Inter's U.S. Branch Approval: A Strategic Diversion Amid Core Brazilian Challenges

What happened

Inter & Co has received regulatory approval from the Federal Reserve and Florida OFR to establish a state-licensed international banking branch in Florida, marking a formal entry into the U.S. market. This expansion builds on existing U.S. exposure through mortgage operations, but the DeepValue report underscores that Inter's investment case is tightly linked to sustaining high loan growth and improving ROE in Brazil's digital banking sector. Critically, the report highlights a shrinking capital cushion—down from 24% to 15.2%—and risks like intensifying payroll competition and credit cycle pressures, which this U.S. move could exacerbate by diverting resources. Management may tout this as growth diversification, but it introduces new operational complexities and regulatory hurdles that could strain capital further without immediate earnings upside. Thus, while the news signals ambition, it does not address the core vulnerabilities in Brazilian profitability that drive the current 'WAIT' rating.

Implication

First, this expansion requires upfront investment that could pressure the already declining capital adequacy ratio, a key monitor in the DeepValue report for downside risk. Second, it may dilute management focus from sustaining Brazilian loan growth above 20% with stable NPLs and efficiency gains toward low-40s, which are essential for ROE improvement. Third, if poorly executed, the U.S. venture could trigger dilutive equity raises or capital strain, aligning with the report's bear scenario of ROE compression below 11%. Fourth, while diversification might reduce reliance on Brazilian cycles, the report notes fee income has slipped, and earnings remain credit-driven, limiting near-term benefits. Fifth, investors should treat this as a neutral development until quarterly results confirm no deterioration in Brazilian metrics or capital buffers due to this strategic shift.

Thesis delta

The U.S. branch approval does not fundamentally alter the 'WAIT' thesis, which hinges on Brazilian profitability and capital management, but it introduces incremental execution risk that could accelerate downside triggers. Specifically, if this expansion strains capital or distracts from core operations, it may increase the likelihood of capital ratio falling below 13% or dilutive raises, key concerns highlighted in the report. Therefore, while the strategic intent is noted, the thesis remains unchanged, emphasizing vigilance on Brazilian ROE and asset quality over speculative international growth.