Avanza Bank Holding AB (publ)

Welcome to our Q3 results presentation. My name is Gustav Unger. I'm the CEO of Avanza. And with me, I have Anna Kasselblad, our CFO, and Sofia Svavar, our head of IR and communication. And I'll start off by going through some key highlights for the quarter before handing over to Anna and the actual financials. And then we will spend the majority of the time with our new strategic priorities and long-term financial targets for 2030. I am very happy about the quarter. We saw strong growth, both in terms of inflow. Actually, the first nine months, we had the best year since the record year 2021. And when it comes to customer acquisition, the inflow during the first nine months is already in line with the full year 2023. We also saw high inflows to funds. And we took roughly 20% of the marketing flow. We had some more volatility in the quarter, which helped keeping trading activity up. And actually, the revenues for the quarter were the best ever. And I think we're making good progress within our prioritized areas. And to mention two examples, we have launched unlisted assets for our private banking customers. And we have entered into an exclusive collaboration with Apache VAD and to strengthen the decision support and analysis to our customers. We were also ranked as one of Sweden's most attractive employers by Universum. And this is great news for us since we are dependent on attracting the best talent. In August, our new CTO Fredrik Broman started, for which I'm very happy. We have also signed up our new CTO, Olof Eriksson, who will start 1st of April hopefully earlier. As you may have seen Gunnar Olsson, our deputy CEO, will leave the firm by the end of the year and a recruitment process is initiated to replace him. Anna.

Thank you Gustav and good morning everyone. That was quick but I look forward to the strategic update soon. In the meantime we continue to focus on our results. As Gustav said, we record another strong quarter today and record high results for the nine months period. Also in this quarter, we had two items affecting comparability. Other income was negatively affected by customer compensations related to interest and ISK of 10.5 million, 5 million lower than last quarter. And we anticipate compensations to decrease further in Q4. The other one-off is related to changes in our media company, Placera, and the exclusive agreement with Faschweben that Gustav just mentioned. And this affected personnel expenses to increase by 10.6 million due to the termination of our own editorial team. And the expense had been estimated to 8 million. Adjusting for one-offs, Placera and IMY last quarter, costs for the nine-month period increased by 9%. and we are still comfortable with our communicated 9.5% cost guidance for the year. ROE is above target and EPS grow by 9% for the nine month period. Net brokerage income was positively affected by seven more trading days in the quarter, although the number of brokerage generating notes and turnover for trading day decreased. The number of brokerage generating customers was unchanged, so were gross brokerage income per brokerage generating turnover, which also was in line with last quarter at 11.2 bps, and continued to be positively affected by high foreign trading, which as in last quarter stood for 21% of the trading activity in the quarter. This is the highest share since 2021, which is also reflected in the 4% higher currency-related income compared to last quarter. And as mentioned, other income was also this quarter negatively affected by customer compensation. These were lower than last quarter, as I said, but which together with higher income from avancer markets made other income increase by 39% compared to Q2. Taking a closer look at fund commissions, we saw continued strong inflows to funds in the quarter and volumes grew by 5%, which is key for revenue growth. In the last few quarters, we have seen the fund margin stabilizing. In Q3, for the first time since 2021, the margin increased, and this was despite the continued growing share of capital in index funds. and it's the result of the overall fund mix during the quarter, which showed no clear trend. But this resulted in an all-time high fund commission in Q3, and fund commissions for the nine-month period increased by 23 percent. Moving over to MII, we saw a decrease of 3 percent compared to Q2 due to lower market interest rates. The policy rate was lowered by 25 bits in May and August, which of course negatively affected cyber. That was down by 32 bits in Q2 and 62 bits in Q3. The main part of the treasury portfolio is tied to cyber three months. The risk bank forecast is at least two more rate cuts before year end, one which may even be a double decrease of 50 bits. It will continue to put pressure on the NII. Although credit spreads are higher on the bonds we buy today compared to the bonds that mature. Income from the treasury portfolio decreased by 7%. Average volumes were more or less stable. The lending portfolio increased by 4% in a quarter. although average interest rate decreased to 4.30%, resulting in interest income from internal lending of 233 million. The interest rate on the mortgage portfolio is tied to the policy rate and was consequently lowered by another 25 bps in the beginning of October. However, we will raise the mortgage rate by 10 bps in November, And since April, we have had an extra discount of 17 bit on the mortgage that is now partly being taken away. Margin lending was cut by an average 17 bit in August. Interest expenses on deposits decreased 271 million due to lower average rate on deposits and despite higher volumes on our own savings account. And going forward, our intention remains to follow the policy rate cuts But that's always taking customer behavior and competition into consideration. And the definitive decisions will be taken in connection with the policy rate cuts. And as already mentioned, costs are on track with our full year guidance. Personnel costs are always lower in the third quarter due to summer vacations, which is also the case this year. And that is also despite the one-off costs related to our media companies, Asera. Other expenses were lower, and that was mainly due to the one-off effect in Q2 related to the final 15 million. Marketing costs were seasonally higher due to summer campaigns in Q3, where we even did some TV commercials in Sweden in connection with the Olympics. Cost-to-savings capital ratio decreased to 15 bits for the nine-month period compared to last year. And Gustav will, in his strategy, actually come back to our new cost target for the coming years. As mentioned many times before, I think these numbers speak for themselves. We have a very strong capital position, and we have just set the updated strategic priorities for the years to come. And the strong position will give us room to maneuver. But when it comes to capital requirements, I would like to emphasize that the leverage ratio is sensitive and our main priority to handle. The leverage ratio is affected by customer activity and how they choose to allocate their portfolios. And also bear in mind that the deposit rate ratio is at historically low levels, around 7% of the total savings capital if you exclude external deposits. Also recently, the Swedish FSA came with new requirements on credit institutions, which use deposits as hours for funding. And all things equal, this means that our offering of external savings accounts will not be as attractive to these payers going forward. And we are having some discussions with them, but I think it's too early to draw any conclusions on how the new requirements will play out. There are, in other words, a few uncertainties around our need for capital, and we will therefore need to come back with how we will handle our strong capital position going forward. And with that, I would like to hand back to you, Gustav.

Thank you. So we have spent quite some time to decide upon our strategic priorities looking into 2030. And I want to start with Sweden, where we see attractive long-term growth prospects. And if I start with the markets, it is the largest in the Nordics with some 12 trillion in asset under management. Sweden has higher growth projections than most European markets. And it is a very advanced market. I would say it's the most advanced in the EU. It's exemplified here with the fact that 7 out of 10 Swedes saving mutual funds. It's the highest ratio in the world. One out of four Swedes are invested in stocks, and the share of total assets invested in single stocks is actually twice as high as the European average. On top of that, we see ongoing structural changes that will put even more responsibility on the individual for his or her financial well-being. And this is of of course, good for players like Avanza. If I zoom in on us, Avanza, we see a large potential for continued market share growth. And here I have illustrated that by the delta between the front book, i.e. our market share of the net flows, and the back book, which is our market share of the stock, which differs a lot. I mean, we have a market share of the stock of 7.5%, and we take a little bit north of 20% of the net flow, i.e. the front book. Now, just illustrated, should we do as good of a job tomorrow as we do today and continue to take north of 20% of the front book, we will have to fight way beyond 2040. with a strong growth, taking the stock up to the 21% front book. When we look at our customers, we see that the average customers hold roughly two-thirds of his or her financial assets with other institutions. So we see a great potential to capture more of these customers' share of the wallet. And with the areas where we compete today, some of these pockets are not addressable, like collective occupational pension, but at least half of it is money that we should capture. And as you may know, our customer base is quite young. It's 10 years younger than the average suite. And you know that When you are in 30s, you start to accumulate wealth and then you get richer as you grow older. So there is a big potential as our customer base grows older. And of course, in the intergenerational wealth transfer. And given the attractiveness in Sweden, we have set a target to grow the savings capital in Sweden by 15% annually. Now, if I break down this 15% to give some more granularity, let's assume that the market depreciation on average is 5%. Our savings capital is not 100% equity. We have some deposits, which takes down the average market depreciation number. And then moving one step further, the Swedish market is growing. And assuming that we take our fair share of this growth, we will grow with another three to 4%. And as we continue to do as good of a job as we do now, we should continue to take market share from our competitors by increasing share of wallet and attracting new customer, which would add then another six to 7%, adding up to the 15% growth target. Now, with that, we have set five strategic priorities for sustained strong growth towards 2030. And the first one is about to develop and grow our leading position in our core business, and that is savings and investment in Sweden. We have no intention today, here, now, to venture into payments or salary accounts. We want to achieve market leadership in private banking. We want to achieve market leadership in occupational pension. And these three strategic priorities will help us deliver on our top line growth, growing savings capital with 15% per year, reaching them just north of 2000 billion in 2030. We will also increase our efforts to become more lean and mean, and that includes a migration to the cloud and further automating our manual processes. And this will lead to improved flexibility, cost efficiency, and scalability that we so much desire. And last but not least, we want to establish Avanza in at least one additional European market during this period. And this will lead to additional long-term growth opportunities. Now, if I go through these files one by one, with the first one to strengthen our core business, there is a particular focus on increasing share wallet, which I motivated earlier. We have a starting point with over 2 million customers. We have a very low churn of around 1%. We have a young customer base that will accumulate wealth over time. We have significant opportunities in the intergenerational wealth transition. And we have many customers with a significant share of their savings capital with other institutions. What we want to do now is to develop and personalize the customer experience. We want to put further focus on data-driven development and systematic A-B testing. Now, these two combined shall lead to more tailored decision support and information to our customers. And this should lead to better investment decisions from their point of view and that they entrust Avanza with more of their wealth. And the ambition is to strengthen our number one position and to take a larger share of our customers using us exclusively for their savings and investments. We have historically been very strong in the do it myself segments to the far right and over the last decade been much better to help customers who want some help but want to do some of it themselves. Where we are weak today is in the do it for me segment and we want to become more relevant for those who have less interest in savings. and we will develop products to attract this segment while remaining fully digital. And this cuts across different customer segments. So this is an ambition we have not just for the core business, but also for private banking and for occupational pension, which I will come to in a minute. We want to grow in the private banking segment. Our starting point is that we have a very strong digital customer experience and competitive pricing. We have roughly 15% market share measured at number of customers, not measured at AUM. It's number of customers that we can measure in Sweden. It's hard to compare with the market when you look at AUM. And this 15% market share corresponds to being the fourth largest We see a strong willingness to recommend us among our customer base. But few associate the Avanza brand with private banking. And what we want to do here is to improve the investment decision tools and create inroads into the do it for me segment that I'd mentioned before. We also want to further strengthen and differentiate the private banking offering. And we need to increase our market visibility and become even more proactive towards our customers. And the ambition is to be the number one player in private banking in terms of number of customers. And we want to substantially increase the private banking savings capital that today is just south of 350 billion Swedish. occupational pension is probably the most dysfunctional part of the Swedish savings and investment market and here we want to accelerate our growth we today have a competitive offering both when it comes to price user experience and the broad investment universe and we have a Swedish pension system that is perceived difficult by the savers and where the individual will have to take great responsibility for their own financial well-being in the future. Now Avanza has the capability and the experience to make difficult things easy enjoyable and inspiring and we are today number five in this market in terms of premiums and when I say this market it is where we compete here and now which is outside the selection center and outside traditional pension. Our action plan is to make the experience for the individual pension customer more intuitive and improve the offering for the do it for me segment. So I hope you see the red thread here when it comes to making inroads into the do it for me segment. We will also improve the administrative processes interfaces for the corporate it's actually the corporate who decides if they will use Avanza or someone else as their pension provider and we actually have a new development team up and running since two weeks focusing solely on the corporate experience we also want to grow our we want to grow through our own sales force and we want to strengthen the pension brand we do not plan to go through intermediaries in this market. And the ambition is to be number one compared to the number five today in terms of premium inflows by 2030. To manage all this and to secure that we are in a favorable position in the future, we will improve our flexibility, cost efficiency, and scalability. And our starting point is that we have a sector leading cost efficiency with a cost to savings capital of 15 basis points. We have a uniform and modern tech stack with one programming language, Java. We have one API framework, i.e. one way where our microservices communicate with each other. And we have one way to build and distribute services. And this creates efficiencies in the cloud migration that we want to do. And our data platform is already migrated to the cloud and over 85% of our systems are built in cloud ready technology. Another starting point is that we have a scalable customer front end, but we have opportunity to improve our internal processes. Now the action plan is we will accelerate our cloud migration with new development in the cloud from next year. We will improve our operational efficiency and we will have a stricter prioritization of activities and development. And the ambition for 2030 is that we have improved our customer value through enhanced technology driven development and innovation. And we want to be as scalable and digital internally as we are externally towards our customers. and we want to see decreasing cost to saving capital over time. Last but not least, we want to expand into new geographical markets. Avanza is today the clear market leader and by far the most successful digital savings and investment platform in Sweden, which is the most developed and competitive market in Europe. We have democratized savings and investment in Sweden, We have leading user experience, broad product range, and a unique customer-led development process. And our action plan is that we will closely monitor and evaluate acquisitions, partnerships, and greenfield opportunities, and also deepen our understanding of the different European markets and how we rate their attractiveness. And we will start our internal readiness preparation now, which includes when we recruit and when we develop. And our ambition is that we want to be established in one or several European markets outside Sweden before 2030. We want to create additional long-term growth opportunities, and we want to have further diversified our revenue base. And as a result of these five strategic priorities, we have set new 2030 targets to illustrate our ambition. We leave our customer satisfaction and employee engagement targets unchanged. They are critical to our success. We want to accelerate future growth and set the target to grow our savings capital in Sweden with on average 15% per year. We want to decrease our cost to savings capital ratio over time. And we will have an annual average cost increase of 8%. Now, this includes the full cost for the cloud migration that we estimate to cost 300 million Swedish kronor in total over the whole period. It also includes the investments we are doing in our core business, in private banking and in pension. The increase will be higher in the beginning of the period and trending downwards to reach 5% as we increase our scalability. It will be higher in the beginning as we accelerate our cloud migration and ramp up our efforts in private banking and pension. I will revert with a cost guidance for 2025 at the Q4 presentation But the cloud migration is estimated to increase the 2025 cost with roughly 3.5%. And the private banking and pension efforts with roughly 2%. And we intend to take as historically our costs over the P&L and not capitalize on the balance sheet. Our return on equity target of at least 35% is unchanged, and we maintain our dividend policy of 70% of our net profit. And here I want to highlight that we paid out over 90% earlier this year, and we have no ambition to become overcapitalized. To summarize our journey towards 2030, we want to sustain our number one customer satisfaction position, We want to maintain our unique corporate culture and high employee engagement. We want to strengthen our position as the number one savings and investment platform in Sweden. We want to more than double customer savings capital to north of 2 trillion. We want to take the leading position in both private banking and occupational pension. We want to expand in at least one additional European market. and we want to retain the industry-leading cost position. And with that, I open up for questions.

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 1-1 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 1-1 again. This will take a few moments. And now we're going to take our first question. And it comes from the line of Patrick Bertellus from ABG. Your line is open. Please ask your question.

Perfect. Good morning. Do you hear me? Yes, we do. Good morning. Good morning. Thank you. If we start off with the cloud migration, can you please specify how you arrived at the 300 million number?

We have looked. into the cloud migration for the whole year, I would say, and this is our best estimate.

Okay, thank you. And then you highlighted it would be front-loaded and you mentioned 3.5% and then you added some 2% here. Should we just add then the average cost increase of 8% to these 3.5% and 2%? approximately 13 and a half percent in a roughly cost growth for 2025 is that roughly interpreted correctly?

So we will get back with the cost guidance for 2024 but I think you're quite tough enough on us if you don't think that we can be more efficient than that.

Okay that is fair and then in terms of your comments on geographical expansion does the cloud migration have to be finalized before geographical expansion is an alternative?

No, it doesn't, but it facilitates, but it's not the prerequisite.

I see. And yeah, if I move over then to your private banking channel, which you highlight you want to strengthen, you have announced that you will raise your mortgage offering by 10 bps. But if I then calculate what the current mortgage rate is, that will be on par with what the mortgage offering is for the non-private banking clients. But yet you want to be a leader within this area. How does this align? Is this sustainable?

We only offer mortgages to our private banking customers. And we have seen quite a surge in the customer interest for our mortgage during the fall compared to the spring. So I would say we are maybe too attractive during the fall.

But it's at 365 now if you have 3 to 10 million. And then if you say it will be raised in November by 10 bps, that ends up at 375. And that is what you get at Stabelo and Lanshypoteket. Won't that be seen as negative for your private banking clients, especially if you want to aim to become number one within this area?

So we have a limited balance sheet. And as you know, we have a very low risk appetite. So we need to be selective to whom we offer the mortgages to. And we actually lowered our price in the spring because we felt we were not competitive enough. Now we're taking part of that rebate away because we think that we are too competitive at the moment.

In addition to that, if or when the policy rate will be lowered, we will of course follow that as well. So it's just as Gustav said, the spread will be a little bit better when the rebate is taken away or lowered.

Okay, I see. And then as a final question, so I don't take all of the time. On this geographical expansion, could you elaborate a little bit more of what type of positive versus negative you're looking for in the geographies you're exploring? What is the priority here? Is it competition or is it the regulatory environment, the tax environment? Can you elaborate a little bit so we get the a better understanding which countries might be on the table and which you don't feel is as attractive. For example, addressable market with the Nordics versus Southern Europe, etc.

Patrick, I would love to answer, but I want our competitors to live in uncertainty. So I want to be silent on that one.

Okay, I see. Then I am satisfied. Thank you. Thank you.

Thank you. Now we're going to take our next question. And the question comes from Nicholas Macbeth from DNB. Your line is open. Please ask your question.

Thank you.

First, a question on the cloud migration. So just curious why you're so kind of insisting on not to capitalize some of those investments. I know this has been your approach for a long time, but given the rather distinct nature of these investments and many other companies, including your closest peers, tend to capitalize those. Would it not make sense for you to do that as well for consistency? Yeah, that's my first question. Yeah, I mean, there are arguments to put it on the balance sheet because it's a true investment for the future. But we really want to show transparency and show the majority of our costs directly over the P&L to make it easier for you guys to evaluate that. Right, but you could do that anyway, couldn't you? Just provide that in a table or something as a kind of supplementary information. Yeah, maybe, maybe, but we want to be transparent and this is the way we are. We have done it and we continue to do it over the P&L. Right. Could you say anything more about the timing of those investments? I know you said what those would mean for 2025 cost base, but by what year do you think the cloud migration would be completed? We want to be completed with what we want to move to the cloud during this period. But I think it would be hard for me to set the specific date.

All right.

Then another question on the cost guidance. Does your cost outlook for until 2030, I mean, how much does that include any kind of major cost efficiency improvements like that you're going to take away costs from other parts of the business or how do you arrive at the eight percent? We want to be super lean and mean but we also want to capture the exciting opportunities we see here and we see that that balance is out to 8% over the period. We want to have a cost efficiency that we can sustain our growth with a cost increase of roughly 5%. That's inflation plus capturing for all the new volumes when we are in a steady state in the latter part of the period. Now to get there, there is a lot of work, of course. We need to automate a lot of processes. We need to be as digital internally as we are externally. We need to be more strict on what we stop doing. We need to be more selective on what we prioritize. So there's, of course, a lot of work to get there. How do you think about the outlook for the number of FTEs over this time period? Do you think that will continue to increase or how do you see that moving? I think we need some new competencies in the cloud migration we have already started. We will need some new competencies on the on the development side the general development side we have a new team up and running for the occupational pension science focusing on the corporates um and we foresee to be some more on the sales side on the occupational pension side also but i don't want to i don't want to give you you know specific ft numbers out in the future but still it's a net increase than uh it sounds like otherwise we should have our costs at inflation. Right. If I may just challenge you a bit and see what you think about this. Your new competitor, Montrose, claimed to be able to scale a competitive savings platform with just 25 employees. Granted, your larger customer base motivates more kind of customer-facing employees and it also might be the case that Montrose could be able to kind of piggyback on some of Carnegie's resources, but But the difference is still, I mean, very striking with your almost 700 employees now. And so it seems like either you were running a lot of much more inefficient than they would or Montrose would never be able to match your product without massively increasing resources. What's your take on that? I know that it has taken us 25 years to come to where we are today with a very broad product offering, with a very strong decision support we deliver to customers with a very strong information that we supply to our customers. I just know that we have seen competitors come and go in Sweden. We have seen many fall out. I welcome competition. It is a very competitive and advanced market. It forces us to be on our toes, but it's hard for me to evaluate a startup and how you know, scalable they can be. I have no clue, you know, what's under their hood. Sure. And then just following up on the new competition. So we're seeing a bit more competition now, in particular in the private banking segment with some platforms announcing new price plans. How do you think about your current pricing in relation to those? And Given that we're seeing probably most competition in the private banking segment that you want to target even more so now, are you confident that your improved decision-making tools and the strength and brand awareness in the private banking segment will be enough? Or do you think price adjustments will also be needed to kind of scale up the private banking segments further? I've been fighting in the private banking space for a large part of my career. And I know the starting point that Avanza has. I know our strengths. That's why we want to venture harder into this segment. I have a strong belief that we can be very successful here. The majority of the money sits with traditional players. I think prospects will see us as very price-worthy. Okay, that's all my questions. Thank you. Thank you.

Thank you. Now we're going to take our next question. And the question comes from Jacob Haslevic from SEB. Your line is open. Please ask a question.

Good morning, everyone. On NAI, can we go through the component in the liquidity buffer? And maybe could you start with letting us know what the average duration is?

Sure. Okay, let's start with that. I said that the bond portfolio is around 31 billion. And there we have the average interest rate duration of three months or maximum three months. And then we have the liquidity or the cash and balances that sit with other banks. And And we have deposits at the Riksbank as well. And then we buy Riksbank certificates with a duration of one week. And that is completely tied to the policy rate.

Yeah. Okay. But the bond portfolio by three months. So the average should be 1.5 months. Yeah.

That's a good guess. Yes. Okay.

So with that in mind, and given where the three-month stable rates are heading, and that it should fall by 116 basis points in Q4, and it already fell by 55 basis points in Q3, is it fair to assume NII will already in next quarter be significantly down from today's number, and that NII will continue to fall in Q1 and Q2 next year before stabilizing?

I mean, you have two effects. You have the effect that you mentioned now, where Stibor can move faster than the RIGS bank rate. But you have another effect, which is that since we have a duration, the effect on our interest income is delayed than on the bond portfolio with an average one and a half months.

Yeah, but I mean, cyber didn't fall that much back in Q2, which affected the Q3 number. So the 55 bps down in Q3 should affect Q4, and the 116 basis points fall now in Q4 should affect Q1, Q2, right?

Yeah, you do the math, but of course we will be affected by the pressure on cybers. But as I also said, when we have natural maturities and when we buy new bonds, we get a higher credit spread on those than we had on those that matured. So a little bit of a compensation, but not a full compensation.

Okay. And is it fair to assume that the provided NII sensitivity, which saw an increase in today's report, will continue to increase at rate falls?

Could you say that again, Jacob?

I'm just wondering if it's fair to assume that the provided NII sensitivity in your report, which saw a 16.5% increase in today's report, that it will continue to increase the sensitivity as rates fall?

Yes. As rates go down, more and more of our deposits volumes will be priced at zero, which means that when we have a further rate cap, we will not take those rates into negative territory. So the more deposits we have at interest rate zero, the more we are affected.

All right. Perfect. Thank you.

Thank you.

And could you just better let us understand the threat from Montrose? I mean, you're working on your PB offering. I hear everything you said earlier on that topic. But I mean, the pricing is extremely aggressive. And do you see in this threat that the good clients will start to move to their platform, which in right now, at least as a stronger offering for the price banking clients with research reports and estimates forecast, et cetera, and that you could in the end be stuck with new clients being 18 year olds with quite limited AUM.

We're always, um, we always have competitors and potential competitors on the radar. Um, As I said before, we've seen a lot of competitors come and go, and now we have a few new. There are many of them. We try to keep track of them and make sure that we have a better offering to our customers than our competitors.

You haven't really seen any migration of private banking clients so far to Montrose?

They haven't really started yet for real, I think so.

Okay. And then just a final question. It's on the low average fund fees, which I guess a big problem today is Avanza Zero, which you are running at a loss. But given how popular the product now is, even for your higher margin private banking customers, would it make sense to either cap investments more than you already do today or completely exclude it for investors with, I don't know, more than 10,000 SEK in AUM?

I mean, when it comes to pricing, I mean, that's something that we continuously look at. That's an important part of our total offering, but I don't want to venture into specific price discussions.

Okay, I'm just thinking, you have more than 700,000 investors in that fund with more than 55 billion in AUM, which is loss-making. Sure, it's a good PR fund, but the price is becoming quite expensive for you for such PR. Would it not make sense to just exclude it completely for the private banking customers or the ones who are actually a bit more in AUM and let them invest in your Avanza Global or something where you at least make a few bips in margin?

No, you're correct that we have an interesting price lever inherited. in the advance of zero, but we have no plans here and now to adjust that. But it's an interesting thought. Thank you. All right. Thank you.

Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes from the line of Martin Ekstedt from Handelsbanken. Your line is open. Please ask your question.

Hello, and thank you for taking my questions. So just first one on cost. Your new cost target formulated as lowering the cost to savings ratio over time. Just wanted to ask from what base level? The previous target was, I believe, 0.12%. And in Q3, you now achieved 0.13%. But year to date, it was 0.15%. I just wanted to check what is the baseline that we should be comparing to that?

I mean, Q3 was a downturn. good quarter because it typically is because we have lower uh cost as anna mentioned so that's not really a fair uh starting point from that perspective what we want to clearly signal to you is that we want to be more efficient the cost to savings capital ratio over time shall go down we want to remain our cost leading position in the industry We have not set a certain target. We want to reach 12 or 10 or something. We want to see that over time continue to go down.

Okay, thank you. Then changing gears to a question on the European expansion then. Should we read anything into this goal being formulated as expanding into another european markets rather than just another nordic market i mean cherry picking another nordic market based on the experience of your close close peers it would seem a rather easy way forward right and then what you mean by expanding by 2030 you mean like a firm foothold in a new market or even profitability or just an entry into a market

I would love to be profitable in another market by 2030, but I think it depends, especially if we want to do it acquisition driven, it needs to be the right target. It needs to be available in the right market and it needs to be for sale. So that's why we have formulated a little bit open. And it's hard for me to be more specific than that.

Okay. Okay. Thank you. And then a final one, if I may. And so, and this question ties into one of the previous ones as well. So with the risk of losing some of the wealthier private banking clients to new competitors in Sweden, I also noted that your target within private banking is formulated as being number one in terms of number of customers and not by volume, for example. But do you see where I'm going with this? Do you have a volume target at the back of your mind, perhaps, or profitability target? Or how do you define that? a profitable private banking customer, etc.

I personally don't see a risk of losing a wealthy private banking customer. I see a big opportunity to gain a lot of wealthy private banking customers from other players. We have formulated the goals in terms of number of customers, because that is something that can be measured in Sweden, i.e. something that you can hold us accountable towards. If I would say savings capital or AUM, you would not be able to see objectively if we have reached that target or not. Of course, we have internal targets also on AUM.

Okay, okay, understood.

Thank you, Martin. Now we're going to go to the next question. And the next question comes from Erman Kavik from Carnegie. Your line is open. Please ask your question.

Hi, thanks for taking my questions. Maybe if we start on the revenue margins you expect on the savings capital growth going forward, given this focus on private banking and occupational pensions. I mean, if we exclude for market rates that will impact the revenue margin just underlying, do you expect that to compress going forward, given more focus on private banking, which typically has lower prices?

Not really. We want to grow in the broader segment as well. We have on purpose not communicated an income margin target externally because it's so dependent on the rate development, which we cannot influence. So that's why we're not being explicit on that.

Okay, but that's still helpful. Generally, this push for private banking, I mean, Avanza's DNA has been to democratize savings, right? How is that seen internally that you're now starting to build up some barriers to certain customer groups?

I don't see that we build up barriers. What I see is that we are now focusing even more on the most complex customers. Now, meeting the demands of the most customers means that we will be very well suited to serve our broader customer group and to make sure that we are in the forefront when it comes to customers, decision support, et cetera, et cetera. So this will benefit the broader Avanza business as well. And that I hope and believe that my colleagues see as well.

Yeah, but I assume you will have some features that are exclusive for private banking clients. I'm not saying that's wrong, but I'm just saying historically, Avanza has wanted to position itself as democratizing this for everyone, right?

And now we want to democratize the private banking market, which is a market where a lot of Swedes are today stuck in too expensive and too ill-suited solutions. So we want to democratize also this part of the savings and capital market. But it's a good point you have, Erman. That's, of course, something we need to be mindful about internally.

Sure, thanks. Then just on cost, could you repeat what you were saying about the 3.5% for cloud and I think it was 2% for something else? And is that then versus a baseline of 8% average or how should we think about it?

I think one of your colleagues asked that and I said, if you calculate like that, then I think you're too tough on us and believe that we have no ability to take out deficiencies.

What did you mean by that? I don't understand the comment. And if it's not that way, we should think about it in the near term.

Your question is, could you say that again then, Armin?

Because you said that you have a target now of 8% per annum on average. And then you said the cloud will add about 3.5% to that. So is that versus the 8%? And if we shouldn't think 8% plus 3.5%, what did you mean by it then?

Thank you for that clarifying question. I was referring to comparing to the expected cost base of 2024.

Okay, so from 2024, we should think that of that growth, 3.5% will be for cloud and about 2% for pension, and then we make our own assumption for the rest if there's any efficiencies from 2024 and onwards.

Exactly.

Okay, got it. Perfect. Then one last question, just if I may. It's been already a lot of questions, I suppose, on competition, but I suppose one of the standard features with one of your competitors' new offering then is the removal of commission classes. How do you see that going forward and how much would that impact your brokerage commissions if you would do the same?

If we would change our price model to another competitor?

If you would just have that every trade that a client is doing goes to the kind of optimal price commission class for that customer. But a different way, if all clients were always rational and they always changed their commission class to the right one, how much would that impact your brokerage?

So in a perfect world? Yes. I don't know from the top of my head, Fermin.

That's fair. Thank you.

Thank you.

Thank you. Now we're going to take our next question. And the question comes from Enrico Balzoni from JP Morgan. Your line is open. Please ask your question.

Thank you. Good morning. Thanks for taking my question. So first question again, going back on the cost and on the 300 million spent for the cloud. Can I just try to understand, is this a, I appreciate you're booking it under operating costs rather than capitalizing it, but Does this imply that this is a permanently higher cost base, so this $300 million will permanently remain in your system, so it's not just a one-off cost that then eventually will disappear? It's just a bit of a theoretical question, but I'm just curious to understand whether the future cost base will increase that $300 million, or if at some point they will disappear. And then the second question I wanted to ask you was, can you just please clarify? I just wanted to double check. You say that two-thirds of your clients' assets currently are with other financial institutions. And you say that about 50% of that is what you could actually capture. Thank you.

If I start with the last question, yes, a rough estimate is that a little bit more than half. of the assets sitting with competitors is addressable with the offering that we have today. Of course, should we broaden our offering, then everything should be in scope. When it comes to the cloud, the majority of the costs are one-off, but we will during the period also have a little bit of overlapping costs with our data centers and cost to the cloud provider. And the verdict in the market is that the running cost in the cloud is likely higher. But on the other hand, you get more features. So the majority is one-off, but you will have some effect of a slightly higher cost base from the running cost in the cloud.

Thank you. And then, sorry, a follow-up on that one. In the past, you said that basically there were two ways of doing it. One was the, you know, all upfront big IT project, and the other one was spread out over the years. Are we right in saying that the way you're doing it is the latter? So this is a gradual spread out of cost over the next few years, or there's something that is more upfront?

Exactly. But the rationale is not to spread out the cost per se. The rationale is to do it in a low-risk and efficient manner.

Thank you.

Thank you. Now we're going to take our next question. And the next question comes to the line of Marcus Sandgren from Cabellet Chevron. Your lines are open. Please ask your question.

Thanks and morning everyone. And thanks for your strategic update. I was just thinking, we've been talking about this before, Gustav, but your balance sheet is you have one third of your deposits is lending. And if you compare that to a bank or a normal bank, I should say, is one and a half or more. So instead you invest in Riksbank one week certificates. What do you think about that? Isn't that something you could easily improve your profitability with?

Absolutely. But then we would take more risk.

Yeah, I know. I know. But I mean, if you take Swedbank, for example, I think their credit losses on mortgages has been nothing during the last 40 years, almost. So, I mean, what do you perceive as high risk?

I can only say that we run a very, very low risk balance sheet today. And of course, there is a potential there. We have no plans here and now to enhance the yield of the pressure portfolio through taking more risk.

Okay, I get it. So when you say that, I mean, you're almost too attractive. That's because you don't want to change that balance as it is now.

It's a discussion that we're having internally, but we have plans here and now to change that.

Okay, get it. Thanks.

Thank you. Now we're going to take our next question. And the question comes from Andrew Lowe from Citi. Your line is open. Please ask a question.

Hi, guys. Thanks for taking the question. I've got a few clarifications on costs and then one on the international expansion. So on the cost, the first clarification is, are we taking 2024, stripping out the one-offs? Is that the base case when we're comparing the KGARs? The second question on the cost is, your 3.5% cost inflation from the cloud migration implies just under 50 million of costs relating to that in year one. So that implies six to seven years to complete at that run rate, which seems quite long. So is it sensible to assume potentially meaningful pickup in year two? And then on the international expansion, I'm just curious at a high level, what gives you confidence that Avanza can succeed in a new region? And if you look at what your peers have done, have others been successful at doing this? And if they haven't, why do you think that's been the case? Thanks.

Let me try to recall here. So when it comes to cost and the cost base of this target, I don't want to be more specific there. When it comes to the cloud migration, I mean, you did the math there. I think it will vary a little bit between the years, but I don't want to give more guidance here and now, because I know that plans will change during this period. But we're quite firm that the total cost during this period will be 300 million. We're ramping up now, which will have an uptick in the cost 20, 25. And then when it comes to other markets, I truly believe we can do this successfully, i.e. going into another market. That's why we have it as a strategic priority. Of course, we try to learn from others who have done it successfully and others who have done it unsuccessfully. I mean, we have seen many European players venturing into the Swedish market and not succeeding and getting out. One of the learnings from that is that the Swedish market is extremely competitive. It is very advanced and developed. And I think that is a clear strength for us when we look to venture into new markets.

Okay, thanks. Thank you.

Now we're going to take our next question. Just give us a moment. And the question comes from Ian White from Autonomous Research. Your line is open. Please ask your question.

Hi there. Thanks for taking my questions. Just a few from my side, please. First up, just going back to the international expansion, the communication today seems like it's actually a very limited commitment in this area. Can you just spell out for us what are the complexities around the decision here? Is it ultimately about looking for M&A targets? And is it not the case that the longer you delay an expansion into a new market, the more difficult it actually becomes as other players become more entrenched in their home markets? And that seems sort of in keeping with the example you gave about difficulties others have had coming into Sweden. So just more thoughts around that, please, would be helpful. Secondly, can you just clarify for us, what does the 300 million... cloud migration expense actually entail in substance? Is this just substantially temporary staff expense or something else? And if you just clarify that for me, please, that'd be great. And just finally, just in terms of some of the areas you've talked about in terms of the growth opportunities, I'm thinking particularly about private banking, do it for me segment and pensions. Do you need to invest more to increase

awareness of um of avanza as a brand within some of those segments and can you just explain a bit of detail about how you might go about that if indeed it is necessary thank you let's start with the last one uh i mean our brand is not connected enough to private banking today it's not it's not connected enough i think to occupational pension and there we have work to do in the future and that's part of the plans in those two strategic priorities. When it comes to the 300 million, it will be a mixture of... I don't want to run that 100% on consultants because we want to build up the competence in-house. It's a little bit different to run your microservices on the cloud compared to on-prem. So it will be a mixture of consultants and new staff. turnover, I think, roughly 13% or something like that. So I don't see a risk that we will get fat from that when we are ramping down the cloud migration as we're done. Now, the previous question was going abroad and timing. And if we wait too long, maybe opportunities are gone.

Ultimately, yes. Particularly, I'm thinking about if you're going to do this organically, it sort of makes sense to do it sort of quickly would be my initial prior, but interested to hear sort of thoughts around that from your side.

Yeah.

It is a big step to go abroad. It needs to be done in the right way. I think do it organically will take some time. I think it would be fantastic if we have a suitable target as a bridgehead into a market or two. If that occurs, then we could act quite swiftly. Organically, it will take longer time. And of course, you could also do partnership, which you could do swifter and have impact. But I think we have proven to be very successful in the most competitive and advanced markets.

We should use that to our advantage. Thanks.

Can I just come back on just the second question around the migration expense? Can you offer me a rough split between sort of third-party consultant versus in-house expenditure on that, please, even just approximately?

No, I don't want to do that. I don't want to go into that specifics here now.

Okay, got it. Thanks for your help. Thank you.

Thank you. Now we're going to take our next question. And it comes from a line of Carl Oscar Bredingen from ABG Sundar Kulia. Your line is open. Please ask your question.

Thank you for taking my question. Just one quick question on the 300 million cloud migration. With this cloud migration now be sufficient for your new infrastructure should you be successful with international expansion in the near term or would that trigger any expansionary M&A capex should you have an acquisition target or do organic expansion in the near term?

The line was quite bad but I think that your question was if we go abroad would that incur further capex? Was that the question?

No. Is this better?

Yes.

Yes. Sorry. 300 million. Will any further expansion outside of Sweden entail any further cost, or would this 300 million be sufficient to have the proper infrastructure to take on further M&A?

To take on further M&A, yes, but if we wouldn't If we would enter into a market organically, we would need to connect to the local payment system. We would need to connect to the local FSA to deliver the required reporting. We would need to connect to the local tax authority to deliver the required reporting on the tax front. And we would need to adjust the system for a different currency. So there are some add-ons. that we would need to do that would be specific to a certain market. I don't think it's very big, but there are some elements there that needs to be done.

So we should consider the 300 million for an advance of Sweden, if you will?

Yeah, you should see it as taking our technology into the future. Then that technology can be used in Sweden and elsewhere, but it's not that we could just start to sell to customers in country X just because we're in the cloud. It makes it much easier, but it's not a free run from the cloud, so to speak.

Thank you very much.

Thank you. Now we're going to take our next question. And the question comes from Bruce Hamilton from Morgan Stanley. Your line is open. Please ask a question.

Hi, morning. Thanks for taking my questions and thanks for all the colour. And sorry if this is a dumb question, but just to clarify again on the cost. I think what you were saying, but correct me if I'm wrong, is that the cost growth will be more than 8% given those additional impacts of the cloud and the spend for occupational and private bank. But it won't necessarily be at 8 plus 3.5 plus 2.1. Or are you saying it's all embedded within the 8 And then secondly, given your comments on brand in the private banking space, should we assume that that additional sort of 2% or 25 million you've talked about for 25 persists into the future, potentially for multiple years? So those are the cost ones. Then on the private market fund offering, which players are you working with there? Is it a whole range of sort of GPs or is it just a small group? And then final point on sort of international trades, which have moderated a bit in September. Is there a sort of structural reason you expect that to remain higher or is history a reasonable guide in terms of the range of what you would expect for the international trading on a look forward basis? Thank you.

I start with your last question. I think the home bias that exists in most markets, also in Sweden. is declining everywhere. People see the value of also geographical diversification. So I think there is an underlying long-term trend towards more trading in foreign securities. On your question about the private assets, I think it was the private assets you asked about or? Yeah, exactly. The private market funds. So we're public with that. We have funds from the private funds from Nordea and Schroeders. And one more, which I cannot recall. But it's just a start. It's a good step to democratize also the private market, which is not accessible to our customers in a good way. So I think you should over time see more here. And the first question, I think, was around cost. And when I'm saying that the uptick in cost from the cloud 2025 estimated that 3.5% and an uptick in the efforts we're doing in private banking and pension of roughly 2%, that is just to guide you when we're saying that the costs will be higher in the beginning of the period and lower in the end, but the average should be 8%.

Got it, got it, sorry, 8% out to 2030, higher at the beginning of the period, that's the guidance.

Yeah.

Okay, thank you.

Thank you. Now we're going to take our next question. And the question comes to the line of Nicolas Veselier from BNP Paribas. Your line is open, please ask a question.

Hi, can you hear me? Yes. I thank you very much for taking my questions. Uh, the first one again, sorry, we'll be on, on the cost side, but focusing more on the efficiency part of your roughly quantified, uh, how much efficiency do you think you can extract from the, from the business? If I compare you, uh, against the listed European and US peers, you screen as being already highly efficient, including versus some considerably larger players. Um, so I'd like to have a rough idea of actually how much and where you can see the deficiencies and how realistic it is to deliver that while also disrupting a bit your processes through a cloud migration. That'd be my first question.

I, I, I, one of my observations, uh, coming into Avanza in end of Q1. is that we are very digital and efficient towards our customers but we have probably focused very much on customer features in the last couple of years which leaves us with quite some opportunity to automate and make our internal processes more efficient. I see quite some potential there. Yes, we are efficient when you compare to international players, but we're also acting in the most advanced and competitive market, which is Sweden, which I think should make us be really strong also on cost efficiency. But I don't want to give you a certain number. million lying around. Of course, we've done some benchmarking and I'm quite comfortable that we can do a better job going forward.

Okay. Then on your targets on private banking, like increasing the share of wallets and also the aspect of moving more you're offering towards a do it for me kind of product. I'd like to know concretely what are, what are the ideas you have in mind at the minute and what needs to be done to achieve this?

I mean, I, we have, we have, we have quite a concrete ideas, but I'm a really bit, a little bit reluctant to give away too much to our competitors. It is quite a competitive market, but we have, we have historically not ventured into this segment and, It's a big segment, and we believe that we can do quite exciting things here.

Okay. And lastly, on just a technical one, but on the fund revenue margins this quarter, so it's gone up a little bit, could you elaborate more on what's been triggering this rise?

Oh, as I said, it was a little bit of a mixed effect during the quarter. Even if we saw the percentage of index funds going up, we saw a little bit higher interest when it comes to actively managed funds that have had a positive effect on the overall margin during the quarter.

Was it active equities or manifest income?

Pardon?

Was it including inflow in active equity funds or was it mainly active fixed income funds?

I mean, we saw a little bit higher interest in, for example, tech funds in the beginning of the quarter and also real estate funds, for example.

All right. That's helpful. Thank you very much.

Thank you. There are no further questions for today. I would now like to hand the conference over to speaker Gustav Unger for any closing remarks.

Thank you very much for taking this time. We look forward a lot to make this happen with our fantastic colleagues and engaged customers. So we're looking forward to talk to you in the future. Bye bye.