Avanza Bank Holding AB (publ)

Good day and thank you for standing by. Welcome to the Avanza Bank Interim Report January-June 2025 Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, Please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, CEO Gustav Unger. Please go ahead.

Hi and welcome. By my side today, I have Anna Kasselblad, CFO, and Carolina Johansson, IR manager. Avanza had a strong first half of 2025 despite turbulent macro. Unpredictable tariff announcements and geopolitical conflicts clouded the near-term outlook and net flows in Q2. Long-term outlook for increased savings remains positive. We have in Sweden increased real wages, lower interest rates, meaning lower housing costs, And also stock markets have rebounded quickly from the early April fall. Bottom left, you see that the savings capital is up 4% in H1 and 7% in Q2. That was driven by market depreciation and net inflow. Top right, you see that customer acquisition is on track for another strong year with H1 up from last year. Bottom right, we see that net inflows in H1, on the other hand, is slightly weaker than last year, where the macro uncertainty has put many suites in a wait and see mode. I think customer activity held up well in the quarter, despite a difficult market environment with rapid changes in the sentiment. Top right, you see that the number of brokerage generating customers remained high in the quarter and bottom left you see that brokerage margin was stable it was negatively affected by lower share of foreign trading but positively affected by the standard segment playing a larger role this quarter bottom right we see that turnover in foreign securities is still high compared to historical levels but negatively affected by the unpredictable US precedent in the quarter. The long-term trend of increased foreign trading is strong, with our customers having a home bias of 77% at the end of the quarter in their equity portfolios. That's not geographically diversified portfolios, to say the least. Fund customers were net sellers in the turbulence in April, but net buyers in total, which together with the large market fluctuations made the average fund capital decrease compared to Q1. This reduced mutual funds income. In the Q1 results presentation, I showed that our customers' US exposure in their equity portfolios was 13%. Fund customers are more exposed to the U.S. market due to the popularity of global funds. My estimate is that fund customers hold roughly 35% U.S. exposure. Fund inflows was $5 billion, which is high compared to Q1, but weak when looking at 2024 due to the wait-and-see mode of SWE. Our strong brand is an important asset and competitive advantage that we built for decades through customer focus and innovation. And where the daily interactions with customers are vital parts of the development of Avanza. This has resulted in a loyal customer base with a low churn of 1.7%. And in the quarter, Avanza is ranked as one of the highest regarded companies in Sweden, together with names like Volvo and IKEA. The strong brand is also important for our employee value proposition, where being able to attract, develop and retain the best talent is key. And this quarter Avanza is ranked one of the most attractive employers among students in Sweden. An important part of our strategy and to reach 2,000 billion in total savings capital is to focus on our core business, which is savings and investments in Sweden. Two thirds of our customer savings are estimated to be held by other banks, half of which is considered addressable. We have a great opportunity to increase share of wallets where we need to make both smaller and bigger enhancements. One part is to constantly improve the offering so that we also in the future have the best platform. During the quarter, we have added two new European markets, Spain and Switzerland, and launched analyst recommendations and target prices as decision support. An improved mortgage offering is another possible key to free up customer savings capital with other players who lock in their customer savings in exchange for decent mortgage rates. I think that Stabilo, backed by Swedbank, will allow us to significantly improve our mortgage offering later this year. Our existing customer base is an important source of future growth. The Sigma stock acquisition was finalized 1st of July, creating an opportunity to increase our addressable market. Historically, Avanza has focused on the do-it-myself and help-me-do-it segments. To accelerate growth, we need to become more relevant for those less confident in making their own investment decision. We will develop products to attract the large do-it-for-me segment while remaining fully digital, starting with the private banking segments. Our focus now is on integrating the new product in the Avanza experience. And the ambition is to launch the new discretionary mandate product around the turn of the year. Before handing over for a presentation of our financials, I'd like to thank Anna for being a fantastic colleague And CFO, always with a smile, irrespective of workload. And I think this will be your last. I know this will be your last, but I think of 18 quarterly presentations. Over to you, Anna.

Thank you. And good morning, everyone. As Gustav already said, we are reporting really strong results today and are once again proving resilience to changing market conditions. Operating income decreased compared to Q1 due to lower trading-related income, while NII increased driven by higher deposit volumes. Looking at H1, operating income increased by 18% compared to last year, driven by all income streams except for NII. That decreased slightly. Our operating expenses are developing according to plan and increased by 6% in the quarter. This resulted in a net profit of 600 million, which is 15% below record quarter Q1, but nonetheless a very strong result. Looking at January to June, net profit increased by 23%. Return on equity for the quarter ended up at 37% and earnings per share at 3.81%. Our income mix is reflecting the events in the world around us, and the business model is once again proving resilience to various market conditions, with an increasing NII and decreasing trading-related income streams, both as a result of customers de-risking. Trading activity decreased compared to Q1, which, as usual, was a result of the general market sentiment, but also a result of 4.5 fewer trading days in Q2. the other hand if we zoom out the perspective a bit and compare to last year's figures trading activity has increased substantially and we are also seeing a higher number of brokerage generating customers looking at the trading mix across the customer segment private banking and pro accounted for 26 percent of the brokerage which was lower than in q1 This is somewhat unusual in a more turbulent market environment where the standard segments are usually the ones to tend to become more passive. Looking at the brokerage margin, it was stable at 11.4 bits compared to 11.5 bits last quarter. Slight decrease was driven by a lower share of trading in foreign securities. However, the standard segment accounting for a higher share of trading mitigated the negative effect. When it comes to SX income, this was negatively impacted by a 20% lower turnover in foreign brokerage generating securities compared to Q1, driven by customers being more hesitant to use exposures in their portfolios, particularly in the beginning of the quarter. Here we saw an increased share of turnover in foreign securities generated by private banking and Proclux customers. This also partly affected FX income negatively as private banking and pro customers have better prices for FX. Net fund commissions decreased by 7% due to lower average fund capital, despite fund capital being higher at the end of the quarter. The fund margin was stable at 24.9 bps compared to 25.2 in Q1. and was 25.1 at the end of the quarter. The share of capital in index funds was also stable, only increasing by 0.2 bps to 48.6 bps. Other income was also negatively affected by the market environment with lower income from corporate finance due to the sharp shift of sentiment for ICO transactions, and income from the market also decreased. The turbulent market environment is evident also when looking at the MII. This posted volume, looking at the outgoing balance, increased to close to 10 billion compared to Q1, driven by customers' lower risk appetite and the dividend season, which resulted in higher surfeits of liquidity. Looking at the intraday liquidity, this has been even higher at times, as customers at some points have been net sellers of securities in the quarter. Looking at the lending side, mortgage volumes kept growing while the lower risk appetite drove customers to decrease margin lending. The average rate for internally financed lending decreased to 3.27% from 3.4% and the lending income decreased slightly. The policy rate has been kept stable throughout the main part of the quarter, but on June the 25th, the Riksbank made a 25-bit cut. This has a direct effect on our mortgage rate, which was cut accordingly. We also decided to reduce the margin lending rate by, on average, 34 bits. So far, throughout the rate cut cycle, we haven't been more restrictive with cutting the margin lending rate. To make sure that we have a fair offering for our customers at par with competition, we made a decision to make a slightly larger cut this time. Moving on to the interest cost side, our interest expenses increased due to higher deposit volumes on our savings accounts. The average analyzed rates on deposits decreased from 0.97 to 0.91%. The amount of customers' deposits in interest-bearing accounts decreased and amounted to 51% at the end of Q2. Since the policy rate cut in June, we now only pay interest on transactional accounts for the pro segment, and we cut our savings account rate by 25% to 1.50%. All in all, NII increased by 8% since Q1 and is contributing well to the overall income this quarter and will continue to do so also going forward even though we will see some effect of the lowered policy rate. Our costs are developing in accordance with our communicated plan and increased by 6% compared to last quarter. Personnel costs increased by 10% compared to Q1 due to a higher average number of employees. Other costs also increased mostly connected to the cloud journey. And marketing costs were seasonally lower. And the cost guidance of 11% increase for the full year stands. As you can see from the table, we have further strength in our capital position, especially looking at the risk-based capital surplus. In May, we successfully achieved 81 capital of 800 million SEK. And this is something that we have aimed to do for a long time, as we see it as a natural part of our capital structure. And that also pays weight for future savings capital growth. The issue was heavily oversubscribed, and we paid three months cyber plus 325 bits, which was the lowest spread. And in other words, the lowest perceived risk for investors that an unrated Swedish bank has issued since 2008. And that also shows the strength. by Avanza. With AT Capital, we are now better prepared to cater for increased deposits and the leverage ratio requirements. And as you know, we are in the process of closing our external savings accounts, where we now know that partners that account for approximately half of the external deposits today will not migrate it to their own platforms. And that means that if customers don't actively move that, the deposits will stay at Avanza. As I mentioned earlier, we have seen increased deposits this quarter and this year due to customers de-risking as well as dividend inflows. The pressure on the leverage ratio was mitigated by issuance of 81 capital, implying a strengthened ratio compared to last quarter. We still have a good headroom to the total leverage requirement of 3.5%, including the Pillar 2 guidance. And we can handle increased deposits of 38 billion before breaching it. And I would also like to emphasize that we didn't audit the quarterly figures for Q2. It's only the Q1 results that have contributed to the capital base. And with that, this is my last quarter with Avanza. I would like to take the opportunity to thank you all for a good collaboration and interesting discussions during the years. And also thank Gustav and the Avanza team for an excellent time here at Avanza. And I wish you all the best.