Finecobank Banca Fine Spa

Good afternoon. This is the Coral School conference operator. Welcome and thank you for joining the Finneco Bank first quarter 2022 results conference call. 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. Alessandro Foti, CEO of Fineco. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining our first quarter results conference call. Before having a closer look to our results, let me please underline that in the recent months, there has been a huge change in the structure of the market, which is further enlarging our growth opportunities. As you know, our new dimensional growth is underpinned by the recent acceleration of the structural trends reshaping the society. This has been further strengthened by the dramatic increase in the interest rates scenario since the beginning of the year. Our business model as a one-stop shop quality platform is benefiting by the new market structure as we expect and strong increase in our net financial income thanks to the strong gearing to the interest rates of our quality and capital light and net interest income which is driven by our clients valuable transactional liquidity and not by lending as for the for other banks on investing we expect strong results despite the challenging environment with a robust inflows driven by structural trends and by their growing contribution by FinEco asset management. On brokerage, we expect a structural higher floor compared to the pre-pandemic levels thanks to our quality target market based on wealthy and financially aware clients and to our business model. The main outcome is that Fineco is becoming more and more a fast-growing and capital-light business with a structurally higher profitability and a structurally higher room to dispose of it, as the leverage ratio is no more a point of attention. This will allow us to distribute a higher level of dividends and at the same time to be in the position to invest more on our growth.

Let's now move on slide five.

Going into the details of our quarterly results, adjusted net profits in the quarter was equal to 124 million, half by 30.5% here on here, thanks to our diversified business model with all the three product areas that are firing at once. Adjusted revenues had $256 million, increasing by 23% year-on-year, and mainly supported by the investing, thanks to the growth in asset under management and the higher control of the value chain by Fineco Asset Management. Operating costs were well under control at $69 million, increasing by 4.1% year-on-year, and confirming operating leverage is a key strength of the bank. Adjusted cost-income ratio was equal to 27%. On cost, let me please remind you that the strategic decision to manage almost 100% internally our IT is protecting us from the inflation on IT costs. Our capital position confirmed to be strong and safe with a common equity TR1 ratio at 19.3%. Our commercial activity is accelerating as well. Also in April, we recorded strong results with net sales at more than 1 billion, and the mix confirmed to be strong with around 0.6 billion in asset under custody and around 0.4 billion in asset under management. of which 77% represented by Fineco asset under management retail net sales. Brokerage revenues are estimated for April at around 14 million, around 24% higher compared to the average monthly revenues in the period 2017-2019. This result was achieved despite volumes have been extraordinarily low in the month at levels last seen before 2018, when our monthly brokerage revenues were much lower, this confirming once again that the floor of the business is now definitely higher.

Let's now move on to slide six. As announced, we reached very strong results

also in this quarter we've adjusted net profit at 123.6 million plus 30.5 percent here on here on a like-for-like basis despite the very challenging macro scenario revenues at 255.7 million up 23.2 percent here on here as we have been able to catch the strong acceleration of the structural trends in place, mainly thanks to the contribution of investing and to the robust net financial income. Operating costs were under control at 69 million, increasing by 4.1% year-on-year, excluding costs strictly related to the growth of the business. Let's now move on to slide seven, and start to analyze more in detail the dynamics of our results. Net financial income in the quarter at $107 million, increasing by more than 43% year-on-year, net interest income at $59.3 million, and profit from Treasury management at $48.1 million. Let me highlight that given the new interest rates environment, For this year and going forward, we expect a significant acceleration in the contribution of the net interest income to the net financial income, and we don't expect additional profits from treasury management. Let me remind our sensitivity to a change in interest rates, which is driven by our clients' valuable and sticky transactional liquidity, a parallel shift of plus 100 basis points would generate 147 million of additional net interest income. One of the main consequences of our focus on becoming more a platform than a bank is that we are continuing to accelerate the growth of our non-financial income, which in the quarter reached 147.6 million, up 11.9% year-on-year, mainly thanks to the positive contribution of investing and banking. Overall, brokerage registered an excellent quarter at 59.7 million, close to the record levels of the first quarter 2021, and strongly increasing compared to the last quarter of 2021. confirming a structurally higher floor compared to pre-pandemic levels. Now jumping on slide 21, we will deep dive on the performance of the brokerage business. In the first quarter here, brokerage confirmed that the floor of the business is structurally higher compared to the past, and regardless of the level of volatility. As you can see in the chart on the top of the slide, in the first quarter of the year, brokerage revenues reached 59.7 million, resulting in a monthly average 77% higher compared to the monthly average revenues in the period 2017-2019. In April, estimated brokerage revenues at 14 million around 24% higher compared to the average monthly revenues in the period 2017-2019, despite the volumes on the market have been extraordinarily low in the month, at levels last seen before 2018, when our monthly brokerage revenues were much lower. Let me remind you that the growth of the brokerage business is driven by the contribution of three structural components. First, the deep reshape of our brokerage business. In this regard, we are live with the crypto offer on Bitcoin and Ethereum through CFDs, options, and listed ETPs with our usual strict and rigorous target market. We are also live with our leveraged certificates platform. And in the third quarter of 2022, we will launch a brand new brokerage platform, which will combine our state of the art standard with top quality, easy to use. Second, as you can see on slide 22, the client base using our platform is widening with active investors that have grown significantly in absolute numbers. standing around 35% above the average level of 2018-2019. Let me remind you that our active investors have an average of four executed orders per month, are wealthy people in their 40s-50s, with assets on average above €200,000. And the vast majority of them has a relationship with our financial advisors for long-term planning of their financial wealth. We are also live with the most competitive offer in Italy to catch the next generation of active investors. Third, we are continuously increasing our retail market share. Let's now move on slide eight for a focus on investing.

As you know, we are in the sweet spot

to capture the structural trends in place in Italy, and also thanks to our initiatives, we have experienced a strong acceleration towards asset under management. On top of this, FinEco asset management is now reaching a new dimension in the economies of scale, this taking more control of the value chain. As a result, investing revenues were equal to 73.4 million in the first quarter of 2022, increasing by 28.4% year on year, with management fees increasing by 28.5% year on year. The quarterly comparison is characterized by the usual seasonality in the PFA's costs related to FEA and the NASARCO that are higher at the beginning of the year and to 4.2 million of other commissions in the fourth quarter of 2021 related to operating efficiency reached throughout the year in the value chain on institutional classes by FinEco Asset Management, which are booked each year in the fourth quarter. Management fees margins after tax increased to 52 basis points in the quarter, despite the negative market performance, thanks to FinEco Asset Management delivering on its strategic discontinuity and to the accumulation products, which are increasingly shifting towards equity. On top of this, we have also recorded the positive contribution by Finnecoset management activity on the substitution of funds underlying or wrappers with its own funds, which is in turn reinforcing the effect coming from retail classes. Let's now move on slide nine for a focus on our cost. This slide confirms Once again, efficiency to be part of our DNA and core in our bank, representing a clear and unique competitive advantage. Also, this quarter was characterized by costs directly related to the strong acceleration of our growth dynamics in the new normal world. Operating costs in the quarter at $69 million, growing by 4.1% year-on-year, excluding costs related to the growth of the business, mainly additional $1.7 million cost for Finneco Seed Management, that they are current with the acceleration to further expand its business and have a higher control of the value chain. Additional $1.6 million in marketing costs. Staff expenses at $28.3 million in the period, increasing by 4.8% on a yearly basis. Net cost related to the expansion of the business of Finacost management. Finally, non-HR costs at 40.6 million growing by 3.5 percent here on here net of the above mentioned costs related to the growth of the business let's now move on slide 11 for a focus on our capital ratios finico confirmed once again a rock solid capital position on the wave of a safe balance sheet Common equity TR1 ratio at 19.31%, leverage ratio at 3.99%, in line with the optionality allowed by ECB and Bank of Italy. Our leverage ratio excluding the exposure towards central banks is equal to 3.80%. risk-weighted assets at 4.678 million, and total capital ratio at 30% as of March 2022.

Let's now move on slide 13. As you know, in the first quarter of 2022, our net sales continued to be very strong and sound.

despite the very challenging macro context. This further confirming the structural changes of our dimensional growth. Influx in asset under management proved to be solid in the period, thanks to the ability of our network to support clients in the long-term financial planning. Let me now spend a few words on the recruiting. which is confirming the recent trend we discussed in the past quarters. Fineco is emerging more clearly as the perfect bank for professionals looking to grow their own business in a sustainable way. As you can see on slide 14, strong increase in the interest of financial advisors to join our bank is continuing to this regard please note that we have not need to overpay financial advisors with huge upfront fees and and the usage of aggressive approach historically taken by the industry as a result in the first quarter 2022 we recorded a net increase of 64 personal financial advisors in our network, as we recruited 29 senior and 50 junior, with net sales generated organically by the bank at 88% in the period.

Let's now skip to slide 18.

As anticipated at the beginning of the call, we are in the sweet spot to benefit from the new market structure. In this slide, we made some changes to our guidance that are overall positive compared to our last quarter presentation. With regard to our banking revenues, we expect our net financial income in 2022 to be in a range between 300 and 310 million with the current forward rate curve. Going forward, we expect our net interest income to significantly benefit from the new interest rates environment, both thanks to the sensitivity and to the volume increase. Overall, banking fees are expected above 50 million in 2022. Going forward, they are expected to keep on growing thanks to the increase of the client base and to the previous repricing actions. On investing, already taking into account the negative market effect up to April, we expect for 2022 revenues to increase in the region of mid-teens with higher management fee margins. In this regard, let me please underline that the last couple of quarters benefited from the acceleration linked to the substitution of unique asset management funds within the RAP. Therefore, in the next quarter, margins are still expected to grow, but at a slower pace. We also expect net sales of around $5 billion for both Finneco Bank asset under management and for Finneco and for FAM retail classes and increase of around 100-120 personal financial advisors in our network. Going forward, we confirmed the guidance of around 6 billion per year in asset under management net sales and 6 billion per year in retail net sales by Finneco asset management. We also confirmed the increase of the bank's management fees margins after tax up to 55 basis points and pre-tax margins up to around 75 basis points by 2024. On this regard, let me please underline that based on the most recent numbers, we expect to reach that level before then 2024. Brokerage revenues are expected to remain strong with a floor in relative terms. We expect volatility and volumes that is definitely higher than in pre-COVID period. Let me remind that this trend has been further confirmed in the first quarter of 2022 with excellent results, very close to the record high registered in the same period of 2021 and much higher compared to the last quarter. Operating costs in 2022 are expected to grow around 5% year-on-year, not including around $7 million of additional costs related to FinEco asset management's strategic discontinuity to improve the efficiency of the investing value chain. On costs, Let me please underline that the strategic decision to manage almost 100% internally our IT is protecting us from the inflation on IT costs. Thanks to this, we will consider in the coming month the possibility to further accelerate the marketing expenses to take advantage by the strengthening of the structural trends.

Let me also add that we expect the cost to stabilize going forward.

Cost income, we confirm our guidance on a continuously declining cost income in the long run, thanks to the scalability of our platform and to the strong operating gearing we have. These excluding potential higher marketing expenses. Systemic charges for 2022, are expected in a range between 42 and 44 million, booked within provisions for risk and charges. Tax rate for 2022, we expect a decrease in a range between minus 0.5 and minus 1 percentage point, considering the most recent interest rate scenario, and therefore according to the revenues mix. On our capital ratio, we expect the CT1 ratio to remain above the floor of 17% and leverage ratio comfortably in range between 3.5 and 4% currently with the combination of both a strong acceleration in the growth of the bank and the distributions of generous dividends. As you can see in the slide 52 in the annex of our presentation, The point of attention related to the leverage ratio has been definitely fixed. On dividend per share, going forward, we expect a hit constantly increasing, also thanks to the progressive delivery on our strategic discontinuities. Customer risk was equal to three basis points, thanks to the quality of our lending portfolio that is offered exclusively to our loyal customer base. In 2022, we expect a hit below 10 basis points. finally we expect a robust and high quality net sales with a mix mainly secured towards asset under management and with a lower competence of deposits thanks to all the new initiatives we are under undertaking let's now move to slide 19 As you know, in order to take full advantage of our new dimensional growth, we have undertaken a wide set of initiatives to keep the growth of our balance sheet under control. All this set of new initiatives is already delivering, allowing us to move towards the concept of platform with a strong improvement in our asset under management and with the growth of deposits definitely under control. As a result, we can already now at the same time sustain our strong long-term growth, distribute a higher level of dividend per share, and comfortably remaining well above our regulatory requirements. Let's now move to slide 20 to deep dive on Financier Asset Management. As anticipated during the presentation, Financier Asset Management is progressively delivering on its strategic discontinuity to take more control of the investing value chain, resulting in a higher revenues and margins for the group. As you can see on the top of the slide, the dynamics of financial management and excess are further improving, regardless of the macro scenario. In the first quarter, our Irish company recorded 0.8 billion of net sales in retail classes in a market environment much more complex compared to the same period of 2021.

Despite this, its contribution to the group's net sales more than doubled year on year.

FinEcoset management continued to deliver in the internalization of the value chain with a strong increase in net sales of funds underlying rapist. As a reminder, this process is linked to the substitution of FinEco asset management funds within the building block used for funds of funds or insurance wrappers, this leading to an additional margins contribution for the bank. Finally, FinEco asset management has further enlarged its modern product offer with the recent launch of its investment solution based on passive funds, which will allow the group to have a distinctive positioning as an innovator and to be perfectly prepared to capture a new trend that is already taking place outside Europe. Let me highlight that in the short run these new investment solutions are useful useful to target wealthy clients by reducing costs and improving performance but we expect that in the long run this trend is going to take place in italy too progressively involving our whole customer base as it's already happening in for example in u.s to conclude let me highlight that thanks to the full control of the value chain, our Irish company can offer at the same time both an efficient pricing for clients or retaining higher margins. I'll now leave the floor to Paolo Di Grazia, our Deputy General Manager, for an update on our UK business on slide 24.

Paolo Di Grazia Thank you, Alessandro, and good afternoon, everybody. Our offer in the UK is proceeding in the right direction. We are attracting experienced traders, loyal and looking for quality offer with a strong activation rate at 65% on our brokerage offer. Let me remind you that with our best-in-class price-quality ratio offer, we are targeting a quality cluster of clients as we are not focused on hit-and-run, highly speculative and volatile customers. As you can see from the graph on the left-hand side of the slide, we now have more than 20,000 clients with almost 2,000 clients acquired in the first four months of the year. The trend of our revenues generation is extremely positive. As you can see from the graph on the right-hand side of the slide, in the first Q2022, we recorded a half 0.5 million of brokerage revenues, almost doubling year on year. On top of this, our cross-selling is working very well, and we are continuing to improve our revenues mix in favor of the over-the-counter and listed products, which are now the lion's share of the growth. As a result, our business is progressively gaining traction and is already profitable at the operating level. On a final note, we are in the process of preparing the setup to launch our offer in Germany by the end of 2022, as we think that our model, just based on the feature of German market, can be very attractive for local clients, also thanks to our unique price-quality ratio. Thank you for your attention. I'll hand it back to Alessandro.

Thank you, Paolo.

And now we are ready to open to your questions.

This is the Coral School Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one under touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Giovanni Razzoli, Deutsche Bank. Please go ahead.

Good afternoon to everybody. A couple of questions on my side. You have already disclosed your inflow target for the full year 2022. I was wondering how do you think that the significant increase in the market yields can impact your commercial policies today? And at the end of the day, the average investment margin, because probably there is more room to accelerate on multi-class products or also class one products. So if you can elaborate a bit on how these shift in the interest rates environment may impact your commercial policy. The second question, if you can share with us, what is your reserve on the 21 billion euro of financial investments? held to collect. And the last point, interesting, you said that you are recording higher brokerage revenues with lower volumes. So I deduct that you are basically, your clients are basically trading richer products for you. Can you provide us a little bit more visibility on this? Because it seems that you put a lot of emphasis into the sustainability of the brokerage revenues going forward. Thank you.

Thank you for your questions. Let me start with the first one. Historically, what we observed in the past, that the interest rates, in order to start on having some meaningful impact on the commercial policy, you need to have a three-month river close to the region of at least 2% level. So that clearly it's important. is still far from being there and in that case clearly you can expect some the beginning of a possible more interest by clients for for uh for example asset undercut dissolution something like that but as we and then so as we explained so if tomorrow morning we we are going to be in that kind of scenario this would be absolutely great for us because on one hand we're going to make a real big fortune on the on the on the net interest income, considering the incredibly sticky and totally uncorrelated base of deposits. And at the same time, the impact in any case on the commercial strategy is going to be still minimum. So that kind of a situation is an absolutely great situation for us. And I would like to remind that the main driver that is is driving up the investment margins is related to the continuous acceleration of the control of the value chain. And so this is going to be absolutely perfectly in place and completely, totally uncorrelated with the level of interest rates. On the second question, I leave the floor to our CFO for answering. Please, Lorena.

Thank you, Alessandro. Good afternoon to everybody. As you know, 99.9% of our bond portfolio is accounted in L2Collect portfolio. In accordance with IFRS 9, L2Collect business model is valued at amortized costs without impact on P&L and also on capital. This means that both P&L and reserves are not impacted by the fair value of our portfolio. So the reserves are zero.

Regarding the third question, what we mean by higher brokerage revenues with lower volumes is what we mean that our clients are progressively are emerging as trading more also in a low volatility environment and this is not is not necessarily driven by richer products but also in part by this but mostly by the fact that we have more clients that they are trading and and also particularly very important that the clients considering the target market we have represented by wealthy and aware clients are able to trade in every market conditions and also the continuous improvement and broadening of the platform is offering trading opportunity to clients also when the wind is extremely light. It's like to have a sailing boat that has become much more performing also in the light breeze.

Thank you.

The next question is from Domenico Santoro with HSBC. Please go ahead.

Hello there. Good afternoon. Thanks for the presentation. Some questions from my side. First of all, on the NII, the guidance that you give for 2022 implies quite an acceleration of the core NII over the next quarter. So I just want to understand that what are the assumptions used in order to get the sense how much bulletproof is this guidance? First of all, have you used the forward curve that you show at page 44 to understand whether this is conditional, of course, to rates going up? And second, what kind of assumptions were made in terms of bond portfolio rollover in terms of yield? I see that your sensitivity has increased. So I just want to understand the assumptions on this side. When you say we're not expecting any more profits from Treasury, is it for 2022 or is it also going forward for the next years? Because so far your trading line has been quite supportive and of course you need to protect now the NII. The second question is on OM, on investing. I see that you revised your guidance on investing. I mean, the OM sales that you expect for this year, they're quite strong compared to the trend that we have seen so far. So my question is what makes you so confident to accelerate the round rate for the next year? And then on margins, there was a slight decline in the quarter. when I look at the gross margin, I wonder, this is something that we should expect also for Q2, or FAM will compensate for that, because when you were commenting in the guidance instead, you specified that margin that should be up over the next quarters. On brokerage instead, first of all, April looks a little bit light, the 14 million margin, uh is there any accounting timing lag to some fees that might probably be booked for the next month uh and why uh or maybe there is not and when i look at the average fee in the first quarter uh the orders were strong but the average fees they were sort of declining a quarter and quarter so i'm just wondering whether there is a little bit of competition effect In Italy, even new entrants in the market quite aggressively pushing for this kind of services. And then just a clarification on tax rate. The fact that you reduced your guidance of decline of tax rate, is it just due to the fact that you expect now more Italian-based revenues, NII-based, or there is anything else that we should take into account?

Thank you. Yes, so let me start from there for the first questions.

So this is pretty clear that COVID What we are using is the implied forward right curve. So we are not making any, we are not using any particular internal view. So we are just using the forward right curve. And so it's extremely easy to see the progression that we can expect. And this is going to be clearly quite massive going through uh 2023 uh regarding the the the assumptions that we have behind the portfolio rollover is uh to remain to maintain an average maturity of the portfolio that is in the region of five years and this means that if you have a bond expiring for example you have to invest there is a last portion which need to be invested on a 10-year basis in order to keep the unchanged the average maturity of the portfolio in terms of composition we expect that the composition is going to remain diversified and so we are going on the long run to stay in terms of exposure to the uh italian market to stay in a region of 30 percent more or less and the remaining is going is going to be extremely broadly distributed among the the other european govis And as we explained, the profit from treasury management and net interest margins are two kinds of communicating bots. So as we anticipated that the more the market was moving for a higher and the more you have to expect the profit treasury management practically disappearing and everything substituted by the growth of net interest income. Clearly, the growth on the net interest income side, but I think that can be very easily calculated, is going to be so strong that clearly the last problem we have is to protect what is not going to be made through the profits from treasury management. So just to give you an idea, but the financial income just thanks to the net interest income. through 2023 is going, according with the existing scenario, is going to grow at least by more than 40%. And going through 2024, even more. So they're talking about really huge numbers. And so clearly the problem of the lack of profit from treasury management is completely is completely non-existing. And a decline in gross margins in the first quarter of 2022, please, Lorena, if you want to give, but I think that is just related to seasonality, something like that. But I don't know if you want to elaborate more on the point, Lorena.

Yes, it's correct. As you can see, we have a decline of around 5 million of euros in the item cost. This is related to the usual seasonality that is at the beginning of the year due to the higher cost linked to contribution paid for the activity of our financial advisors, FEAR and then ASARCO, that are mostly concentrated in the first part of the year because there is a cap. So this is the only reason.

On brokerage, as we explained earlier, April has been characterized by an absolutely extraordinary low level of volumes. When we're talking about low level volumes, we're talking about low level volumes in the financial industry. It's not just to us. In order to find a similar level of volumes in the market, that we experienced in April, you have to go back before 2018. And nevertheless, if we compare the revenues generated, for example, in that period of time, when with a similar level of volumes, our revenues have been now much higher so despite that the happy has been and has not been a good month for brokerage in relative terms has been an absolutely excellent month because we and this is confirming that the floor is much higher and absolutely there is a there is no no impact by the by the new competition we are facing because it's a competition that is concentrated on really low value clients and completely far away from the target market we have so it is exactly the contrary the the floor is keeping on rising and april is a perfect confirmation of this And on tax rate, yes, we expect a progressive reduction of the speed of decrease of the tax rate just because we're expecting a massive increase of the revenues generated here in Italy because, as I was explaining, the financial income is expected to grow in a big way.

Okay, thank you very much.

to accelerate the decrease of the tax rates.

The next question is from Enrico Bolzoni with JP Morgan. Please go ahead.

Hi, good afternoon. Thanks for the presentation. Just a few questions from my end. So one on the fee margin, they clearly increased quite a bit. you say that now you expect to achieve the 75 bps ahead of time. Is it possible that you might actually go beyond the 75 basis point? And for example, I think about mixed shift, considering that I presume this quarter was pretty negative in terms of mixed shift. And despite that, you had a positive increase there. So that's the first question. The second question was on the trading profit that was quite strong. I just wanted to ask you to comment maybe on On the drivers, I know you clearly benefit from internalizing trades. Has there been a substantial amount of trades that was internalized over the quarter or is there any other driver that we should think of? Another question is on the flows that you posted for April in asset under custody. They were actually pretty strong. Do you have any visibility in terms of what clients are doing? Is it because you think they are maybe early sign of repositioning in the market and in a way we could expect then strong trading numbers maybe in the coming months considering the strong flows in IUC? And then maybe one final question is on your international presence. So one is in the UK. I mean, the growth slowed down there a bit. Have you reconsidered maybe pushing a bit more with marketing or doing something to basically accelerate there? And what should we think when we think about Germany? So should we think something similar to the UK in terms of your ambitions, in terms of targets, customer growth? Or you think that maybe because it's a more similar market, you can grow faster than what you've done in the UK so far? Thank you.

Yes, thank you. So regarding the first question, the answer is yes. The fact that we expect a growing probability to achieve the 75 basis points ahead of time, clearly this is paving the way for going beyond the 75 basis points margin. So the answer is yes. Trading profit, you are referring to the trading profit related to the brokerage business, I assume.

That's right, thanks.

Yes. So this is clearly the trading profit is a byproduct by the volumes on the market. So the more The higher the volumes we are trading, the higher is the possibility to internalize clients' orders because our trading profit is 100% commercially driven. We are matching the clients' orders. and so the higher are the volumes in the activity by clients and the higher tends to be the trading profit. Upright flows in asset and accounts has been extremely strong and the reason is that the clients that they are The cluster of clients that is interested in asset at the custody is represented by the cluster of clients that are mostly driven by what we call the tactical asset allocation of their portfolio. So they tend to be extremely reactive to the market moves. And these clients tend to be contrarians. So the more So they tend to buy when the market is going down and selling when the market is going up. And this is exactly what's happening. We have also, and part of the clients, they are clients of financial planners. They are at the same time interested in strategic asset allocation and tactical asset allocation. So the same story. and uh probably uh going forward that means clearly that the the higher is the amount of asset and the custody we have and clearly in the higher is the base for uh for producing a higher commissions on brokerage this is a matter of fact so it's uh so these are more or less is what we are upset but it's not different from what has happened also in the past so it's a typical approach by this cluster of clients so they are They are trying to take advantage by the large swings that are on the market. On the UK growth, you're right, it's a little bit down, but this is just because we are still in the process of understanding exactly the final setup following the interaction we are having with the local authorities. And so we prefer to be a little bit cautious. So before starting on pushing again more on marketing there, we want to have the final picture completely finalized. So the discussion is still underway. And so our expectation is to come to the conclusion the next following month. And Germany is clearly even more straightforward market for us because we have no any and roadblocks represented by the fact that UK now is not anymore in the European Union. So everything is going to be very straightforward. And Germany is an extremely interesting market because it's a complex and competitive market. But at the same time, it's characterized by extremely reactive clients. And we think that Fineco can be extremely competitive in comparison with what are the prevailing offers there. So definitely, probably, the opportunity in Germany, in my opinion, runs the risk to be even bigger than in the UK.

What do you think, Paolo, on the point? Yes, I totally agree.

Germany is a great market for us. Again, we have a great offer in terms of value for money. I think we think we can be very successful there.

Thanks.

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

Good afternoon. Thanks for taking my questions. First of all, I see your updated guidance for AUM net flows at $5 billion this year. If we look at the year-to-date print, including April, and annualize that, this implies around $4 billion in AUM net flows. So I get from that that you expect an acceleration in AUM net flows in the coming months. Do you think, based on sort of the behavior of clients that you have observed in previous market corrections, do you think that clients could step in and invest a bit more in the market, assuming there is a stabilization? What is sort of the underlying scenario of market conditions that you have that underpins that 5 billion AUM net flow targets? Second question on banking fees, the guidance is for more than $50 million for this year. How sustainable is that going into 2023 and beyond? I am in particular thinking that obviously your offering traditionally has been one of three current accounts. You repriced the current accounts due to the persistently low negative interest rate environment. But now this is changing obviously. Is there any chance that you could revert gradually back to offering free current accounts or you don't foresee that at the moment? And last question on brokerage. If I remember correctly, in the last quarter you were hoping that brokerage could be flat or even exceed the 2021 level. of brokerage revenues this year. Is it fair to assume that we should be a bit more cautious now and potentially expect brokerage to be below the 2021 level in 2022? Thank you.

Thank you for your question. So let me start by the guidance on asset under management 5 billion. Yes, the assumption behind it is based on our past experience. So as soon as we have the market stabilizing, so the market is stabilizing doesn't mean necessarily market that is starting and going up, just means that we don't have any additional shock in the market, something that is unexpected. So we, because starting from the beginning of the year, we had three shocks. so the first one is the announcement by the central banks of the uh their change in terms of view on the inflation direction the second one has been the the beginning of the conflict in ukraine and the third one has been the the renewal of concern on the of the the possible much more aggressive hikes of interest rates that is just just recently and never delay because we what we were observing that every time that the market is able to digest the negative news and without having an additional brand new negative news flows then we start on picking up again and so the assumption is that at the end of the story to have a kind of not seeing bright skies in front of us but then a little bit more stable market in which everything that is negative has been let me say digested and so we can progressively return to the business as usual so this has been always the the history also in the past and so this is the reason why we are we we are still uh remaining uh with the expectation of uh of five billions so this is the is the rational on the banking fees You are completely right. It's a very good question, because now, considering that we are expecting a really massive increase of the financial income that is going to be really huge, and so, theoretically, the banking fees, so the charging price on the clients is looks a little bit spilling in front of the dimension of the financial income. So it's not necessarily any more needed. At the same time, we think that To have the clients paying a fee with then the bank giving back to them when they are becoming good clients is an extremely healthy approach. because it's preventing the bank from taking on board extremely low-value clients. So we think that we can drill out to move in the direction of making a special offer for certain cluster of clients, for example, for the young clients. But this is what we are doing right now. But going back again, the concept of zero of zero commission on the on the on the banking account we don't think that it's a it's a good idea exactly because the risk is to is to start again on onboarding a cluster of clients on which we have not a great interest and on the brokerage yes you are correct we we guided the market at the beginning here with an with revenues flat or even higher. And again, we think that when we are giving the guidance, what we are assuming is a kind of a natural scenario, so a scenario in which we don't expect anything spectacular, both on the positive and the negative side. the the guidance was been given expecting a normal volatility not too high not too low and the same story for the volumes and so we remain on the point so it's clear that if we enter in a period in which every month is in terms of volumes on the market is exactly the same we experienced in april clearly it's difficult that we can achieve higher revenues but for example it's a just in the last few days, for example, brokerage is back again, is rolling back again with the volumes and so on. We think that brokerage, if we stay in, let me say, decent market conditions for brokerage, so with a decent level of volatility, decent level of volumes, yes, we think that we have the possibility to get flat or even higher revenues, also because last year has been characterized by an extremely disappointing second part of the year. So the last year has been a year in which the first quarter has been absolutely amazing, mostly driven by everything that happened in the US with the GameStop and so on. And then the volatility has kept on collapsing, volumes going down, and so has been not a particularly exciting environment for brokerage last year. So this is the reason why we think that in the case we have decent conditions with a normal level of volatility, normal volumes, yes, we think that we are still on track for getting consistently so flat or even higher revenues.

The next question is from Filippo Prini with Kepler. Please go ahead.

Hello. Hello, good afternoon. Thank you. Two brief questions. The first one is on your guidance on costs, excluding the expansion abroad and family tax year guidance of plus 5%. You mentioned that you are pretty immune from IT inflation. Just wondering if you could be immune also from some salary inflation, so for a part of labor costs in the next years. And the second one is on lending. And see on this line, the lending that basically you kept is good mortgages, the expected yield, unspent. Just wondering if you do not expect into guidance of the fire interest rate any contribution going forward also from the lending portfolio. Thank you.

On a... Guidance on cost, we don't expect a significant wage inflation for two main reasons. because historically the Italian labor market is much more rigid than in other regions in Europe, and so we think that in any case the wage inflation in Italy is going to be less relevant than in other parts of Europe. And second, Finico is a factory. So we are not an investment bank. We are not an asset manager. So clearly, by definition, the level of exposure to the wage inflation in a company that is a factory clearly is much lower. And this is the reason why we are in our projections. We are embedding some salary drift, but it's not going to be anything spectacular. And Lending, we want to remind that lending for us is an ancillary business. So we are mostly the only real kind of lending that is for us is really important is the Lombard because it's strictly related to the investing business. and on mortgages we have not such a great appetite because we what we are observing that the banking system is keeping on using mortgages as a as a marketing tool and so providing solutions that they are not in line with the prevailing market conditions and from a mathematical point of view the area the reason why we expect uh yield and change i'm I'm leaving the floor to the CFO on that point. She is much more familiar with these numbers than I am.

To be honest, we have increased the expected yield because in the previous presentation we have 45-55 basis points and now 60-70 basis points. So we have... increase the average yield.

Yes, thank you. It was excluding mortgages, just focusing on personal goods and Lombard.

Yes. The Lombard is... We have to wait physically for... the three-month URIBO being back positive. So as soon as the three-month URIBO is not anymore negative and is positive, we are going to start enjoying an increase also on the margins on the Lombard. And on personal loans, It is a small, extremely profitable business, and we don't see any reason for increasing the rates we are charging to clients. Of course, in the personal loans, there is the classical case of the inverse selection. So the higher the rates we are charging to our clients, and the worst is the quality of clients you are attracting, usually.

Mr. Forti, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.

Thank you for attending our conference. And as usual, for everybody that is in the need of deep diving in our numbers and guidance, please, we are available for any kind of follow-up on the presentation. Thank you again for attending the conference.