders our growth potential in the country, and to continue to propose a series of measures that address, in a proper manner, the limitations we have to realize our growth potential. This means that we expect a continuation of the benign market environment, a continuation, a slowly and gradual increase in the investors' and entrepreneurs' confidence levels.
Gradually, we'll capture a bigger share and growth in terms of the presence of international investors. In that scenario, we should continue to perform well in sales and trading. Turning to page 12, that's the asset management business. Looking at the graph on the right, we went from 170.4 billion AUM to 226.4 billion AUM. This is a 33% growth year-on-year with strong net new money in almost all of the quarters except the first quarter of this year, which we will comment specifically. Revenues went from BRL 167 million in the first quarter to BRL 227 million in the second quarter. A few comments here. First, the performance of our LatAm fixed income and equity funds have been solid, especially the equities and credit categories we've been performing certainly in the top decile against our competitors. Second, management transition has been completed.
We have Eduardo Guardia fully active as CEO. Will Landers is fully on board. For a business like ours, which is institutional asset management, it's natural that in a quarter of management changes, we have slower net new money pace. Now, the team has met all of our main clients, have been covering the ground, and now we're functioning as we expected. As we grow our AUM, we see our ROAs by fund category stable, which means that by fund category, so meaning equities, credit, multi-strategies, etc. , ROAs have been stable year-on-year. The change in the mix of AUM is what dictates the change in the ROA for the overall business. This maintenance of ROAs is quite important. As we grow, we are able to capture more margin and more bottom-line contribution from asset management business.
Finally, and most important, the firm is very happy with the performance of our asset management unit and continues to be confident on the path ahead for that business. Moving to page 13, this is wealth management business, where we went from BRL 107.3 billion of wealth under management to BRL 141.9 billion wealth under management. Also here, 32% growth year-on-year. The revenue growth reflect that. We went from BRL 131 million in the first quarter to BRL 155 million in the second quarter. LatAm teams have all been performing and delivering throughout our offices in Chile, Colombia, Peru, Mexico, and Brazil. We also have new growth initiatives that are performing well. Our Miami office has been growing substantially. We're now at the verge of launching our Lisbon presence.
We have requested regulatory approval some time ago, and we believe that this approval is about to be granted, so everything going very well in the wealth management business. Inside the wealth management business, we already see some growth from the digital investments platform that has been running fully fledged for almost a year now, and in which we believe there is more growth to come. Turning to page 14, finally from the business, comments on principal investments. Basically, we have captured very positive performance from merchant banking, where basically the investment in Eneva has delivered through mark to markets. We also have a slight negative contribution from global markets, which is not in line with the performance of the funds, because here we have some cost of funding being applied against the portfolio.
If you look at the performance of our global hedge funds, they have delivered adequate performance in the first half. Some negative contribution from real estate just because of the funding allocation to that business. With that, we move to section two to talk about expenses and efficiency ratios. In the quarter, our cost income ratio is at 40%, and our compensation ratio is at 23%. If you look at the three columns for the quarter. You see that in the line cost income ratio, the KPI has been decreasing from 47% in the second quarter of 2018 to 43% first quarter this year, 40% second quarter this year. Compensation ratio is stable at 22%, 23%. As compensation ratio is stable because it includes both fixed and variable compensation, which includes bonus, which tends to be higher when we make more profit.
Our cost income ratio depicts appropriately the benefits from our operational leverage that Roberto has alluded to in the beginning. Our efficiency ratios, our compensation ratio is going down as we capture benefits from our operational leverage. As we invest in IT, we need less people to control and process our transactions. We can have more clients with less costs, and this is what transpires through the cost income ratio, and is important to understand that movement. Also in the quarters, we had a higher margin contribution. We also have effective income tax rate higher in the second quarter than in the first quarter. Since Brazil runs at a 40% corporate tax rate for banks, we believe 25.2% is still adequate as we make use of JCP to balance the tax rate in our business. Also important to mention here is the coverage ratio.
Coverage ratio, which is not included in the page, is a comparison of our fee-based income to our total costs, excluding bonuses. We've always looked in our business to our coverage ratio because it gives us the measure of how much we can support on costs without using the balance sheet. In 2019, in the second quarter, our coverage ratio is 156%, which means that for every BRL of costs, we have 1.5 BRL of fee-based income. Back in 2014, the coverage ratio was exactly the same, was 155%. It's very nice to see that our business is back to that efficiency level that we had before, and that through our operational leverage, that we can capture even further benefits from that growth. Going on to section three and to talk about the balance sheet on page 18.
You see that our total assets have reached BRL 173 billion, which is about 7.2 times asset to equity. As you know, we've always have run the bank with around 10 times assets to equity levered ratio. 7.2 times is a very comfortable measure, which means the balance sheet is still conservative, and we still have room to apply more capital and use more the balance sheet to capture growth benefits. Also, in terms of liquidity, our cash is at BRL 21.8 billion, which is still more than our equity, and our LCR, which is the liquidity coverage ratio, which is the stress measure of liquidity for 90 days, is at 231%, comparing to the minimum requirement of 100%. This means we are ready to deploy more balance sheet. We're very liquid and still have room to grow.
Moving to page 19, this is the broader credit portfolio, which basically went in line with the 32% growth in corporate lending and also in line with the quality of the corporate lending portfolio. Moving to page 20, another measure of growth is the growth of our unsecured funding base. We went from BRL 40.4 billion of unsecured funding to BRL 52.2 billion in the current quarter. A 30% growth year-on-year compared to the second quarter of 2018. As you go line by line, you'll see that we had stability or increase in each of the funding lines, which makes us confident that as our funding grow, we are able to cap adequately in all funding sources, which gives us the ability to continue to grow our funding base to support the business.
The funding cost as a percentage of CDI has been reducing as we have been successfully accessing local funding sources. We have also a benign funding environment in Brazil and are taking advantage of that quite substantially. All sources kicking in. We are also ready for more growth going forward. Finally, on page 21, we see Basel ratio and VaR. Starting from the VaR as a percentage of average equity, we have reached 0.74% of average VaR as a percentage of average equity. We have used more VaR before. This is not historically the highest level of VaR, it is indicating that we're deploying capital and using the balance sheet quite substantially, which reflects in the reduction on Basel ratio from 17.6%-15.1% in the quarter.
It's important to bear in mind that we still have one transaction to implement, which is the transference of the majority of our stake in EFG to our holding company, which will boost the capital ratios again, and we expect that transaction to be approved and implemented still this year. Looking at that impact, we would be actually very comfortable in terms of the capital ratios. The transaction only now depends on regulatory approval, since internally what we needed to do was to complete the follow-on offering, which gave our holding company enough liquidity to settle that transaction quite comfortably. These are our comments for the performance of the business, and now we open the floor to questions. Thank you very much.
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 star two. Questions will be taken in the order that they are received. We would ask that you please pick up your handset when you ask your question in order to assure optimum sound quality. Please hold while we pull for questions. The first question today comes from Tito Labarta with Goldman Sachs. Please go ahead.
Hi, good afternoon. Thank you for the call. A couple of questions. I guess first, just trying to understand the sustainability of the results. Particularly, I guess, in the more volatile lines, which had very good quarters, sales and trading and then investment banking and even principal investments to a lesser extent, I guess. How should we think about these going forward? Are they just going to be this volatile? Particularly sales and trading has more than doubled in the last couple of quarters. Was there anything specific there that we should think about in forecasting these lines? A second question in terms of your digital strategy. I just want to get a sense, if you can give some more color on how you see that as benefiting the business.
We're seeing strong growth in wealth management around 30%. Can that growth increase? Or maybe you can quantify how we should think about the digital strategy and the benefits to the business. Thank you.
Thank you, Tito. The first question on sustainability. Sincerely, we see the volatility in the more volatile lines within the regular volatility of the business. Especially in sales and trading, we are what we consider within the range. We have a median, and then it can be higher, it can be lower. We think that median grows every year a little bit. As I've said before, I think in sales and trading, we already have a leading market share, so our performance there will be pretty much with the market respecting the normal volatility in these businesses. In investment banking, once again, there, I don't think we can gain market share. We are benefiting from the market.
Assuming that we are now in Brazil at a new level of interest rates, which has picked up capital markets activities, and I think it's quite feasible that investment banking, the market is doing a permanent change, and this means that our business should naturally still have some volatility, but at higher levels than in the past. To your second question on digital, I would say that it's clearly at our budget, so just as expected. As you said, you can see this growth in wealth management. We expect this level of growth in wealth management overall to continue. I really would not like to say if I think it can accelerate or not. Naturally, we would be happy if it does. We are quite satisfied with a 30%-35% increase year-over-year.
Okay, great. That's very helpful. Maybe just one follow-up on the sales and trading, and I understand it is volatile. Just trying to get a sense, if you look a year ago, you're almost four times higher, right? Is the volatility between this 400 and 800? Or should we still think about the 200 levels that we saw last year? Just want to get a sense of what's the right range of volatility. Yeah, I guess if you can give any.
I would say that 200 was a very specific moment where we were very conservative with our balance sheet, given the level of uncertainty of both the local scenario with elections and the international scenario, which was quite volatile at the time. Definitely, I think that is a cyclical low as we were very conservative. I would probably say it's more in the higher bound than that.
Okay, perfect. That's very helpful. Thank you.
Okay.
Yep.
Thank you.
The next question today comes from Nicolas Riva with Bank of America. Please go ahead.
Thanks for the opportunity to ask questions. My first question is regarding the role of André Esteves. I believe that you are trying to get André Esteves back to a control group of the company. If you can give us an update on that, where that stands, and also the role that you envision for him at the bank, if he's going to have a formal senior management role. The second question on capital. The CET1 decreased 100 basis points quarter-on-quarter. Was that driven by payment of dividends? Your net profits were quite strong this quarter. Also regarding the spin-off of the EFG shares from the bank to the holding company, you said that's expected before the end of the year. You can remind us the impact on capital ratios from that transaction? Thanks.
Sure. On André Esteves, as you said, we are in the process with the regulators of approving his return to the control group. We expect that to be concluded hopefully soon. The issue there is that we have to deal with 33 regulators over the world. It is a cumbersome process, which takes some time. It's the same thing with the sale of EFG to the holding company. We are within the regulatory process, and we expect a 300 basis points increase in core equity Tier 1 once that transaction is concluded. On your question regarding the decrease in core equity Tier 1, it was basically because of the increase in the risk-weighted assets, especially more related to market risk, and this can be seen in the increase in the VaR, and also an increase in the sales and trading revenues.
Okay, thanks very much. Maybe a follow-up. Regarding the role of André Esteves, is he expected to have a role in senior management as well, or just as a very relevant shareholder of the bank?
Yeah. His role today is that of senior partner. As you know, we are a partnership, so it works very well because we are very accustomed to discussing everything, to seeking consensus when decisions are made. I am the CEO, but that does not mean that it's a dictatorship, right? It's still a partnership where we use the input, the knowledge of all of our partners to reach the best decisions. In the short term, what we foresee is that this role will continue. It's been working very well. I actually think this arrangement that we have and how we've been functioning over the last three years, the benefits are here, right? The results are very clear to everybody. Sincerely, we see no reason to change this. We just thought it was the right thing to do for him to get back to the control group.
Okay, thanks very much.
You're welcome.
Once again, if you wish to ask a question, please press *1 on your touch tone phone. Please hold again while we poll for questions. 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.
Once again, thank you all for joining our quarterly call on results. We look forward to seeing you next quarter again. Have a great day.
Thank you. This concludes today's presentation. You may now disconnect your line at this time. Have a nice day.