Finecobank Banca Fine Spa

Good afternoon, this is the Coruscall Conference Operator. Welcome and thank you for joining the Fineco Bank First Quarter 2024 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 first quarter 2024 results conference call. Net profit in the first quarter of 2024 is $147 million, up by 12.4% year-on-year, excluding systemic charges due to a different seasonality compared to 2023. Revenues at 327 million, increasing by 11.4% year-on-year, and supported by all our product area. Net financial income is increasing by 14.8% year-on-year, investing up by 13.5% year-on-year, thanks to the volume effect and the higher control of the value chain by Finneco Asset Management. And the brokerage is up 2.2% year-on-year, thanks to the enlargement of our active investors. Operating costs were under control at 79.3 million, increasing by 6.7% year-on-year by excluding costs related to the growth of the business. Cost-income ratio was equal to 24.2%, confirming operating leverage as a key strength of the bank. In the first quarter, Fineco confirmed once again outstanding commercial performance thanks to our organic growth strategy. First of all, we recorded a strong acceleration in our new clients' acquisition in the first quarter, increasing by 24% year-on-year, with a further acceleration of 2023 record here. In April, we recorded the latest confirmation of this powerful underlying trend with new clients growing by 36.6% on the same month of 2023. Second, our net sales confirmed to be very solid at 22.2 billion In April, with net sales at $844 million, of which deposits positive for $38 million, asset under management at $195 million, despite $215 million outflows from insurance business, and with unique asset management recording $209 million retail net sales. Asset under custody was equal to $610 million. Brokerage was very strong with estimated revenues up to $17 million, increasing by 50% compared to the average revenues in the period 2017-2019. Our capital position confirmed to be strong and safe with a common equity tier 1 ratio at 25.3%. and a leverage ratio of 5.16%. On the right-hand side of the slide, you can find a summary of our 2024 guidance. More in detail, our revenues, we expect them at the record level with an improvement of the mix in theory of commissions. Thanks to investing revenues, expected to increase low double-digit 2023, with a natural market assumption going forward. Banking fees expected stable versus 2023. Brokerage, we confirmed for 2024, expected the revenues stronger with a floor higher versus pre-COVID period. On operating costs, we expect a 6% growth year-on-year in 2024, not including additional costs for both finite cost management, and marketing expenses. We expect our cost of risk in a range between five and 10 basis points in 2024. And finally, we expect in 2024 a growing CT1 and the leverage ratio here and here. Let's now move on to slide five. As announced, net profit in the first quarter of the year stood at 147 million, increasing by 12.4% year-on-year, excluding systemic charges due to the different seasonality compared to 2023. Revenues at 327 million, up by 11.4% year-on-year, as we have been able to catch the strong acceleration of the structural trends in place. The strong growth of our net financial income increasing by 14.8% year-on-year, supported by our high-quality and capital-light net interest income. Net commission increased by a sound 6.4%, driven by the solid contribution of the investing, up by 13.6% year-on-year, and brokerage business, up by 5.3%. Trading profit increased by 15.6% year-on-year, mainly thanks to the higher brokerage activity. Operating costs are at 79.3 million, well under control, and increasing by 6.7% year-on-year, excluding costs strictly related to the growth of the business, mainly additional costs for financial management to further expand its business and have a higher control of the value chain, additional marketing costs to further improve our growth and catch the strong momentum of the business. Let's now move on slide six for a deep dive on the performance of the investing business. Investing revenues reached 84.9 million in the first quarter of 2024, increasing by a solid 13.5% here and here. Let me please remind you the great quality of our investing revenues, mirroring our transparent and fair approach towards clients. As a result, our revenues are mostly driven by recurring management fees with no performance fees at all. Please note that the quarterly comparison is characterized by the usual seasonality on financial planners' costs related to FEER and the NASARCO that are higher at the beginning of the year and to other commissions in the fourth quarter of 2023 related to operating efficiencies. reached throughout the year in the value chain on the institutional classes by Finneco Asset Management, which are booked each year in the fourth quarter. Let me please underline that this set of results is particularly remarkable, giving the more challenging marketing environment for the asset management industry. Also, let me underline that the bank is going ahead with its plan to deeply reshape its products and service hoofer to better fit with the new context. This will give more fuel to our growth engine in the month ahead and will allow us to keep on adding new market shares. Let's move now on slide seven for a focus on our asset management company. Fineco asset management is progressively delivering in having more control of the investing by the chain. The contribution of the company to the group asset under management net sales remained strong at 94% in the first three months of 2024. At the end of March, the contribution of Finicost Assets Under Management, half of the total stocks of Assets Under Management Bank, moved from 32.2% in the first quarter of 2023 to 34.9% in the first quarter of 2024, and in April is 35.1%. As shown by the most recent NEXIS numbers, FAM has been extremely effective in quickly developing the right set of products to catch what clients are currently looking for, and most recently entered in the segment of investment certificates. Let's now move on slide eight for a focus on brokerage. Brokerage once again registered an excellent quarter despite the poor market conditions. This is confirming a structural increase in the client's interest to be more active on the financial market, building up a clear bridge between the brokerage and the investing world. In the quarter, revenues were equal to $44 million, resulting in a monthly average around 60% higher compared to the monthly average revenues in the period 2017-2019. thus confirming a structurally higher flow. As a reminder, HEPRIL recorded estimated revenues at 17 million, 50% higher than the average in the period 2017-19. Let me remind you that the growth of the brokerage business is driven by the contribution of three structural components. First, the continuous process of deep reshape of our brokerage business. Second, the widening of our client base using the platform with active investors growing significantly in absolute terms. On this, let me add that in the last few months, we were experiencing a further enlargement of our active investors, which are growing much wider also compared to the post-pandemic period. Third, we are continuously increasing our retail market share. Let's now move on to slide nine, to further deep dive on the potential of our brokerage business, given the most recent developments. Let me spend a few words on the most recent trends in our brokerage business. As you can see in the graph on the top slide on the left, our base of active clients has recently seen a substantial increase, around 20% higher compared to 2023, and 40% step up compared to the level recorded with the pandemic. The drivers of such an increase are all structural. Namely, we are delivering on a number of new initiatives, like the new brokerage-only account and the new platform Finneco X. The new market structure is confirming the bridge between brokerage and investing. The most recent increase in the rate environment has resulted in a renewed interest in Govis, with Fineco emerging as the platform of choice for clients. In the graph down in the slide, we are showing that the executed orders have been increasing this year compared to 2023, and is back to the pandemic levels, despite the poor market environment for brokerage in the last month. Let's now move on slide 11 for a focus on our capital ratio. Sineco is confirming once again a capital position well above requirement on the wave of safe balance sheet. Common equity TR1 ratio at 25.29% and the leverage ratio at a very sound 5.16%, while risk-weighted assets were equal to 4.69 billion. decreasing both year-on-year and quarter-on-quarter. Total capital ratio at 35.94% as of March 2024. As for the liquidity ratios, liquidity coverage ratio at 864%, and net stable funding ratio at 369%, while the ratio high-quality liquid assets from deposits is at 71%, well above the average of the industry. and position FinEco as the best positive outlier, as you can see on slide 12. Going forward, we confirm that we will continue to generate capital structurally and organically, thanks to our capital life business model. The excess capital we are going to generate will be partly used to further invest in our organic growth opportunities, while for the remaining part, which in any case will be the most relevant one, By the end of the year, we are going to define the amount and the terms for the distribution to the market. Let's now move to the slide 14 for a focus on the acceleration of our commercial dynamics. Let me spend a few words on the strong acceleration in our new client acquisition, which is even more remarkable considering the context and bodes extremely well for our future growth. As you can see from the graph, On top of the slide, new clients here, the clients here to date were 27% higher, indicating a very promising start of 2024 on the 2023 record here. These outstanding results has been achieved keeping our marketing strategy unchanged when it comes to new client acquisition. It effectively translates in a quality and sticky client base key to grow a healthy business in a long-term horizon. As a reminder, let me also underline that we have recently improved the efficiency of our marketing engine thanks to our innovative and brand new onboarding process. On top of this, we are now leveraging on AI and data-driven marketing, which are allowing the bank to connect with prospect clients in a more personalized and efficient way. leading to a further acceleration in our client acquisition, particularly strong throughout the digital channels. Let's now move to slide 18 for a deep dive on our transactional liquidity. The granularity and stickiness of our deposit base is confirmed quarter by quarter. Our clients have an average ticket of around 17.5 thousand euros, and the median ticket of 4,500 euros. On top of this, different from other players, mostly focused on brokerage and investing, our successful one-stop solution relies on a fully-fledged banking platform with 50% of our clients' credit in salary and pensions with us. Down in the slide, we show our usual breakdown of the deposits net sales, where we once again saw an abrupt increase in the net new liquidity before investments. As you can see, up to the end of April, the bank effectively collected more than $6 billion of liquidity coming from salary and pension and $3.9 billion from the net bank transfers. After the expenses in cards, bills, and taxes, deposits were upped by $2.6 billion. Once taking into account investments in assets under management and assets under custody, the final result is minus 0.7 billion of deposits net sales. On the graph on the right, we confirmed the trend in terms of liquidity flows per cluster of clients, clients with total financial assets up to 100,000 euros, increased amount of liquidity in the bank, and this is mainly transactional. On the other end, the cash sorting process has been 100% driven by wealthier clients, which in the past accumulated excess liquidity waiting to be invested. For private banking clients, the liquidity as a percentage of total financial assets is at 10% as of April, at the lowest level since 2015, suggesting that they are approaching the floor. Finally, please note that the new clients acquired in the year also brought positive liquidity. Let's now move on slide 20 for a focus on our guidance. Revenues are expected at the record level. We've an improvement in the mix in favor of commissions, thanks to investing revenues, for which we expect a low double-digit growth versus 2023. We've a natural market effect assumptions. Banking fees are expected stable compared to 2023. Brokerage revenues are expected to remain strong. We have flow in relative terms we expect to the market context that is definitely higher than in the pre-COVID period. Operating costs are expected to grow at around 6% year-on-year, not including additional costs for both unique asset management and marketing expenses. Cost income, we expect it comfortably below 30% thanks to the scalability of our platform and to the strong operating gearing we have. On the capital ratio, we expect a growth in C1 ratio and leverage ratio, currently with the combination of both and strong acceleration in the growth of the bank and the distribution of generous dividends. On leverage ratio, our goal is to remain above 4.5%. We expect a higher dividend per share for 2024. Cost of risk was equal to 5 base points, thanks to the quality of our lending portfolio, and we expect it to in a range between 5 and 10 basis points. Finally, we expect robust and high-quality net sales, keeping our priority in the direction of asset under management and the continued strong growth expected for our clients' acquisitions, as we are in the sweet spot to keep on adding new market shares. Thank you for your time. We can now open the call to questions.

This is the 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 touch-tone 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 with JP Morgan. Please go ahead.