Good morning, welcome to the fourth quarter of 2018 results conference call of Banco BTG Pactual. With us today, we have Roberto Sallouti, João Dantas, Pedro de Rocha Lima. 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. There will be a replay facility for this call from February 25th to March 2nd.
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, 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. I open the floor to Mr. Roberto Sallouti who will begin the presentation. Mr. Sallouti, please go ahead.
Thank you very much. Good morning. If you could please turn to page three of the presentation, I'd like to start out pointing what are some of the highlights of the fourth quarter results. Number one, it's important to point out the significant net new money inflows that we had in both our Wealth Management and our Asset Management businesses, with assets under management increasing over 35% year-over-year. Second point that is worth mentioning is that we had a record revenues for the full year in our Investment Banking division. It's actually the record revenues we've had since we went public in 2012. Third point worth mentioning is that our retail platform, BTG Pactual Digital, has completed the rollout of its full platform with the rollout of the home broker, has been increasing, accelerating its expansion. also accessing the IFA market, the independent financial advisors.
Finally, our Sales and Trading revenues. As we went back to a normal course of business, second and third quarters, we adopted a very conservative approach towards our balance sheets because of the global scenario and because of the local elections in Brazil. In the fourth quarter, we went back to normal activities, as can be seen by VaR, going back to historical levels, also revenues in our Sales and Trading business went back to historical levels. If you turn now to page four, we talk about the specific numbers for the quarter. We had revenues of BRL 1.55 billion for the quarter, with a net income of BRL 711 million. This gave us an annualized ROE for the quarter of 15%.
If you exclude the amount of capital that is allocated to EFG, a Swiss private bank, and to Banco Pan, which is the consumer bank that we have, the ROE for the core business of BTG Pactual was 19%. For the quarter, our cost income ratio was slightly above historical average due to one-off expenses. We finished the quarter with a cost income ratio of 52% and a comp ratio of 29. Finally, we closed the quarter with total assets on our balance sheet of BRL 137.6 billion. A reduction from what we had in the Q3, basically because of trading activities with government bonds. João Dantas will comment that a bit more when he talks about each of individual business lines. We also finalized with a Basel ratio of 16.6% and equity of BRL 18.8 billion. In the quarter, we also approved interest on capital of BRL 604.5 million.
As I mentioned previously, VaR increased slightly to 49 basis points over average shareholders equity to BRL 93 million. Turning to page five, we have some numbers of the full year 2018. We finalized the year with total revenues of BRL 5.35 billion and net income of BRL 2.74 billion. This gave us an ROE of 14.7% and for our core business of 18.8%. Our cost income ratio for the year was within historical average, cost income of 48% and a comp ratio of 24%. As I mentioned previously, we finalized the year with equity of BRL 18.8 billion, for the full year, we distributed interest on capital of BRL 1.2 billion. Bought back in our buyback program approximately BRL 320 million, totaling 15.9 million units of BTG Pactual. If you turn to page six, you see the distribution among the different business lines as a percentage of revenues.
What's probably more interesting here is to observe the full year revenues. We expect in the next upcoming quarters and years for us to see a continuous increase of our client franchise businesses as a percentage of total revenues. Turning to page seven, we see the ROE of the different financial institutions that we have under BTG Pactual. For both the quarter and the year, EFG had basically flat ROE. Banco Pan had for the quarter eight and a half percent ROE, and for the year 7.4% ROE. With the core business of BTG Pactual having 19% ROE in the fourth quarter, and 18.8% ROE for the full year. With that, I'll turn the floor over to João Dantas, where he will comment on each of the individual business lines.
Thank you, Roberto. Thanks everyone for joining our call. Before we go area by area, just to give a little bit of background. The performance we will describe for the fourth quarter will be very much in line with what we saw for the whole year, where we had very strong performance from the client franchises, especially Wealth Management and Asset Management, which have been growing asset gathering in a very fast pace, and also for Investment Banking. Starting with page nine, you see Investment Banking revenues have reached BRL 86 million in the quarter from BRL 58 million during the third quarter of 2018. Revenues have been picking up despite still weak capital market activities and volumes in the fourth quarter of 2018. Especially equity capital markets, we saw a very weak activity during the fourth quarter.
On the other hand, M&A activity is growing. We already see relevant strategic investors that are joining other players in the pursuit of assets in LatAm. We saw more for the beginning of 2018, M&A activity geared towards private equity investors. Now more towards the end of the year, we already see more interest from longer term players, strategic investors looking for acquisitions. In terms of market positioning, our M&A franchise ended the year number one. ECM ended the year number four, very well-positioned in the region. Going to page 10, here we see our Corporate Lending book. On the right part of the page, you see the portfolio that went from BRL 26.1 billion to BRL 29.7 billion. A growth of BRL 3.6 billion, while our revenues reached BRL 133 million for the quarter. The lowest revenues for the year.
The portfolio is growing on the back of more active demand for longer-term credit. We have been replacing maturing credit and growing the portfolio with top-notch rating transactions. That demand comes in line with higher level of entrepreneurial confidence that we can already observe in local markets. The spreads for the new credits are in line with historical levels. We have increased our provisions during the quarter. They have reached 5.2% of the book. Besides the increase in our provisions, we also had dismal contribution from NPL portfolios in the quarter. Even though the NPL business is growing and performing well, we had almost no events that realized P&L in the quarter for the NPL business. Going to page 11.
Here we see the performance of Sales and Trading, where revenues reached BRL 497 million, above the average for the four quarters of the year, a significant pickup compared to the third quarter of 2018. What we've seen in the second and third quarter was that due to the election period, trading volumes and risk appetite in LatAm were weak. After that, especially after the elections in Brazil, we have been seeing is that risk appetite is resuming and trading volumes are growing again. Therefore, we also increased our VaR relative to the third quarter of 2018 from 0.30 basis points, 0.49 basis point of our average equity, have deployed more capital in Sales and Trading, despite a reduction in total assets that we'll explain when we talk about the balance sheet. Page 12, we see Asset Management. Here is some of the highlights that we have mentioned before.
On the right part of the page, you see the AUM chart. Where our AUM went from BRL 184.2 billion in the end of the third quarter to BRL 207.5 billion in the end of the year. Comparing to BRL 144.9 billion the end of 2017. This is a 43% in assets under management, propelled especially by a 30% net new money during the year. The total net new money of the year was BRL 43.7 billion. This has been a consistent trend throughout 2018. Mainly because, number one, of the performance of our LatAm funds, which have been delivering very good results among industry, also because of the macroeconomic conditions where we have been experiencing low levels of inflation and interest rates in their low historical average, which in turn cause investors to look for longer maturities and higher yields, which benefits our Asset Management platform.
It's a little bit of the same phenomena that we saw throughout LatAm, and which we consider a consistent trend, given the current macroeconomic environment. Turning to page 13, you see more of that in our Wealth Management performance. On the right chart, you see that our wealth under management reached BRL 119.2 billion, which is a 37% growth compared to the end of 2017. Total net new money for the year reached BRL 23.8 billion or 27% of our assets in the end of 2017, which is a very accelerated pace of growth. Here as well, pushed by the good performance of our Asset Management business, also the growth efforts and initiatives that our Wealth Management platform have been implementing, which have been very successful. The platform continues to grow in line with the growth of Asset Management. Here also some comments on our digital initiative.
As Roberto mentioned, we have completed in the quarter our buildup of the online investment platform, that happened actually in the beginning of November of 2018. Now, all the products that are offered in our open Wealth Management platform, which is designed for high net worth and ultra-high net worth individuals, have been made available to online clients, and that includes the vast majority of fixed income products that are traded in Brazil. Over 200 funds managed by more than 110 independent Asset Management firms. Also, the home broker platform, which provides access to equities, futures, in Brazilian stock exchange. Also our clients have access to performing FX transactions in our platform.
All in all, the platform has now completed its development and what we see in consequence of that is that the asset gathering pace for assets in the digital platform has increased significantly from the average of last year. We have been seeing that pace maintaining and expanding as we continue to attract clients directly in our platform. Also important to note that since we completed the offering of products in the platform, we have also been engaging independent advisors, and also we see Asset Management growth in the digital platform due to the fact that some independent advisors are already joining our platform. Very positive performance of the digital business alongside Wealth Management and Asset Management. Turning to page 14, here we have Principal Investments where we had revenues of BRL 328 million, and most of that coming from the results of merchant banking.
Even though we have been decreasing our merchant banking portfolio consistently, and we will continue to do so going forward, we have two more relevant assets remaining in the portfolio which are Eneva, our stake in the power generation company in Brazil, and a stake in PetroAfrica, the joint venture for oil exploration in the coast of Nigeria in Africa. Those two assets presented very good performance in the fourth quarter. Besides that, we had some positive results from global markets and negative results in real estate that represent basically the allocation of funding costs without any realization of profits in the period for real estate. Moving to section two on page 16, we have some comments on expenses and main efficiency ratios.
As you see, our revenues in the fourth quarter of 2018 reached BRL 809 million above the levels of the third quarter of 2018, mainly due to one-off expenses. In the line "Administrative and other," you see that our expenses went from BRL 188 million to BRL 229 million, basically due to one-off costs, legal costs. Also, we had an increase in the bonus expenses because of the higher operating revenues in the fourth quarter. With that, our cost-income ratio in the quarter reached 52%, and excluding one-off costs, we would have had 47% cost-income ratio. For the year, our expenses reached BRL 2.5 billion, which is a 48% cost-income ratio. If we exclude the one-off costs, if we normalize for the one-off costs, we would have had 41% cost-income ratio, which is pretty much in line with our historical performance in terms of efficiency.
Also important to note, income tax for the quarter ended at 25.4% effective income tax rate with BRL 188 million of tax expense in the period. Moving to page 18. Here we have the analysis of the balance sheet. We will explain a little bit the apparent conundrum between more capital deployment with lower assets. Just starting, it's important to highlight that we continue to run a conservative balance sheet. Our total leverage is at 7.3 times our equity, coming from 8.5 times our equity in the end of the third quarter. Our cash represents today 15% of our total assets. Due to that, our LCR, which is a regulatory measure of liquidity, is at 205%. We should be complying with the minimum of 100% LCR, and we are complying with more than double that.
The unsecured funding covers now 230% of our banking book, which is composed mainly of credit instruments. Both have similar maturities. The average maturity of liabilities match the average maturity of the banking book. Finally, the total assets variation is represented basically because we carry less repos and reverse repos. In other words, our matched portfolio of assets have reduced. Typically, Brazilian banks are intermediaries of liquidity from the Asset Management industry deployed into the market. We may have more or less matched portfolio of repos and reverse repos because of that. In the quarter, we had a fluctuation down of those assets, and those assets don't represent any risk-taking or capital deployment in our balance sheet. Also, we had a reduction in secured funding and trading portfolio of assets, which also represents a very little reduction in terms of risk-taking and capital deployment.
The capital deployment has increased. The VaR as average of equity has increased as well, as we will show later in the presentation. Turning to page 19, here is the broader credit portfolio. It's growing in line with the Corporate Lending portfolio. Our other credit portfolio reaches two times our equity, reaching BRL 38 billion. Not only we have growth in Corporate Lending, we also have growth in the Wealth Management and other credits as well during the quarter. Turning to page 20, unsecured funding base has increased a bit from BRL 44.8 billion to BRL 45.2 billion. We had some maturities in the quarter of some relevance. We had the ability to renew the funding base and expand it slightly. While the funding base continues to expand, we see the average cost and average maturity to be stable.
It's important to highlight that during the first quarter of 2019, we had two significant funding events that are public. One is the issuance of a $600 million 10-year maturity, Basel II compliant Tier 2 bond in international markets that we completed in the beginning of February. Another important milestone is the issuance of a 10-year Tier 2 bond of $100 million through our banking subsidiary in Chile, both floating a good stance where we see our funding base, funding relationship counterparties. Finally, turning to page 21, we see here that other ratio went down from 15.8% to 16.6%, does not include the Tier 2 issuances that I mentioned before, which will contribute with about 200 basis points increase when they are incorporated to the capital base.
Also our average daily trading VaR ended the year as an average of X in the fourth quarter at 0.49% compared to 0.30% in the third quarter, still slightly below our historical average. Those were the comments I had for the presentation, now we are available for questions that you may have. Thank you very much.
The floor is now open for questions from investors and analysts. If you had a question, please press star one on your push-to-talk 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 you to please put up your hands up when you ask your question in order to ensure optimum sound quality. Please hold while we call for questions. Once again, if you wish to ask a question, please press star one on your touch-tone phone. Please hold again while we call for questions. The first question comes from Jorge Kuri with Morgan Stanley. Please go ahead.
Hi, Roberto and Pedro. Congratulations on the good results. I have a couple of questions. First, on the Sales and Trading business, we saw the VaR picking up to 0.5, but the historical average around 0.7, 0.8. Do you think you could reach these levels during 2019, what would that mean for your average potential revenue in the business unit? Then I'll ask another question after that.
Definitely we have space within our risk limits to increase those. Unfortunately, I cannot assure you that that automatically translates into revenues, right? You have to make sure that you're having when market making for clients that you're not run over on the wrong hand of market movements. Yes, we do expect that this can go back to the BRL 600-BRL 700 revenue level that we've had in the past quarters. Also, yes, we have risk limits that if we think appropriate, we can increase the VaR allocated.
Great. Thank you very much. If you could give us some additional color maybe on the Corporate Lending provisions this quarter. Just wanted to understand a little bit better what happened with these clients on the utilities and beverage segment. Also how much provisions are these companies or these loans, and if you expect to book any further provisions going forward?
Hi, Jorge. João Dantas here. As you know, in Brazil, provisions are a direct function of the rating attributed to the credit transactions. The ratings can vary due to basically two factors. Time, if the transaction comes to expire and becomes overdue, or the quality of the counterparty. In our case, during the quarter, we have increased the rating not because of transactions becoming overdue, but because of the perceived quality of the counterparty. We don't expect further provisions for the next quarter. We expect now that the credit provision that we have to be adequate to the business that we're going to run. Of course, if conditions change, if conditions of specific counterparties or sectors change, we may reevaluate that, but it's not something that we anticipate.
Okay. Thank you. One, maybe a couple of last questions, one on the ECTP loss that you booked this quarter of approximately BRL 76 million. Can you explain a little bit more what drove the loss on this business?
If you remember, we spun off the commodities business maybe a year and a half ago. This is the remainder 20% of what we had, of what used to be the commodities division, which is now called ECTP. ECTP had a bad quarter, as can be seen by this result, This is a reflection of that 20% stake. We expect, hopefully in 2019, for ECTP to buy back the equity stake, Then there will be no more equity pickup in the bank of the commodities trading business.
Okay, perfect. Lastly on the digital side, You were saying that there's this possibility that maybe regulators could eliminate the rule for you to approach other independent financial advisors, You're already picking up the volume growth with these agents. In general, my understanding is that a lot of the new potential independent financial advisors would be coming from the banks. Are you seeing this happening? How many of these do you think you can book in the next year?
Let me answer your question in two phases. The first one is, right now, we are limited from approaching the current independent financial advisor offices that are affiliated with the market leader that has 80% market share. This was via a temporary judicial measure, which we are convinced that once we are able to explain to the judges exactly what the market conditions are, this restriction will not continue anymore. We also know that all the different regulators, the CVM, the Central Bank, as well as CADE, is following this very closely, It's clearly in the best interest of investors that investors have options to move freely, as well as independent financial advisors also have liberty to choose what platform is best for them. This restriction is something that we expect to fall, We have continued growing, probably not as fast as we could.
Given the level of satisfaction of both the final clients and of the current financial advisors that we have on our platform, we're being approached by many financial advisors wishing to change to our platform. Once they approach us, we have no restriction. Growth has continued. We think it can be faster, We expect that the current restriction will not last very long. The second question is about the structural transformation that is happening in this market. If you follow market numbers, every month, you have an increase in the total number of financial advisors in the market. Many of them coming from banks, We expect this trend to continue. We also expect that the offices that will be in our platform will also benefit from this.
If you look at the secular trend in the U.S., if I am not mistaken, only 10% of investments is in the retail banks. In Brazil, 90% of investments is in retail banks. We expect this migration to more specialized complete platforms to continue and for it to be a trend over the next few years.
Okay, perfect. Thank you very much for your answers.
Thank you, Jorge.
The next question comes from Thiago Batista with Kora. Please go ahead.
Hi. Thank you very much. Actually, the bulk of my question has already been answered. Maybe you guys could continue to talk about how you see guided architecture versus open architecture in the future on your Wealth Management or in your Wealth Management business.
Thank you, Ted. We currently already have an open architecture, and we think that it's a must. We are seeing the retail bank opening up their architectures because if not, they will be losing clients and investors to the open platforms. Actually, if anything, we think that we need to be number one in the service we offer to the final investors, number one in the number of options that we offer to them, and number one in making sure we give them the advice in the way that the client wants. Some clients want a lot of advice, others prefer to do it alone, and we are developing a model where we are able to tailor to each of the client's desires.
Having said that, we are proud to say that actually we are the platform which has the largest number of asset managers, third party asset managers in the platform. We think this is a trend, and we actually want to lead it because we think that keeping a restricted platform will not last long, even for those banks which are trying to do that.
Thanks.
Thank you.
Once again, if you wish to ask a question, please press star one. Please hold once again while we poll for questions. Showing no further questions, 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.
Thank you everybody once again for joining our fourth quarter earnings call. I hope to see all of you again in the end of the first quarter. Have a great day.
Thank you. This concludes today's presentation. You may disconnect your lines at this time. Have a nice day.