Brazil’s largest bank Itaú Unibanco is spinning off its 46% stake in Brazilian financial services platform XP Inc (XP.O), which has a market capitalization of $23.16 billion, into a separate company.
Unibanco board has floated plans earlier this month to form a new entity to unlock value in the bank’s XP stake. The bank reportedly said its current ownership is not adequately reflected in Itau’s share price, and the move would also reduce potential conflict between the two entities.
At the time, the plan was to issue shares equivalent to 41.05% of XP ownership as well as selling the remaining 5% stake to boost its capital ratios.
Itaú Unibanco paid $1.9 billion in 2017 to buy a 49.9 percent stake in XP Investimentos SA, along with options to acquire full control in the future. However, Brazil’s central bank objected, citing competition concerns, but the lender said it doesn’t plan to divest any of its holdings.
Instead, General Atlantic and Dynamo VC Administradora de Recursos Ltda., which hold a combined 20%, as well as XP managing partners, who own about 30%, could sell up to 72.5 million class A shares.
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XP joins the race to zero fees
XP Inc announced in December that it is ending brokerage fees for stocks trading on its online platform, Rico, which is focused on stock transactions, the futures market, direct treasury and funds distribution.
XP’s founder and CEO, Guilherme Benchimol said that the commission cuts would cost the company as much as $6 million in quarterly revenue. This figure is the equivalent to about 2 percent of total gross revenue based on Rico and XP Direct online equity trade revenues in the first half of 2020.
Founded in 2001 as a financial advisor, XP has been challenging Brazil’s traditional banks. The company had a total revenue of $304 million in the second quarter through June, while its net income was reported at $104.6 million. Further, according to its filing, it has more than 1.5 million clients and $84 billion in assets under custody.
In December 2019, XP debuted its Nasdaq listing at $27 per share in the largest IPO of a Brazilian company, raising $2.25 billion, which valued the company at $14.9 billion.