Banca Generali Spa

Good afternoon. This is the course call conference operator. Welcome, and thank you for joining the Banca Generali's nine-month 2020 results presentation. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Gianmaria Mossa, CEO and General Manager of Banca Generale. Please go ahead, sir.

Good morning and welcome to our third quarter result conference call. Let's start by saying in a nutshell that these first nine months are among the best ever for the bank. We reached the highest level in terms of assets at 70.4%. the highest level in terms of managed solutions, 34.5 billion euro, and the highest level in terms of assets under advisory, 5.4. These numbers are the consequences of a very sound commercial activity with total net inflows at 4.1 billion euro in the first nine months of the year. As a consequence, all the operating components increased significantly and while the net profit has been in line with last year due to one-off components. In terms of capital position, we provide two different measures, the stated TCR and the pro forma. The stated is once we reallocate the third tranche of the dividend to the equity, while the pro forma continues to consider the capital ratio x the third tranche of dividend, and I can anticipate the numbers continue to increase, and we confirm our intention to distribute this amount of money as soon as possible, but we will come soon on this topic. Page 4. Page 4, there is our usual representation of P&L. First of all, it's pretty evident that there is some increase in total banking income, 10%, driven by net interest margin and net fees. Cost, like-for-like basis, so excluding the two acquisitions, are in line with our expectation, with core cost at 2%, up 2% year-on-year. And as we said, the net profit are in line with the record year of the last, of 2019, due to basically higher provision. If you look at the scheme at page 4, you see that we added a piece of information. So we allied the contribution to banking funds. Contribution to banking funds jumped from minus 7 million, 7 million, up to 11. And another negative impact in terms of provision is that we have changed the discount rate for the different provisions, so provision for social security, provision for the portfolio evaluation, and provision for, for example, the fidelity plan of our network. tax rate at 22% that is in line with our guidance for medium term guidance and so the result is the net profit at 196 million euro. If the number is in line with last year the quality in my opinion is much better and you can see it at page 5 where we have the breakdown net profit two main components recurring net profit on like for like basis and variable net profit. Recurring net profit increased from €108 million to €116 million and you see on the right that on the positive side in the build-up net interest income and the net fees contribute positively for more than €13 million. while on the negative side you see a negative impact of the increase of provision and the level of tax. So slide 7, as usual, let's go through line by line, starting from net financial income. Net financial income in the first nine months jumped to 77.1. with the trading income almost flat and the net interest income increased by 13 million euro. On quarterly trend you see that in the third quarter the contribution of the net interest income increased at 24.7. This is also thanks to the LTRO contribution. The yield of net interest income in the third quarter reached 0.86. And this increase in the net interest income is confirmed and is driven by basically asset expansion. So interest-bearing assets increased 1 billion in the last 12 months. We optimized cash management in the banking book, so minus 0.02. compared to minus 0.13, a stable financial yield on financial assets and a marginal reduction in the yield loans to clients basically because as you know we introduced Lombard solution and we reduced marginally the risk of the lending activity. Page 8 we go through the gross fees. Gross fees increased by almost 40 million euro. Pretty impressive jump. In the third quarter, due to some seasonality effect, we haven't achieved the highest level for the year. You see that the first quarter is still a little bit higher, but we are confident to exceed these numbers in the fourth quarter for this year. If you look at margins on total assets you see that Q2 we bottom out with 1.12 in Q2 and the number for Q3 is at 1.13. In terms of variable fees third quarter was pretty good with a contribution of 27.2 million and for the fourth quarter we do expect a smaller contribution, in particular October closed with 5 million euro and we do not expect other significant contribution for November and December. Page 9, there is a focus on management fees. In this case, we achieved the highest level in the third quarter with 170.5 million euro This is driven by basically the asset expansion of 50.8 billion euro, the average assets in the third quarter, and as we said, a gradual recovery on margins, 1.37. Overall, in the first nine months, total measurement fees amount at 496.8. Next page, so slide 10, we see other fees, so banking fees and entry fees. Also in this case, year on year, the increase is pretty impressive, more than 18 million euro. On the quarterly trend, you see a lower contribution, 22.8 million, basically due to some seasonality effect and market conditions. we had a lower contribution in terms of structured product. We accelerated on this initiative at the beginning of the year and we announced a sort of back to normal for the second part of the year and October started pretty well. On the right of page 10 you see the contribution of the new revenue streams also in this case the increase in the last one month is pretty impressive is almost 14 million euro and so the total contribution is at 45.6 and we can see the breakdown at page 11 at page 11 there is the representation of the three new revenue engines and the target that we announced during our roadshow in London at the end of 2018. BG4 advisory, so asset under advisory, the contribution for the first three quarters is at 18.3 and we do expect to exceed 24 million euro for the full year. It means that we reach the upper band of the range one year in advance certificate contribution at 12.3 million euro and the target at the end of 2021 was 10 million and also in this case we are confident to exceed 16 million euro and then brokerage fees we close at 15.1 the third quarter We are pretty confident to exceed 20 million, so it means one year in advance, the lower band of the range. So all the projects are in line or in advance compared to the target. And I continue to be very optimistic in both trading and advisory services, while the structure product, as I said, we reach the target and from here it will be ordinary business. Page 12, we move on to fee expenses. From this side, positive news. Let's say the total fee expense closed at 305.4 million, where the payout ratio to the network closed at 47.2. So it means one percentage point lower than the previous year. Here you have the ordinary payout component that is in line with our targets. It's around 36%. Cost of growth a little bit lower year-on-year basis. This is basically due to a lower activity in recruitment. And then there is determination of one-off items. For the end of the year, we do expect a number almost in line with last year because we've seen acceleration in recruitment. Payout to third parties, payout to asset managers is in line with the last year. Payout to others increased by 0.5. This is basically driven by the payout for the robot for advisory platform, for UBS. And from this year, we do expect a progressive reduction of these costs. So you will see in the next 12-18 months again a reduction of the percentage. Page 13, we move on to operating costs. The core operating costs increased by 2.6 million or 2% and basically the increase is driven by the volume expansion So you can see that G&A increased by 1.8 million euro and due to an increase in depreciation, it's about all our investments, while the staff cost is in line with last year. On top of core operating cost, we have an increase in sales personal cost and this is driven by commercial activity, it's going better than expected. 0.9% the cost of COVID and 14.6% is the ones we include in the perimeter, Nextam and Valeur. Slide 14, you see the cost ratios, you are best in class, operating costs on total assets at lowest level ever, 0.31%, confirming the good number of last year. and cost income lower than 40%, both the reported and the one once adjusted by performance fee and other variable components. So last page of this section is about capital position. Focusing on TCR, you can see that the first nine months of this year, Closed at 16.5. This is a pro forma with an increase of 0.8. Consider that we applied a payout ratio on the net profit of this year at 80%. So it's a very conservative approach. On top of this 16.5% you have the impact of the reload of the first tranche of dividend for 2019. It accounts for 5.2%. So the final result is a TCR above 20% at 21.7%. So let me spend some more words on the dividend policy and on our intention. I confirm the intention of the bank to distribute all the dividend 2019 in next year. So it means that the second tranche is confirmed that it is 0.3 in the first quarter. and we will call for an AGM next year and we will ask to distribute also the first tranche, so €1.85. On top of that, we confirm our intention to distribute at least €1.25 for this year So summing up the two main components it means that at the end of next year in one or more tranches we will pay a minimum of 3.1 euro that it means a dividend yield higher than 10% as of today price of the stock and so just to be clear 0.3 is the second tranche and it will be paid in the first quarter we will ask for payments also to pay also the first tranche that is 1.55 sorry and then a minimum of 1.25 for the result of this year of course this depends on any other recommendation of ecb but we are pretty positive sooner or later we will be able to distribute extra capital in excess. So to sum up, I'm very proud of these first nine months results because the revenues are very sound and solid and are the results of two different elements. It's really important to understand our business model. On one hand, You know, we announced at the end of 2018 a multi-project approach. So we released several initiatives under advisory, structural product, brokerage, wrappers, and wealth management services and so forth. And this gives different opportunities in the commercial approach. So this is the first element. And the second element is a financial advisory network able to leverage these capabilities, this platform, to increase productivity. So a very diversified approach in terms of revenues and the most efficient distribution channel. Page 17, we deal with total assets. 70.4, as we said. In terms of managed solution, a new record high, 34.5, where if you compare this number with the same number of the first nine months of last year, and we are at the top right of the page, you see that in terms of stocks, all the different kind of products contribute positively. in-house funds, third-party funds, financial wrappers and insurance wrappers. Traditional life policies are pretty stable and this is the confirmation of a change of approach. We want to keep almost flat and change the stock of traditional life policies and focus more and more on insurance wrappers and in-house products. And if you look at the numbers for the first nine months, you see that in-house funds and wrappers, insurance wrappers, are the higher contributor to the increase. So as we announced, now we are more focused on these kind of solutions in order to maintain the yield inside the traditional life policies for the existing clients and to focus on the development of other lines of business. In banking products, from 18.3 to 19.3, so 1 billion up, where you see an higher contribution of current account. This is basically driven by uncertainty. Page 18, a focus on our BG Fund Measurement Luxembourg company. Also in this case, we achieved a new record high, 17.2 billion euros. Focusing on the right of the page, you see on the top the representation in terms of share classes, where on a year-on-year basis you see that institutional fund classes are flat, while the retail fund classes jumped by 1.2 billion euro. It is pretty impressive because if you look at the second bar graph, you know, we are running off our selection. So in one year, we reduced our total exposure to selection for an amount of 600 million euros. while the LAXIM increased by an impressive 1.8 billion euro. It means that for every one euro of reduction in selection we recorded three euros in the LAXIM. Page 19 there is the focus on net inflows for the first nine months. You know we accelerate in terms of total inflows 4.1 compared to 3.8 different positive news first of all this year inflows has been pretty constant over the year and this is pretty impressive to me the floor is 1.3 and if you look at the contribution of the managed solutions all the different families of products contribute positively to the final result On the recruitment side, page 20, as we announced, we resumed the recruitment activity. In the third quarter, we had 24 new colleagues joining the bank. Split equally, 50% coming from FA networks and 50% coming from retail and private banks. And I'm confident to continue with this path. And we do expect in the fourth quarter a number close to 24, 25 new colleagues. In terms of total net inflows by acquisition channel, and I'm on the second graph on the right of the page, you see that the contribution of the existing sales force is probably the best ever at 78%. In the next page, we give also an overview of the numbers for October, one of the strongest months of the year for the bank, above 600 million euro compared to the 367 of the last year. where you see that the mix is more conservative due to the uncertainty in the second wave of COVID. Overall, total net inflows reached 4.7 compared to the 4.1 of the previous year, and managed solutions exceeded 2 billion towards 1.2. For this reason and for the state of health of our financial advisors, we decided to increase, to raise the target for total inflows for this year from the initial number of 4.5 to 5.5 billion euros. It means at least 800 million euros in the next two months. Now, in the last section, we decided to give you an overview on our financial advisory networks because we received a study provided by a consultant list company, Reply, on the state of our industry, on the state of health of our industry, and they ran this study analyzing numbers from 2008 up to 2019. And in this study Banco Generali topped the rank, so ranked first both in terms of asset expansion as well as in terms of the growth of the portfolio average of financial advisors. So we decided to present these numbers. numbers are slightly different from the research of Reply. Probably in the research of Reply, numbers are even better. But we would like to emphasize and to take your attention on the impressive track record in terms of asset expansion, in terms of the increasing portfolio average. And that is basically driven on the turnaround and the change of strategy in 2013, where we decided to focus more and more also on private clients. I just published also the MAGSTAT study on the private banking industry. Also this year we ranked third. First is Intez and second is Newcredit, but we are definitely the fastest growing company in this rank. So if we start from page 2-4, we have three pieces of information. Number of financial advisors. and in this period we increased by 26%, while in the industry we saw a significant consolidation, and in the top five, excluding Banca Generale, steady numbers. The second information is about assets. We increased assets with a multiple of 3.5, it means almost 50% higher than the industry. Industry closed at 2.4 and the top 5, 2.6. And the third information is about assets per financial advisors. This is probably the most impressive information. An increase of 21 million euro, again 50% higher than the average of the industry. And, you know, increasing the assets per financial advisor in a context in which you are expanding the number of the financial advisors means that you are recruiting the best in the market. And another information that probably impressed me even more is page 25. because we ran another exercise we decided to clusterize all the financial advisors in two main clusters you know in 2013 we decided to accelerate in the strategy we decided to open up the architecture to focus on digitalization and wealth management and so from 2014 we start recruiting also from the private banking industry so here the two characters are the first all the colleagues recruited starting from January 2014. And the second cluster is about the most experienced financial advisors, the colleagues in Banca Generali before 2014. And if you focus your attention on the last column, you see that at the end of the day, the portfolio average of the two clusters are almost the same, 34 and 35. That it means, basically, that this acceleration in the strategy in 2013 allowed us to recruit on one hand the top bankers in the network and on the other hand to help our financial advisors to increase productivity, efficiency, reaching a portfolio average that is 50% higher than the industry as a whole. Page 26, there is another piece of information, in my opinion very important, that is about the sense of belonging, the trust in the company. Because when you successfully help financial advisors to increase the portfolio and so to increase their remuneration, there is a sort of increasing sense of belonging and recognition in the brand. And the translation of all of this is about the numbers of FAs leaving the company. So the FAs that decide to exit the bank. And again, focusing on page 26 on the first graph, you see that in the first nine months of this year, 31 colleagues left the bank with a portfolio average of 7.2. And focusing on these 31 colleagues, financial advisors. On the right, you have a pie with a breakdown of the reason behind this decision. For competition, it's just about 29%. It means nine colleagues. Then you have network optimization. It means that we let these financial advisors go away. And then other. Other reasons means pension, it means negative event and so forth on the second graph on the bottom of the page you have the churn rate so these nine colleagues left the bank and it means that nine out of more than two thousand the churn rate is below 0.5 that it's really really impressive because you know in our industry is more easier to expect 5% instead of 0.4%. Last two slides is a deep dive on the results of the first nine months in terms of contribution to the net inflows by cluster of financial advisors as well as cluster of clients. Just to give you again an idea of the quality of these results, page 27 you see The inflows organized by FAs vintage, so you have financial advisors who joined the bank before 2008, before 2013, before 2018, and then the most recent colleagues, 2019 and the first nine months. And again, I would like to focus your attention on the last row where you see the net inflows per financial advisor by clusters. So colleagues in the bank at least since 2007 contribute positively to the total inflows by an impressive 1.3 million euro each on average. 1.5, 1.9. It means that even if colleague has been working for Banca Generali for 15 years at least we continue to have a very positive and significant inflows and this is the best result we can achieve to be sustainable page 28 there is the same exercise in terms of client three main clusters so the existing clients and Total clients amount at almost 300,000 clients with an asset per client around 220,000 euros. And because it takes account also of all familiar and so forth. So it's a total asset divided by head, number of head in our customer base. The new clients, almost 13,000. It means that also during this difficult year, lockdown, COVID, we successfully expand our customer base with a portfolio average of 150,000. Reactivate clients. This is very positive for a business like ours because it means that you have clients that in the past decided to leave the company. And then, thanks probably a brand repositioning, we successfully attract them again. And it's almost 5,000 clients for 115,000. And then you have the show rate, the exit amount at 8,000. And the portfolio average is around 20,000 euros. So are the marginal and the smaller clients in our customer base. So just to sum up, I think that to fully understand Banca Generali, you must keep in mind two main elements. We can approach new businesses, we can launch very complex projects because we have the best financial advisors in terms of quality and in terms of productivity. So we can then implement the strategy and take advantage of the several initiatives to provide better quality to the clients and to expand their business. So I'm confident to continue to obtain great results in the short term and we are fully aware that the situation is pretty complex and so we are all focused in working on the strategy for the medium term to continue to have such a kind of numbers and to continue to overperform the industry and the market as a whole.

Thank you.

Thank you, sir. Would you like to begin the question and answer session?

Yes, thank you. I'm over for Q&A.

Thank you. Excuse me. This is the chorus call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. The first question comes from Domenico Santoro of HSBC. Please go ahead.

Hello. Hi. Good afternoon. Thanks for the presentation. I do have three questions. The first one is on dividends. I mean, we don't know yet whether the ECB is going to lift the dividend ban in December. Maybe there is going to be a cap to pay net profit as we heard from the banks I mean the language from the ECB has been more and more negative recently but you are not under the supervision of the ECB but the national regulator and we have seen also some banks in Germany the cooperative ones paying the dividend given the they are basically under the German regulator so I'm just wondering how should we look at this you know entering into 2021 whether you had already some talks with the regulator because you seem pretty confident of course your business is completely different from commercial banking the second question is instead on M&A actually this time you have been on the press for different reasons compared to the summer so my question is in the event of a change in the ownership What do you think the financial advisory network needs in terms of condition in order to preserve the quality of the franchise that you showed in this slide has been pretty resilient and has improved quarter by quarter? I mean, is it the autonomy of the network that needs to be guaranteed? Is it better condition, better payout? So a little bit of your thoughts on this will be helpful given that, I mean, you have been on the press, considered a target actually over the last couple of months. And then a question on the pricing mechanism. We know that there is gonna be a change that is gonna favor more recurrent fees. Can you please give us some color on this and whether in the short term there's going to be any loss of revenues or instead this is going to be a creative? Thank you.

Thank you, Domenico, for the three questions. Let's start from the dividend ban. You are right. There is some skepticism on the possibility to pay dividends. I think that from next year the different business model will matter and I had informal talks and at the moment I haven't any significant news. Only my consideration is that my impression is that the business model is a key driver of the decision. It will be a key driver. And I strongly communicate that the retention of extra capital has just two negative effects. The first one is that it's lowering my return on equity because my business model cannot change. And the second is that I cannot distribute liquidity in the market, so paying the dividends. I would like to add also a sort of, let me say, unfair competition, because if you limit the payments of dividend at Banca Generale, for example, and you do not introduce this ban for competitors, or if other banks in other regions can distribute, you are creating asymmetry in the market. So for all these reasons, I'm pretty confident But let's say that it doesn't depend on my opinion, but I'm pretty confident that something will change next year. Even if you decide to cap the dividend you can pay in terms of percentage of net profit, consider that we still have all the net profit of 2019. So let's say that we are talking about a lot of money. If we find a way, I think that we can easily pay at least the 3.1 euro. And I'm talking about 3.1 because I'm applying some cap on the distribution of the Vino Vizier. So I'm already applying a very, very conservative approach. The second question is a very interesting question. I mean, I think that the... The bank works very well because the perception of the financial advisory network is that there is a full commitment in providing the best solutions and the best products for them. We are a B2B2C company and we are all focused in providing at the second B the most efficient and powerful platforms. It's about products, services, technology, and so forth. Plus, you have to consider that it's not just about this focus 100% on the business. There is also the autonomy because we can decide our priorities, and then there is the brand. These are the three key elements. Focus 100% on this business. autonomy and dependency and a strong brand. And this is not about a better condition, better payout. I think that we are in line with the market and the financial advisor won't change the brand for a few basis points. Price mechanism, we have been working for the last two, three months to a complete review of our Luxembourg platform, but we are also reviewing our product offering, our banking offering, and also some insurance products. And the idea is to offset part of the potential reduction in the performance fee for the next years by increasing margins in different initiatives. We will give full disclosure of these products of this approach in the call for the full year results. But I can tell you that first of all we are exploring the new mechanism for performance feed and in terms for the Luxim it won't change significantly. And again we are working to start increasing the profitability in several initiatives, several processes. It's not just about saying I want to increase management fees or administrative fees. This is more complex, and it's all based on the idea to share this approach with the financial advisor network, with regulators, to be sure of the sustainability of these initiatives.

Thank you. Thank you very much.

The next question is for Mr. Alberto Villa of Intermonte. Please go ahead, sir.

Good afternoon to everybody. Just a couple of questions from my side. The first one is your view on the fact that the entire industry is currently sitting on a lot of liquidity. Customers seem to be more inclined to invest. keep a high level of cash. How do you think you can tackle this issue? And do you think this is partially due to the pandemic period we are living in and it's going to be temporary or you think it's kind of a more structural issue? And if you think that in the future you have been successful with the managed assets inflows, obviously this year as in the past. Do you think you can experience a further acceleration going forward? What are the drivers there in your view? The second one is on recruitment. You mentioned that you're expecting an acceleration in the fourth quarter. I was wondering if there are specific areas in which you're growing. So if you're focusing on private bankers, if there is any, let's say, part of the competition that offers more opportunities than others to grow. And if given the low activity you have had in the past months, you are entering into 2021 with a little bit of lighter contribution expected from recruitment to net inflows for next year, or you think this is not going to have any impact. And the final question is on the performance fees you mentioned. You don't expect November and December to contribute. I was wondering why, if markets may nicely rebound, is there any specific reason why you mentioned this cap to performance fees? Thank you.

Thank you, Alberto. Starting from liquidity. Let's say that part is definitely linked to pandemic and so I consider it temporary. How to tackle it? We are exploring some dedicated initiatives in particular for the beginning of next year and I think that also some potential changes at the regulatory level could provide support to switch some of these cash into products and consider for example that there is also some trends in the market because in Germany for example you see that more and more banks launched negative yields and also some digital banks and 26 so let's see also the trend of application of negative yields But basically, I think that there is a temporary component that will be managed as soon as the pandemic finishes. Recruitment, no particular target. Consider that in our business, we are perceived as the safest harbor, at least in Italy. We have a very strong brand. So I see raising interest coming from retail banks, product banks, financial advisors. So no specific target, it's very well diversified. We received several solicitations from the market and now we are considering how to prioritize these potential candidates. The impact for the new year, It will be almost in line with the previous years. I do not see any significant changes. While for the performance fee, it's just a very prevalent and conservative approach. I have, let's say, a negative view in the very short term on the market after this rebound. We are very, very close to the high watermark in almost all products, so of course, if you see a potential rally for the end of the year, we will take advantage. So no technical reasons, no reasons to say we won't participate to this rally, but it's just determined by a very conservative view on the next weeks. Thank you.

Okay, thank you.

The next question is from Gianluca Ferrari of Mediobanca. Please go ahead, sir.

Good afternoon, everyone. Ciao, Gianmaria. Three questions. The first one is on the NII, the 2.5 million increase quarter on quarter. If I understood correct, half of it is due to the 500 million TLTRO. I was wondering what about the other half? So it is linked to the expansion of the loan book more than interest-bearing assets or the other way around or a mix of the two? And a link to this, I think you gave us a guidance of a double-digit increase in NII this year. I guess we are getting much closer to a 23%, 25% increase year-on-year. So I was wondering if you can update a bit this guidance for 2020. And what about 2021? I guess there will be some trascinamenti on some initiatives you made in 2020. So I was wondering... What should we expect for 2021? The second question is on the asset management. And I have two sub-questions here. The first one is the one business point increase in margins in the third quarter. I know it is very small. I was wondering if there is any particular effect like a change in the mix or a new product that are explaining that increase in profitability. And also looking at page 17, if you can remind me the reason behind the drop in financial wrappers that you have experienced this year. The final question is on certificates. What should we expect in Q4? I think you have been very clear in saying that the second half should be a bit more quiet than the first half in terms of production. At the same time, you said October started pretty well on certificates, but more than certificates, I was wondering more on the entry fees overall. If the fourth quarter will be closer to the $5 million reported in Q3 or closer to the $11 million reported in Q1. So what should we expect in terms of entry fees given a bit of a erratic trend this year? Thank you.

Thank you Gianluca. So let's start from net interest income. Let's say that the delta Q3 on Q2 is a mix of factors, so not specific initiatives. You have some positive effect on lending, portfolio expansion and so forth, so no particular initiatives. We do expect a Q4 slightly lower than Q3 or in line, very, very close, or two. For 2021, now assuming, say, negative scenario for the yield, so at this level or even lower, and normal activity in lending, we should have almost the same result for this year. Any improvement in the yield stabilization could give marginal increase. In terms of profitability of asset management products, I mean, I think that we will see a steady recovery of profitability, first of all, because we decided to, because we are focusing our commercial activity on more profitable products. Think of, for example, insurance wrappers. Think of, for example, the Laxey. And we stopped the commercialization of traditional life insurance. And we, in this moment, we pay all the attention on, let's say, these kind of solutions, so I'm pretty confident to see steady recovery on this. Financial wrappers, why this trend? Let's say that on one hand we run off some products, it's not exactly financial wrappers, but we include in this definition. and second is due to performance. So we suffered a little bit in particular in the financial wrappers, more focused on the European markets. Certificate, quiet is the right word. I mean, in the last three months, I want a total focus on saving plan, on the solution I mentioned before, and more than on specific structured initiatives. So if I have to guess, I would say that we will be in the middle of the range between the third quarter and the second one. But let's say that this is a very positive activity, the structured products. Now we want to focus on asset management insurance products. We think that we can optimize portfolios. It's time to invest gradually, and so we will achieve this goal. Thank you. Thank you.

The next question is from Mr. Luigi Debellis of Equitasim.

Please go ahead, sir. Yes, good afternoon. Just one question on Switzerland. Could you update us on your strategies for the Swiss activities and targets for 2021 in terms of the inflows and asset under management? Thank you.

thank you Luigi for the question let's say that you know the Swiss activity has two main goals the first one is to develop a new business and it depends significantly by the lockdown and the pandemic because we have to recruit new colleagues the second driver is about say defensive mode because it's a way who offer diversification of the booking center, diversification of portfolio management, for example, for the insurance wrapper in Luxembourg. And this business is working pretty well. And it's a way to say that in case of, let's say, a spike in volatility, we are ready. So we do not plan significant inflows. because we do expect the end of the pandemic in the second half, so next year. We are setting up all the initiatives to be ready, both to accelerate the recruitment as well as to provide this diversification. We will ask to the Board of Directors to start the regulatory trend to ask for a new license in Switzerland because we think that to be ready to provide and to accelerate on this business, we need a license. At the beginning, we explored the opportunity for, say, some M&A. Honestly speaking, I met almost all the boutique banks in Switzerland and it's difficult to close the deal accurately for the shareholders and without reputational risk. So for all these reasons, we decided to start the ether for a new license. So we probably will see the positive effects starting from the second half of next year. But again, consider it is another way to diversify our offering. It's not just only a sort of edging from tail risk, but it's also a way to provide a multi-booking center approach. And when you, for example, open an insurance policy in Luxembourg for a private insurance for alternate to individual, the idea to be managed also from different countries works pretty well. Thank you.

Thank you very much.

The next question is from Elena Peridi of Intesa San Paolo. Please go ahead, Elena.

Yes, good afternoon. I have only one question left, and it is on an overall outlook for 2021. Putting all together what you were saying about the net interest income that will likely stabilize compared to this year, and also the fact that performance fees will likely be lower, I was wondering what is your outlook for the net profit for this the next year if you expect a flattish trend versus a quite good year given the pandemic like this one or if you are confident that you can increase margins as you were mentioning and then offset some negatives on revenue side and start a growing path. Thank you.

Thank you, Elena. Personally, I'm pretty optimistic on the outlook for 2021 because I'm pretty confident on, first of all, the commercial activity, so growth. I'm sure that we will achieve the targets of our three-year business plan. both in terms of inflows as well as financial targets that we announced in London. In terms of margins, I think that if the markets stay at these levels, there is room to increase a little bit margins, as I said, for several initiatives we are launching. These initiatives will be launched and say between the first and the second half. So the full effect will be in 2022. I do not expect a significant negative impact on performance fee. First of all, because the change of the mechanism will be gradual and will be probably more in the second half. And we complete this journey in 2022. And then, as I said, it doesn't mean to reduce significantly the probability to achieve performance fee, but it's just tiny changes on the Luxembourg platform. We estimate a potential negative effect around 20-30% of the total performance fee, and we do expect to offset this change in the medium term with new initiatives, as I mentioned before. So, let's say that if you consider the lockdown traditional banking are facing probably the toughest period of their life smart working and compliance issues and so forth our entrepreneurs are very close to clients even if probably in a different way and are providing on average better services than the traditional financial channels so It's a question of quality, it's a question of professionals, it's a question of business model. I'm very confident to exceed the market and to overperform compared to the benchmark or the financial advisors and even more if you consider the distribution as a whole. So when the commercial activity is sound and solid and you are confident to growth, and the margin are in line or even a little bit higher than the ones we reached this year, you must be optimistic. Thank you, Elena.

Okay, thank you very much.

The next question is from Angeliki Bairactari of Autonomous Research. Please go ahead.

Hello, thanks for taking my question. Just one left on my side. Could you give us an update on BG SACSO and when the platform will effectively be rolled to other clients and not just your existing client base? Thank you very much.

Thank you, Angeliki. Hello, BG Saxo. We are very, very close to the last release of the platform. It implies the joint account and single account and derivatives instruments. So we are pretty confident to open up the platform to the B2C clients within the end of this year. And it's one of the revenue streams will support and it's behind my optimism for the future because we are very very close to realize the partnership thanks to the complete journey of the platform thanks to the third wave opening up the platform to the direct clients B2C and then you know there are also other topics important for example the acquisition of Bink from Saxo because clients will be part of the deal with Banca Generale at the end of next year. So I see several positive news in terms of business opportunity for BG Saxo. So we are very close. The second wave, so the B2B2C, so supporting our financial advisors with this new platform is going very well. And so I'm confident also to accelerate in the B2C business. And this explains why I'm so confident in the contribution of the new revenue engines for the next year.

Thank you. The next question is from Filippo Prini of Kepler.

Please go ahead.

Yes, good afternoon. Could you give us an outlook for evolution of operating costs for next year? And if I may on performance, a couple of clarifications. The 5 million that you disclosed for October are coming We can say evenly from BG selection and LUXIM and if the planned change of mechanism calculation of performance fee for the second half of next year could accelerate maybe faster than expected the rollout from BG selection to LUXIM in the meanwhile. Thank you.

Thank you, Filippo. So the cost projection for the next year are in line with our guidance of the three-year business plan, so 3-5%. Depending on the pandemic and depending on the revenues, it can be closer to 3-5%. For performance fee, let's say that the runoff of selection is independent from the performance transformation. I'm pretty confident that in the second half probably with the new Luxembourg platform we probably could stabilize also the outflows on selection because we will work also on these kind of initiatives. So basically the idea is that in the performance mechanism the watermark will be in a time horizon that is longer than one year and these will be applied also to the BG selection in 2022. We will review all the prices of both the CCAP in order to continue to maintain the assets also in the selection. The net result will be a marginal increase in the profitability of the two CCAP and the net result, in my opinion, will be a reduction of outflows in the BG selection and not vice versa. Thank you.

Thank you.

Mr. Mosta, at this time, there are no questions registered, sir.

Okay. Thank you, and thank you for having attended our conference call, and hope to hear from you soon. Bye.