Change at Nubank is bad for investors and for the company, says Itaú BBA

Nubank’s decision to cease being a publicly traded company in Brazil is negative for the company’s governance and for minority investors, as it reduces the level of transparency of fintech operations, according to analysts Pedro Leduc, Mateus Raffaelli and William Barranjard. , from Itaú BBA.

“In practice, we believe that information disclosure may become poorer, and even less comparable with local financial institutions,” the analysts say in a report.

Nubank reported on Thursday night (15) that it intends to stop being a publicly traded company in Brazil to continue registered only on the New York Stock Exchange (NYSE).

In a statement, the company said that the proposal aims to “maximize the efficiency and minimize consequential redundancies of a company listed in more than one jurisdiction”. In addition, Nubank said the decision does not affect the group’s long-term commitment to Brazil.

For Nord Research analyst Danielle Lopes, Nubank is not mentioning the main reason for the decision announced the day before.

“The company has not been able to present good results and needs to be accountable to investors and shareholders. With the increase in default and all the media on top of the bad numbers, even Nubank customers are considering closing their bank accounts. confidence from all sides,” Danielle said in a report.

Understand what changes after Nubank’s decision

With the decision announced by fintech, the company’s BDRs, acronym for Brazilian Depositary Receipts, continue to be present on B3, the Brazilian Stock Exchange, but now follow the rules of the American market.

Technically, the company’s board of directors has approved the start of a process to discontinue its level 3 BDRs program at B3 to move to level 1 receipts. Nubank’s plan will be submitted for approval by B3.

The BDR is a receipt traded on a stock exchange backed by shares listed abroad.

The difference is that the current papers comply with both the CVM (Securities and Exchange Commission) rules and the SEC (Securities and Exchange Commission), the federal regulatory body of the American market.

The measure comes after the co-founder and chief executive of the digital bank, David Vélez, expressed dissatisfaction with the view of analysts of financial institutions in Brazil regarding Nubank’s shares.

In an interview with Reuters last week, Vélez said that part of the analysts in Brazil seem to expect a more immediate higher profitability from Nubank, but that there are steps to be taken before his thesis is confirmed.

Of the 17 analysis houses that follow Nubank’s action, according to Refinitiv data, three have an ‘underperform’ recommendation (performance below the market average), all of them in Brazil (Itaú BBA, Bradesco and Santander). BTG Pactual has a neutral recommendation.

What changes for those who have a Nubank BDR

Once implemented, the operation will give the company’s BDR owners the option to receive class A common shares traded on the New York Stock Exchange, at the rate of 6 BDRs for each share. Therefore, to opt for this alternative, the investor must have a minimum of 6 BDRs.

Another option is to exchange tier 3 BDRs for tier 1 securities on a one-to-one basis. Finally, Nubank investors in B3 will be able to sell their shares.

At the end of last year, in the midst of the process of going public on the United States Stock Exchange, Nubank created the NuSócios program, as a way of inviting its clients to become partners in the company –“at no cost”, according to the company– through the receipt of one BDR per person.

At the time, the fintech informed that it would allocate up to R$ 225 million for the allocation of BDRs to customers.

Since going public in December 2021, Nubank’s shares have plummeted by around 50%, in a scenario of rising interest rates in developed markets that has led to growing questioning by investors about the ability of new digital companies to become profitable in the coming years.

Nubank shares fall sharply on the stock market this Friday

Itaú BBA analysts add that Nubank cited a reduction in the complexity related to the disclosure of reports imposed by Brazilian market legislation to make the decision.

“However, the cost benefits of not having to comply with this requirement have not been quantified by the company,” the experts point out.

For Danielle, from Nord, what Nubank does not want the market to know is that its exit is not due to cost — “which is negligible in the final account”, around R$ 1.5 million a year, points out the specialist. — but by choosing to try to keep customers away from bad news about their stock performance.

“If Nubank does not have a positive image in the media, the client who uses the current account, perhaps, may have the view that the reasons go beyond the results, and understand that the business is deteriorating”, says the analyst. from Nord, adding that this perception of fintech could lead to a migration of account holders to another digital account, causing the bank to massively lose the volume of new customers it attracts.

Nubank’s shares traded on the New York Stock Exchange (NYSE) operated a sharp drop of 6.1% this Friday, around 12:50 pm, while the BDRs quoted on the B3 retreated 5.2%.

For analyst Carlos Herrera, chief strategist at Condor Insider, the SEC’s rules for controlling and monitoring the company that issues the shares are less strict than the Brazilian ones. “That will be the main difference for the investor,” he commented.

with Reuters