Finecobank Banca Fine Spa

Good afternoon. This is the Corsco conference operator. Welcome and thank you for joining the Fineco Bank second 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 and General Manager of FinEco Bank. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining our second quarter results conference call. Before going into the details of our presentation, let me please remind you that in recent months there has been a huge change in the structure of the market, which is further enlarging our growth opportunities as a platform. As you know, our new dimension of growth is underpinned by the recent acceleration of the structural trends that are reshaping the society. This has been further strengthened by the increase in the interest rate scenario since the beginning of the year. The main outcome is that Sineco is becoming more and more a fast-growing and capitalized business model 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 dividend at the same time to be in the position to invest more to our growth. Let's now move on to slide five. So adjusted revenues at $464 million, increasing by 15% year-on-year, and mainly supported by the investing, thanks to the volume effect and the higher control of the value chain by FinEco asset management, and by the net financial income, which is sustained by our client's very sticky and valuable transactional liquidity. Operating costs. were well under control at $136 million, increasing by 3% year-on-year and confirming operating leverage as a key strength of the bank. Adjusted cost-income ratio was equal to 29%. On cost, let me please remind you that the strategic decision to manage 100% internally our IT is protecting us from the inflation on IT cost. Our capital position confirmed to be strong and safe with a common equity TR1 ratio at 19.14%. Our commercial activity confirms to be extremely solid also in July with net sales at around $1 billion and a strong mix with around $313 million in asset under management and around $310 million in asset under custody. Estimated brokerage revenues in July at around $13 million around 25% higher compared to the average July revenues in the period 2016-2019. This result was achieved despite market volumes extremely low in the month and close to the historical lows, thus confirming once again that the floor of the business is now definitely higher. As announced, we reached Very strong results also in the first half of the year. We've adjusted net profit at 222.5 million plus 20.5% year-on-year on a like-for-like basis, despite the very challenging macro scenario. The quarterly decrease is entirely explained by the contribution of profits from treasury management at the beginning of the year. Revenues at 464.3 million, up by 15.1% year-on-year, 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 robustness of our net financial income. Operating costs at 136 million, well under control and increasing by 3% year on year, excluding costs strictly related to the growth of the business. Let's now move on slide seven and start to analyze more in details the dynamics of our results. Net financial income in the first half of the year at 176.4 million, increasing by more than 19% year-on-year, with net interest income 127 million and profit from treasury management at 49.4 million. Let me highlight that net interest income is increasing again starting from this quarter thanks to the strong gearing to interest rates we have driven by our clients' valuable and sticky transactional liquidity. We are continuing to accelerate the growth of our non-financial income, which in the first half reached 287.4 million, up by 12.7% year-on-year, mainly thanks to the positive contribution of investing and banking. Now, jumping on slide 22, we will deep dive on the performance of the brokerage business. Overall, brokerage registered an excellent first half at 107.1 million despite the negative market contest in terms of volumes, confirming a structurally higher floor compared to the pre-pandemic levels regardless of the level of volatility and volumes. As you can see in the chart on the top of the slide, In the second quarter of the year, brokerage revenues reached 47.3 million, resulting in a monthly average 40% higher compared to the monthly average revenues in the period 2017-2019. Let me remind you that the growth of the brokerage business is driven by the contribution of three structural components. the deep reshape of our brokerage business, on which we will deep dive later in the presentation. Second, the widening of our client base using the platform as shown in the graph on the bottom of the slide, where you can see that investors have grown significantly in absolute terms, standing around 35% above the average level of 2018-19, This trend has been confirmed also in the most recent quarters despite the low volumes on the markets. As our target market is focused on wealthy and financially aware clients able to trade in every market conditions. Third, we are continuously increasing our retail market share. Let's now move on slide nine for a focus on investing. Fineco is positioned 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, Finicost management is now reaching a new dimension in the economies of scale, thus taking more control of the value chain. As a result, investing revenues were equal to $141.1 million in the first half of 2022, increasing by 22% year-on-year, with managing fees increasing by 22.6% year-on-year. Let me highlight that the strong contribution by Finneco Asset Management has been able to sustain our margins and revenues in a quarter characterized by strong negative market performance, with average stock decreasing from 53.6 billion in the first quarter to 52.2 billion in the second quarter. Investing revenues in the second quarter increased by 3.1% quarter-on-quarter, with just a modest quarterly decline on management fees by 1.5% due to the negative market performance. And management fees margins after tax flat quarter-on-quarter at around 52 basis points. Let's now move on to slide 10 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 first half of the year at $136 million, growing by 3% year-on-year, excluding costs related to the growth of the business, mainly additional $4.2 million cost for FinEcoset management, that are current with acceleration to further expand its business and have a higher control of the value chain. Additional $1.5 million in marketing costs. Staff expenses at $57.5 million in the period, increasing by 4.8% on a yearly basis. Net of costs related to the expansion of the business of Finnegan Asset Management. Finally, non-HR costs at $78.5 million, growing by 1.8% year-on-year, net of the above-mentioned costs related to the growth of the business. Let's now move on slide 12 for a focus on our capital ratios. Finaco confirmed once again a rock-solid capital position on the wave of a safe balance sheet. Common equity tier 1 ratio at 19.14%, leverage ratio at 3.82%, risk-weighted assets at $4,851 million, and total capital ratio at 29.45% as of June 2022. Let's now move on slide 19. As anticipated at the beginning of the call, we are in the sweet spot to benefit from the new market structure. Let me add that despite The current volatile environment, the growth of revenues expected for 2022 is stable compared to the last quarter presentation with a different mix thanks to the quality of our diversified business model. With regard to our banking revenues, we expect our net financial income in 2022 to be around $330 million with the current forward rate curve. In 2023, we expect the growth of the net financial income in a range between plus 30-35% compared to the upward revised 2022 expectations and already cautiously considering early repayments of the TLTRO at the end of 2022. Going forward, we expect our net interest income to keep on benefiting from the new interest rate environment, both thanks to the sensitivity and to the volume increase. Overall banking fees are expected above $50 million in 2022. In 2023, they are expected to keep on growing thanks to the increase of client base and to the previous repricing actions. On investing, taking into consideration the negative market effect up to June 2021, We expect for 2022 revenues to increase by around 10% with higher management fees margins year-on-year. Overall, banks' asset under management net sales are expected at around $4 billion. For financial asset management, we expect retail net sales in a range between $3 and $3.5 billion and an increase of the funds underlined component that will offset the decrease of our retail net sales versus the previous guidance. We also expected to increase by around 110, 130 personal financial advisors in our network. Going forward, we confirmed the guidance of around $6 billion. net sales per year in the overall bank's asset under management. For our Irish company, we expect retail net sales around $5 billion per year. And also here, we expect an increase of the funds underlying component that will offset the decrease of our retail net sales versus the previous guidance. Finally, we confirm the increase of the bank's management fees Margins after tax up to around 55 basis points and pre-tax margins up to around 75 basis points by 2024. Let me please underline that thanks to our increasing expectations in the funds underlying net sales component in our Irish company, we expect to reach our management fees margins target before 2024. Brokerage revenues are expected to remain strong with a floor in relative terms with respect to volatility that is definitely higher than in the pre-COVID period. Let me remind that the trend has been further confirmed in the first half of 2022, despite the worsening market conditions in terms of volumes. Operating costs in 2022 are expected to grow around 5% year-on-year not including around $7 million in additional costs related to FinEQ asset management's strategic discontinuity to improve the efficiency of the investing value chain. On cost, let me please underline that a strategic decision to manage 100% internally our IT is protecting us from the inflation on IT costs. Thanks to this, We will consider in the coming months the possibility to further accelerate the market expenses to take advantage by the strengthening of the structural trends. Let me please add that we expect finical asset management costs 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 45 slash 47 million dollars within the provisions for risk and charges based on the increase of protected deposits within the banking system. Tax rate for 2022, we expect a decrease around half percentage point considering the most recent interest ratio scenario and therefore according to the revenues mix. On our capital ratio, we expect a quarter one ratio to remain comfortably above the floor of 17% and the leverage ratio comfortably as well in a range between 3.5% and 4% currently with the combination of both a strong acceleration in the growth on the bank and the distribution of generous dividends. As you can see in slide 51, 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, SPED hits, constantly increasing, also thanks to the progressive deliver on our strategic discontinuities. Cost of risk, was equal to two basis points thanks to the quality of our lending portfolio that is hopefully exclusive to our loyal customer base. In 2022, we expect to stay comfortably below 10 basis points. Finally, we expect a robust and high-quality net sales with a mix mainly skewed towards asset under management and with a lower component of deposits, thanks to all the new initiatives we are undertaking. Let's now move to slide 21. As anticipated during the presentation, Finic Asset Management is progressively delivering in its strategic discontinuity to take more control on the investing value chain, resulting in higher revenues and margins for the group. The contribution of unique asset management to the group asset under management net sales is further improving regardless the macro scenario, moving from 57% in the first half of 2021 to 81% in the same period of 2022. In the first six months of the year, our Irish company recorded 1.4 billion of net sales in retail classes in a market environment much more complex compared to the same period of 2021. Finneco Asset Management continued to deliver in the internalization of the value chain with a strong increase in net sales of funds underlying WAPIS. As a reminder, this process is linked to the substitution of FinEQ asset management funds within the building blocks used for funds of funds or insurance WAPIS, this leading to an additional margin contribution for the bank. 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 and retaining a higher margin. I'll now leave the floor to Paolo Di Grazia, our Deputy General Manager, for an update on the new initiatives that the bank is undertaking on slide 23. Please, Paolo.

Thank you, Alessandro, and good afternoon, everybody. In this slide, let me introduce the wide range of improvements we are undertaking throughout the whole one-stop solution to further simplify our already best-in-class user experience thanks to new, easy-to-use tools and more efficient marketing engine. This renewed platform will be the cornerstone of our international offer. On brokerage, we are introducing several initiatives to speed up the activation rate and to improve the client segmentation and cross-selling. In 2023, we will introduce a modular approach to further catch our next generation of active investors with the launch of a new brokerage-only account with the possibility to upgrade to our full-fledged platform anytime. This will be characterized by dedicated pricing, a faster onboarding process, and a redesigned front end for an easier journey towards trading ideas and will allow us to better segment our client base and target clients all interested in brokerage. The new offer will be particularly appreciated by young clients and will also favor small ticket trades. On top of this, we will introduce the new trading page to let our clients access in an easier way to trading opportunities. And finally, the new brokerage platform will soon be in the family and friends phase, and its launch is expected by the third quarter. On the investing area, we have simplified our own page to better market investment solution, fitting to the best for each cluster of clients. On the operational side, we have further improved the user experience of our process to allow clients to interact digitally with our financial advisor. On top of this, we are preparing a new advisory platform, allowing for an even more tailored service for our clients in terms of pricing, reporting, and risk management. On banking, we have recently improved our onboarding service through an easier and faster process which was inspired by our experience in the UK in the very first weeks since the launch has resulted in an increase of 30% of current accounts open throughout our mobile application. On top of these activities, we are going through a strong improvement of our marketing engine in order to further exploit our big data analytics. The results of the first test are very satisfying as we are recording a far lower acquisition cost and better conversion rate. Let's now jump to slide 25 for a focus on the international business. In this slide, we're presenting the strategy for the development of our business abroad, where we will leverage on simplified and digital only offer. We are now getting ready to the development of our brand new platform for investments that we have developed internally, which will be highly scalable and multi-language. This will allow us for a smoother and more straightforward startup process for entering new countries, as it will only imply a business and marketing effort to identify the right set of products and services. Moving on to the update on our UK business, let me first highlight we are on talks with the local authorities on the post-Brexit setup and we are evaluating the pros and cons. For this reason, we have reduced our marketing activity over the last few months. Despite this, our business is gaining traction thanks to the word of mouth and we are improving our revenues generation. As we have already anticipated, the new country we are planning to approach is Germany in 2023, leveraging on our new platform for investment. Our plans are to develop the offering in two steps. First, brokerage and multi-currency, and second, investing with no network of financial advisors. The offer will tailor German customer behaviors, leveraging on CFDs, certificates, and DTS, while the brand positioning will look to acquire sticky, high-value, and financially aware clients looking for fairly priced quality service, as in our DNA. Finally, in the next few years, we plan to approach different countries across Europe, depending on the opportunity that may arise. Thank you for your attention. I will hand it back to Alessandro, please.