Good day, everyone. Thank you for waiting. Welcome to BR Partners' video conference call to discuss third quarter 2023 earnings results. We inform that this video conference call is being recorded and can be accessed in the company's IR website, where you'll find the full package of our financial disclosure. During the presentation, all participants will be in listen-only mode. Later, we will have a question-and-answer session. To ask questions, click on the Q&A icon at the bottom of your screen and type in your question. If you prefer to use the microphone to ask questions, just let us know by message, and we will send you a prompt to enable your microphone.
We emphasize that the information contained in this presentation and forward-looking statements that might be made during the video conference relating to BR Partners' business prospects, projections, and operating and financial targets are based on the beliefs and assumptions of the company's management, as well as on information currently available. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they relate to future events, and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions, and other operating factors may affect the company's future performance and lead to results that differ materially from those expressed in such forward-looking statements.
Today, we have the following officers present: Ricardo Lacerda, CEO; Marcelo Costa, CFO; ; Danilo Catarucci, Managing Director and Head of Capital Markets; and Vinicius Carmona, IRO. Now I will turn the floor to Mr. Carmona, who will start the presentation.
Good day, everyone, and thank you for participating in our earnings video conference call to discuss third quarter 2023 results. Let's begin on slide... By commenting on the recent follow-on we carried out. In general terms, the follow-on made it possible for us to achieve two major objectives: increasing the company's free float and increasing the partners' stake in the company's total capital.
Starting with the liquidity side, with the aim of increasing the company's free float and helping to drive a more adequate tradability for our investors, we managed to negotiate the sale of the seed investors' stake in the company, in the market through the offer. Note that the seed investors held 29% of the company, and their shares had a lock-up period until December of 2029. With the negotiation, the company was able to give the seed investors an early exit and thus expand the free float to 40% of total capital, allowing our shares to be more tradable. We faced a very volatile market with a lot of uncertainty in the international and local markets, but we managed to settle our follow-on without there even being a window for offers on the stock market.
This was the result of our resilience in our deliveries and the confidence of our investors, who have been following us closely since the IPO and have once again supported us in a strategic move for the company and its stakeholders. Although it was a small offer of BRL 215 million, we managed to have a well-diversified deal with 27 institutional investors, 22 of whom were new BR Partners investors. Many of these had already been studying our case closely. Today, we have more than 25,000 individual investors with more than 70 local and foreign institutional investors. With regard to the shareholding structure, as we didn't exercise the hard underwriting of the transaction, the seed investors continued to hold a 4.8% stake with a six-month lock-up period after the settlement of the offer.
After this period, seed investors will join the free float and will be free to trade, or not, their shares. With regard to liquidity, despite the fact that since the pricing on September 26th, the market has not cut any slack and is clearly going through a bear market risk-off moment, greatly impacted by the uncertainties as to whether or not the restrictive monetary policy in the United States will continue, we have obtained a satisfactory result in terms of liquidity, but still far from the level we're looking for. We traded a daily average of 0.3% of the free float from the start of the year until the day before the offer was launched. After the follow-on, we started trading an average of 0.73%.
Average daily volume for the last 30 trading days is at BRL 3.4 million, 3 x more than the period before the follow-on. It is important to note that we started to be covered by Citi, in addition to BTG, Itaú, and XP, that have been covering us since the IPO. We are extremely grateful to all our investors who have supported us, regardless of whether or not they took part in the offer, and we will continue to do our best always to ensure the sustainability of our business. Finally, the other, no less important objective, was to increase the partners' stake in the company's capital. The partnership was able to negotiate, as a condition precedent to the follow-on, the purchase of a fraction of the seed investors' stake, increasing the partners' ownership in the company from 47%-55%.
In addition to reinforcing the commitment and direct alignment of the partners with the company's business, this move is crucial for the development and growth of new and emerging partners in our partnership group, which seeks the continuous retention of partners and recognition of part of their performance through the creation of wealth via participation in the company's capital and distribution, and payout of dividends. The perpetuity of this model, which has already proven to be a winner in the company's history, is fundamental to our growth, as well as allowing the company to continue working with low comp ratios vis-a-vis the standard for the industry, which is around 60%, allowing us to seek adequate profitability. We're excited about our new phase, and we'll continue to be restless, working hard on all our fronts.
Now, let's talk about the company's other major highlight in the quarter, i.e., our entry into the wealth management segment. We entered the wealth management business with great enthusiasm. Throughout its history, BR Partners has expanded its areas of activity in a modular way, according to the right timing to invest in new fronts. This decision symbolizes a new milestone in the development and growth of BR Partners and, above all, the preservation and reinforcement of its most important attribute, being a client-centric advisor, combining client culture with independence in its financial advisory in the different verticals. Within the world of wealth management, we have a curatorship led by a team with extensive experience in the market, with a wide range of services to manage and perpetuate the wealth of its clients or families.
We have structured a best-in-class platform, bringing together a highly reputable, independent team with a portfolio of services that covers the main needs of families, including investment management, risk management, tax management, family succession, among many other services. To do this, we hired a senior team, as shown on slide four, with an entrepreneurial spirit and vast experience in this market. The initiative is led by José Flávio Ramos, partner and CEO of the bank vehicle, who brought in three executives, former partners of Reliance, which was subsequently acquired by Julius Baer in 2018. Rodrigo Moraes is the CIO. Álvaro Aguiar and Rafael Lisboa are the executives responsible for customer relations.
Although still in the process of structuring their teams, the business unit already has three people responsible for operations, one for investments, and four people responsible for prospecting and customer relations, two of whom are senior bankers and one a junior banker, plus an analyst. Now, on the next slide, I will comment on the synergies and potential of this new division. In addition to having a senior team and broad access to high-net-worth families, which should translate over time into the organic construction of a relevant wealth under advisory for the institution, the division is highly synergistic with investment banking activities. Since it was founded in 2009, BR Partners has advised on BRL 139 billion in asset sales to companies and families. It is in our DNA to be able to deal with families and large companies. We were born from this differential.
With this, we will expand our clients' journey and seek to manage their assets after liquidity events. But we also have a team prospecting for new clients to bring in new money into management in a market that encompasses around BRL 460 billion , according to ANBIMA data. Last but not least, wealth management is a strategic pillar for originating new business for the company's other divisions, since the team will have access to new families and companies with a great potential for cross-selling opportunities to investment banking, capital markets, and treasury sales and structuring in the different advisory angles. Now, on slide six, we have our financial highlights and other operating highlights. We saw a solid performance in revenue, income, and profitability in the first nine months of the year, despite the major difficulties we faced in the market in the first quarter.
We have seen a macroeconomic environment that is still very volatile and uncertain, and although we have seen a substantially better corporate environment than in the first quarter, we still have a difficult, more restricted environment. Global financial markets, and the Brazilian market is no different, have been going through an extensive period of risk-off in 2023, with drivers that dominate the scenario, such as the resistance of inflation in the United States and the maintenance of a restrictive monetary policy for a good part of the year, the European economic slowdown itself, and the escalation of recent geopolitical conflicts. In Brazil, uncertainties about the pace of the new monetary easing and the paradox of the government's expansionary fiscal policies have also impacted the mood of the markets.
But the truth, the truth is that we've managed to be surgical and find opportunistic deals in our main business lines, which we will talk about later. But we still see a high cost of debt, which burdens the companies, and a higher mortality rate for some deals... whether due to uncertainties in the macro environment or due to a volatile market with less access to funding, or even the search for a better window to negotiate the terms and conditions of some deals. Now, let's start showing our results. Total revenue amounted to BRL 107 million, up 3.6% in the quarter, and 7.5% in the year to date. In the nine months to date, revenue amounted to BRL 312 million, down 1.4% year-on-year.
Revenue from clients totaled BRL 80 million in Q3, up 8% and 8.6% quarter-on-quarter and year-on-year, respectively. Year to date, revenue totaled BRL 212 million, down 10% compared to the first nine months of 2022. Net income totaled BRL 40 million, up 3.7% and 21% quarter-on-quarter and year-on-year, respectively. Year to date, net income totaled BRL 112 million, a decrease of 1.2% compared to the same period last year. Quarterly ROAE reached 20%, and year to date stood at 19%. Net margin was 37.6% and 35.9% in Q3, and in the first nine months of the year, respectively.
Regarding operational highlights, starting with investment banking, we announced 18 deals from the beginning of the year to date. The highlight being the restructuring deal flow, which already totaled nine operations in the year, including several iconic operations. In the capital markets, we have issued BRL 2.2 billion up to September 2023, broken down into 24 operations. Now, slide seven shows the quarterly customer revenue. Total revenue reached BRL 107 million, of which BRL 80 million, or 74%, was made up of revenue generated directly from advisory services to clients. This was the second consecutive quarter of growth in customer revenue, which returned to 2022 levels and clearly show a recovery in BR Partners' level of activity in its business lines, especially in investment banking and capital markets, which grew by 14% compared to the previous quarter.
On the next slide, we will explain the dynamics of this upturn in more detail. Once again, we showed the preponderance of the advisory and client businesses in the company's results, and obviously, strategic use of capital, precisely to support certain fronts with our clients. We also took the opportunity to announce the new revenue classification criteria, as can be seen in the table below. This new criterion seeks to bring the disclosed revenue model closer to that of our main peers, with a more holistic view of our customers' revenue and advisory revenue, which is our core business, and on the other hand, interest income. The investment banking line now also takes into account capital markets, structuring and distribution fees, making it a line made up 100% of fees or advisory.
The capital remuneration line, in addition to considering the bank's interest income remunerated at CDI, which is used as funding for the business areas, as well as the reevaluation of the FIPs, also considers now the interest income arising from private securities that the company structures in the capital market and carries on its balance sheet. This income was previously included in the capital markets line. Therefore, this line is 100% made up of capital revenues as of now. All the other lines are unchanged. Now, let's talk about the performance of our business lines, starting on slide eight with investment banking and capital markets. The division's revenue reached BRL 64 million in the third quarter, an increase of 14% on the previous quarter and stable compared to the same period last year.
It is interesting to note that we have returned to the revenue level of mid-2022. However, the mix of this revenue has changed significantly. In Q3 2022, the revenue mix had a strong component of mergers and acquisition operations, both buy side and sell side. In this quarter and in Q2 2023, revenue from M&A deals slowed down sharply. But this space has been taken up by the restructuring business, which continues to be overheated. On the capital markets side, with the exception of the first quarter, when we experienced an almost collapsed market, in both 2022 and 2023, we managed to operate at healthy revenue levels. Year to date, revenue is down 12.5% compared to last year, mainly due to the effect of the first quarter.
In the charts below, we show the breakdown of deals by type of advisory and by economic sector. In investment banking in the last 12 months, the deals announced were 45% related to the restructuring business and 36% to M&A. In terms of sector distribution, retail, financial services, and energy were the most representative sectors for us in our activities. On slide nine, we continue to explain the performance of the investment banking and capital markets business units. In investment banking, the company has announced 18 deals since the beginning of the year, with a significant participation in complex and iconic deals on the restructuring side, and a slightly more timid flow on the M&A side.
In the quarter, we highlight our advisory services to Marisa in the context of structuring the JV with Credsystem regarding the cards business, as well as the sale of part of the stake of private equity EB Capital to Valgroup . In the restructuring business, we highlight our recent advisory services to Banco Nacional on the sale of its bankruptcy estate to BTG Pactual, and advisory services on the restructuring of liabilities of Light and Zelo. At the bottom of the slide, the capital markets division posted a volume of issuances of BRL 518 million in Q3 of this year in seven debt operations. Year to date, the volume was BRL 2.2 billion in a total of 24 operations.
In 2023, with the advent of the credit episodes that occurred in the first quarter, as well as the still high cost of debt for companies and a more diligent and more restricted investor market on the buying end, mainly, we have faced a different dynamic in this division with smaller tickets, but with a solid pipeline and good opportunities in real estate development projects. We hope that demand for large projects, CapEx, and infrastructure can return along 2024, counting on the continued decline of the Selic rate, the resulting reduction in debt costs for issuers, and the subsequent deleveraging of companies. I now hand over to Marcelo Costa, who will continue the presentation.
Hello, good afternoon, everyone. It is a pleasure to be here again. On the next slide, we'll show the results of treasury sales and structuring.
This business unit achieved revenues of BRL 43 million in the first nine months of this year. As such, revenue remained stable in relation to nine months, 2022. We experienced a slowdown in the primary local debt market in the first half of the year and very strong volatility also in Q3. This was explained by uncertainties regarding how the monetary policy would be conducted in the United States, which led to some issuances being postponed and consequently, some swaps being structured. These factors impacted revenue generation in this segment. On the other hand, the area substantially improved its revenue mix with an expansion of flow activities and a greater presence in the commodities market. Now, this mix is important since having more components of revenue coming from flow reduces our dependence on derivatives linked to primary capital market issuances, which helps to reduce revenue volatility.
In any case, we are pleased with Q3 results, which showed strong revenue generation in this division. On slide 11, we can observe the performance of the investments division. Revenues totaled BRL 4 million in the first nine months of 2023, an increase of 5% year-on-year. The revenue of this division reflects the management fees of the FIPs. In the second graph, with the new revenue classification criteria, capital remuneration revenue is now remunerated at CDI, used as funding for the business areas, interest income arising from the carryover of private securities portfolio, and the reevaluation of the FIPs. As a result, revenues reached BRL 99.2 million year to date, up 23%, explained by the increase in the average CDI in the period and the expansion of the private securities portfolio. On slide 12, we have our performance indicators.
We present the evolution of net income, which reached BRL 112 million year to date, remaining stable compared to the first 9 months of 2022, but with a substantial improvement after a sensitive first quarter due to the credit events and deterioration in the corporate environment. As a result, the company posted net income of BRL 40.2 million in Q3 of this year, an increase of 3.7% over the past quarter. Net margin remained at a healthy level of 36%. In the upper right graph, we have our efficiency ratio, which reached 44%. Although it is a healthy ratio, the increase over the same period of 2022 is due to higher administrative expenses.
These were fundamental to accompany the structuring of wealth management and the growth and development of the infrastructure of processes, systems, and technology of the company, which today has great capacity for operational leverage.... The gray line shows an increase in the compensation ratio, which stood at 26% due to headcount increase compared to 2022. A good deal of those are related to the structuring of the wealth management team, as we mentioned in prior quarters. As for profitability presented in the final part of the slide, we are pleased to be able to maintain an ROE well above the cost of capital, which reached 19% in the nine months of the year, and 20% in the third quarter.
In slide 13, we show the growth of our private securities portfolio and bridge loans, which totaled BRL 2.1 billion at the end of September 2023, growing 10.8% quarter-on-quarter, and 58.7% compared to September of last year. This increase is explained by the activity of the capital markets division, in line with our strategy of using capital intelligently and more actively in the debt issuances that we structure and co-invest in with our investors. It is worth noting that 100% of this portfolio is made up of debt securities that we originate, structure, and distribute from companies which have a full due diligence performed by our credit and risk departments.
We point out that 98% of our portfolio is rated between double A and B, and has no non-performing loans according to the criteria of Resolution 2682 of the Brazilian Central Bank, BCB. Still, in the first chart, we present the bank's leverage, which was 3x in the end of September, a considerable increase over recent quarters, but which still leaves plenty of room for the continuity of our asset growth strategy, while respecting our strict credit quality criteria. As regards to the Basel ratio, we ended the quarter with a healthy ratio of 17.4%.
It is worth noting that already in this quarter, we are considering the reclassification of the credit RWA, which has changed in accordance with the enforcement of BCB Resolution 229, so that the credit weighting factor for large companies has been revised down from 85% - 65%. We are comfortable and have room to continue allocating capital in a strategic way and supporting the growth of derivatives activities in the private securities portfolio for the coming quarters. We point out that 100% of the company's Basel ratio is Tier I. In slide 14, we present the evolution of the company's shareholders' equity, which totaled BRL 776 million in September 2023. The small decrease in shareholders' equity quarter on quarter was due to the decrease in the profit reserve as a result of a greater distribution of dividends.
On the bottom of the slide, we present the evolution of the company's funding. We reached funding of approximately BRL 1.9 billion at the end of September 2023, growing nearly 47.7% compared to September 2022. I would like to point out that we continue to maintain very comfortable levels of liquidity that are in line with the bank's leverage. Average term of funding with third parties was 204 calendar days. Lastly, on slide 15, we announce that the board of directors has approved the payment of dividends in the quarter, referring to the results of the first nine months of 2023. The dividend to be paid on December 1 will be BRL 0.66 per unit, representing a payout of 95% over the nine months period.
The increased payout stems from an environment of great uncertainty regarding taxation of dividends. However, in 2024, we intend to return to a payout close to 65%, depending obviously on the tax scenario. Year to date, we have already distributed the equivalent of BRL 1.02, representing a dividend yield in the period of 8.16%. Lastly, I reinforce that we are happy with the results we have achieved, even with all the challenges already mentioned here, and I reinforce that we have a very prepared and motivated team, with partners very much aligned and confident in the company's ability to grow in the long term. Now, we close our presentation and invite our investors to ask their questions, so we can have an open dialogue. Thank you very much. We will now begin the question and answer session.
To ask questions, click on the Q&A icon at the bottom of your screen and type in your question to get in line. When you are announced, a prompt to enable your microphone will appear on the screen, and you must open your microphone to ask questions. We recommend that you ask your questions all at once. The first question comes from Ricardo Buck, sell-side analyst, BTG Pactual. Ricardo, we will enable your microphone so you can proceed.
Good afternoon. I have two questions. First, it would be interesting to understand better the speed in which you expect AUA to grow in the wealth management division. In thinking that the new executives that joined the firm already had some relationship with clients, does it make sense to imagine that they can bring faster AUA now at the start of the operation?
My second question is, I would like to understand better what is the comp ratio range that would be feasible for us in 2024, and whether it makes sense to think that this increase in the stake of the partners could somehow help reduce the comp ratio, since we would have more dividends being paid out to the executives? Thank you.
Ricardo, this is José Flávio speaking. Thank you for the question. I will answer the question about wealth management. For a year and a half, we worked to build the best format that would best fit the model of our BR Partners operation. We brought in senior people who have been in this business for a long time. Now, obviously, they have their own portfolio, a relevant one, actually, which they built along their career.
These executives came from JP Morgan, here, there, from Reliance and many other firms. So obviously, we expect that over time, part of their portfolio will migrate for our assets under management in our BR Partners wealth management division. And we don't have any expectation that this migration will be 100% in year one. So we are working very cautiously on this, but we believe that then we have a good path ahead of us, a good sea in which to fish. They have the portfolios that they manage today, and we also trust the flow that Vini mentioned in the beginning of the presentation, which is creation of liquidity that we have at BR Partners. Not just future creation of liquidity, but also all the cash that we generated in the past.
We have a close relationship with these families, and we have an open architecture, just like all the banks in the wealth management industry has. We are confident that in our business plan, which I'm not gonna tell you what it is, but with our business plan, we'll grow a lot faster. But we're very confident that in this call that we are going to hold at the closure of the year, I hope to bring news to you. We changed slightly our nomenclature. It's not AUC and it's not AUM. It's AUA, assets under advisory. That's what we do. We are an advisory firm, but we will be providing advisory for the assets of these families that we started serving globally in an open platform. Ricardo, can you answer the second one?
Yes, regarding the comp ratio.
Thank you for the question, Ricardo.
We have been maintaining a comp ratio of around 25% or slightly below that. Year to date, in the nine months of the year, it is at 26%. I'd like to remind you of our policy, which determines it be under 30%. Of course, the wealth management business has a slightly different characteristic in terms of compensation compared to the current business lines. So the natural trend is that this comp ratio will rise a little, getting close to those 30%. The moment that we have a full wealth management operation, something we're estimating between 30 and 40 people. So this will take a while, but I believe that you will see this percentage increasing slightly quarter by quarter, but still under the 30%.
First, we have a compensation structure which is slightly different, a net margin of the business, which is a little lower. But on the other hand, it's extremely accretive, particularly in terms of ROE, because it does not use capital. So this is what I can tell you in a nutshell. I think that in the next three years, it will increase gradually to get close to 30%.
It is clear. Thank you very much, Ricardo and Flávio.
Perfect. Thank you.
Next question from Pedro Leduc, sell-side analyst, Itaú. Mr. Leduc, you may proceed.
Thank you. Good afternoon. I have two quick questions. One, in DCM, a volume of issuances is BRL 500 million, way below the historical average. You mentioned that the market is changing, but we could really see exactly how this volume had an impact on the DCM or fee income.
Given the disclosure of this line item, if you could comment on fees of DCM vis-à-vis M&As in this quarter? Still in DCM, in the second part of the question. This has to do with the increase in the securities portfolio, which was similar to the volume of issuances. It seems that, well, as an outsider, issuances were, are still kind of balance sheet operations. And the second question is, how do you see the opportunities to work with the inventory that you have so as to release more space for new operations now that the market is more at this balance sheet level?
Thank you for the question, Leduc. I think that on our end, when we go to originate, structure, and distribute operations, we focus a lot more on profitability than with volume.
The style of operation that we have, that we do, depends a lot more on the flow of structuring rather than in the league table and high volumes to work with, particularly in the debentures market, where fees are somewhat tighter. On the other hand, the volumes are much higher, so obviously volume has a big impact. Here's what I can say. To look at the capital markets this year, ideally, we should look at the whole year. First half had a dynamic that was more one time off, and obviously depending on market moments, and particularly in the end of the half, depending on some moments of the market. Now in Q3, we saw a little bit of that.
The market recovered a bit with a good expectation in the first part of the first half, and then with the deterioration of the foreign market, this contaminated the local market. So I would say that our Q3, this is why I tell you that you should look at the whole year. There are things that happened already in Q4 and things that happened in Q2, and there are things that happened and that which most likely will be felt next year, several steps of settlement, depending on the dynamic of investors, and so on and so forth. So in terms of our pace of revenue, it remained quite aligned with what we had for the rest of the year and in comparison with last year. So I would say that in Q3, we had some takeouts of operations we had in the first half.
We reduced the bridge loans a little bit, and secondary operations, oh, these have been taking place a lot in Q4. But again, that's a kind of dynamic that is hard to analyze quarter by quarter because it really depends on market moments. On the index, or sometimes CDI is better than IPCA, sometimes IPCA is better than CDI. So it's all opportunistic, and obviously, the idea to put this into the portfolio or to get into the operation or not at all depends on the relationship of the wholesale market with the retail market. If we perceive that there is a greater demand in the short term, we end up using a lot of what we have stored. If we think that the demand is lower, we remove, we take out securities to maintain the level of price.
So this is done daily, kind of this is managed daily, and in these distributions, there were no changes. Particularly in Q3, we had even more underwriting than in Q2 and Q1, but of course, we did a lot of the things that we already had in-house. In Q4, this Danilo should continue.
Leduc, let me add to this. You mentioned that securities growth was kind of the volume growth, but actually, in terms of bridge loans, what we had of bridge loans in the past quarter, we reclassified BRL 300 million to private securities, because that was the way to have a takeout for distribution in the secondary market.
So this kind of growth that you see of BRL 500 million in securities, part of it is our own reclassification, something we are working on to distribute to the market, and this should take place in Q4. Great.
Thank you, Danilo and Marcelo.
Next question, from Marcelo Gonçalves, buy-side analyst, Versa Asset.
Two written questions. The first about dividends: Which should be the payout for 2023? Second question: Given that the tax rate in the last two quarters was 25%, 27%, can we expect an income tax rate that would be similar for 2024?
Thank you, Marcelo, for the questions. Well, in 2023, given all of the uncertainties, we decided to bring forward the possibilities of dividend payout, because obviously we have quite a large base of individual shareholders who would be very much impacted by that.
So we'll monitor that up close now in Q4, and I believe that we'll maintain a payout level that will be quite high. This would be, say, the ideal, but for us to, something we need to monitor. And as for the effective tax rate, of course, we have different companies that recognize revenue. So these are companies that historically we used for financial advisory services, capital markets, structuring, et cetera. And we have our bank vehicle, which obviously handles a good part of the distribution and carries over these securities. With recovery of customer revenue in the different vehicles, we saw an improvement in terms of the effective tax rate, and we expect that it will continue at this rate, 25%-30%, in the coming year. Perfect.
Thank you for the answers. Next question by Larissa Quaresma , sell-side analyst. Larisa, we'll enable your mic. Please proceed.
Hello.
How are you doing? Can you hear me? All right, I would like to congratulate you on the strong results and the profitability. My first question was kind of asked before. It was about whether you could give us some color in IB, what was M&A growth of M&A restructuring and what came from capital markets. So that would be my first question. And my second question is whether you could elaborate more on the performance of Treasury, and if looking forward, I should expect revenue from this vertical to kind of follow the activity of the capital markets as a whole. Thank you.
Perfect. Well, first, regarding IB revenue, as Danilo mentioned, in terms of the capital markets, we had a number in terms of run rate, which was very similar to Q2. And considering M&A and restructuring, we saw significant contribution from our restructuring department contributing with revenue.
So when we look at international banks, investment banking, and M&A activities, we see a reduction in 2023 of 50%-60%. 50%-60% reduction. Perhaps the market forgot a little the nature of the volatility of the segment where we operate, given that fortunately, but surprisingly, we have had quarterly results that have been quite stable. But you see, that's not the usual thing for this market. But we managed. Through a big investment in the restructuring department, we were able to offset the loss that naturally came in this cycle from investment banking and M&As. It is important to point out the great success of our restructuring franchise.
This was the correct decision that we made, and today we are recognized in the market as a relevant player in a segment which is less competitive for us because of those important banks that have a beautiful M&A franchise, such as Itaú and BTG, for example. They obviously do not operate in that restructuring because they're creditors, so we end up competing with small boutiques and, the companies that do not have an M&A franchise. And also, this is a market that is still kind of hectic in Brazil because there are companies operating as a financial advisor at the same time. They buy debt, they invest. You know, it's kind of messy.
So in our processes, we try to bring in more governance, operating with the companies and making it very clear that we play an exclusive role as financial advisors, and that this is not mixed up with other things that can bring a huge conflict of interest. So we are very happy with the investment we made and with the fruits we're reaping now, because it's allowed us, even in a downward cycle, to maintain our revenues either stable or growing slightly. This makes us very optimistic, waiting for a better moment in the cycle. And as regards treasury sales, I'll give the floor to Marcelo.
Well, I think that when we compare the third quarter with Q2 2022, in Q3 2022, we had a weaker quarter. But the characteristic was very similar in both quarters.
Although we started the quarter very optimistic regarding capital market issuances, we ended up seeing many operations falling apart or being postponed to October. In September, in particular, we had a lot of volatility with the treasuries. I highlight in this quarter, compared to the previous quarter, that today I have a recurrent mix of revenues, which are the flow operations, which account already for 50% of the revenue. In the same quarter last year, this accounted for 25%-30%.... This comes to show that this recurring revenue from these operations, which we call flow operations, both these flow operations brought in a much stronger result. Something we're working on, and this is also the result of the growth or the increase in the number of clients, because we're creating new relationships.
What we are working with is, in this growth of our client base, when the capital markets is more active, and, I mean, it's not that it's not active, but some issuances ended up being postponed to October. The month of October was quite good compared to our pipeline. So, you know, it is to continue to grow revenue in a more stable way, and being able to capture operations with more relevant revenues in this cycle of the capital markets.
Thank you. Excellent. To continue, next question from Rafael Frade, sell-side analyst, Citi. Rafael, we'll open your mic so you can ask your question. Go ahead.
Good afternoon. We have focused a lot on demand for offers in DCM in particular, but you made a comment about distribution that drew my attention. Perhaps investors are a little more cautious regarding new distributions and offers. I'd like to know, how do you see... Perhaps you could elaborate on that, and to what extent is this a bottleneck? And to what extent it can accelerate the market when the appetite is back? Could you elaborate on this?
Sure. Thank you for the question. I would say that 2023 has been quite challenging from many angles. I'm talking about the DCM world, but of course, you also cover the ECM world, and you know that the dynamic is very similar.
We ended last year with a dynamic in fixed income, with fixed income funds, with a lot of funding, particularly those with open liability, those open funds. And of course, in the beginning of the year, we had some credit events that culminated with a reduction in the size of these funds. This had a very bad dynamic in Q1. Several of the funds were trying to have liquidity to pay for a redemption or prepare for redemption. But with interest rates that were so high as they were before, now declining, this brought along other events during the year that had smaller effects than those events in the first four months of the year. Now, investors are more selective. I'm talking about institutional investors and open funds, they're very selective now.
They're looking at more obvious operations, more high-grade operations in DI short, in more structured and long operations. For these open funds, they're settling them, and in the secondary market, we see that there is a lot of spread in less liquid operations. For closed funds, well, they have a different dynamic. Now, they're more worried about credit risk, and obviously, they want to enjoy the opportunity of low liquidity to take advantage and improve the spread. The retail world is different. Really depends on the liquidity of each one of the assets. But the truth is, the reduction of Selic rate, now decreasing to levels close to 10% or 9%, maybe dropping a little more, this will certainly improve and reduce this kind of volatility. Either because potentially will improve the bottom line of the companies, and or, well, for...
That will be a big relief, or because even though the whole damage of Q1 is over, the banks will start granting loans again, and this will reduce credit risk involved in the system. Obviously, this tends to make assets and investors be more willing to take more risk. Today's environment is better than Q1, but there's still a lot of uncertainty, and of course, investors remain a little cautious. The market exists, so we can see the capital markets. The banks have included in their portfolios a part of these issuances, and the operations are happening. This is a good sign, and they're happening at a pace very similar to last year. Everyone is expecting the short-term decline in interest rates. That's the dynamic. This tends to improve, and the market improves.
Reducing volatility, mainly interest rates, the trend is that this market will gain in liquidity, will gain momentum for 2024. This is our expectation
.... And Friday, just one empirical approach regarding what Danilo mentioned. You observed that we disclosed this information in the release. But when we talk about the industry, the capital markets sector, there was a reduction in the distribution of these instruments to investment funds. Comparing with 2022, funds absorbed 41% of issuances, and this year, 2023, it's at 26%. And this is all mainly due to the dynamic that we experienced in the beginning of the year. A first quarter where the appetite of the primary market just dried up, but little by little, it's normalizing again. We see these big issuances over BRL 1 billion, particularly on the part of the larger banks.
A good part of those have been included in their portfolios. Because with the market of 2023, there's no institutional side to absorb the size of this market. But indeed, with a reduced cost of debt, the expectation is that the appetite of the funds for primary market instruments will grow again. Perfect. Perfect, gentlemen. Thank you.
Thank you. Let's move on. Next question from Matheus Guimarães, sell-side analyst, XP. Matheus, we'll open your microphone. Proceed.
Good afternoon, Ricardo, Vinicius, and the whole team. Thank you for taking my question, and congratulations on the quarter earnings. Not just because of the earnings, but the follow-on addresses the liquidity, the liquidity issue, which was a relevant point here. So my question is about the relevance of restructuring operations in the mix of customer revenues.
Ricardo, in one of the answers before, talked about the volatile-- how volatile the IB business is. How do you think restructuring will help? I understand the restructuring has a portion of fees that would be more recurrent or more recurring. Do you think that this will help? How can we expect this looking forward? Thank you.
Unfortunately, Mr. Ricardo Lacerda is muted.
I apologize, my mic was muted. Matheus, thank you for the question. Right, this revenue has a more recurring characteristic. Also, in the way we structure compensation. In general, in M&A, we act almost exclusively with success fees. We don't charge monthly, monthly charges. In restructuring, we have a relevant revenue that is billed monthly, given the nature of the business. And these cycles of restructuring processes, they tend to be relatively long. So the investor always voices a concern.
They say, "If the market improves, will restructuring end?" It's not really so, because these processes oftentimes take two to three years, sometimes even more. With this, the longevity of the project, we end up having different cycles overlapping. So this has been positive to offset the reduction of revenue, considering the reduced revenue of IB. We see this increasing and stabilizing our revenues in the future.
Just to add to what Ricardo said, this also generates for us and for other business units of the bank a great cross-selling opportunity. We have examples of operations of restructuring that we had when we put the company back on a growth path, and now they are our clients in capital markets.
So after we restructure, restructure them, they become our clients in, in treasury sales and structuring, when we start having derivatives, commodities, and this type of operation. So you see, there's a big cross-selling opportunity coming from the restructuring operation.
Recently, Matheus, there's an interesting case. Marisa started that we're helping them in restructuring their liabilities, and this quarter, we announced an M&A. We structured a JV, of their, of Marisa's private label cards with CredSystem. And this is a clear example of what José Flávio mentioned. Because, you see, once we, we restructured the company, once we put them back on a path of growth, they're opening up opportunities in different angles at our firm. So I think that this is a good example of how we've been able to better work with this client journey, and how client journey being a hot topic right now.
Super clear, José, Vinicius, and Ricardo.
Thank you, Matheus, for the question. Move on. Next question from Pedro Leduc again, sell-side analyst, Itaú. Mr. Leduc, go ahead.
Thank you for the next question. In the capital remuneration, which now adds remuneration on our own capital and credit assets that were carried over with a slight reduction in the quarter. There are other markings here. If you could help us understand what happened here, since the amount of assets increased, what could, what can we expect in the coming quarters?
Thank you, Leduc. Let's break down a couple of remuneration into the two components. As regards shareholders' equity, what we saw was a reduction in the Selic rate, so this cycle started.
As much as we have seen an increase in assets in the shareholders' equity, because we had a payout of about 65%, a payout of dividends, the net effect of that was a smaller compensation. It should have been higher than that, but since we grew the portfolio by practically BRL 200 million, some part of this came back to us. As you said yourself, we had provision, mark to market, we had Q3 with increasing rates than in Q2. But, you know, these were marginal things. We're talking about a variation of BRL 2 million. But roughly speaking, this was the dynamic of this calculation. The biggest impact was the declining Selic rate on CDI and on capital, which is BRL 800 million, which is the big box. That's where the difference stems from.
It's just that we look at the snapshot in the beginning and the end, and we cannot see the average, but I understood the answer. Thank you.
Thank you. Moving on, next question by Matheus Nascimento, sell-side analyst, Levante. These are written questions: How do you see the impact of the declining interest rate cycle on the segments in which the company operates? Is there any segment where you expect to move forward more strongly? Any impact of the current interest rate cycle on the loan book of the bank?
I think that overall, what we are seeing now, something slightly different than what we saw at the beginning of the year, which would be a faster, more aggressive drop in interest rates, getting close to one digit or maybe the mid to high single digit.
But what we see now is that the market and what the market is pricing now, is that we are going to have a more delicate fiscal environment, a fiscal situation that is more delicate, and thus, less freedom for monetary policy easing. So much so that the curve is still at two digits, and it, it increased again after that Copom meeting in July. So I think that this is a situation where, yes, there is a better monetary policy, policy, some easing, but in Brazil, it's the Brazil that we've known in the last decade, one of high Selic rates, and this is a dynamic that we should continue to see in the coming years. As regards our different activities, I think that the impact is relatively positive.
Of course, it's better to have a Selic rate at 10.5, 11, than having it at 14%. Of course, that is not enough to cause the same effect that we saw in 2020, 2021, when the Selic rate was at an all-time low. But we expect that the recovery of our customer revenue and of the level of activity as a whole will continue. This brings some momentum, and the stability of lower rates brings back activity. It increases the level of confidence of the business community to invest, to have deals, knowing that the pricing will be better. As regards to the impact on the portfolio, I will let José Flávio answer.
Well, I think that the impact on the portfolio is positive. It's from neutral to positive. Everything we carry in CDI follows the base rate.
Of course, the spread over CDI, the more CDI drops, the more representative the spread is. This is the positive side. When CDI rates drop together with inflation for a neutral IPCA portfolio. But more importantly is what Ricardo said. When there is a reduction in interest rate, we have more predictability in the economy. More investments come, more investors come. Everything runs faster than they are running today. So I think that overall, it's all gonna be very positive. For us, in terms of the results of the loan book, the impact will be neutral from the financial stand side, the financial standpoint. But in terms of loans, the more our clients are paying of interest, the more solid the portfolios become. So the bottom line is that the impact is positive. Perfect, thank you.
I'd like to remind you that if you want to ask question, click on the Q&A icon on the bottom of your screen, type your question. Your names will then be announced, so you can ask your questions live. There are no more questions, so this closes the Q&A session. Now, we would like to turn the floor over to the company for the closing remarks.
Once again, I would like to thank all of you for your participation in our earnings conference call. This is another quarter that was challenging, but it also brought a number of very positive news for the company.
In a challenging market, where part of our business is going through a bad moment of the cycle, we were able to maintain our revenues growing, to maintain our profitability, to bring an ROE, again, to target, to the target of 20%, and also with a diversification, a greater diversification of revenue in terms of products, in terms of client base. All of that makes us very confident for the coming quarters. So thank you very much, and we remain available.