Finecobank Banca Fine Spa

Good afternoon. This is the Corsco Conference Operator. Welcome and thank you for joining the FinEco Bank third 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 third quarter 2024 results conference call, where we will also deep dive on the expectations for a further acceleration of our growth. Net profit in the first nine months of 2024 was equal to 490 million, up by 7.9% year-on-year. Revenues at 984.1 million, increasing by 7.3% year-on-year, and supported by all our product areas. Net financial income is increasing by 6.4% year-on-year, investing up by 11.7% year-on-year, thanks to the volume effect. and the higher control of the value chain by Finnecost Management. And the brokerage is up 11.4% year-on-year, thanks to the enlargement of our active investors. Operating costs were under control at $239.1 million, increasing by 6.7% year-on-year by excluding costs related to the growth of the business. Cost-income ratio was equal to 24.3%, confirming operating leverage as a key strength of the bank. Moving to our commercial dynamics, let me share that we are expecting a step up in our growth dynamics with higher asset under management and deposits. This is underpinned by the positive tailwinds from the structural trends, and we are leveraging on this solid momentum through a more efficient marketing activity. The results of this acceleration is already visible in our most recent commercial results. First, as you know, we recorded a further acceleration in our new client acquisition in the first nine months of 2024, increasing by around 26.5% on 2023 record here. In October, we recorded a further improvement with our best results since the inception of the bank in terms of new clients, equal to more than 15,000. Let me highlight that we are not just growing faster on the overall number of new clients, but we are coupling this with an improvement of the underlying quality on which we will come back later. Second, our net sales confirmed to be very solid with 6.9 billion inflows in the first nine months of the year. Estimated net sales for October are even stronger, as they doubled year-on-year at around $1 billion, of which asset under management at around $430 million, despite around $100 million half-loss from insurance. And with unique asset management, retail net sales at around $460 million. deposit at around $0 million, with brokerage clients buying on the DIPS asset under custody equal to around $550 million next year, and leading to very solid brokerage revenues estimated at $18 million. Our capital position confirmed to be very strong and safe, with a common equity CR1 ratio at 27.3 and a leverage ratio at 5.35. On the right-hand side of the slide, you can find the summary of our 2024 guidance with the outlook that has improved even more, and we are expecting another record here for our net profit. More in detail on revenues, we expect them at the record level in 2024 with an improvement of the mix in favor of commissions thanks to investing revenues expected to increase low double digits in 2024. versus 2023, with a natural market assumption going forward. For 2025, we expect investing revenues to increase low double-digit year-on-year, with a natural market assumption going forward. Banking fees expected stable in 2024 and a slight decrease in 2025 due to the new regulation on instant payments. Brokerage, we confirmed for 2024 and 2025, expect a revenue strong with a continuously growing floor thanks to the enlargement of our active investors. On operating costs, we expect a 6% growth year-on-year in 2024, not including additional costs mainly for Finneco asset management and marketing expenses. For 2025, we expect operating costs to grow around 6% year-on-year, not including additional costs for growth initiatives. We expect a higher dividend per share for full year 2024. On excess capital distribution, we are going to take more time as the probability of higher than expected growth of deposit base is increasing. Let's now move on slide five. As announced, net profits in the first nine months of the year stood at 490 million in a very challenging macro scenario, increasing by 7.9% year-on-year. Revenues at 984.1 million, up by 7.3% year-on-year, as we have been able to catch the strong acceleration of the structural trends in place. The growth of our net financial income increased by 6.4% year-on-year, supported by our high-quality and capital-light net interest income. Net commissions increased by 6.9% year-on-year, mainly thanks to the contribution of investing, up by 11.8% year-on-year, and brokerage business up by 9.5%. Trading profits increased by 21% year-on-year, mainly thanks to higher brokerage activity. Operating costs up to 200% 39.1 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 asset management to further expand its business and having a higher control of the value chain. Additional marketing costs to catch the strong momentum of the business. Let's now move to the slide six for a deep dive on the performance of the investing business. Investing revenues were equal to $268.6 million in the first nine months, increasing by 11% year-on-year, on the back of both growing volumes, thanks to our best-in-class market positioning, and of the higher efficiency of the value chain through Finnecoset management. 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. Our set of results is particularly remarkable given the more challenging market environment for the asset management industry. Also, the bank is going ahead with its plan to deeply reshape its products and services offer 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 us now move on to slide seven for a focus on our asset under management company and our advanced advisory services. In this slide, we are representing the two main sources of growth of our investing business going forward. On one hand, as you know, Finneco asset management is progressively delivering and increasing the control of the investing value chain. Its contribution to the group net sales has been consistent over the cycle thanks to its incredible time to market in delivering new investment solutions perfectly aligned with what clients are looking for. As a result, the contribution of Finneco Asset Management out of the total stock of asset under management has been steadily growing, and it's now equal to 36.6%. On the other hand, being a platform, Finneco is the best place to catch investors the latest trends in terms of clients' investment behaviors. There is a clear change underway in the structure of the market, with clients increasingly looking for quality, efficiency, and fair solutions. And all this is channeling a strong demand towards advanced advisory services with an explicit fees, where Fineco is by far the best positioned in Italy, as you can see down in the slide. Thanks to our operating efficiency, we are fully catching these powerful trends in a way that is keeping our margin pretty much stable, allowing us to be very positive on the sustainability and the quality of our growth going forward. Let's now move on to slide eight for a focus on brokerage. Brokerage once again registered excellent results with 160.5 million revenues in the first nine months of the year. This is confirming a structural increase in client interest to be more active on the financial market and building up a clear bridge between the brokerage and investing world. 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 the last few quarters, we are experiencing 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 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 of the slide on the left, our base of active clients has recently seen a substantial increase, around 20% higher compared to 2023, and with a 40% step up compared to the level recorded during the pandemic. The drivers of such an increase are all structure. Namely, we are delivering a number of new initiatives, like the new brokerage-only accounts and the new platform Fineco X. The new market structure is confirming the bridge between brokerage and investing. The most recent increase in the rates 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 executed orders has been increasing this year compared to 2023, and is back at the pandemic levels. Despite the poor market environment for brokerage overall in the year. Let's now move on to slide 11 for a focus on our capital ratio. Gineco confirmed, once again, a capital position well above requirement on the wave of a safe balance sheet. Common equity TR1 ratio at 27.29, leverage ratio at 5.35%, and total capital ratio at 37.96 as of September 2024. and risk-weighted assets are equal to $4.69 billion. As for the liquidity ratios, liquidity coverage ratio is at 897%, and net stable funding ratio is at 369%, while the ratio of high-quality liquid assets on deposits is at 75%, well above the average of the industry. Going forward, we confirm that we will continue to generate capital structurally and organically thanks to our capital life business model. On the excess capital distribution, we are going to take more time as the probability of a higher growth of the base of deposit is clearly increasing, considering the strong acceleration of commercial dynamics. Over the recent months, we are starting to see the results of the accumulated growth of the new clients over the past two years. and we expect a further acceleration of our net sales going forward. We will come back later on our growth opportunities, but before, let's move to slide 18 for a focus on our guidance. Let's now focus on our 2024 guidance with the outlook that has improved even more, and we are expecting another record here for our net profit. Revenues are expected to a record level in 2024 with an improvement of the mix in favor of commissions, thanks to investing revenues, for which we expect a low double-digit growth in 2024 versus 2023, with a natural market effect assumption going forward. For 2025, we expect investing revenues to grow low double-digit here and here, again with a natural market effect assumption. Banking fees are expected as stable in full year 2024, and with a slight decline in full year 2025, due to the new regulation on instant payments. Brokers' revenues are expected to remain strong with a continuously growing floor, thanks to the enlargement of our active investors. Operating costs in 2024 are expected to grow at around 6% year-on-year, not including additional costs mainly for financial management and marketing expenses. For 2025, operating costs are expected to grow at around 6% year-on-year, not including additional costs for growth initiatives. Cost income, we expect it comfortably below 30% in 2024 and 2025, thanks to the scalability of our platform and to the strong operating gearing we have. On capital ratio, we expect growing CT1 ratio and leverage ratio in 2024, currently with a combination of both a 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 the full year 2034. On excess capital distribution, we are going to take more time as the probability of a higher than expected base of deposit is clearly increasing. Cost of risk was equal to seven basis points, thanks to the quality of our lending portfolio. and we expect a hit in the range between 5 and 10 basis points in 2024. Finally, we expect robust and high-quality net sales with increasing asset under management and deposits flows, and the continued strong growth expected for our client acquisition, as we are in the sweet spot to keep on adding new market share. Let's now move to slide 19 for a deep dive on our growth opportunities. As you know, Fineco enjoys a unique market positioning to capture the long-term growth opportunity resulting by the huge Italian households' wealth and fast-changing clients' behaviors. In the graph down in the slide, we have represented the stock of financial wealth of Italian families. As you can see, our market share is still pretty small, and the room for growing is huge. We are particularly positive on our outlook going forward, and we see structural tailwinds in our direction. As previously discussed, the most recent market trends are leading to a swift change in client investment behaviors, and Finneco is the only big player with a service model truly based on transparency, efficiency, and fair pricing. Moving now to slide 20, the acceleration of structural trends over the last couple of years. is translating into stronger metrics on our side, creating the roots for our current and future growth. At the top of the slide, you can see the impressive acceleration of new clients, where we are on track to set the second record here in a row, and we recorded our best results on October. In the box down on the left, you can see that it's not just about quantity, but we are also seeing a strong increase in the underlying quality of our new clients. For example, private banking clients are up more than 40% year-on-year, and we are catching the fast-growing long-term trends of the generational handover. And thanks to our very successful brokerage-only current account, we are now targeting a very promising new cluster of clients from which we got a relevant contribution in terms of first trade equal to around 35%. The accumulated growth of high-quality new clients over the last two years is now starting on translating into better net sales dynamics, as shown in our most recent monthly updates, allowing us to be particularly positive on our growth trajectory going forward. Finally, let me remind you that we see a sizable mix shift opportunity coming from the stock of Covis, our clients booked for the last couple of years. Given that a large percentage of it has a short-term maturity, this will give our financial planners an unprecedented opportunity to improve clients' mix into assets under management. Thank you for your time. 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 touch-tone telephone. To remove yourself from the question queue, please press star and two. We kindly ask to use handsets when asking questions. Anyone who has a question may press star and one at this time. The first question is from Azurra Guelfi of Citi. Please go ahead.