BTG Pactual Highlights XP Inc.'s Strategic Shift Towards Credit and Wholesale Banking Amid High Selic Rates
XP Inc. is shifting its business focus from asset-light brokerage to credit and wholesale banking due to high Selic rates, with BTG Pactual maintaining a buy rating amid expected cultural and financial shifts.
- • XP Inc. is transitioning towards credit and wholesale banking services due to high Selic rates.
- • The shift requires a cultural transformation from brokerage to risk management and capital allocation.
- • XP has hired senior executives from major banks to lead this transformation.
- • BTG Pactual maintains a 'buy' rating with a $24.00 price target despite lower expected returns.
- • Market valuation has adjusted from high initial multiples to traditional banking metrics.
Key details
XP Inc. is undergoing a significant transformation in its business model, responding to persistent high Selic interest rates and competitive pressures from traditional banks. According to BTG Pactual's analysis, XP is moving away from its historically asset-light brokerage platform towards a deeper focus on strengthening its credit franchise and wholesale banking services.
Originally, XP envisioned growth in a more favorable market with lower interest rates; however, the sustained high Selic rate has compelled the company to prioritize expanding its corporate credit portfolio as the new baseline. This strategic pivot involves a substantial cultural shift within the firm — transitioning from brokerage and fundraising to capital allocation and risk management, which BTG notes will take several years to mature given the complexities in credit underwriting and client relationships.
To support this shift, XP has recruited senior executives from major banks, including Gustavo Alejo from Santander as CFO, and professionals from C6 and Itaú, all reporting to José Berenguer who has led XP's wholesale division since 2020. BTG's analysis indicates that XP's future returns may resemble those of mature wholesale banks like Banco ABC Brasil, with expected lower returns on equity compared to its historical levels due to the nature of credit and transactional business revenues.
The market has already adjusted XP's valuation accordingly; since its 2019 Nasdaq IPO trading at over 30 times earnings, XP now trades near 8 times projected 2026 price/earnings. Despite execution challenges and investor skepticism, BTG Pactual maintains a 'buy' recommendation with a target price of $24.00, viewing the current stock price as a discount without additional downside pressure if the company continues on this new trajectory.
This article was translated and synthesized from Brazilian sources, providing English-speaking readers with local perspectives.
