The Brazilian banking sector has had a turbulent period - sharp monetary tightening, increased provisions and weaker household activity have depressed profits and valuations. Nevertheless, the first signs of stabilisation have emerged in recent quarters: inflation is falling, interest rates are slowly declining and the credit cycle is normalising. In this environment, a large, versatile player with a broad range from retail to SME to insurance and asset management stands out and can benefit from its size and diversification.

The core investment thesis rests on two pillars. First, on the gradual restoration of profitability - A return of ROE to mid-range levels after a down year. Second, on cyclical and structural leverage: falling rates support credit demand and the value of capital investment, digitisation reduces unit servicing costs and cross-selling within the Group helps monetise a large client base.

From a valuation perspective, this is a story "quality discounting" - Metrics show…