Earnings Call: Q2 2020

Jul 31, 2020

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Fineco Bank Second Quarter 2020 Results Conference Call. As a reminder, all participants are in a listen only At this time, I would like to turn the conference over to Mr. Alessandro Forti, CEO of Fineco Bank. Please go ahead, sir. Good afternoon, everyone, and thank you for joining our Q2 2020 results conference call. Before we start going through the details of the presentation, let me please underline the key messages. This set of results confirms once again the soundness of our business model, able to deliver sustainable and industrial growth in every market condition and to accelerate growth in the current complex situation. Gross operating profits stood at €275,000,000 in the first half of the year, plus 40% year on year. Adjusted net profit stood at €181,000,000 in the first half of the year, plus 30% year on year, thanks to the growth of our very well diversified stream of revenues. Operating costs well under control, with Cost income ratio declining by 6.9 percentage points year on year to 32.5 percent and confirming operating leverage as a key strength of the bank. The first half of the year recorded a strong acceleration in commercial activity with net sales equaling €4,700,000,000 plus 42% year on year. Let me please remind you that this result has been reached with no aggressive commercial offer We've a strong contribution from asset under management and also thanks to the success of the new generation of products launched by Finic Asset Management. Our net sales have been generated organically as in the first half of the year and only 7% come from recruits made over the last 24 months. Those dynamics were confirmed also in the month of July with net inflows extremely robust and a steady solid asset mix as assets under management flows are estimated above $600,000,000 Let me also add that brokerage recorded a strong performance with expected revenues in the month of July increasing by more than 50% year on year. Let's now move on Slide 5 and start commenting our first half results. As announced, our diversified business model has allowed us to reach once again very strong industrial results despite the complex scenario. Adjusted gross operating profit reached EUR 265,000,000 in the first half of the year, increasing by 40% year on year. And adjusted net profit totaled €181,000,000 up 30.1 percent year on year. Adjusted revenues stood at €407,000,000 up 25.8 percent year on year, supported by all business areas. Operating costs stood at 132,200,000 plus 3.7 percent year on year. Cost income decreased to 32.5 percent despite the continuous expansion in assets and clients, thanks to our strong operating leverage and to the scalability of our platform. Please now go through the following slides to analyze more in detail all the dynamics of our results. Slide 6, let's start. In the second quarter, net interest income stood at €70,100,000 increasing by 2.8 percent quarter on quarter, thanks to the first positive contribution coming from a more active management of our treasury, on which we will deep dive later, and to a lower cost of funding due to the decrease of the U. S. Dollar LIBOR. Net interest income in the first half of the year remained resilient at EUR 138,200,000 Despite the lower interest rate environment, it decreased only by $3,500,000 due to the continuous enlargement of our sticky side deposits, to the quality lending book and to deposit contribution from treasury activities. The lower interest rate environment led to a reduction in average gross margins on interest earning assets from 1.26 percent in the first half of twenty nineteen to 1.06 in the first half of twenty twenty. As an example, 5 year year over year moved from plus 4 basis points a year ago to minus 27 basis points in the first half of twenty twenty. Finally, cost of funding decreased to 1 basis points in the quarter due to the lower U. S. Dollar LIBOR. Please let me remind you that our cost of funding related to the deposits in euro, which represents 96% of our total deposits is 0. Let's now move on Slide 7 to deep dive on our treasury management. As you know, one of the positive outcomes from being a public company is that we can couple our low risk investment strategy with a more flexible management of treasury. To our high quality balance sheet, we are able to undertake yield enhancement strategies, which help us sustain our Net interest income in industrial weight. Before deep diving into these strategies, let me first remind you that Our investment strategy remains unchanged. Our goal is to run off the unit credit bond portfolio and moving to a more diversified and low risk investment portfolio through a blend of European government bonds, sovereign national agencies and covenant bonds. In this regard, we decided to further diversify our bond portfolio in direction of investment grade non European govies and financial corporate senior bonds. We also confirm our conservative decision to account as how to collect almost 100% of our financial investments, thus neutralizing any effect on the P and L and balance sheet due to the widening of sovereign spreads. The yield enhancement strategies we are undertaking are possible, thanks to our strong liquidity position, which leverages on a quality balance sheet and on valuable and sticky deposits, allowing us to have a quality investment portfolio. Leveraging on this, we can set up operations like collateral switch or unsecured lending in order to get an extra yield on the top quality paper in our portfolio. As usual, we are managing these transactions with our strict and low risk approach, and we are choosing very solid primary counterparties. Let's now move on to Slide 8 to deep dive on our non interest income. Fees and commissions grew by 32.2 percent year on year, driven by whole product tariffs as we have been able capture the acceleration in the structural trends in place. Trading income, net of non recurring items, increased by more than 155% year on year, driven by the strong brokerage performance in the period. We will deep dive more in-depth in the following slides. Let's move on Slide 9 for a focus on Brokerage. Brokerage acted once again as the perfect countercyclical business and it is reducing structurally higher revenues compared to the recent past. In the first half of the year, overall brokerage revenues stood at EUR 127,900,000, increasing by 107% year on year. Please note that July has been another robust month with revenues increasing by more than 50% year on year. On the top of the slide, you can find a chart showing the monthly brokerage revenues since our listing. As you can see, brokerage revenues in the period are structurally higher, and this is true regardless of the level of Via Citi, thanks to the contribution of 3 structural components. 1st, The client base using our platform is widening because the structure of the market is changing after the recent events And there is an increasing interest into financial markets by clients. In addition, a big jump into a much more digitalized society in place. As you can see from the graph at the bottom of the slide, Both new clients and sleeping clients are becoming active on our platform faster than in the past. Let me highlight that more than 85 percent of the new active clients are investing on plain vanillin instruments, meaning that they are not speculative traders, but common people realizing that the current situation makes it more compelling to actively manage their savings. This is a very interesting trend and we are observing an overlap between investing and brokerage clients, more active investor rather than active traders. The second reason is the increase in our market share. For example, our market share in Italy on equity traded volumes has increased to 28% in June 2020 compared to 26.6 in June 2019, as recently confirmed by Associm. The third and final reason is the deep reshape of our brokerage offer we have undertaken in the recent months. Please note that this is a never ending process and that in the coming months, we will continue to provide our clients with new instruments and best in class features. Let's now move on Slide 10 for a focus on investing. Investing revenues amounted to BRL 117,800,000 in the first half of the year, increasing by 5.4% year on year, thanks to the volume effects driven by the higher contribution of guided products and services and to Finiak Asset Management. Please note that in the Q2 of the year, investing revenues decreased by €4,000,000 quarter on quarter only for a technical reason as management fees were impacted by the negative market performance at the end of March, reducing average assets under management of the quarter and the equity component. This, Coupled with the increased penetration of conservative solution among our offer of guided products explains a slight decrease by 0.5 basis points of management fee margins in the quarter, standing at 62 basis points. Let me please highlight that the underlying trend of investing is very solid, and we expect revenues to grow again starting from the next quarter and to be higher than the Q1 of 2020. This has the results of the combination of a strong volume effect driven by the solid acceleration in assets under management net sales and the progressive increase of our network Let's now move on to Slide 11. As you can see from the Slide 11, our results once again confirm efficiency to be part of our DNA and core in our bank, representing a clear and unique competitive advantage. In the first half of the year, Staff expenses stood at €48,900,000 plus 10.9 percent on a yearly basis, mainly due to the increase in the workforce related to the business development and to the internalization of some services after the exit from the Unifredid Group. Non HR costs stood at €83,300,000 flat year on year. Let's now move on Slide 12. In this slide, we summarize the breakdown of the bottom line in the We have been recently contacted by the guarantor for competition in the market authority asking us to delay To the end of the year, the application of the smart repricing for 2020 to a cluster of clients that opened their current account in the past years under an online commercial initiative. Although we are fully convinced that our decision were correct, We maintained our usual prudential approach not to challenge the regulators. This led to a $4,000,000 of provision for risk and charges in the Q2 due to the refund of past banking fees charged from February to June 2020, And we expect not to charge around €5,000,000 of fees in the second half due to the due of the delayed application. Let me please confirm that the full effect of the smart repricing on the whole customer base will be in place starting from January 2021. In the second quarter, we also recorded a EUR 4,700,000 of higher provisions, which were not driven by the underlying quality of our lending and bond portfolio, but by the accounting process related to the IFRS 9 under which we had to update the macroeconomic scenario after the COVID-nineteen outbreak. Please note that provisions on commercial loans only reached EUR 300,000, Confirming once again the quality of our lending book. The remaining $4,400,000 of IGOR provisions We refer to our sovereign and institutional exposure. Let's now move on slide 13. As you can see on the left hand side of this slide, commercial loans grew by 30.4% year on year with the usual strict control on credit quality. Let me remind you that our lending is offered exclusively to our loyal customer base and our deep internal IT culture allows us to fully leverage on big data analytics. This translates into commercial cost of risk, very well under control, stable at 14 basis points as of June 2020, in line with our guidance of a cost of risk between 10 15 basis points, which is confirmed also considering the present context of COVID-nineteen outbreak. Expected losses for mortgages And personal loans remain very low, thanks to the quality of our lending portfolio. As a confirmation of the quality of our lending book, We granted only less than €300,000,000 request for mortgages moratorium. We will deep dive more in-depth in analyzing our lending offer on the next slide. Let's now move on to Slide 14. In the wake of the recent events, Our cautious approach has become even more conservative. Therefore, we slightly reviewed our 2020 Guidance. On mortgages, we further increased our guidance on new production in the range between EUR 600,000,000 EUR 700,000,000 due to a backlog in request from 2019 as clients were choosing mortgages in a period characterized by very low interest rates. We confirm our expected yield in a range between 5570 basis points. Our expected credit loss on this product is very low at around 19 basis points, thanks to the strength of our big data analytics into the quality of our lending book. At this regard, let me please highlight that after 42 months from the launch of our mortgage offer, Only 4 clients are accounted in NPLs. On personal loans, We confirm our guidance of a new production in a range between EUR 115,000,000 EUR 200,000,000 per year with a net growth in a range between minus €20,000,000 and minus €60,000,000 with average yield confirmed between 3.80 in 4 10 basis points. The expected credit loss is very low, also on personal loans at around 55 basis points. On Credit Lombard, we confirm Enamel growth in a range between EUR 300,000,000 EUR 350,000,000. We have expected yield between 75 basis points and 85 basis points. Please keep in mind that for expected yields In the case the market environment changes, we would have to move accordingly. Let's now move on Slide 15 For a focus on our capital ratios, Fineco confirmed once again a rock solid capital position on the wave of a safe balance sheet. Let me remind you that following the extension of the recommendation by ECB and Bank of Italy on July 2028, we will refrain from paying dividends until January 1, 2021. In any case, our intention is to give back our excess capital to our shareholders at the first window of opportunity. For this reason, we will comment pro form a figures, which include the dividend payment. Common Equity Tier 1 ratio performance stood at 18.36 percent and total capital ratio performance stood at 33.11 percent as of June 2020. Now I would skip directly to Slide 23. In this slide, we summarized our guidance for 2020. Please note that this does not include the revenues and costs related to the UK Business Development. Net interest income is expected to remain solid and resilient or slightly decreasing by a few 1,000,000 On the back of volume effect and the benefits coming from ECB tiering, let me remind you that this assumption incorporates no change In our investment policy, no increase in our risk profile and a more dynamic management of our treasury. Deposits are expected to increase in the region of €2,500,000,000 per year and new production on lending is expected to be in the range of €1,000,000,000 €1,200,000,000 per year, equal to €700,000,000 €0.9 billion net growth. For investing fees, we give a sensitivity for every EUR 1,000,000,000 change of assets under management, which generates around $2,500,000 of revenues starting from July 1 until year end. Brokerage revenues are expected to remain strong with a floor that is definitely higher than in the past for 3 main reasons. First of all, the deep reshape of our product offer. 2nd, the strong growth of the new customer, driven both by the enlargement of the market and by the increase of our market share. 3rd, the levels of volatility, which will probably be higher than the extremely low level in the past years. Banking commissions related to the smart repricing are expected to be around EUR 11,000,000 this year and around EUR 20,000,000, EUR 22,000,000 starting from 2021. We confirm our guidance on operating cost to a yearly growth in the region of 4%, thanks to our strong operating leverage. Let me please highlight that this guidance does not include marketing expenses related to UK, which are expected up to €6,500,000 In terms of future evolution, we confirm our guidance on a continuously declining costincome In the long run, thanks to the scalability of our platform and the strong operating gearing we have. We can see in our floor of a core Tier one ratio equal to 17%, a level that we deem appropriate and massively above the industry average, but we expect to stay in the region of 18% for 2020. Leverage ratio stood at 3.76 percent in June 2020 and is expected to remain above 3.5%. Thanks to all the initiatives the bank is undertaking. We are extremely relaxed about our leverage ratio, Considering our organic capital generation after dividend distribution and payment of AT1 coupon, Also in the case of an extremely adverse scenarios and assuming EUR 5,000,000,000 of deposits growth, our leverage ratio would remain around 3.5%. Cost of risk is confirmed in a range between 10 basis points and 15 basis points Even this environment, thanks to our high quality lending book, finally, we expect a robust and high quality net sales, reflecting the acceleration of the structural trends in place. Let's now move to Slide 24 to deep dive in How the current situation is impacting our business. Current situation is creating the conditions to further enlarging our growing opportunities. As we are seeing a strong acceleration in the industrial trench, which were already in place. 1st, Increasing demand for financial advice, as Italians are even more aware of the need to get a better management of their wealth. This is building up an interesting bridge between investing and brokerage as we are observing and increasing participation in Financial Markets by Taniels, making it easier in the future to explain the advantages of a professional wealth management. 2nd, digitalization, which is confirming to be a way of no return as Italians have been forced to discover the huge advantages of the digital world. 3rd, disruption in traditional banks, which are not ready for the new paradigm and are suffering from a flight to quality. The situation is generating a gigantic opportunity to increase the speed at which we are growing. Being born already digital and with a strong business model based on innovation, quality and efficiency and the network of financial advisory already used to work in a digital world. Fineco is already positioned in the sweet spot for capturing the acceleration of these gigantic trends. This is leading us, in a word, characterized by robust net sales with a good asset mix, brokerage revenues structurally higher an acceleration in the acquisition of high end clients looking for some players with quality offer and declining cost income. Let's now move to Slide 25. Our key priority going forward remains to structure improve the quality of our net sales and client base in order to increase better quality, recurring revenues and keep growth in our balance sheet under control. Our focus on improving the asset mix is clearly delivering since the 2nd part twenty nineteen, But in the 1st 6 months of 2020, we have recorded a strong acceleration in our net sales dynamics and quality mix. The first evidence you can observe from the two graphs On the top of the slide is the accelerating net sales in the first half of the year, together with a robust and steady contribution from asset under management, with the only exception of March, given the exceptional volatility in demand. Let me please remind you that our net sales have been extremely positive also in July with asset under managed above 600,000,000 The second evidence is the strong acceleration in the productivity of our network. As you can see from the graph on the bottom of the slide, net sales for financial advisers in the first half of twenty twenty have increased by more than 40% year on year. Let me add that this acceleration in underlying net sales dynamics is the results of our industrial measures as we have not undertaken any aggressive any short term commercial offer in the period and have not leveraged on overpaying recruiting. Let's now move to Slide 26 to analyze more in-depth Fenic Asset Management. Fenic Asset Management is confirming to be the key in our move to accelerate the conversion of deposits into asset under management. Our latest net sales results Once again, that Finico Asset Management is gaining commercial momentum, giving a strong contribution to Finico inflows, also in a complex environment like the present one. This is possible thanks to its ability to create modern and innovative multi manager solutions, reinforcing our guided open architecture platform and enhancing our time to in developing our offer to meet evolving customer needs. Finally, I would like to highlight that The penetration of Finneco Asset Management to retail class total assets reached 22% on Finneco Total Asset Under Management, and we expect it to grow even further. The penetration on asset under management, excluding insurance, reached 32% in June 2020, increasing by 6 percentage points in one year. Let's now move on Slide 27. And at this point, I leave the floor to Paolo Di Grassia, Deputy General Manager of the Bank, to deep dive into the development of our U. K. Business. Please, Paolo. Thank you, Alessandro, and good afternoon, everybody. Our business in U. K. Is proceeding very well And our one stop solution is boosting our cross selling activity, providing to be a strong driver for our growth. In the left hand side of the slide, you can see the improvement of the breakdown of active clients in the quarter. Clients active on the OTC were 8% out of total active clients, 83% of them came from cross selling, mainly from listed products. Here, the target market is relatively small, but with an extremely high level of revenues per client. On the listed products, the addressable target market is wide and revenues versus clients are very interesting. Active clients in the segment increased to 68% in the 2nd quarter, thanks to both Direct acquisition and the powerful cross selling from lower profitable multicurrency, bringing 53% of new active clients in the segment. Finally, the multi currency is our powerful entry gate and is the engine of our cross selling. Its target market is extremely wide, and we can leverage on our very competitive offer. In the Q2 2020, 24% of our active current accounts were acquired through this segment. The strengthening of cross selling, thanks to our marketing activity, translates into increasing and better quality revenue generation. As you can see from the graph at the bottom of the slide, listed products and OTC are now taking the lion's share of our U. K. Revenues. Please note that we are profitable on all segments, thanks to our operating efficiency and economy of scale that allow us to be sustainable even with a competitive very competitive pricing. On top of this, we have room to improve cross selling from listed products to what you see and this will help us increase our revenues per active current account, which at the moment are around euros 7.40 Let me remind you that we are still missing one very important part of the story, I mean the investing with the Aiza and SiP coming soon, and you can find the detailed timetable on the Slide number 29. Let's now move on to Slide 28. In this slide, we did dive on our first marketing campaign, which showed a very positive feedback with only €1,400,000 of pure advertising costs. The graph on the left hand side of on top of the slide shows the acceleration of the customer acquisition Following the start of the marketing campaign, recording a growth of about 3x higher in the quarter. Our marketing campaign is delivering also in terms of the quality of our client base as active client, Active current accounts in the period between March June increased by 56% year on year. Let me underline this that active clients on trading services increased even more with a growth of 3 times higher year on year. Current accounts grew by 21% quarter on quarter and reaching 7,600 real total accounts at the end of June. Please remind that our first target is to achieve in 2, 3 years time horizon, 30, 35,000 good clients in order to have a sustainable acquisition through the award amount. Finally, let me remind you that our new customers came from traditional bank looking for quality services and pricing as shown by the graph on the bottom of the slide. I can now leave the floor to Alessandro for the final comments. Thank you very much. Thank you, Paolo. Jumping into Slide 31, let me please spend a few words on sustainability, which is at the heart of our business model, built to remain in the market with a long term horizon and aiming to rate a positive impact for all our stakeholders and the overall society in the long run. Our sustainability strategy is set on 2 different levels, a macro and a micro level. The macro level is related to our business model, which, as you know, is built on 3 pillars: transparency and fairness efficiency and innovation. This has allowed us To be from the very beginning, perfectly in line with an ESG trajectory based on a sustainable long term view on our revenues generation. Then we have a macro level, which refers to the single details, which are key To differentiate an organization in SG, we are ranging from a market friendly corporate governor to ESG product offer and strong focus on cybersecurity and other ESG risk. You can find more details The first question is from Domenico Santoro of HSBC. Please go ahead. Hello, good afternoon to everybody. Hi, it's Domenico from HSBC. A couple of questions from my side. First of all, on the brokerage side, you are giving us a very simple narrative that people are using the brokerage more and more to looking after their savings rather than Just doing trading online because they are locked down in their slots. I see the qualitative guidance that brokers is going to be very strong. I would really appreciate if you could give us a sort of floor in terms of monthly revenues in the brokerage business because this is getting more important. And of course, I don't want you to take it provocatively, but there are So sort of investors that they think this is a sort of a one off sort of revenue stream. So more visibility on this sort of numbers for year end, but also beyond 2020, it will be very useful. Then on the NII, I Your total bond portfolio being flattish sorry, your the contribution from the financial bonds to be flat share more or less quarter on quarter, but of course, there's a change in the mix because of the run off of unicorns. So I'm just wondering In which kind of assets you are investing in order to keep the contribution Stable quarter on quarter. Can you give us more detail about the duration about the country in which you are investing or corporate? And then looking forward, how much was the TRTRO III that you took? And what is the margin attached to that? If you are given back to DCB part of this liquidity and then also this repo transaction, can you give us a bit more details about Just to give us to get a sense. Then on the dividend, I understood that you want to distribute The excess capital next year presumably, if the ban on dividend is lifted, what the formula that we should consider, are you going to increase the payout compared to the level that we have seen over the last couple of years? You might be more generous or you might want to keep part the capital to keep your leverage ratio high. And then a very sort of curiosity on the charge that you take on this GOVIZ €40,000,000 Can you give us more details? Is it under IRB? Because I didn't get the sense of the charge on the Gohanna portfolio because of the IFRS? Thank you. So let me start from the brokerage. So to give I understand that the ideal world is a world in which we can give you an extremely detailed level of a extremely detailed level. But on brokerage, unfortunately, It's not possible because clearly, it's a business that in which clearly What we are presenting is that we are extremely confident that going forward, the floor also assuming The return of the market in a much lower volatile environment, the flow of the business is going to remain is going to be definitely higher. In order to have an idea of this, this is the reason why we in the presentation, We presented the history of our revenues generation And starting from the listing, and as you can see, there is a very clear you can have a very clear idea of what can be considered as a kind of floor for the business. So it's not difficult to get and a reference number for this. Clearly, we think that we cannot give an unofficial precise guidance because Clearly, it's a market, it's a business in which the volatility is playing a role. But I think if you look to the graph, We think that it's extremely easy to draw a line, understanding where is more or less the floor And understanding what you can expect looking forward. So For us, what it's very important to explain to the market because on brokerage, recently there has been a lot of noise Because we are continuously receiving, for example, questions by some investors that they are Looking to players like Robin with something like that, we are talking a completely kind of is a completely different kind of business. Because in our case, it's a business, as we explained, in which the most part of the clients is related to absolutely normal clients that we prefer to nickname them as active investors more than active traders. The portion of clients represented by very highly speculative clients is just in the region of few thousands of them out of several hundreds of thousands of clients that they are using the brokerage platform. Probably, it's not immediate to understand this point because As we are explaining, the key element for understanding what's going on is the message in which we are explaining that there is in place and a structural change in the market. There is but it's something that has happened, for example, in the US, in which now investors are starting on becoming more active in dealing directly with markets. And clearly, Fineco is by far in the best possible position for observing and taking advantage by these trends. But in any case, if you look to the graph that we presented, I think that you can very easily to try to make an to have an idea of where is the flow of the business. On net interest income, I can just repeat What we explained during the guidance, so we know that The net interest income has been, by the beginning, the most controversial part of our equity story because There is some that is a little bit skeptical regarding the possibility to maintain the net interest income resilient, but So in terms but again, we have a combination of, first of all, an extremely high quality base of deposits. And this is very important because it's the base that is allowing to us, for example, to build up an extremely sticky and high quality portfolio. 2nd, there is an organic growth that is sound because it's remunerated 0. And 3rd, there is all the components we were referring In terms of yield enhancement, that is and in any case, we can if you are interested, we can give you A little bit more of Carlos, but I think that it's a little as a matter of time, it would be a little bit Time consuming to enter in describing perfect in the single details every single Transactions, in terms of countries, as we're seeing, we are concentrated on European govies, at the moment, we are starting on enlarging the scope of our investments because we are targeting also high rated countries outside of Europe that with ratings that in many cases are above The rating of the European countries. So for example, recently, we take part to an auction Investing some in Israel that is in a high rated country. And these countries, for example, The higher is the rating is the lower is the impact on risk weighted assets. For example, we have several countries that have an impact on risk weighted assets that is close to 0. And in any case, the more we are diversifying the portfolio and the better is also in terms of sustainability of the Pillar 2 requirements. The duration is more or less Stable is a little in the region of 5 years and there is going to stay. And so based on these rationales, we are confirming the guidance of on a resilient adverse net interest income declining by few 1,000,000 of euros. Regarding the TLTRO, we didn't participate to TLTRO 3 for a very simple reason. First of all, we don't need to do that. And second It's just a strategy based on a concept of a carry trade. As we explained, we are here for delivering industrial results and TLTRO is not something that is an industrial result. It's just a financial transaction. And so we are not We don't think that this is going to give a great contribution in creating shareholder values. We are here for delivering sustainable, industrially driven revenues and this is the reason why we have no interest for TLTRO 3. Repo transactions, more details on notional and yields. The yields of this repo transaction can range between 10 up to 30 basis points Accordingly, with the kind of paper that is involved in the transaction. And so this is the so this is regarding dividend, the guide with the indication we gave has been perfectly current with the strong recommendation received by the regulators. And clearly, we kept An extremely cautious wording regarding the future distribution, but just for a very simple reason, Because one another component of the moral situation, the strong recommendation made by the regulators is to avoid to take any kind of binding commitment in the dividend distributions. And so we think that regarding dividends, it's pretty clear that the ball is in the cart of the regulators. It's what is we want to make very clear that as soon as possible, As soon as it is possible, we are going to give back to our shareholders The maximum amount of excess capital we have. So our goal is to remain on an extremely Narrow hedge of remaining and high speed growing company, At the same time, keeping on distributing a very generous dividend. So this is our goal. We are absolutely perfect in the position to keep on doing that. But clearly, we think that considering the extremely continuously extremely volatile position of the regulators, it's better to be cautious in the wording. And this is the reason why we are using This kind of a wording. Regarding the charging goal, this I'm totally with you, is not related to any specific Market related items is just is a technical accounting reason, Because according with the IFRS 9 accounting principle, we have to incorporate In our results, the change in the forward looking information. And the forward looking information, clearly, they have a kind of a temporal lag because they are clearly At the moment, they are incorporating the deterioration of the macro scenario. At the same time, probably they are not incorporating yet The fact the recent intervention made by the Central Banks has shown that has, for example, has driven down the spread on Italian govies. But this is based on the is we have to comply with the accounting rules. And so this is the rationale. So there isn't anything else behind. Okay. Thank you very much. The next question is from Gianluca Ferrari of Mediobanca. Please go ahead. Yes. Good afternoon, Charles, Sandro, and Cia Paulo. The first question is on the €4,000,000 provisions for clients. Actually, I didn't really understand why AGCOM asked You to delay the repricing to those clients. What is the reason? Was Unproper communication of the repricing or what is underlying these? And also I saw that You are supposed to report another $5,000,000 in the second half. Is this going to be booked again in the provisions or is going In terms of lower commissions, the accounting of this €5,000,000 The second question is on the strategy on the banking book. I understood in the speech that you want to increase the $900,000,000 corporate bonds portfolio And the financial bonds, why only financials and not utilities and infra or other kind of asset classes? And where the €900,000,000 in your mind should go over the next 12, 18 months? The third question is on Page 28, Fineco U. K. If I get it right on the chart, With the campaign, you got some 1,700 new current accounts, but on the right hand side, it Seems that the 400 accounts were closed in the past 3 months. So analyzing that number, there is a pretty high Churn of people shutting down the accounts. Was this guided by you making some portfolio pruning and closing some accounts? Or it is just physiologic, so people also opening, but also closing accounts there. The 4th and final question is related to the initiative of 1 of your competitors That recently launched a challenger bank for the youngest customer base and for new generation, given that you are not Digital and you should be the guys launching this kind of initiatives. I was wondering what you think, Alessandro, about this kind of initiatives. Do you think they are successful in the long term or simply a waste of time? Thank you. Let me start on the first question. The reason why we are so In the past years, we had some marketing campaign that they were marketing and the 0 cost current account for clients, mainly through online campaigns. And so the LGCOM has come to the conclusion that in their opinion, it was fair to give to these clients that have been addressed directly by this marketing campaign and more and and longer period of time for taking the decision if closing or not closing the account. And in the meanwhile, Their point that it's fair that we don't charge to them the new price. So this is the position. SCAM, for us, we are We have been right in charging these clients. But clearly, as we explained, This is clearly is part of the DNA of the bank. We never we make a challenge to the regulators, we prefer considering that it's just a small delay in revenues, it's not a structural change in our revenues because starting by the beginning of 2021, the full contribution of the repricing is going to be full in place. And so we think we thought that it was a good position to comply with this proposal by the regulator and not making them a challenge. And in the second half, the EUR 5,000,000 are going to be booked In terms of lower commissions, yes. Banking book, corporate bond portfolio, why only financials And not utilities. I'm not the biggest expert for answering to these questions, but I assume that what is driving our decision of investing in a certain kind of bonds or another is driven by we are extremely for us what is extremely important is the consumption of risk weighted assets. And so clearly, we for us what is important is to have and investments that combining together, the consumption of risk weighted assets and the return we are getting, we can get at least a modest, but in any case, a positive EVA generation. So this is what is driving. And so we are continuously for example, the decision to invest in some extra You and then outside of Europe, GOVIS, because for example, there are some countries that they are characterized by very high ratings and that for this, for example, with an impact on risk weighted assets, it is close to 0, But offering and a pickup respect what you can get with the same consumption risk weighted assets by European govies, Just for a very simple reason because the European goal is to stretch by the intervention of ECB. And so this is leaving the The possibility to make some extremely efficient investments in and with maintaining an extremely strict discipline regarding the consumption of risk weighted assets. On the UK clients, I give you an answer then, but I'm inviting Paolo To add some more, if I'm not getting perfectly the point, I think that the main reason is that clearly is the number of clients we are closing are still clients that they are the clients acquired in the very initial phase of our activity in UK in which The proposition was not still what is at the moment. But Is, Paulo, if you want to Yes, I think the churn rate in Real Estate is very low. So the point is that on the chart on the left side, it's taking account 4 months and the chart on the right side is 3 months. That's why You see the difference. There are different time frames. Okay. Thank you. Excuse me, there is a last remaining. So we are as usual, we are extremely embarrassed in commenting what is done by other players. The only comment we have to make is clearly that This initiative is not a brand new one because it's a long period of time that we have initiatives like those In the market, for example, there has been any similar initiatives launched also by our previous parent company, Body Banker. And or if we want to look outside the risk, for example, we have Revolutos, something plays like this. So the point is that clearly we are talking about a business that is, first of all, is a vertical business, so in which You are offering just one single product when characterized by practically non existing margins. And also, we think that if so if the goal is to make to build up a profitable business, we don't think that this is the right direction. Secondly, if the idea is to capture the young generation In order to make this as your future clients, we have to remind that the clients are by definition are becoming very, very volatile. So the fact that you are capturing a client right now with an extremely opportunistic offer, extremely not rewarding terms. It's not giving for granted that this client is going to remain with you also in the future. So we think that our strategy, our strategy remains to keep on offering an origin zone tele offer to clients, so the broad range of services In order to make all the clients we are acquiring extremely sticky and resilient in staying with us. And we prefer to compete against this high flyer in continuously Enouncing our banking offer. For example, the banking offer of Fineco is accelerating dramatically. Now we are progressively introducing solutions that they are cutting edge in terms of client experience with what is offered by These are vertical specialized planes. So we prefer to keep on doing in this direction. Thank you so much. The next question is from Filippo Pini of Kepler. Please go ahead. Mr. Pini, your line is open. Yes. Can you hear me now? Yes. Okay. Sorry. I've got 2 questions. The first is on the brokerage revenues for July. You mentioned plus 50% in your growth. Could you share with us also the absolute value in €1,000,000 just to compare the run rate with the previous month? Yes. And the second, if I may, is on your new commercial offering of brokerage in UK. Could you share with us if any of the established competitors there reacted somehow after a few months that you launched the new offer with by far lower prices than what they are charging their client? Thank you. On brokerage derivatives, if I remind correctly, because clearly, the numbers are not the reason why we gave And an indication of plus 50% is because clearly the demand has not finished yet. So we have not The final number. But correct me if I'm wrong, Paolo, We expect the revenues in the region of EUR 17,000,000 of euros. So clearly, the so this is going to be the results. Last year, in the The number was, Paolo, you remember 11, no? Almost 10, almost 10. Almost 10, yes. So clearly, this is more or less is the numbers that you had to compare. Okay. Regarding your competitors, Paolo, if you want to make any comment on this point? Yes, sure. No, we didn't see any reaction also because it's quite difficult to react to our stock broken pricing. We are taking advantage of our operating leverage. But for now, there is no reaction yet. We think that considering that our proposal is so aggressive that For the established place to react immediately, it would be absolutely incredibly damaging from their P and L. So we think that until our numbers are not becoming really big, they are not going to make They are not going to put in place any reaction. Honestly speaking, I would be extremely happy to see a reaction by them because this would mean that our numbers are becoming really big. But at the moment, this is another case. Just a follow-up on this point. So basically, as long as you reach Critical mass, the 35,000 clients that you are used to indicate, it's fair to assume that no Strong reaction from the competitors can be No, it's a different point. So The 30, 35,000 of clients is what we consider a kind of critical number Because UK in terms of population is not too different from Italy. And based on the experience we made in Italy because When you reach when you are happy to put together that number of good, extremely satisfied clients, then the word-of-mouth starts on working pretty well. But this is not directly related Because for example, if you put together, if of this 30,000, 35,000 of clients, You have 20,000 that they are really active on brokerage. This is going to start On making generating some raising some attention and reaction by competitors because the two numbers are not related. Thank you. The next question is from Rudy De Belis of Equitasim. Please go ahead. Yes, good morning. First question for me. The first one on the capital. Can you explain the reason for the increase in risk credit asset quarter on quarter, particularly credit risk credit asset, if I'm not wrong? And what do you expect going forward? The second question on the new clients, What do you expect in terms of new clients in the coming months? And could you elaborate on the quality of the new clients acquired year to date? And do you think that the trend of increase of network productivity will continue at the current pace in the coming months? The first question on the NII. Can you provide an update also looking in 2021 with the current interest rates And the last question on investing. Can you elaborate on the management fees margin evolution in the coming quarters? Thank you. Yes. On the increase of the risk weighted assets and I so I before leaving the floor to our CFO that is going to give you the details of the increase of risk weighted assets regarding what we expect going forward. What we expect going forward is exactly embedded in the guidance we are giving on the evolution of our core Tier one ratio. So that is going to stay in the region of 18%. So we don't expect any kind of significant pressure on our capital ratios by the increase of risk weighted assets. But regarding the detailed components of the increased risk weighted assets, please Lorena, if you want to give Some more details. Yes. Thank you, Alessandro. Good morning to Regali. Regarding the increase of the credit and counterparty risk weighted asset in the 2nd quarter, we had an increase of BRL179 1,000,000. This is mainly driven by higher mortgages because we had a new production in this period of around 2 €70,000,000 of new mortgages that are mainly related to the backlog in the request that we have from December 2019. Then we have a normal increase in credit card loan bond loans. And for the first time, we had also an impact, quite low, but low impact on unsecured lending on new activity that we have started Inside our treasury. And clearly on Regarding mortgages, we expect Our production going down, because as Lorena was correctly representing, has been driven mostly So clearly, as we said, at the moment, we are becoming more and more cautious on the market. So we expect that the speed at which our residential mortgages are growing are going to moderate going forward? Yes. On the new clients in Coming month, what we can say, we expect and we expect last year as a continuation of the existing trend. So we've been in a slightly lower number of clients acquired, but definitely of a much better quality. So I don't know, Paolo, what we expect in terms of client acquisition. We expect a decline in terms of adjusted Number by whom? How much not in terms of percentage, by how much? This year, you mean? Yes. But the new clients in the coming months. New clients in the coming at the end of the year, We expect 90,000 clients. We expect 5,000 net clients basically. No, but the new clients, so in comparison of respect last year. So On monthly basis, we have a decline Probably a decrease of 20%, 25%. Exactly. So what you can expect in terms of absolute number, the new clients are expected to grow by 20%, 25% lower, respect, last year, but of a much better quality. But this was exactly is exactly what we are we were looking for. So the rationale behind the repricing is this. And in any case, what is emerging as very Clearly, that Fineco is gaining momentum in taking onboard high quality clients. So practically, we are progressively exiting by the from the mass market segment And more and more the clients we are getting on board are represented by Masafrant, AFFR and APERAFR and private banking clients. And this trend is accelerating and is another outcome driven by the recent events, Because now the clients are starting on ceaselessly looking to the quality of services by receiving by their banks. So this is what you can expect. So and this clearly in any case is emerging pretty clearly by the dynamics of our net inflows. We are growing on average by more than 40% year on year on in terms of net inflows, we've a lower number of clients acquired because definitely we are taking on board and better quality clients. The productivity of the network is expected to is going to remain very high. Clearly, you have to consider a word of cautiousness because sometimes that clearly regarding the We have to take in account some seasonality. So by definition now, we have entered in the Q3 that is by definition is the From a seasonal point of view, in terms of net inflows, it's by far the weakest of the year. July has been pretty strong. So now we have just 2 months remaining. But I want to remind that August and particularly September Among September particularly is by far, from a seasonal point of view, the weakest month of the year. But excluding this seasonal effect, We definitely we expect that the productivity of the network is going to keep on going up because this is current with the continuous Improvement of our platform solutions and this And there is still plenty of room for increasing their productivity because as I was What we're seeing, our financial planners are by far the most productive in the industry, but are still characterized by low level of productivity because and the room for increased productivity still remains huge. Net interest income next year, Given considering the existing situation, we expect a continuation of what we have experienced in 2020. So net interest income remaining resilient and just declining by a few 1,000,000 of euros, thanks to the combination of all the components. Investing Management fees, the evolution, as we said in the presentation, the 3rd quarter, We expect a 3rd quarter that is going to be characterized by revenues higher. We expect the revenues to be generated in the Q1 because the technical impact generated by the March correction is going to be completely fully digested, and so we expect The journey of in terms of growth of revenues are resuming going forward. So the Q3, we unless we have Some huge, massively disruption in the market, but assuming decently normal market condition, We expect that the investing management fees in the Q1 are going to be higher. We expect the management fees we In the Q1, not in the second, but in the first. Thank you very much. Very clear. The next question is from Angeliki Baraktari of Autonomous Research. Please go ahead. Hi, thanks for taking my questions. Just 3 left on my side, please. First of all, looking at your CET1 capital, This has only increased by €6,000,000 quarter on quarter. So I was wondering if you could remind me whether you have accrued for the 2020 dividend and is yet at what payout level? And is the net income of the quarter included or has there been any other sort of fair value to OCI reserve move, etcetera, that could explain the small increase? And then Second question, you mentioned with regards to the U. K, you mentioned revenues per active account EUR740 And then you have 7,600 accounts. So is it correct, Matt, to just say you've got 5,000,000 of revenues in the UK on Sort of annual run rate or is the number of active accounts actually smaller than the 7,600? And then last question on the mortgages. You mentioned that there is a backlog which you're now processing. And I was just wondering, Was that not processed in the beginning of the year because of the virus? Or have you changed anything with regards to sort of how many mortgages You want to give sort of the attractiveness of those mortgage customers to you? Thank you very much. On The journey on the core Tier one ratio, I don't know. Lorena, do you want to give the detail Yes. Yes. So related to the retained earnings, we had an estimation of €14,000,000 And in addition of that, you have to consider that in this quarter, We had the impact related to the 81 coupons paid in June for around €10,000,000 And then the other impacts is related to the higher risk weighted assets that we have already discussed Right, this quarter. Loren, another point is another question was, which kind of Payout is embedded in this transaction? It is quite high because it's 75%. This is and this is the EUR14,000,000 of that generated EUR14,000,000 of retained earnings. And earnings? Regarding UK, I don't know, Paolo, if you want. Clearly, The EUR 5,000,000 revenues is not the run rate because the number of active clients is because the clients are coming right now is are extremely is the process of accumulating, accelerating and acquiring clients is just at the beginning. And so clearly, The active clients are expected to progressively building up. So the EUR 5,000,000 of revenues is not the existing run rate. I don't know, Paolo, if you want to give Some more color on the point. Yes. No, no, that's right. €5,000,000 of revenues The run rate is not the correct one for the moment. And of course, we have to work on everything we said, cross selling, keep on acquiring, keep on investing To let Fineco know in the U. K, we're just started and nobody knows Fineco. So We will get there, but it's not the right number right now. Yes, because the point is just because all the process is just at the beginning. So clearly, but and so the process of activation Clients is clearly gaining momentum and is building up. So we can expect clearly a progressive acceleration of the run rate of revenues going forward. On the backlog of mortgages, the reason of the backlog is just an operational run because in At the certain period, we added during the fall of 2019 And a big jump in request of mortgages by our clients and at least 5 times more than usual we were getting, despite the fact that we our offer was Absolutely not the best one on the markets, but clearly there is something that is In many cases, the clients are driven by the concept of 1 stop solutions that so they are not crazy in order to get the lowest possible the best possible condition. And so during the fall of 2019, there has been if you remind, There has been a big drop in interest rates on the fixed rates. And so the clients jumped in, in order to take by the incredibly low level of fixed rates. And this has caused a massive increase of the backlog and requesting us to make an upgrade in the operational machine taking care of mortgages because We were not ready for managing such a huge amount of request. Now the situation clearly has been is normalizing, And we expect to return to the normal pace in the next few months. Thank you. The next question is from Federico Braga of UBS. Please go ahead. Yes. Hello. Good afternoon, everyone. Three Two follow ups on the NII. The first one is, in the last 18 months, if I'm not telling the percentage of gov is with the floating rate increased from 0% to 30% Roughly, so 30% of your growth is now at floating rate. Just wanted to understand what was the rationale of increasing The contribution from floating rate bonds in the last 18 months and going forward, what we should expect On this point, the second question on AI, if you can please tell us what was the average yield of the purchases that you made in Q1 And in Q2, please, if possible. And then the last question, if I'm not wrong, in Q2, you had $6,000,000 of trading income, which was not Related to brokerage, if you could please give us some color on the €6,000,000 if you will gains on your GOVIs or what else and what we should expect going forward with regards to trading income, which is not related to brokerage? Yes. So let me start by the net interest income. So the reason of the Increase of the floating is just because it's just related to the runoff of the Unicated Bonds portfolio because the Unicated bonds portfolio are floating rate notes, so they're clearly and the more we are running off because we clearly, we have to maintain And a balance between fixed and floating, I mean, this in order to keep on running and a very well balanced Asset and Liabilities Management position. And the reason of the increase of floating It's just driven by the fact that the more you have Uniquel bonds expiring, and clearly this is going to be substituted by Something else. I don't know, Lorena, if do you want to add some more on this point? I think that is Complete your answer. I don't know if Yes. So the average yield of mortgages in Q1 and Q2 is has been again, Lorraine, if you can If you can give me On the gold, on the gold, no, on the mortgages. On the On the purchases of bonds, so the recently so they did the recently purchased bonds, which has been the average yield? We are in the region of 30, 40 basis points because The average yield of the stock at the end of June, including Gove's Supernision Agency, is 0.74 percent. And the new investment, average yield of new investment that we made in the quarter It was 0.30 basis points. Yes. Clearly, a very important part to consider that And this is a very interesting component that because when you are buying high quality bonds, The downside, the yield is pretty low. On the other side, clearly, the positive component that you can use for entering an yield enhancement strategy. So when we are considering what we are doing, we are considering the overall package. So for example, you can buy a bond that is yielding practically close to 0, but if If they're very high quality, you can use these bonds for entering in a yield enhancement strategy. And so At the end, the yield but in any case, the recent purchases of bonds, the average yield is what Lorena was referring to in the region of between 30 40 basis points. And The EUR 5,000,000 trading profits is related to on the portfolio of GOVIS because we are Clearly, there is activity. This is related also the activity of making the maintenance of the portfolio, the portfolio because there are some bonds that they are becoming eligible to be sold, They are, for example, becoming less liquid and so on. And so in this process, clearly, the portfolio is so huge that clearly this process of continuously rebalancement of portfolio tends to generate a modest trading profits in a structural way. But this is not driven by any kind of Market timing and so on is just related to the continuous process of making the fine tuning for keeping on having an efficient portfolio. Thank you very much. And water volume going forward, yes, probably is going to be that this is going to remain Because these activities related to on making the fine tuning of the portfolio is going to clearly is going to be continuing also in the future, so it is going to stay. So €5,000,000 per quarter more or less from capital gains on Golgi's. It can make sense, yes. Okay. Thank you.