Shares of Nu Holdings Ltd. (NU) closed at $12.19 on Friday, down 5.7% for the day and 11.7% for the week, as investor concerns over rising credit costs overshadowed the company's record first-quarter revenue of over $5 billion and net income of $871 million. The sell-off came despite the digital bank reporting a customer base that now exceeds 135 million, with CEO David Vélez highlighting strong growth across Brazil, Mexico, and Colombia.
Credit Quality Deterioration Raises Red Flags
The main source of investor anxiety was a sharp increase in credit-loss allowances, which jumped 33% quarter-over-quarter to $1.79 billion. The risk-adjusted net interest margin—a key measure of lending profitability after accounting for expected credit losses—fell to 9.5% from 10.5% in the prior quarter. Additionally, early loan delinquencies (15 to 90 days past due) rose to 5.0% from the end of last year, while loans overdue more than 90 days improved slightly to 6.5%.
Chief Financial Officer Guilherme Lago sought to reassure investors, stating there was "no sign of credit portfolio degradation" and attributing the uptick to seasonal factors and portfolio growth. The credit portfolio now stands at $37.2 billion, while deposits total $42.4 billion, pushing the loan-to-deposit ratio to 58.3%—indicating a larger share of funding is being allocated to lending.
Market Reaction and Trading Volume
Trading volume surged to approximately 138 million shares on Friday, well above the average of around 39 million, reflecting heightened investor interest and uncertainty. The stock declined in four of the five trading sessions this week. NYSE cash markets are closed for the weekend, with trading set to resume Monday at 9:30 a.m. ET.
The broader market also faced headwinds, with the S&P 500 falling 1.24% and the Nasdaq dropping 1.54% on Friday. Shares of other Brazilian financials, such as Itaú Unibanco and Banco Bradesco, also closed lower in U.S. trading.
Growth and Expansion Outlook
Despite the credit concerns, Nu continues to expand its footprint. The company reported that its Mexico operations reached break-even in the quarter, and it now serves over 115 million customers in Brazil, 15 million in Mexico, and nearly 5 million in Colombia. Management reiterated expectations that U.S. investment and AI infrastructure spending will keep the consolidated efficiency ratio impact under 100 basis points in 2026 and 2027.
Looking ahead, investors will closely monitor the trajectory of risk-adjusted margins and early delinquency ratios to see if they follow the seasonal pattern outlined by management. A key risk is that higher-yield unsecured loans could require larger allowances than anticipated, especially if Brazilian consumers face economic strain or funding costs remain elevated.
Nu's scale gives it a competitive edge among digital banks, but Friday's price action suggests that credit quality remains the dominant concern for the market. The coming weeks will reveal whether this week's decline is a temporary correction or the start of a broader reassessment of the company's loan-growth outlook.
