Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banca Generali First Quarter 2020 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. Gian Maria Mossa, CEO and General Manager of Banca Generali. Please go ahead, sir.
Hello, good morning, thank you for attending our first quarter results conference call. I hope you are all safe. Before starting with numbers, I would like to share with you how we have been managing the situation since the outbreak. On page three, you see the three main pillars of the strategy. First of all, of course, to protect our clients, our people, and more in general, our stakeholders, through working from home, continuing communication, and medical assistance. The second pillar of the strategy was to stay very close to our clients without, of course, the physical presence, but being proactive in giving continuous communication on products, markets, investment solutions, and providing innovative products. For example, to manage liquidity. The third pillar of the strategy, of course, was about action to support our country.
First of all, we provide liquidity to small and medium enterprises, thank you to our innovative approach to securitization. Second, we provide credit facilities in line with the recommendation of the authorities. Third, of course, we stay very close to the health system and health organization through donations. Now, moving on to numbers, and I'm at page four. Let's say that during the first four months of this year, we saw a very high volatility in our total assets, linked to the market, of course. We reached a maximum in February. Then we closed March with EUR 65.2 billion, and we partially recovered in April with total assets at the end of April at EUR 67 billion. On the advisory services side, numbers are pretty good because we more than offset the fall of the markets with inflows.
At the end of April, we have assets higher than the assets at the end of the last year. Probably the most positive news is about inflows, because we closed the first quarter with EUR 1.5 billion. It means almost half a billion EUR per month, and the mix and the quality of these inflows are among the highest for the bank. Net profit at EUR 79.1 million, thanks to solid operating trend and positive contribution from variable fees. Moving on the capital position. As you know, during our AGM on the 23rd of April, we approved the dividend policy for this year. The capital ratio won't consider the first quarter contribution of the net profit. In working out capital ratio, we exclude also from equity the dividend matured in 2019.
With this consideration, total capital ratio resulted at 15.5, well above, sorry, the capital ratio requirement. Page five, there is our usual representation of P&L. We changed the representation of the gross fees, splitting it in two parts, the gross recurring fees and the variable fees. Let's say that the result of the first quarter is definitely higher than the first quarter of last year, thanks to the contribution of almost all items. Net financial income up 20%, net recurring fees up 16%, and as a result, total banking income was 26% higher than the first quarter of last year. If you look at operating costs, are inflated by the change in the perimeter, and you will see that we have adopted a conservative approach below the operating line.
Basically since the amount of this dividend from Luxembourg to Italy was twice the amount of the previous year, the taxation is a little bit higher and impacted a couple of points on the tax rate. Before analyzing line by line, page six offers a breakdown of the net profit between variable net profit and recurring net profit. As you can see on the left side of the slide, the recurring net profit is almost stable. I think that the quality is definitely higher. On the right of the page, you can see a graph with the contribution of both operating and non-operating items. The first, operating items, up EUR 11.4 million. The non-operating items, down EUR 11.3.
At the end of the day, the result is the same, but the quality is much better. Moving on to page eight, let's start with net financial income. In line with expectation, total net financial income for the first quarter at 24.2, with a contribution of the net interest income at EUR 20 million. We are pretty confident of increasing a little bit the projection for this year. You can consider a double-digit growth as a full-year result. Why? Because we are confident to increase marginally the yield on the financial assets above 0.8, and we are confident to maintain at least the same level of total assets. Last time we said one single digit, now we are definitely above 10%. Page nine, there is the split between gross recurring fees and variable fees. This is a new slide.
If you look at on the left of the slide, you can see the increasing importance and relevance of entry fees and banking fees. Now they account for almost 15% of gross recurring fees. Allowing us to maintain almost stable the yield on total asset also in this difficult time. While variable fees closed the first quarter with a contribution of EUR 53.4 million, in this case, our projection for the year is of an increase of other EUR 20 million, EUR 30 million maximum. A little bit lower than the previous projection. Page 11, you can see the other recurring fees. In particular, banking and entry fees. Impressive, the acceleration on year-on-year basis, EUR 29.7 million versus EUR 17.8 million.
Great part of this increase is explained by the new revenue streams. You can see it on the right graph of the page, with an increase of EUR 10 million of the sum of certificates, advisory fee, plus an increase in retail brokerage. Now the yield on these other recurring fees on total assets is around 0.17%. Sorry, I skipped one page. Sorry. I don't know why. I skipped page 10. Sorry. Page 10, there is a focus on the management fees. If you come back to this page 10, you see the trend of management fees and on average managed assets and the margin.
You see a reduction on margin of about three basis points, which is some round effect, which is basically linked to a different way to get the commission from the financial wrappers, because you take the commission only once per quarter at the end of the quarter. We took the commission probably in one of the worst day of the quarter in terms of total AUM. We are pretty confident to see a recovery of these two basis points in this quarter and in the next one. Coming back to page 11, we already described the trend in banking and entry fees. We can move on page 12, where we have the fee expenses. On this side, good news, total payout ratio down from 54.6% to 53.4%.
This reduction is basically driven by a reduction in the payout to the network in both components, so cost of growth and ordinary payout. In the payout to third parties, you see a small increase. It's driven by one-off, that is a consequence of the integration with Nextam. We are confident to confirm the range 5.5-5.6 for the end of the year. Again, good flexibility in the structure of the cost, first of all, for the network and for the third parties. Going on to the operating costs, page 13. Here you can see that the core operating costs increased by 3.8%. From EUR 46.5 to EUR 48.3, and you can see the contribution to cost of the integration of Nextam and Valeur, EUR 5.1 million, of which EUR 1.2 of one-off costs for the integration. You can also see the contribution, the cost related to COVID-19.
We estimate overall costs at EUR 1.8 million, of which EUR 1 million of donation. Also for operating costs, we slightly review our guidance, reducing the range 3%-5% to a range 2%-3%. We are, as I said, confident also to see a slight reduction in the cost of growth. Page 15, we have the capital position. Capital position, as I said, see the total capital ratio at 15.5%. This is the effect of the mark to market of the banking book for the part held to collect and sales. As I already said, the first quarter capital ratio are excluding the net profit of the first quarter as well as the 2019 dividend. In terms of liquidity ratio and leverage, we continue to maintain a very strong position.
Just to sum up this first part of the presentation, I'm very proud of the increasing diversification in the revenue streams, in the revenues, and also within the management fees with a positive contribution of all the products innovation we launched in the last two, three years. I can say also that the operating leverage is working very well, and the overall costs are under control with a projection for the full year, as I said, slightly lower than previously communicated. Now move on to the chapter related to net inflows, assets, and recruitment. Page 17, we closed the first quarter of the year with a reduction of total assets of EUR 3.8 billion, with a negative performance in the range 7%-8%, -7% to -8% , and with a negative performance of managed solution in the range 11%-12%.
During April, we have recovered part of this performance with an overall performance since the beginning of the year for the total assets at around 5.56%. As you can see in the slide, on the top right, managed solutions, the relative best performers are in-house funds and insurance wrappers, while the most hit are third-party funds first, then financial wrappers. Next page 18, a focus on total net inflows. We said very strong inflows for the first quarter, EUR 1.5 billion. If you look at the breakdown of the managed solutions, you can see the positive contribution of insurance wrappers, more than EUR 200 million, and the positive contribution of LUX IM, almost EUR 300 million. While negative sign in both in-house funds and financial wrappers. Page 19, you can see the contribution from existing sales force, highest level ever, 79%.
It's not about percentage, but it's about absolute value because it implies something like EUR 1.2 billion in three months coming from the existing sales force. While the recruitment trend, of course, is frozen at, let's say we are around 25 now, 24. We expect, of course, that this can be probably hit by the lockdown. Now we change our projection for the recruitment for full year from the range 80-100 in the range 70-80, 20 financial advisor less than previously expected. Page 20, there is a focus on the April numbers. Positive in terms of quality, 100% coming from managed solution. As we already said, total assets at EUR 67 billion, and asset under advisory EUR 4.8 billion.
To sum up also this second part, I would say that I'm pretty confident on the quality of the inflows in the coming months, and I just see a sort of delay in the recruitment activity. Because we are more and more perceived as a safe harbor, and probably the right place to work in an uncertain world. As I said, I think that recruitment is a very important activity, and I see even higher opportunities in the medium term due to the fragility of the banking system and the perception of our brand. The last part of the presentation is in the business update, page 22. There is the slide we presented during our full year results conference call. Just to remind you that we identified three main blocks of initiatives.
The first block is about our core business, and it's about the strategic focus on our LUX IM platform, the new commercial approach on ESG and SDGs, plus the focus on the insurance solutions. The second block is about new business levers, and it's about the launch of new initiatives in the lending space, the acceleration in the private markets, and the internationalization. The third block, that is in the bottom of the page, are the three new revenue engines that you know pretty well, advanced advisory, certificates, and BG Saxo. Now we're going to through these blocks with a particular focus on the first one. So page 23, focus on LUX IM. What impressed me more is the constancy of the inflows quarter by quarter.
You can see it on the top right of the page, EUR 500 million, EUR 600 million per quarter, and also April and May are working pretty well. This is due to a continuing innovation of solutions, a well-diversified portfolio, plus new services that we have been launching since the second part of last year. The first one, as we are continuing to innovate, is about the, what we call Twin Mix, that are scheduled switch plans. The client invests immediately all the amount of money in the platform, and then we gradually switch from low risk to high risk solution. We have an amount of EUR 400 million of services activated. On top of that, you have to add also initiatives we launched during the crisis, that is a dedicated fund to manage in the next six months, a sort of liquidity plus fund.
We have almost EUR 600 million that in the next 12-18 months will be converted in higher volatility solution. You have the traditional accumulating saving plans, this, you know, it's a new opportunity for the bank. First time we're focusing our attention also on saving plans for affluent clients. During these last two months, pretty challenged, we have continued to see positive numbers in the new contracts. The second part is about the, let me say, the sustainability new commercial approach. It's page 24. This is very important strategically because we are sure that it's another way to approach clients. We develop a proprietary platform, as you know, where clients can personalize their preferences in terms of Sustainable Development Goals. On top of the platform, we developed also a dedicated offer.
In the graphs you can see in the first one, the net inflows. Part of the acceleration of the inflows for the existing sales force comes also from this new project, almost EUR 1 billion in the last five quarters. The, let's say, the share of ESG assets on total managed assets now account for 7.7%. I confirm we launched the initiative with Generali Italia. We manage a unit- linked with a focus on ESG solution. Let's say that the inflows are around EUR 300 million since the launch. Page 25, you see the third component of the core business. It's about insurance. Insurance products account for almost 37% of our total investments. You see that we continue to have positive inflows, almost EUR 800 million.
We are confident to accelerate the share of wallet for the top clients, thanks to the launch of our Luxembourg Lux Protection Life. It's a very innovative solution at the European level. This needs the presence of the client, because it's pretty important to share the strategic relevance of this kind of solution. At the moment, we have something like between EUR 50 million and EUR 100 million of net inflows, but I'm confident to see higher number in the next months. Page 26, you see the second block of initiatives on the new business levers. On lending side, we've just launched Lombard Plus for professional clients, and we are leveraging a new offering on the state guarantee fund with credit facilities, with a guarantee up to 90% provided by government agencies.
This will allow us to increase the numbers of lending, and we expected for the full year, more than EUR 200 million of new lending or new loans, sorry. The second is about private market. We continue to see a great interest in our securitization activity, that it works pretty well and allow us to offer more advanced advisory services. You know that we have in pipeline two dedicating initiatives under the brand of BG4Real, the ELTIF and the FIA. These two initiatives can have a boost also from the recent law announcement of a higher contribution for such a kind of solution and products. Last but not least, we have the internationalization. In these two months, we start seeing growing interest in receiving advisory services in Italy, but with at least part of the booking in Switzerland.
We already closed operations for EUR 60 million-EUR 70 million, We received some requests for about EUR 200 million. We will see what happens in the next months. Of course, the opportunity to diversify also the booking center, it's really relevant when uncertainty increases. The slide number 27, it's about the new revenue engines, so the third pillar. We know pretty well this slide. You see advanced advisory services, where now we reached 7% of total assets, We are pretty confident to continue proposing this kind of service to our clients. We raise our expectation in the range of 8%-10% at the end of the next year from 7%-8% this year. Structured products, you know we have a target of EUR 150 million, I confirm this target for the following quarters.
We saw an acceleration last year in the first quarter of this year. Let's say that it was for particular condition, market condition. When the volatility is very high, it's pretty difficult to give high quality solution because you know we offer this kind of solution for private clients and our private placement, where you need the price in one day. The counterparts have different problems in providing these kind of prices when the volatility moves so quickly. We need stabilization of the volatility to resume the previous volumes. We are pretty confident to confirm EUR 150 per quarter. While brokerage fees accelerate thanks to an acceleration in the volumes, and particularly in March. I see two reason under this acceleration. One is a structural trend of the bank. You can see the graph.
Thanks to the partnership with Saxo, thanks to the focus on advisory services. I'm very confident to see raising volumes over the next quarter. There is a one-off driven by the volatility. Also these three strategic new revenue engines will contribute in the medium term to increase more and more the diversification of our revenues. The last page, we start with this presentation with an update on COVID, and I would like to close with a focus on the number of operation and the quality of the operation during the lockdown, because I'm very impressed by the results, the quantitative results, the number of operation, and the resiliency. First of all, let's start on the left side of the slide, where nine out of 10 financial advisors complete operations fully digitally.
This is a confirmation of the great investment we did in the last three years to be ready. Second, 10 out of 10 complete training programs, thanks to our new, very innovative training digital platform. Second, if you look at clients, two out of three complete operation digitally, and one out of three leverage new operation processes we launched for the crisis, in particular, the possibility to give orders also via phone call and via mail. This is another example of great flexibility with the bank and very innovative approach in technology, not just as a front end for our financial advisors with our BG Advisory platform, but also in terms of processes and procedures. On the right, you see the number of operations. That is a sort of proxy of the commercial activity. We focus on two particular topics.
We exclude trading because you know, trading in March increased everywhere. We focus on two different activities, pretty complicated in such a challenging time. The first is about assets transferred. This is commercial activity. When a client transfers position from one bank to another one. You see that the numbers of transfers in, so from an external bank to Banca Generali, was in line with the last year when the markets were pretty different and when COVID-19 didn't exist. If you look at the out, it is lower than last year. It means that the churn rate of the clients is lower and lower. The second focus is on fund activity, because you know, during challenging time, the risk to see significant outflows on funds is real. Here you can see that the operation in is even higher than the last year.
The operation out are definitely lower. What surprised me more, and I'm very proud of this, that the advisory activity, so the switch, the repositioning of the clients accelerate. It's a way to say that our financial advisors were proactive. When you have the commercial activity that is in good shape and of great quality, you know, this is our core business, this is our competitive edge, and this is the element that make me very confident on the future. Thank you. Now I hand over to Q&A session.
Excuse me. This is the Chorus Call 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 your question, please press star and two. Please pick up the receiver when asking questions. The first question comes from Gianluca Ferrari of Mediobanca. Please go ahead.
Yes. Hi, good afternoon. I have three questions. The first one is on the flows you reported in April. The quality, in particular, was very strong. I think we have to go back to 2017 to see mutual funds reporting EUR 370 million outflows. You also mentioned during the speech that you are placing a unit-linked, ESG unit-linked on behalf of Generali Italia. I was wondering if that helped to reach that number. Which kind of margins do you have on the unit-linked you manage on the house of Generali Italia? The second one is on an update on performance fees in cash in April, if it's possible, please. The third one is on the incredible results you are achieving in the new revenue stream.
I understood that in some cases, they might be a bit affected by volatility and the contingent situation, but you are running well ahead of 2021 targets in all the three business areas. Where do you feel more prudent in increasing your 2021 targets? Linked to that, we discussed with one of your competitor, if the increase in brokerage fees are VIX related or more structural. I think you mentioned that it is probably a bit of both, but do you have any data to share with us regarding April, in which volatility went down, but it seems that revenues remained as good as in Q1? Thank you.
Thank you, Gianluca. Starting from unit-linked. Unit-linked numbers doesn't account for the inflows of April. We keep well separate. We provide numbers only for the financial advisors. What kind of unit-linked? Historically, we provide some advisory on the unit-linked, in particular with some risk engine approach. Since the end of the last year, we focus on managing actively and proactively some unit-linked with the focus on ESG. We define five different portfolios with different bias in SDGs, and they are offered through the paid agents. We start in November.
Now we are at EUR 250 million, more or less, of underlying invested also in our funds, because at the same time, we launch also some dedicated solution, ESG solution, in our Luxembourg platform. Just to sum up, no inflows of general unit-linked accounts for the inflows that we communicate to the market.
Okay, thanks.
Performance fee in April, zero. We have some strategies that are not distant from the high-water mark, and then we still have the runoff of selection, and we have some projection for performance fee and selection for June that is around EUR 8 million-EUR 10 million. Targets for advisory, brokerage, and certificate. I think that certificate are at full speed, EUR 150 million-EUR 200 million is the target we have in mind. I don't see room to increase significantly and structurally these numbers. Advisory fee, I'm positive. I see room to increase and accelerate. This is the reason why we increased also the target of the percentage out of total assets. Brokerage fees. While I'm very confident to see increasing volume for the bank due to the partnership with Saxo and due to the focus on advisory fee, I don't see any structural shift on this kind of activity.
I can give you some flavor because we have the advantage to see the numbers of Saxo, that is an international platform. The numbers, in particular in May, are very low compared to the March one. It's normal. Brokerage fees are correlated 100% with volatility of the market. It depends on your expectation on volatility. If we expect a stabilization, brokerage fee will diminish. No way to change structurally the attitude of investor, and particularly in Italy. I think to answer all the questions. Thank you, Gianluca.
Yes. Very clear. Thank you.
May I remind the participants to please use the receiver to improve the audio quality. The next question is from Luigi de Bellis of Equita SIM. Please go ahead, sir.
Yes, good afternoon. Three questions for me. The first one is on the financial asset. Can you elaborate on your strategy on financial investments and on Italian government bond in particular? Would you invest more in BTP given current rate or not? Second question on capital position. Where do you see the CET1 and RWA evolution for the next quarters and at the end of 2020? The last question on Switzerland and international growth. Could you give us an update on the strategy goal for 2020 in terms of inflows, recruitments, and banking license? Thank you.
Thank you, Luigi. Let's start from the banking book. We set a target of Italian government bonds in the range of €5 billion, €5.5 billion. We are maintaining constant this exposure to the Italian government bonds. We ran several back tests, and also in a very extreme scenario, we could react positively to the hurt, to the consequence of, for example, downgrading or something like that. For us, EUR 5, EUR 5.5 is manageable. The rest part of the banking book is invested in other European government bonds, part in financial and corporate of very high quality. We started to diversify the banking book also thanks to some illiquid solution, but it will represent maximum 5% of the whole portfolio. In terms, let's say that we project a yield on the banking book in the range of 0.8%-0.85%.
Not such a big increase, but necessary to provide a double-digit growth in the net interest margin. Second, capital position. We have in mind a range of 14.5%-15.5% as the projection. Since we are maintaining probably a much prudent approach in this moment to the banking book than what we expected in the past, the capital ratio could be a little bit higher. About international growth. For us, international growth means three things. The first one is to provide, let's say, a very innovative services of multi-booking center to Italian clients in order to maintain the investment services in Italy and to diversify the deposit of the asset. This is our first priority, and I think also the most important in terms of inflows. We confirm increasing interest in this activity.
Let's say that the only risk is that you need the physical presence for this kind of activity. The second business line with Switzerland is to develop a dedicated distribution channel there, and at the moment recruitment activity is frozen. I don't honestly see the urgency to accelerate, also because then we have the third priorities, that is to provide portfolio management solution through our insurance vehicle from Switzerland. We provide unit link, our Luxembourg platform solution, some unit links that are managed directly by Switzerland. If you think of these three goals, the most important is the first one, and I think we will see positive inflows, in particular in the second half of this year, significant inflows. I have a target between EUR 300 million and EUR 400 million.
In the Luxembourg platform insurance solution for private insurance, we do expect the target around EUR 200 million-EUR 300 million to sum up to the first number I gave you. While in terms of development of a distribution channel in Switzerland, this must be considered as an opportunistic approach. If we see the opportunity, we're going to buy assets. My priority in this moment, due also to the context of the situation, are to achieve the first two goals. Thank you.
Thank you.
The next question is from Elena Perini of Banca IMI. Please go ahead, madam.
Yes. Good afternoon. Congratulations for your results. I've got essentially two questions. The first one is about the recovery you mentioned in the customers' assets at end April, EUR 67 billion, if I remember well. Can you split for us in managed assets, traditional life products and banking products, just to have an idea, not precise numbers? The second question is a follow-up on the guidance that you provided on the net interest income. Have I understood correctly that you mentioned a double-digit increase for this year, as my line was not very good at that time. Another follow-up, if I may, on the level of risk-weighted assets, the question which was posed by my colleague before, as I'm not sure to have understood well. Thank you very much.
Sorry, Elena, can you repeat the last question? Sorry.
Yes.
The line a little bit disturbed.
Yes. I'm sorry about that. It was on the level of risk-weighted assets, I think at the year-end or the trend. It was the question which was posed by my colleague before. A follow-up. Thank you.
Okay. Thank you, Elena. The recovery. The recovery was well spread among all the asset management solutions. Let's say that if you consider that at the end of March, the loss was around 12.5%, now we are in the range of 8%. It is well spread among funds and unit-linked and discretionary accounts. The second demand on capital, catch up with the question of TCR, and I answer that we have in mind a range of between 14.5, 15.5, but considering that we are confident to achieve a double-digit growth in the net interest income, probably we will save some extra capital. We decided during this quarter and the next quarter to have a more conservative approach in investing in risk-weighted asset. At the beginning, we set the target, as I already said.
Due to the crisis, we decided to reduce a little bit the use of risk-weighted asset in the banking book, also because we see the opportunity to reach double-digit growth in the net interest income, also saving part of the capital that we had in mind. When I say double-digit growth, I mean that we are closer to 20% than 10%.
Okay. Thank you very much. Very clear.
The next question comes from Alberto Villa of Intermonte. Please go ahead, sir.
Good afternoon. I have three questions. The first one is on the management fees that were down. You explained two basis points were related to, let's say, a temporary factor. I was wondering if the current turbulence on markets is posing any acceleration in the margin erosion, or if you are confident to keep on a stable margin or a very slight decrease of margin as you mentioned in the past. The second question is on the tax rate, apart from the spike this quarter, if you can provide us a guidance for 2020 in terms of tax rate that you're expecting. The last question is a more, say, strategic one. The current situation has created a lot of disruptions. You mentioned a lot of elements in your presentation, especially on the short term.
I was wondering if you can share with us what are your thoughts for the industry in the midterm, if you expect acceleration or any specific area of interest that could be a risk or an opportunity for your company? You mentioned the opportunities on the recruitment side. Well, any thoughts on that would be helpful. Thank you.
Thank you, Alberto. Let's say that in terms of margin, I do not see an acceleration in the erosion of margins. I confirm a very slight decrease in the next two, three years. Of course, there is a more conservative approach in this phase. You saw the switch, and I think that it's healthy to have some resources to reinvest when we start seeing a normalization. I see upside in particular in our Luxembourg platform more than downside in the Luxembourg platform. Where we see some downward pressure is, of course, for the runoff of the BG Selection that is continuing, but is slowing as expected, and some little more down pressure on the, let's say, in the financial wrapper solutions. At the same time, I see some more space on the insurance wrapper. In the end, the sum should be almost zero. Second topic, tax.
The tax rate suffered for a higher dividend this year, as explained. The result of taxes for this year will depend on the mix of revenues. We do expect a tax rate in Luxembourg in the range of 10%-12%. You know then there is the tax on dividend that's around 4%, and then the tax in Italy for the other revenue stream. It depends on the mix. If you have lower performance fee, normally you have a little bit higher tax rate, but it's in line with the historical average, I think. The third topic is about my view on the midterm for the industry. I'm very positive for the industry, not only for Banca Generali, because I see the increasing need of advice for entrepreneurs and also for savers. The banks will be more focused on the balance sheet side, not on the services.
This is my perception. I see the opportunity in the recruitment, but recruitment to me is not just about financial advisors, but it's also for clients. I'm positive structurally for inflows for the industry as a whole. If the question is, do you see also some consolidation? I don't understand how small companies can survive in such a kind of environment.
Thank you.
The next question is from Federico Brada of UBS. Please go ahead, sir.
Yes, hello, good afternoon, and thanks for taking my questions. Just three questions from me, please. The first one is a follow-up. If you can please actually give us the % of how much of your managed assets calculate the management fees at the end of the quarter rather than on the average you run. The second question is if you could give us a little bit more color on the feedback from clients on the Saxo platform, brokerage platform, especially given the fact that March was a pretty volatile environment, as we all know. Just wondering if you could share us a little bit more feedback from clients, and if you can remind us how many clients actually now have asked full access to the platform and what stage is the implementation of this process. The last question is more related on performance fees.
After the changes that some of your competitors made in the last years, you will be the name with the highest contribution from variable fees. I was wondering if this is something that is fine for you, or you would consider maybe some changes in order to increase your reliance on non-performance fee earnings. Thank you very much.
Sorry, Federico, can you repeat the first question? I'm sorry, but the line is really disturbed. Sorry, just the first question.
Yeah.
I get the-
No worries. Yeah. The first one. If you can please tell us the size of the managed assets, which charge management fees at the end of the quarter rather than on the average AUMs. You say in the presentation.
Okay.
Yeah.
No, it's clear. Now it's clear. I start with Saxo, and then I hand over to Tommaso to give you the numbers on performance fee. Saxo. Let's say that Saxo, as an average in the last three months, account for 15% of the revenues. In April, we open up the platform to the B2B2C model. Until now, it was only for the B2C and internal clients. Because we wanted to test the platform, we had to complete the integration for example derivatives and so forth. I can say that after a first wave of platform only for the B2C of internal clients, in April, we open up the platform also to the B2B2C. That it means that financial advisors can insert order on behalf of clients. The third wave is about opening up the platform to the B2C also for external clients.
We project this launch by the end of the first half of the year. The numbers and the contribution to the revenues start to be significant because it is 15%, is in line with our projection, and we see an acceleration in the second half when we will complete the release and the rollout on the three targets of clients. Direct clients with a direct access to the platform, financial advisors, and external clients. These are the three waves. The first is done, the second has been completed during April, and the last will be in June. The third question is about performance fees. Tommaso.
Performance fee are calculated on our Luxembourg platform, which at the end of the quarter was around EUR 15 billion of assets. In April, we had a rebound. Now it's around EUR 16 billion of assets. Performance fee, as we said before, are expected to be low in April. We have an expectation of positive performance fee by the end of the next quarter, especially in June, because some compartments are near to their high-water mark level. If the market remain at the same level, we could have some performance fee in the next quarter, especially in June. The range that we expect is, we said before, between EUR 8 million and EUR 10 million.
The last question on the performance fee calculation, I do not see in the short term any changes. We are thinking of a dedicated offer for different targets of clients, we are working on a new offer, will be launched probably in the last part of this year. We are considering also a different mix of revenues. A different mix between management fees, front fees, and performance fee. We don't have any deadline. We are just considering to develop also a dedicated offering for other targets of clients to increase the penetration of such kind of products on the total wallet of our client.
Thank you very much.
The next question comes from Angeliki Vayraki of Autonomous Research. Please go ahead, madam.
Good afternoon. Thanks for taking my questions. Just two on my side, please. First of all, you mentioned in the beginning of the call that you have suspended some loan repayments from clients and financial advisors. Could you give us the amount of these loans that are effectively now in moratorium? What is the outlook for cost of risk this year, considering the change in the economic environment? The second question, the lower recruitment of financial advisors should have some impact, I would imagine, on the cost of growth and in general, on the payout to financial advisors this year. Could you give us some guidance for this line item of the P&L, please?
I start with the payout, and then I hand over to Tommaso for the lending. On the payout, I would say that we have a target for the ordinary payout ratio that is in the range of 36%, 37%, and we confirm this target. The cost of growth depends mostly on the volume and on the mix. I think that in this case, let's say that we have normally a range between 12% and 14%, more or less. We are probably in the lower range of the band. Depends on the acceleration of the recruitment in the second part, I'm pretty confident to stay below the level of the last year. Tommaso, please.
On the lending side, if I understood correctly your question, on the moratory, we had a small amount because we just have EUR 10 million of payments, which have been postponed, and EUR 100 million of exposure, more or less. We don't see this have any impact in terms of net interest margin because, of course, that is just a cash postponement of the payment, but the interest still accrued in the lending book. It's just a very small impact for us.
Thank you very much. With regards to the potential impairments on loans, you don't see any spike there for this year?
No, because our lending are always Lombard. Basically, we are over-collateralized, and so we don't see any major impact from that. The level of the guarantees is still very high, and so we think that we won't have any pressure on that also if the market goes down.
This is a great advantage for our bank because our lendings are over-collateralized, so we do not expect any, let's say, NPL in the future, even if we assume very difficult context and a very deep recession in Italy.
Thank you.
The next question is from Domenico Santoro of HSBC. Please go ahead, sir.
Yes. Hi. Good afternoon. Thanks for the presentation. Very clear, everything. Just a couple follow-up my side. First of all, page 26, when you talk about lending to SMEs via the state guarantee, are we talking about the loans backed by guarantees as per Decreto Italia in Italy? If yes, those loans are pretty unattractive in terms of interest. I'm surprised that if the answer is yes, you will leverage on these, considering also the narrative that if banks that leverage on this lending, there will be also counterargument in terms of distribution of dividend. Is it correct? Are we talking about those loans?
Thank you, Domenico. Let's say that, first of all, you are right. In slide 26, we are dealing with the lending activity with the guarantee of MCC, Medioc redito Centrale, who provide a coverage up to 90% of the loan. We are providing this kind of facility only for our existing clients, and we have a target maximum at between EUR 150 million and EUR 200 million maximum. It's just about the guarantee at 90%, not a guarantee at 100%. In the guaranteed 100%, you must apply a predefined rate yield at 1%. In the one we are providing, you can have a target that is a little bit higher. For us, is in the range of 1.5%-2.5%. In terms of capital absorption, I don't see significant impact because if there is the guarantee, the risk-weighted asset is equal zero.
Yes. This is very clear. Of course, it's part of the decree. My question is, given that you already fixed at this point the payment date for the dividend, how confident you are, because of course, this is a discussion that I have every day with investors. How confident you are to pay this dividend according to the talks that you had with Bank of Italy, how realistic it is? I'm just wondering whether the leverage utilization of this guarantee, it might preclude you in a way to be totally independent in the distribution of dividend. This is largely the narrative that basically investor, they use for the banks, for the traditional banks.
Okay. I got the question. Sorry. As of today, I'm confident 99%, because we just postponed the dividend payment in October. Let's say that we do offer this kind of lending just to be in line with the recommendation of Bank of Italy of providing liquidity to our existing clients. The ancillary services, and we are providing these facilities
To be compliant with the recommendation of regulators. I don't know if Tommaso wants to.
Basically, it's something that we offer especially to our clients. In many cases, it's also a, let's say, a transformational lending that we already have. Also the impact in terms of leverage, we don't expect to have any problem from this point of view. The main point is that we offer to our clients, and just, it's basically for that, is a change of the actual lending that we have. In many cases, some entrepreneurs can ask to access to this kind of lending, and they are probably changing the guarantees that they are collateralizing this lending activity.
All right. Understand. Very clear. Can I ask you also a couple of margin and sales? First of all, I understand your point about margin compression over the next couple of years, what about more short term guidance for the second quarter? I was just wondering whether the market effect on March is all in the gross margin that you presented in the slide, or shall we expect some further decline in the second quarter? Net sales for the end of the year, I know it's a very difficult situation, very volatile. Just wonder whether we should keep it as a consideration, the one that you're presenting in the plan as a fair number for this year as well as a normal run rate. Thank you very much.
Let's say that in terms of margins for asset management products, with these markets, you should consider the number of the first quarter as a sort of floor. Some recovery in the second quarter, basically due to the discretionary accounts. If the situation is confirmed as of today. It will be below the last year, but higher than the one of March. In terms of net inflows, we confirm our target of EUR 4.5 billion, even if probably the contribution of new financial advisors will be lower, while probably the productivity of the existing sales force will be higher and in line with this first quarter.
All right. Thank you very much.
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Okay. Thank you very much for the participation. I wait for you for the next conference call. Thank you. Bye.
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