Inflation, Political Woes Risk Brazil Rebound, Banker Says

(Bloomberg) -- Political rifts and escalating inflation in Brazil risk hampering the economic recovery, according to Jose Berenguer, the chief executive officer of Banco XP SA, the banking unit of XP Inc.

“The situation is delicate,” Berenguer said in a virtual editorial board meeting with Bloomberg journalists. “The fact that the pandemic seems to be accelerating, the lack of vaccination, the political noise” -- all are weighing on the economy and the markets, he said.

Brazil is grappling with the worst phase of the Covid-19 pandemic so far while the Lower House of Congress has yet to vote on an emergency stimulus bill. Adding to the dire picture: The real is down about 8.5% this year, leading losses among major currencies, and annual inflation sped up to 4.57% in mid-February, past this year’s 3.75% target.

“If we continue to see a depreciation of the real, given the inflation we have today, we may see ourselves in a situation where the central bank will have to raise rates more aggressively than what is forecast in the yield curve,” he said. “This will have a bad effect on the economic recovery plus on confidence.”

Central bank intervention has failed to lift the economy or the currency. Long-end swap rates have soared almost 130 basis points amid the deteriorating fiscal backdrop. The real has fallen even as officials sold more than $8.2 billion in spot currency and swaps this year.

The pandemic’s toll is worsening. There were 1,699 deaths in the last 24 hours, after two straight days of record fatalities, the Health Ministry said Thursday. Confirmed Covid-19 cases rose by 75,102.

To calm markets and bolster confidence, Brazilian political leaders need to come together and pass a fiscally responsible emergency recovery bill, Berenguer said.

He’s optimistic about such an outcome. He recently met with leaders from both houses and they appear to share the same agenda and timetable for reforms, he said. The Senate approved the bill in two rounds, and it is now moving to the Lower House.

Berenguer’s success at XP, the country’s largest brokerage, is, in part, riding on the outcome of these efforts. The 54-year-old executive made a splash when he exited as JPMorgan Chase & Co.’s top boss in Brazil for XP’s nascent banking business.

‘Having Fun’

The unexpected move offered the opportunity to build XP’s corporate and investment banking operation. It also came with oversight of its lending, foreign exchange, payments and small business banking unit.

“It was very difficult to leave JPMorgan, I cried in front of my team when I left,” he said. “But now with XP, I’m having a lot of fun, working 15 hours a day, trying to reinvent myself. I feel like I’m 30 again.”

Berenguer’s move comes on the heels of XP’s success. Created by billionaire Guilherme Benchimol in 2001, XP has become the local answer to major U.S. discount broker Charles Schwab Corp. Customers have flocked to the firm.

XP ended last year with assets under custody of 660 billion reais ($116 billion), up 61% from a year earlier. Net income more than doubled last year to 2.3 billion reais. The bank’s credit portfolio jumped to 3.9 billion reais from 64 million in the span of nine months last year. XP ranked third place in underwriting equity deals in Brazil last year, up six positions from 2019, data compiled by Bloomberg show.

XP shares trading at Nasdaq have gained 4% in the 12 months through Thursday, giving the company a market value of $22.4 billion.

New central bank regulations that promote competition are a “huge opportunity” for XP and will help the bank gain market share from larger competitors, he said.

“In three to five years we want to be one of the top three banks to our clients,” Berenguer said.

(An earlier version of this story corrected the executive’s title in the first paragraph.)

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