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.

Thank you, Paolo. Before moving to the Q&A session, let me please add that today the Board of Directors approved the 2050 net zero emissions plan regarding both operational and financed emissions, also defining intermediate targets by 2030. Thank you for your time and we can now open the call to questions.

This is the Coruscant 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. Anyone who has a question may press star and one at this time. The first question is from Enrico Bolzoni of J.P. Morgan. Please go ahead.

Good morning and thanks for the presentation. A few questions from my end. So actually starting from one of the last things you mentioned, which is this innovation and simplification project. Within brokerage, it seems that you want to step in a bit more into the, as you say, lower ticket, younger generation, younger demographics. Can you give us an idea in terms of what do you think is the addressable market in Italy? And if you can also give us any color in terms of what pricing are you thinking of? And again, related to that, you soon will be going to Germany soon. Is there an opportunity there to actually export to this new platform for younger demographics? So, for example, I'm thinking of Flatex de Giro, which might end up being a bit more of a direct competitor there. So that's the first question. My second question was related to the fee margin. So the management fee margins were actually flat over the quarter, despite the IOM came down, and I presume especially equities came down quite a lot. So that clearly was problematic. impacted positively by the transformation of FAM. Can you give us an idea and quantify how much margins could have been if, let's say, equity markets would have remained flat over the last quarter? That would be helpful. And then finally, I would have a final question. NAI is going up. Are you still of the idea of not paying deposit holders at the current stage, and what should we expect from over the next couple of years if rates continue to go up. Thank you.

No, thank you. Let me start by the innovation project. So clearly the main rationale behind our decision is I want to be extremely frank and transparent. So in going forward, The most part of money is going to keep on being done in the clients in the range of age between 40 and 65 years old right now. This is not expected to change anytime soon. At the same time, it is important that you start on building the base of your client of the future. The driver behind this move is much more in the direction of keeping on building up what is going to represent our future clients and is not driven. So the main goal Clearly, we expect also a contribution in terms of revenues, but this is not exactly the main goal. And the pricing is going to be, as Paolo was explaining, is going to be more efficient in segmenting in favor of small tickets, because at the moment, Finic is extremely uh convenient for the decent ticket that is less aggressive on the small tickets so this hofer is going to be even extremely efficient on the small tickets but again the ratio is not to take on more the unaware and clients because we are going to remain stuck to the concept that every client we are going to take on board has to be a client aware of what they are doing. And clearly this is going to represent the backbone of what we are planning to do in Germany, for example. I don't know, Paolo, if you want to add something. to give some more color on this point?

Yeah, basically three things. The first, it's an investment for the future. As Alessandro was saying, we're just investing on people that will be in the future, our private clients and people that will use the full platform. Second is going to be very helpful for the international expansion. And the third is that always when we think we design something for younger generation, we are forced to simplify everything, to think even in a simpler way. And this is something that we will use also for the rest of the offer. So this is the basics. And of course, we are going to offer to this segment. Actually, we already have a lot of things for younger generation in our offering, but probably we have to do a better marketing to propose things like the you know, the ETF plan, all the ETF awards, we just sign a zero commission agreeing with different houses and these kind of things we will market to this kind of younger generation.

On the point on the management team margins, I agree with you that the resilience of our management team margins has been quite impressive. And clearly the main reason is that we are keeping, we are progressing in our journey of keeping a much more direct control of the value chain. And so this also is the rationale behind the extremely resilience of the guidance because we are confirming the achievement of the goal we gave to the market last year. And also we remain on track for... achieving that goal before the schedule. Behind this there is the assumption that we return to natural market conditions, so we are not embedding any positive or negative market effects, so assuming an absolutely uh neutral market we we can keep on uh we can reiterate the initial guidance and um to give you the exactly which kind of uh margins uh we could achieve the case of uh of uh not a negative market effect probably have to ask to our uh my colleagues of the higher Investor Relations team to make a follow-up because I'm not able to give you such a detailed and precise number right now. And so... Okay. So on the net interest income going up, yes, we know we are not planning to pay anything. to clients but for a very simple reason because as we are repeating that the largest part of the liquidity we are gathering is represented by transactional liquidity. So the liquidity we are collecting is for the most part transactional liquidity, and then there is the remaining component that is liquidity that is just awaiting to be put at work in the markets. And as soon as we, as much as we return to more stable market conditions, the process is going to keep on accelerating. And this is going to move us in the direction of a business mix more skewed in the direction of asset under management. But again, the remaining part of the liquidity being transactional liquidity, we are not going to pay anything to clients. Just as a reminder, Sineco stopped paying interest rates on deposits in 2012, so many, many years ago. And this has been a strategic decision because we are not interested in taking on board the wrong liquidity for the wrong reasons. And so this is there.

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

Hello. Hi. Good afternoon. Thanks for the presentation. Some questions for me. First of all, on the net financial income for the second part of the end 2023, can you please confirm whether this number includes any profit from Treasury management or is it confirmed what you said in the last call that from now on we should expect basically zero under this line? The second question is on the potential upside if TRTO conditions remain the way they are, and whether you can grab additional NII going forward. And so if you could quantify, and then I noticed that you have increased the bond exposure in the quarter and also a little bit of the maturity duration came down. So I mean, you're better positioned to grab the rates impact. So I was wondering whether from now on, given this P&L line is going to be bigger and bigger, you can change again a little bit, you know, remix, increase the exposure and benefit even more from the rate increase. The second question is on investing revenues. I appreciate you gave these 10%. I mean, it's a bit probably conservative. I made a number, so I wonder whether you have included in the second part of the year still difficult markets. And the question is whether it could leave some upside going forward. Instead of brokerage, probably the one that keeps a little bit disappointing and also the July number. I know that it wasn't a great month when it comes to volatility. But even when I redo the math, And based on the number of executed orders, it looks like the average fee is coming down, still quarter on quarter. So I just wonder whether that's the effect of the mix, you know, less equity, or there is a little bit of competition in Italy given new entrance. And then I see the 6 million trading profit in the banking division on top of the profits from treasury management. I just wonder which source of revenue is that. Thank you.

Yes, thank you. So let me start by the financial income. Yes, we can see that it's going to be made exclusively by net interest income, and so we don't expect any material trading profits going forward. we prefer to give the guidance on net financial income excluding the tier TRO because it's clear the tier TRO has been introduced for has been introduced with the rationale behind so I'm asking to my colleagues if they can stay stop on keeping on rolling the questions because otherwise I I'm getting a little bit lost. So we prefer to give the guidance without including the TRTRO because this has been introduced in order to offset the negative impact produced by negative rates. Now negative rates are disappearing and so we think that there is a very high probability that the TRTRO is going to be It's not going to be offered in the same very favorable conditions, but in any case, it's going to stay. I'm asking to, I don't know, Lorena, you have that number available immediately?

Yeah, good afternoon to everybody. Thank you, Alessandro. For 2023, in the case of we have the TLKRO in place, we can have 15 million of additional margins, considering the current environment. But we don't know exactly what will be the condition for TLKRO. This is why we have excluded in our calculation.

So regarding the third question, I'm not sure that I got correctly your questions because you are referring to increased the bond exposure in the second quarter. The increase of the bond exposure is related to the increase of the liquidity we are gathering. So going forward, we don't expect any significant discontinuity in respect to what has been done until now. We expect to remain, to maintain and maintain and average maturity in a little bit above five years, and so we don't expect to make any significant change. And the most part of the investments are going to be driven in the direction of the so-called Eurobonds, and so on. So this is more or less what you can expect. And this is exactly embedded in the guidance we are giving to the market, particularly when we are referring to the increase between 30% and 35% of the financial income going through 2023. On question four, the investing guidance for investors 2022 is, yes, probably you're right, because we are not, for example, we are not considering, we stopped, we didn't consider the market effect, the positive market effect of the month of July, that has been the best month of the year, but as usual, we think that you have to be extremely careful in considering the market effect because the market is volatile. But yes, if these numbers are confirmed, again, it's probably a little bit conservative. July brokerage, I don't agree on the disappointment on July brokerage because clearly we July brokerage, July has been characterized by market conditions in terms of particularly volumes that has been really, really bad, but not just for online brokers, but for overall the market. So the volumes are very close to the historical lows. And nevertheless, the numbers have been strongly higher than the pre-pandemic events. And so we think that usually when we are trying to evaluate the floor of the business, we are looking to the core mass. And July has been an extremely unfavorable month for brokerage. Nevertheless, we have been able to deliver absolutely resilient results. And for this reason, this is the reason why we are not considering July brokerage as a disappointing one. and fee we we don't have any absolutely we don't have any pressure on on margins and uh probably i don't know is the if there is the average fees coming down there is a we have um there is some probably some technical reasons in terms of mix of products and some but probably if you don't mind we can we can return to you later on being a little bit more precise unless

paolo has not some something ready to explain uh this part of your question i don't know paolo but it's also yeah it's also depending on the part of the the flow the flow we internalize and uh so it depends on on the we every each month is different because the mix of uh you know uh trade executives in the exchanges trading is executed internally

could be one of the reasons that we... But in any case, they are just purely technical reasons and there is absolutely no pressure on margins brought by the competition.

Sorry, in the six million?

Yes, but if Lorena, if you want to... Yes, I can answer to this question.

The trading profit in the banking division is related to the hedging activities on mortgages and on our bond portfolio. As you know, in accordance with accounting standard IFRS 9, derivatives are evaluated taking into consideration a free risk rate, that is, ESTR, coherently with the fact that thanks to the collateralization, there is no counterparty risk, while the edged assets, mortgages and bond portfolio, are evaluated using the EORIBOR. The spread between these two rates widened in the last period, generating this increase. Going forward, we don't expect significant impact, also taking into consideration the expected increase of edged assets that we will manage going forward.

Okay, thank you very much. It will be a pleasure. Thanks.

The next question is from Giovanni Razzoli of Deutsche Bank. Please go ahead.

Good afternoon to everybody. Just one question on my side. Can you provide us with an update on the performance of the UK platform in terms of operating profit in the first half? And I was a little bit confused with your comments during the call, because at the very beginning, your detailed analysis seems to me to indicate that it remains a strategic option for the group, while then at the end of your speech, you mentioned that you are discussing with the regulator about the post-Brexit outcome of that. So shall we take this as a possible strategic revision of the presence in the country? Thank you.

No, we prefer to be extremely transparent with the market. It's a matter of fact that at the moment the relationship between the UK and Europe is not exactly at the best possible level. And so we are still in talks with the local regulators for understanding exactly what is going to be the final setup for running the business in the UK. We remain positive on the outcomes, but clearly we cannot rule out 100% to have an outcome that is going to make the activity there not efficient. Honestly speaking, I would be surprised, but considering that there is a discussion underway. This is the reason why we prefer to slow down the marketing activity in the UK, awaiting to have by the local authorities the final setup for keeping on working there. On the performance, we confirm that UK is remaining profitable from an operational margin point of view. So it means that just excluding the marketing cost, the business is generating more revenues than cost. And so this is a quite remarkable achievement here. considering still the small dimension of the business. And this is what is making us extremely relaxed on the possibility to keep on expanding in other regions.

Okay. Thank you. Very clear.

The next question is from Andrea Vercellone of ExanB&P Paribas. Please go ahead.

My questions have already been asked. I just ask again one of the questions. You mentioned that you haven't paid interest rates on current accounts since 2012. Obviously, rates have been at zero since 2016 or 2015 or thereabout. They are going to go to positive, however. And if I look back in 2012, 2013, you did have some interest expenses on your current accounts. So can you confirm that if interest rates were to go to 1%, 75 basis points, or even higher as expected in the forward rate curve, you're still going to pay zero? I understand you are... your liquidity is mostly transactional, but you still need it. So if the money goes away, maybe an incentive to keep it might be required.

Thank you. It is a very good point. Let me go back to 2012. You're right, because if you go through the our lines, in 2012 we introduced the concept that we are not paying any more interest rates to the clients, but at the same time we had in place the so-called term deposits. And the temp deposits were attracting mostly not transaction liquidity, but liquidity that was looking for remuneration. Then progressively we eliminated also, at the moment we are not providing directly temp deposits. On the contrary, we put in place a platform in which we are offering to clients time deposits offered by third parties. And this is going to remain the plane. So we want to keep very clearly separated the transactional liquidity on which clearly we are going to keep on paying zero because I would like to remind that transactional liquidity is the liquidity that is with you just because clients are using your transactional banking, your brokerage, and this liquidity is not moving for chasing interest rates. And then there is another kind of liquidity that is liquidity that is looking for a remuneration. And this liquidity is going to be captured by the third party's platforms or better is going to be invested in the market. And so we are concerned that we can... Our point of attention is not to retain liquidity because the tailwind we have in terms of growth of clients and when we are continuously explaining that the real strength of the bank is that Finic is much more a platform than a bank. The reason is that the clients are joining the bank because they are attracted by the fact that everything is working incredibly well as most simple and this is making the liquidity being extremely sticky and staying with us and so we yes we we in the case we have for example interesting interest rates going up much higher than the market is expecting. We don't see any significant impact on our liquidity. What you can expect probably is a cannibalization process on the investing business. Historically wise, we know that when you have the Three Matthew River approaching the level of 2%, this starts on becoming a little bit more challenging for the investing business. But on the liquidity side, absolutely no. We are going to keep on paying zero. is probably still and relatively not completely fully appreciated part of our platform. It was at the beginning when we started our journey and then has been progressively lost considering the negative rates and so on. But yes, we can see that we are going to keep on paying zero to clients.

Okay, this is very clear now. Then I'll ask a follow-up on this. I found interesting what you added to the question that it won't cannibalize the banking business profitability, but it may have an impact, may, depending on client preferences, of course, on the investing income. So on this point, your guidance on that, medium long-term flows has been around six billion uh since last year uh you haven't changed that uh but your rebar has gone up so what makes you confident that that is still realistic so you don't risk this cannibalization impact now this as i as i explained based on the historical experience that the trigger level

that is starting on producing an impact on investing business is mostly driven by the short-term rates because this is what is changing the appetite of clients. And the level of rates that historically is starting on representing a challenge to for the appetite of clients on investing business is when you have the three months you were approaching the level of 2%. Clearly, this is is above what is expected by the four-way curve, and I want to be extremely frank and transparent with you. If you tell me that tomorrow morning we are going to have a three-month URI at a 2% level, we are going to be very happy because we are going to make a fortune on the financial income side and just with a small reduction in the expectation on the investing business. So overall, it's going to be a great scenario for us. And then the reason why we are remaining extremely, we are reiterating the guidance on the six billions of net sales because the numbers on the asset under management business in this first six months, the numbers has been in relative terms incredibly strong because we went through the worst period beginning of the year in the last probably 20 20 years nevertheless the the flows are there we are keeping on going so we we what we are observing that our commercial traction of clients has been definitely improved and as soon as we have Let me say just natural market conditions, we are going to be back to the normal where they're quite relatively easy. So this is the reason why we are remaining extremely confident on that numbers.

Very clear. Thank you.

The next question is from Luigi Debellis of Equita. Please go ahead.

Yes, good afternoon. Two quick questions for me. The first one is on the banking fees. Looking at the guidance for 2023, I'm just wondering if the increase expected in 2023 is only volume-driven. I mean, in a scenario of sustained inflation also in 2023. I'm wondering if you can also think about a potential repricing of banking fees. You have still a huge gap in terms of price-quality ratio compared to the main online and branch peers, even wider than in the past. And the second question on the customer behavior, are you seeing a change in attitude from your customer due to the higher interest rate? And when do you expect, if any, a change in attitude? What is the level of short-term interest rate? the driver change in the mix of products from your customer. Thank you.

On the banking fees, you are right. We have in terms of relative gap to the traditional banking world, we have plenty of room for increasing what we are charging to our clients, but we are not planning to do that because we don't need to do that. And so the guidance is just only volume-driven and so on. Regarding the customer behaviors, as I was explaining hands-on to Andrea's question, based on our historical experience, usually we expect a potential impact on the client's behaviors and their appetite in subscribing investing products when you have the short-term rates so let me say the three-month euro approaching the the two percent level because because the clients clients are mostly driven by short-term rates, so they are not driven by the level of the, for example, the 10 years and so on. So the normal clients are driven by that. And so, yes, if we have, for example, St. Matthew Rebord approaching At the 2% level, it's reasonably expected the beginning of a kind of cannibalization effect on the investing business. But as I was explaining, the big advantage that Fineco has, that being a platform, we are going to... It's much more what we can get, but that kind of scenario, respect on what we can... lose in terms of declining revenues, not declining revenues, slowing growth on the investing business.

Thank you.

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

Good afternoon. Thanks for taking my questions. First of all, with regards to the cost outlook that you have reiterated for 2022, I was wondering how should we think about cost growth in 2023 considering your international expansion plans in Italy but also potentially in other European countries as you have mentioned in today's presentation? Then with regards to the ETF introduction in the third quarter, can you give us some color sort of which customers will be targeted to be offered ETFs and what will be the pricing on those products relative to the active funds that you have on the platform? And also with regards to the brokerage-only current account, Can you explain to us what is the rationale for offering these current accounts separately from the banking current accounts that you have? And am I right to expect that their remuneration on the brokerage-only current account is also going to be zero going forward? And lastly, on the third-party savings platform, you mentioned that for customers looking to get some yield from their deposits, you will direct them to off-balance sheet solutions via that platform. What are the volumes that you have collected in third-party time deposits at the moment? And are those volumes included in your assets under custody? Thank you very much.

Yes, thank you. So on the cost outlook, really we are at the is related as we explained to the organic growth, of course, for the operational running costs and so everything. And on top, we are not considering additional expenses to put on, for example, international expansions, plants and so on. But in the case, considering that in 2023, also, if we are particularly fast in expanding, for example, in Germany, you have not to expect anything that is going to be really significant in terms of cost. But in any case, when we are giving the outlook of cost, it is related to the ordinary activity of the bank because what we think that is important is to give to the market the flavor of the efficiency of the bank and so the operational gearing we have then everything that is on top of that is another story so for example if at a certain point we observe that we have in front of us particularly favorable market conditions that can be a good idea to invest more in marketing we are going to take the opportunity, but this is not going to change anything. It's going to be kept separated by the evaluation of the operational efficiency of the bank because I think that for the investors, what is important for them is the operational hinging of the bank. That is the real point of strength. On the FAMETF, you probably are referring to that. So which is the rationale of this and the customer target? First of all, the main rationale is to be able to provide to our clients and to our financial planners solutions characterized to be extremely transparent because there is anything more transparent than passive solutions. At the same time characterized by a quite relevant level of convenience for clients because as a matter of fact that these products are characterized by a much lower total expense ratio for clients. The fact that we are internalizing completely the production of these solutions, the result that in terms of margins, these products are extremely profitable for us. For example, our advisory solutions based on the usage of these passive solutions manufactured by Finic Asset Management At the end of the process, we expect a profitability that is going to be close to 60 basis points after tax. So that is slightly above the target profitability we are giving to the market for 2024. And this simply because everything is directly manufactured by us and we are not to split anything with third parties. So in the customer target, in this case, as we explained, the highest appetite for these solutions is different by what is thought by the market is more in direction of the rich clients. So the rich clients are emerging as extremely interested in efficient, transparent and low-cost solutions. But the nice part of the story, thanks to the perfect control of the operational side of the story, we can combine together convenience for clients and profitability for the bank. On the brokerage-only current account, which is the rationale, Paolo, do you want to give us some more color on the rationale behind this?

So basically, as I was saying before, three main reasons. The first is simplification. With a different brokerage-only account, we are much faster on onboarding new clients. We are required to ask much less data. from our clients, from the new clients. So it's much faster onboarding and we are going to be much more also the interfaces of the website and the application are going to be much easier because less much more simplified. The second reason is that we are going to better segment in terms of pricing or the products we offering. And the third is that this kind of brokerage-only account will be also the base for our international expansion. So, basically, these are the main reasons.

Paolo, if I can add also, because another very important point, that FinEQ is characterized by offering to clients a real powerful one-stop solution. But sometimes with some clients, particularly young clients and so on, the reaction of these clients in front of the Finneco platform is great, is incredibly rich platform, but it's too much. I don't need to have all this stuff together. And what I need is something that is a little bit simpler. And so we are just providing something that we've less... items, components in order to fulfill the expectation of this kind of clients. And yes, the remuneration is going to be zero because the liquidity attached to this kind of current account or this brokerage only account by definition is transactional liquidity.

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

Yes, good afternoon.

Excuse me, because there was another question. We had a delay in scrolling the question. Angelica, it was a third-party deposit plot. What volumes we have collected at the moment? These volumes are accounted in asset under custody, and the volumes at the moment are relatively small. because, again, the level of rates is still too low for really attracting the interest of clients. And this is confirming that in order to have more interest by clients in this direction, we need to have definitely higher rates. Sorry, Helen, if I interrupt you, but

The next question is from Elena Perini.

Please go ahead, Mara.

Thank you. Thank you. So I've got two questions. The first one is on the net financial income on your guidance for 2023 of plus 30%, 35%. So if I understood correctly, you are taking – the 330 million as a reference point, the guidance for 2022 for a starting point. So basically you would have more than 400 million net financial income next year made by net interest income. I was wondering what is the effect that you expect in terms of growth from volume contribution and from margins. And the other question is about the brokerage business. Because, well, in the first half, you had an average of 16, 17 million per month in terms of revenues. Now, in July, you had 13 million. I was wondering what we can consider as a new monthly run rate going forward, perhaps 15 million or more. something like this. Thank you very much.

Yes, on the net financial income, you are right. We are keeping in order to give the guidance for 2023 The reference point is the 330 million of 2022. And the assumptions behind it is to have probably net new liquidity, new deposits in the region of a couple of billions of euros. That is absolutely true. perfectly linear with the historical, with the history of the bank. And secondly, the other assumption we are, these numbers is based on the forward rate curve that has been updated yesterday. So that is probably the most updated forward rate curve we have and yes and clearly the net financial income is going to be definitely above 400 millions and is going to be is going to be represented exclusively practically by by net interest income so not with any treasury management And I'm asking Lorena to jump in if I'm saying something that is wrong. No, it's correct. Yes. So in terms of volumes and margins, so the volumes we said, so a couple of billions of more liquidity gathered, but this is perfectly current with the expected growth uh of the bank uh and uh and the margins again are driven by the by the evolution of rates and we are using the the forward curve and the forward code we are using is updated to to to yesterday on uh on a brokerage uh it's like it's extremely It's very difficult to give such a precise guidance on the average revenues generated on a monthly basis by brokerage because brokerage is impacted by elements that we are not controlling, that is mainly the volatility and particularly the volumes on the market. This is the reason why we prefer to give the indication that for us what is important is to monitor the floor of the business, so what we are producing when the market is not favorable to brokerage. And July has been an absolutely complex month for brokerage, generally speaking, exactly for the lack of volumes. And so I think that it's up to you because it depends. which kind of expectations you can make a model. So, say, if you want to be incredibly conservative, you can say, I'm expecting that the markets characterized by volumes that are going to be close to the historical loss for the for the future or not, or you can use volumes that are more in line with the normal math. So it's very difficult to give such a kind of... Brokerage by definition is volatile exactly because we have the impact produced by elements that we are absolutely not controlling. For us, it's important to monitor the floor. And the numbers are telling us that if we consider a period of times of the past characterized level of volumes at the same low level, now the revenues we are generating are definitely much higher. And this is what is making us extremely positive on the future evolution of brokerage.

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

Yes, hi, good afternoon. The first question is on the guidance on flows. I think you are confirming the 6 billion a year in terms of total flows. I think last summer you also got a guidance on funds, specifically 6 billion a year. We are at 1.4 in the first half. I was wondering what are your expectations for 2022 in terms of overall flows in fund. The second is on recruitment. I think it is pretty tough to recruit people. in this period. I remember you were also focusing on young people to train internally, but I was wondering what are your experiences so far with the most senior advisors, if you are able to recruit or you're experiencing a slowdown. The third and final is on products. If you have any kind of appetite or demand for capital guaranteed products, I see you are due to launch a smart defense equity and, I mean, products where it seems you are protecting a bit the performance of customers. If you can add a bit of color on the new product launches. Thank you.

Thank you. So let me start by guiding some flows on Finacos management and thank you for raising the point because this is an interesting point. So if you go through our presentation, we went through a lowering of guidance on the retail sales of Finneco Asset Management, both on 2022 and also on 2023. This is driven by a change in the appetite by clients on products. Because now, and so I'm taking the opportunity also to answer to another question you made. So what we are observing is also a change in the appetite of clients for solutions. So, for example, now what is emerging is a growing demand for investment solutions, insurance wrappers, and so on. And particularly the growth of the insurance wrapper, by definition, is decreasing the room for sales of Finneco Asset Management retail sales. but at the same time is increasing the room for the underlying sales. So the building blocks that are used for the insurance wrapper, for example, are made now 100% by the Fineco Asset Management underlying solutions. So what we expect to miss in terms of Finic Asset Management retail sales is going to be recovered through the underlying Finic Asset Management solutions. And this is the reason why putting everything together is not changing too much in terms of expectation of the devolution of margins and revenues. So this is the And, clearly, in this part, because another question has been if there is interest by clients for protected products and so on. The answer is that there is interest by clients for solutions characterized by an An approach that is conservative, for example, the insurance wrappers that they are combining together, the protected components with a progressive exposure to the markets are very well welcomed by clients. And the same story for the decumulation products, but you're familiar with the story. So yes, there is an increase of demands by clients for solutions that they are making the handlers on the markets a little bit more under control. So if Gianluca and Frank are so kind to scroll the question.

Yes?

Oh, record me, probably. Yes. Recruitment, yes. So on recruitment, as we explained, there is a structural change in the market underway. So first of all, now the lion's share is made by bankers. So people that are at the moment working as employees in banks, they are more and more deciding to jump in becoming agents and joining organizations like, for example, Finnecon. And these bankers, for them, the main priority is to have a business partner characterized by a high level of efficiency from an operational and technological point of view because this is the new dimension of interaction with clients. And second, a business partner characterized to being extremely fair and transparent and Fineco is emerging as the perfect landing spot for this new generation of future financial planners. And so we remain extremely... And so we are... recruiting bankers that they are in their forties mostly. So they are absolutely senior guys with an extremely important future development in front of them. At the same time as well, we are keeping on investing on the young generation in order to build up the financial planners of the future. Because one of the biggest challenges for the industry is the hedging of the network. And so you have to keep on taking on board also young, skilled colleagues. But the most interesting change that is underway in the market is this extremely important contribution generated by bankers. And the bankers are definitely looking for efficient business partners, fair and transparent, because they want to keep on going and keep on doing their job for many years to come. Thank you.

Mr. Fotti, there are no more questions registered at this time.

Thank you for the extremely, the very interesting questions you raised. And as usual, if you need to make some more deep diving in our numbers and evolutions, plants and so on, please make us a call. We can arrange a follow-up anytime. Thank you again.