Earnings Call: Q4 2019

Feb 11, 2020

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Fineco Bank Full Year 2019 Results Conference Call. As a reminder, all participants are in a listen only mode. After the presentation, there will be an opportunity to ask questions. You may signal an operator by pressing star and 0 under telephone. At this time, I would like to turn the conference over to Mr. Alessandra Foti, CEO of Fineco Bank. Please go ahead, sir. Good morning, everyone, and thank you for joining our 2019 results conference call. 2019 confirmed once again a successful story of growth based on a sustainable strategy and a sound business model able to deliver solid results in every market conditions. We are very pleased to propose to the next Annual General Meeting a dividend per share of €0.32 plus 5.6 percent year on year. Before we start going through the details of the presentation, let me please underline our key messages. 1st of all, in 2019, we recorded a net profit amounting to EUR 288,400,000 plus 19.5 percent year on year. These results benefit from the tax break coming from the patent box, which is estimated in about EUR 22,000,000. Adjusted net profit amounted to EUR268,800,000 showing a double digit growth despite an Higher Contribution to the Deposit Guarantee Scheme. 2nd, the growth of our very well diversified stream of revenues was supported by whole business areas. Please note that our brokerage business has strongly performed in the second half of the year, with the last quarter of 2019 being the best one since the Q2 of 2018. As a result of the in-depth review of our product offering. 3rd, operating costs, as usual, well under control with costincome ratio declining by 0.9 percentage point to 37.9% and confirming operating leverage as a key strength of the bank. 4th, net sales confirmed a solid and robust commercial activity with guided products reaching 71% of the stock of assets under management. Let me please underline that Finneco Asset Management is increasingly becoming the cornerstone of our inflows in assets under management as confirmed in the last quarter of this year. Finally, we will later deep dive into industrial measures. We have undertaken to have a better quality business, a stronger push in moving customer liquidity and asset under management and our focus on improving the quality of our customer base. Let's now move to the Slide 5 and start to maintain our full year 2019 results. Adjusted net profit in 2019 reached EUR 268,800,000 plus 10% year on year, reaching record results despite a higher contribution to the deposit guarantee scheme, which amounted to EUR 18,100,000. Once again, this set of results confirms the soundness of our business model, able to deliver sustainable and industrial growth in every market condition and shows how the actions we have undertaken during the year are already delivering. In 2019, we generated EUR 657,800,000 of adjusted revenues, up 4.7 percent year on year, supported by all business areas. Operating costs stood at EUR 249,600,000 plus 2.2% year on year on adjusted basis, and cost income decreased to 37.9 percent despite the continuous expansion in assets and clients, thanks to our strong operating leverage and to the scalability of our platform. Please go through now the following slides to analyze more in details for the dynamics of our results. Let's start with net interest income dynamic on Slide 6. Net interest income stood at EUR 281,300,000, increasing by 0.9% year on year, supported by strong volume growth, high quality lending and sticky SAC deposits, even more valuable given the current remuneration on liquidity offered by the system and the current interest rate environment. As an example, 5 years euros moved from plus 35 basis points of 2018 to minus 14 basis points in 2019. Volume dynamics More than offset the reduction in gross margins. As you can see at the bottom right of the slide, average gross margins on interest earning assets lowered from 1.30% in 20 18 to 1.20 percent in 2019. Cost of funding remains very low at 4 basis points due to deposits in foreign currencies. Please let me remind that our cost of funding related to the deposits in euro, which represents 97% of our total deposit is 0. Let's now move on Slide 7 to keep diving on our bond portfolio. Our strategy to run off the Unicated bond portfolio and move into a more diversified and low risk investment portfolio through a blend of European government bonds and covenant bonds is progressing very well. Our bonds portfolio now includes also France, Spain, Ireland, U. S, Poland, Austria, Germany, Belgium, Portugal, sovereignational agencies and covered bonds in addition to Italy. Let me also remind our sensitivity to a change in interest rates. About a shift of plus 100 basis points, which generated EUR 129,000,000 of additional net interest income, while a parallel shift of minus 100 basis points, which generated minus EUR 119,000,000 of less net interest income. Let's now move to Slide 8. Discent commission grew by 8.2% year on year, with management fees up 11.7%, thanks to a larger contribution of guided products and services on assets under management, which increased by 4.3 percentage points year on year to 71% and to the contribution coming from Fineco Asset Management. Please note that the decrease of investing commissions registered in the Q4 2019 versus the Q3 2019 is due to increase of the incentives to financial planners related to the quality of inflow of inflows in assets under management realized in the last quarter of the year. Let me highlight once again that our investing fees are strongly sustainable as 98% of the investing revenues are recurring fees, and we have no performance fees. The profitability calculated as management fees, net of taxes on assets under management substantially flat quarter on quarter at 47 basis points, with a mix more skewed into more conservative solutions. Please let me remind you that our priority is to move as much as possible our customers' liquidity into asset under management. For this reason, we are continuously updating our product offer team at speeding up the conversion rate of our of customer deposits. We will come back to this point later in the presentation. Trading income, net of no recurring items, is increasing by almost 1% year on year despite lower market volatility and ESMA regulation in place since July 2018. Let's jump into Slide 40 for a focus on brokerage. Let me please underline the good performance of brokerage revenues recorded in the second half of twenty nineteen, showing a growth of 19 percent year on year and up 15% half on half, following the deep hoofer reshape we announced earlier this year, which helped our brokerage business to fully recover from the results achieving the first half of twenty nineteen due to persistently low market volatility and ESMA regulation in place since July 2018. Let me please underline that the last quarter of the year recorded the best results since the Q2 of 2018. Moving back to Slide 9 for a detailed review on cost evolution. As you can see from the slide once again, our results confirm efficiency to be part of our DNA and core in our bank, representing a clear and unique competitive advantage. In 2019, staff expenses stood at EUR 90,200,000 plus 6.1 percent on a yearly basis, mainly due to the increase in the workforce related to their business development, in particular to cost related to Fineco Asset Management and not fully in place in 2019 and to the internalization of some services after the exit from UniCredit Group like, for example, the audit service. Non HR cost at EUR 159,900,000 were flat year on year despite the enlargement of assets and clients. Please note that the 4th Quarter 2019 non HR cost increased by 60% quarter on quarter due to seasonality of costs related to the 3rd quarter. Let me please highlight that the overall operating cost increased by 2% year on year, below the run rate given as a guidance for 2019 and below the growing trend registered between 2019 2018. Let me now move on to Slide 10. We have finalized the agreement with the Italian Fiscal Authority on the Patent Box for the years from 2015 to 2019. Fineco is the 1st bank to sign the agreement, which relates to both intellectual properties as our platforms are internally created and developed and trademarked. The amount of the fiscal benefits for the 5 years is estimated at about EUR 22,000,000, of which around EUR 5,000,000 are related to the trademark. For 2019, the fiscal benefit for the intellectual properties is estimated in the range between EUR 3,500,000 and EUR 4,000,000. The bank will apply in order to renew the fiscal benefit on intellectual properties for the next 5 years. Moving into Slide 11. As you can see on the left hand side of the slide, Commercial loans grew by 23.9% 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, decreasing at 12 basis points as of December 2019 due to the improvement in the quality of credit. Let's now move in analyzing our lending offer more in-depth. Mortgages grew by 35% year on year, reaching €1,200,000,000 at the end of the year. Average loan to value on Total outstanding is equal to 53% and average maturity to 19 years. Personal loans grew by 5.4% year on year with very attractive margins. Lombard loans started EUR 1,300,000,000 increasing by 27% in 1 year, driven by CreditLomba. As for our 2020 guidance on mortgages, we increased our guidance on new production in the range between EUR 315,000,000 EUR 500,000,000 as we are observing clients preferring mortgages in a period characterized by very low fixed interest rates. The expected yield is between 70 basis points and 80 basis points considering also the cost for covering the interest rate risk. On personal loans, we expect a new production in a range between EUR 200,000,000 EUR 250,000,000 per year, around EUR 20,000,000 net with average yield between 3.80% and 4.10 basis points. On CreditLomba, we expect a normal growth in the range between €300,000,000 €400,000,000 with expected yield between 75 and 85 basis points. Let me remind you that CreditLomba can be impacted by our brokerage platform as it was the case in the Q3. Please keep in mind that for the expected yields, In case the market environment changes, we would have to move accordingly. Let's now move on to Slide 13, capital ratios. Fineco confirmed once again a rock solid capital position on the wave of the SEK balance sheet. Common Equity Tier 1 ratio stood at 18.12%, down by 304 year on year basis points, mainly due to the change of model for calculating operational risk and to the purchase of the brand following the exit from Unifin Group. Let me please stress that the impact to the operational risk is only driven by changing methodology, while the risk profile of the bank has not changed at all. As anticipated in our last conference call, In the Q1 of the year, we adopted the standardized model approved by the regulators, and this allowed us to recover 136 basis points. Leverage ratio remained flat at 3 point 55%. Please note that we are stepping up our initiatives in order to improve the asset mix of our clients, also to slowdown the balance sheet growth. Finally, total capital ratio stood at 33.7% as of December 2019. On Slide 14, on this slide, we show an overview of the total financial assets growing trend, supported by the healthy expansion in new inflows. We gathered EUR 32,500,000,000 of net sales since 2013, leading total financial assets at EUR 81,400,000,000 as of December 2019. Guided Products increased their penetration rate to 71% on total assets under management from 67% on December 2018. Jumping into Slide 17. Out of EUR 5,800,000,000 of net sales as of December 2019, 91% was organically generated through the existing financial parameters or directed by the bank, and 9% come from recruits made in the last 24 months. Now I would skip directly to Slide 21. Guidance for 2020. In this slide, we summarize our guidance for 2020. Please note that it does not include revenues and costs related to the UK business development. Given current outlook, we expect net interest income to remain solid and resilient or slightly decreasing by few 1,000,000 on the back of volume effect and the benefit 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 the more dynamic management of our treasury. Deposits are expected to increase in the region of to up to EUR 2,800,000,000 per year and new production on lending is expected to be The region of EUR 1,000,000,000 per year equal to EUR 0.6000000000,000 net growth. Investing fees are expected to increase low double digit with flat mergings after tax, Thanks to the acceleration of the conversion of customer deposits toward asset under management and to the increased contribution from Finneco Asset Management despite the conservative approach by clients. Brokerage revenues are expected to increase around 15% year on year, thanks to all the initiatives undertaken by the bank to improve the business. Let me please underline that January recorded the best brokerage results ever, thanks to the enlargement of our offer and to return of market volatility. Banking commissions are expected to increase between EUR 10,000,000 and EUR 20,000,000. We will deep dive later during the presentation of our initiatives on banking. Operating cost We'll be impacted by temporary overlap of cost following the internalization of some activities after the exit from the Uniglity Group, an extraordinary general assembly for the governors and an increased number of board members. Therefore, for 2020, operating costs are expected to grow by around 5% year on year. In terms of future evolution, we confirm our guidance on a continuously declining cost income in the long run, thanks to the scalability of our platform and to the strong operating gearing we have. We expect our 2020 customer operation to remain above our floor, equal to 17%, a level that with TIM appropriate and massively above industry average. Leverage ratio is expected to remain above 3.5%, Thanks to the all the initiatives the bank is undertaking. Cost of risk is expected to remain in a range between 10 basis points and 15 basis points. Finally, we expect robust high quality net sales with the continuous improvement of the asset mix, driven by structural trends and by the high quality of our proposition. The continuous enlargement of our product offer with new conservative products and services is helping us in offsetting The agro propensity of clients to remain in a wait and see mood in this complex market environment and improving our asset mix. Let's now move to Slide 22 to better give guidance into the measures we are setting up for further improving the quality of our business. Slide 22. Going forward, our key priority is to structure, improve the quality of our net sales and client base in order to increase better quality of recurring revenues with a more pronounced continuous contribution coming from investing, Banking and Brokerage Fees and Trading Profit and the Lower Dependence from Net Interest Income and keep the growth of our balance sheet under control. Let me remind you that what are the industrial measures the bank has undertaking to achieve these results. 1st, the new generation of products with a very conservative risk profile, EDL for customer with a cautious stance and the new software development in order to fully exploit our main competitive advantage coming from big data analytics, further improving the productivity of the bank. 2nd, repositioning the brand to increase the profitability of our low value clients and to accelerate the growth of upper affluent and private customers. Our actions are already driven, and we will be guiding the following slides. Let's now move to Slide 23. On this slide, we summarized our actions to further accelerate the conversion rate of customer deposits into assets under management. With regard to the launch of new generation of products, among the new offer, it is worth mentioning Finic Asset Management target, the accumulation product allowing customers to progressively invest in the financial markets Fineco Asset Management Megatrends that allows customers to invest in secular trends, where we shortly released the new insurance capital guarantee product, remunerated solution with a flexible exit window either for customer with short term horizon pension funds that will be offered directly to customers in the next few weeks. In the next few months, we are also going to launch new protection funds and income strategy, which are very suitable for volatile markets that are going to be manufactured by Fineco Asset Management. With regard to the software developments, let me Remind you that we'll allow us to take more directly the driving seat in helping our financial advisers to develop their customers more efficiently, therefore, further accelerating the ongoing conversion trends towards asset under management. Let's now move to Slide 24. Our focus on improving our asset mix is already delivering, in particular, starting from the second half of twenty nineteen. On the left hand side of the slide, you can see breakdown of our quarterly net sales, showing a strong improvement in our asset mix. In fact, The contribution coming from asset under management has been constantly increasing over the quarters, thanks to the new generation of products and to the increased productivity of the Nektar. Please let me also remind you that the peak of deposits flows Gathering in the Q3 was temporary as clients took profits from Italian govies both in the past, and the percentage of deposits from total inflows is decreasing as a result. This is consistent with our strategy to improve the quality of our revenues mix and to slow down the growth of our balance sheet. On the right hand side of the slide, you can see how the acceleration in the conversion of deposits into assets under management has improved in the mix of our total financial assets, with assets under management moving from 48.3 percent as of December 2018 to 49.9 percent as of January 2020. Let's now move into Slide 25 to better deep dive on the contribution that Fineco Asset Management is giving to the improvement of asset mix. Fineco's management is key in our move to accelerate the conversion of deposits into assets under management. Our latest net sales results Confirm once again that Finneco Asset Management is gaining commercial momentum. And in the latest month, it has further accelerated its contribution to Finneco's interest. This, thanks to its ability to create modern and innovative multi manager solutions, reinforcing our guided open architecture platform and enhancing our time to market in developing our offer to meet evolving customer needs. In 2019, Fineco Asset Management Retail net sales reached 52 percent of Fineco's asset under management net sales. This percentage was up to 78% in the 1st month of 2020. Finally, I would like to highlight that the penetration of Fineco Asset Management Retail class total assets reached 20% of Fineco assets under management, and we expect it to grow even further. Let's now move into Slide 26 to deep dive into 2nd industrial measure the bank has undertaken. Finneco's customer satisfaction rate It was to 97%. And in terms of reputation, it is ranked as the number one bank, a key indicator that allows us to affirm ourselves as a premium brand and generate a positive dividend on our business results. On top of this, let me remind you that we are continuously upgrading our banking services with a number of initiatives in order to improve our already best in class customer experience. Let's now move on to Slide 27. As announced during our Q3 results conference call at the end of November, we introduced a smart repurchasing on our current accounts due to further reduction of interest rates and increased contribution of systemic charges. Let me please spend a few words on the main pillars of our smart repricing. On one hand, it's not linear on all our customer as it leverages on our deep internal IT culture to cluster customers according to their relationship with our bank. On the other hand, we will to preserve our best price quality ratio. At the right side of the slide, we represented the cost for the most convenient current accounts offered by the main Italian banks, both online and through branches. As you can see from the graph, we remain among the most convenient banks in relative terms even after repricing. Following the repricing for 2020, we expect between 5,060,000 closures of current accounts On top of the usual physiological closures, let me remind that clients closing their account up to now where low value clients meet average total financial assets below EUR 10,000 mainly liquidity. Going forward, we expect to further improve our customer base, attracting a lower number of new clients but of higher quality. Let me please underline that we are continuously increasing our affluent and smart affluent and private banking clients. Let's now move on Slide 28 to take a deep dive in the progressive improvement of our client base. On this slide, we summarized our growth on our Private Banking business. All our efforts for improving the quality of our clients are starting to pay. Total financial assets of our private banking clients represents more than 41% of total financial assets in the bank. As you can see from the graph at the bottom of the slide, total financial assets by Private Banking clients in the 1st 9 months of 2019 grew by 23% compared to the Private Banking System, which according to Private Banking Italian Association only grew by 12%. As of December 2019, total financial assets related to private banking clients grew by 29%, reaching more than EUR 33,000,000,000 of assets. Moving to Slide 30 for a quick update on Fineco UK. Fineco UK is progressing well with more than 6,500 clients at the end of December, mainly reached through the word-of-mouth with no marketing campaign. Let me remind you that UK, we are offering our one stop solution platform with an outstanding multicurrency offer, one of the best among U. K. Players, which is also used for trading purposes. With regard to the offer side, we are continuously implementing our investing platform with new funds, And we will progressively complete our capital architecture investing platform over the coming months. M and G Investments and Columbia Trinidad funds are already live, and we also launched Fineco Asset Management funds, which give access to sub advise funds of 8 different asset managers through Fineco Asset Management series. Let me also remind you that platform is very convenient also in terms of cost with a competitive pricing of 25 basis points per year. In order to further improve the offer, we recently notified UK regulators our intention to open a commercial branch in UK to better serve our clients with some new products like HISA, SIP and faster payments. This has no requirements of capital and no cost attached. I remind you that UK offer leverages 100% on the Italian platforms, meaning we have no additional fixed cost. We are now ready to start our marketing activity. And the first move, we will leverage on our best in class brokerage offer, from which we expect a faster contribution in terms of revenues. In the meanwhile, we will keep on developing the rest of the platform. We will give you more details on our U. K. Clients by the end of the Q1 2020 through a dedicated conference call. Thank you for your time. And now we can open the call for the questions. Next question, this is the Chorus Call conference operator. We will now begin the question and answer session. The first question It's from Domenico Santoro with HSBC. Please go ahead, sir. Hi, good morning. Thanks for the presentation. I have a number of questions. I'll try to be very quick. First of all, margins in the 4th quarter. You mentioned that they are flat adjusted for tax. I got a different number here because I have almost 64 basis points down quarter on quarter, some 2 basis points. So I was just wondering whether my calculation is correct and Well, there is something going on in the quarter, Eumai mentioned that. I've seen that you pay more A viable component to the FAs in the 4th quarter. I was just wondering, I mean, also the whether this number will be repeated next year. Coming back to your guidance in investing fees, low single digit. I mean, This year, if I see correctly on Page 41, the growth was double digit. You mentioned before the margins are going to be stable. So assuming that you're going to have another very good year in terms of sales, I'm just wondering whether your guidance in reality implies some pressure on margin as we have seen in the Q3. The loss of clients that you expect for repricing of commercial banking fees. Just wonder how much deposits also You expect to lose whether we should expect a sort of a shift in the size of the balance sheet. Tax rate Patent Box. My understanding was that there was also some benefit going forward, if you can quantify. And then the EUR 10,000,000 EUR 20,000,000 or more commercial banking fees, I'm just wondering that this is the maximum, the EUR 20,000,000 we should expect for the maneuver or cumulative impact in 2021 will be much larger. Thank you. So let me start from the margins in the Q1. So there is no change because clearly we Recently, we started on giving the guidance after tax for because clearly there is a continuous Growing contribution by Finneco Asset Management and so clearly and the margins, they remain practically stable. So we confirm So I'm 46 basis points after tax margins on the asset under management solutions. And this is stable, and we expect it to remain this way unless we have and increasing the risk appetite by clients. So there is no change regarding this at this point. Regarding the variable payments for so there is also there is probably I'm not sure that I got perfectly what but you were referring to a guidance of low single digit on investing, but our guidance is low double digit. So there are there is no we don't expect any significant pressure on margins, And this guidance is absolutely the same we gave recently. All right. Sorry for the mistaken then. Thanks for clarifying. No double digit. Regarding the variable payments of financial planners, clearly, there has been Clearly, and higher than expected payments because clearly, we are experiencing a sharp acceleration in direction of asset under management products. And it's if we assume that this trend It's going to continue. It's going to continue. We can expect that more or less the variable payments for 2019 can be in the region of what we had in 2020 is in the region of what we had in 2019. So the decrease we had in the investing fees in the last quarter It's just a technical decrease because it is embedding these higher payments for financial planners for the overachievements of the results. Clearly, as you can imagine, this is extremely bodes extremely well for 2020 because we are starting by a definitely better position in terms of total financial assets, quality of the mix and so on. And clearly, something that is driving up The valuable payments for financial planners is clearly is the acceleration in direction of guided products. Let me make a comment. I would be extremely pleased to finish 2020 and bringing to you And another additional increase in the variable payment for Pancho Pense, because this would mean that what we are putting in place is working even better respect than we are expecting. So everything is perfectly under control and it's The fact that we have paid to the financial planners and the highly available compensation to year end, it's a great news. On Patent Box, the so it's clearly reasonably speaking, We can expect I'm using the wording reasonably speaking because every time that You are interacting with Italian Fiscal Authorities. You have to be always extremely cautious because but in the case, if there isn't Anything absolutely unexpected happening, we can expect the recurring component for the following years Staying in the region between EUR 3,500,000 EUR 4,000,000 in terms of additional net profit. Consider that The intellectual property, the more we have the revenues attached to the software platform, the more the revenues are growing, And the more this positive contribution is going to grow. Repricing, clearly, the guidance of between EUR 10,000,000 and EUR 20 Millions is just for 2020. It's clear that another very important dividend brought by this change in pricing is that we are changing The angular coefficient of the profitability of our future new current accounts. So clearly, this EUR 10,000,000 between EUR 10,000,000 EUR 20,000,000 is just for 2020. But clearly, this number is going to keep on increasing according with the growth of the base of our clients. The next question is from Gianluca Ferrari with Mediobanca. Please go ahead. Yes, hi, good afternoon. I have some questions as well. First of all, on the bonuses you paid to the network for the great inflows into asset management in Q4, I was wondering if you can quantify the euro, €1,000,000 amount and if there is any specific incentive for the conversion you are currently making from current accounts in Class Management that had an extra incentive on top of the normal incentive scheme you give to FAs. The second is on the repricing. I think In the latest calls, we were speaking about €20,000,000 to €25,000,000 So the €10,000,000 to 20 indication you are giving is because you gave more Dero gave more waivers because You have, I mean, clients with more value added products than you originally expected or it is something driven by the network? The third question is, when you are guiding on NII 2020, should I understand did I understand correctly that at Current level of rates NII will be flat in 2020 versus 2019. The last question is on the number of essays. I know that It is not a very appealing topic, but this is the 2nd year in a row with the total number of FAs declining year by year. So my question is, is the 60 to 70 new FAs you are currently recruiting Sufficient enough or you might revisit your recruitment strategy and increasing that number in the future? Thank you. Regarding the variable payments made to the Svelteo in the Q1, so for the full year is EUR 18,900,000 and EUR 8,000,000 in the Q4. And is there is no So we didn't change the incentive scheme for the financial planners. So we didn't introduce any additional incentive for moving from deposits to asset and demand. Consider that the financial planners, Everything that is on deposit, they don't get nothing practically. So they have a structural increase in moving client's absolute liquidity. So if your question is, if the acceleration in asset undermanence is driven by and the more aggressive incentive financial planner. This is not absolutely the case because the incentive scheme has remained absolutely unchanged and the drivers that are behind the sharp acceleration is the continuous improvement of the productivity of the Nektar, Thanks, the put in place of the implementation of the IP platform that is making that Peter Afracheco plan is much more efficient and the new generation of products. On repricing, the reason why there is a range between €10,000,000 €20,000,000 It's because clearly, considering that this is a smart repricing that is not charging the clients in a linear way. So it depends on the clients' behaviors. So for example, if we have a higher than expected number of clients moving into using more intensively our services. Clearly, we are going to have more commissions on, for example, investing in brokerage, but and staying in the lower end of the repricing. On the opposite, if The behaviors of the client is absolutely linear, respect what we have now. Clearly, we are going to stay in the upper end of the range. On the net interest income, Yes, we are confirming that considering the existing situation the level of interest rates right now, We confirm the guidance of our net interest income staying flat or in the worst case, just declining by a few 1,000,000 of euros. On recruiting, we During 2019, our activity has been a little bit slower than usual. But the reason is pretty simple because clearly the reason we had we have on the market some players They are clearly massively overpaying financial planners, generating what we think is going to be a temporary of a rating of the market. We are not interested in playing this kind of game. We are quite confident that the situation in the market is going to return to a more normal level in the following months. And so we were going to be able to return to a level of newly recruited financial planners closer to 100 financial planners per year Then and so will. Thank you. Thank you very much. The next question is from Federico Braga with UBS. Please go ahead, sir. Yes. Hello. Good afternoon, everyone. Just few follow ups From my side, please. Again, going back to the gross management fee margin that also turning to Michael's question declined 1 basis 1 quarter on quarter to 64 basis points. I was wondering if on a gross basis, there was some dilutive impact maybe also due to the strong inflows into the decombination products, which start with lower fee margins and then maybe we should expect a slight recovery over time as these products Increase the allocation to more risky solutions. And then as another follow-up on fee margins, I mean For the sum of the fund megatrends, I saw that the total expense ratio of these funds are like well above 200 basis points, even close to 300 basis points. So I was wondering I mean, if this pricing can create, in your opinion, some issues longer term, considering that Fineco has always placed Is pricing below some of the some of that of some competitors? And then just a clarification also on the NII guidance, if you QM ECB rate cut this year or not in your NII guidance for 2020? Thank you very much. So regarding the gross management fees, the decline from 65 basis points to 64 basis points FreeTax. FreeTax, this is currently the change in the product mix. So clearly, there is and a growing company represented by more conservative solutions. But this is exactly perfectly in line with our expectation because on the other hand, as we because the guidance we are giving is that our after tax margins are going to remain stable Because in the meanwhile, there is a growing component represented by Fineco Asset Management. So the result the guidance we're giving The market of flat margins and revenues growing in the region of low double digit is exactly It's the results of an expectation of modestly declining gross margins before taxes, driven by the mix of products. But at the same time, this offset by the higher contribution by Fineco Asset Management and the volume effect. And so putting us in together, the results These revenues growing low double digits with margins after tax remaining almost flat in the region of 46 basis points. So, megatrend It clearly is 100% fully equity product. And so clearly, it's on the upper end of our offer. So it's not it's quite aligned with what you can expect to be with such a kind of product. So it's clearly, it's a risky product. It's for the is the highest profile in terms of risk. And so The pricing is not overpriced. It's absolutely perfectly in line with and the prevailing price for a product like this. And On the net interest guidance, we are not assuming any further ECB cut. And this is current with what is emerging by the implied forward record. The next question is a follow-up from Domenico Santoro with HSBC. Please go ahead, sir. Yes. Hi. Sorry for thanks for taking your time. Just to understand a little bit more the guidance on investing. So you're mentioning here that the low double digit is based on gross margin that you still expect declining during the year. So just wondering whether this is correct. And given that There is a tax component given that there is migration to the farm. Apart from the €4,000,000 if my understanding is correct or recurrent Standing is correct or recurrent contribution from Patent Box going forward to the taxes. Can you give us an indication how the tax rate net of gross of this can evolve going forward. And then just a follow-up on the deposit. The question that was asked before on the smart repricing. I was just wondering if you expect, given that in general, we have seen also some outflows, The EUR 2,500,000,000 gross inflows in deposits, if this is net of potential clients that might leave, of course, the bank? Thank So turning back to the investing guidance, when we are we expect the gross margins, Let me say that just modestly declining. So it's closer to me they are going to be almost flat, just probably declining by, I don't know, 1 basis points, something like that, but nothing particularly Royal Avanta. And regarding the so the So the and we confirm that the net margins are going to be After tax, I mean to be flat, so 46 basis points. The contribution of the Patent Box So one second. So on the tax rate, so net without considering the contribution of Patent Box, So because we have on the Patent Box, there is this one off 2019. And then we reasonably were expecting and then the continuation also in the following years because we are going to renew the patent box. But without considering Sorry, because I'm not the biggest expert in this kind of I'm sorry, I'm receiving some input by the CFO. So considering The recurring effect of the Patent Box and also the what you can expect by the contribution of Fineco Asset Management. We expect a declining cost income ratio with a run rate tax rate in the region of 1% per year. And coming to the deposits, The guidance of between EUR 2,500,000,000 to EUR 2,800,000,000 of deposits is considering the expected outflows generated by the clients by the clients that are closing the accounts. You can see that the clients that are closing the accounts are clients with a very, Very low average assets, so that they are below EUR 10,000. So assuming that we have We expect accounts closing in the region between 15,000,000 and 60,000 closure. So this means that there is between EUR 500,000,000, EUR 600,000,000 of outflows generated by this. But this is embedded in our estimates regarding the new inflows of liquidity. All right. Thank you. Now it's clear. Thanks. The next question is from Alberto Villa with Intermonte. Please go ahead, sir. Hi, good afternoon and congratulations for the net sales figures that are really quite impressive. I was wondering if in the outflows from deposits, which is partially obviously switching to funds under management is also playing part of the aggressive commercial policies by some of your competitors. And if this may also continue in the couple of next months. Thank you. Regarding so regarding the aggressive hoof from deposits, this is not a brand new story Because it's practically every year, there is someone that is using the leverage of overpaying deposits for taking on board the clients and deposits. So every year, there is a brand new bank joining the pack. And as I had the opportunity to discuss during meetings, we have cluster of clients that is called internally the free riders of the banking accounts. There are between more or less 50,000 clients that are continuously moving in and out deposits in order to chase the highest offer. So the typical behaviors of these clients, they are clearly keeping with us the center of their transactional banking activities Because the platforms are absolutely excellent. And then when there is an offer, they move This money there and then they are bringing the money back again. So clearly, this is what is the largest part of this result. So Clearly, the result is that the industry as a whole is giving to these clients a gift because I clearly are extremely Clients that are on which is practically impossible to have any significant impact in terms of cross selling. So they are just continuously making arbitrage among the different banks offering high deposits. But again, it's not a brand new story. Every year, we are calculating that we are Losing more than €500,000,000 of liquidity in favor of The banks, they are aggressively pricing deposits, but this is a story that started in 2012. So It's absolutely not a brand new story. So there is nothing changed. The only thing that is changing is the name of the banks that they are paying deposits. Okay. Thank you. The next question is from Luigi Develis with Equiqa Sim. Please go ahead, sir. Yes. Good afternoon. Two quick questions for me. The first one on the capital ratios. Where do you see the RWA evolution in CHET1 at the end of 2020 considering the new production in terms of lending? And the second question, what is the implied guidance in terms of net inflows of assets under management behind the low double digit growth of Investing. Thank you. Regarding the capital ratio, The capital ratio is we are expecting considering the growth in risk weighted assets because the growth of risk weighted assets It's driven both by the growth in the lending business and also by the growth in operational risk. But to remind that the operational risk, as measured, there's a percentage of the revenues generated by the bank. So the more we the more you grow your top line And the more you have a growth in the operational risk. But considering all everything put together, we expect to stay comfortably above The floor of the 17%. Honestly speaking, 70% floor is conservative ones because clearly, We were living in an extremely unpredictable environment also by regulation point of view, but assuming that Everything is remaining pretty much the same conditions that we have now. Probably, we are going to be more in the region of 18% than 17%. And regarding on the net on the asset under management business, the guidance on the revenues, so growing by low double digits is and is current Even total asset under management fees in the region of EUR 3,500,000,000. And the management that It's clearly is not embedding. This is, let me say, is an expectation business as usual. So we expect if we keep on working in a linear way. But clearly, our what we are Doing this, we are pushing as much as we can in order to be above this kind of number. But in case for the guidance, we prefer to remain consistent with something that is more or less linear with what we have done recently. Okay. Thank you very much. The next question is from Filippo Brini with Kepler. Please go ahead. Yes, good afternoon. Two questions, if I may. The first one is on the operating cost. How much of your Plus 5% guidance for this year is due to your commercial effort in U. K. And if you can please quantify it also in absolute terms? And the second, a clarification on your guidance on brokerage, plus 15% year on year. Does this Make reference to both brokerage fees and trading. Thank you. So the guidance operating cost He's not considering UK. He's we raised the guidance of to up to the is on the upper end because usually we are giving a guidance that is between 4% and 5% for just for temporary reason because as we said, there is a temporary overlapping in cost between What we are still paying to UniCredit for the outsourced services and the implementation of what we need for internalizing everything in the bank. So there is a temporary overlapping of this cost that Clearly, it's not going to last. And second, clearly, we there is some other one off like that we are going to have 2 general assembly instead of 1 because we just approved during Today, Board of Directors is changing our statutory rules. And so clearly, this is going to be approved by the in a dedicated general assembly, and this is driving cost. And finally, there is an increase of the number of the Board of Directors growing from 9 to 11. So putting it together, this We are moving the guidance a little bit higher than neutral. And on UK, we are going to give more visibility during the dedicated call in the within the Q1. On guidance on brokerage, the guidance on brokerage is So it's a +15 percent because clearly and this is the guidance we are giving assuming volatility Staying not particularly high. So for example, the month of January that which the volatility has been higher than usual, Clearly, the generation of revenues has been Much higher than we were expecting. And but in the guidance, we are not making any kind of assumption Particularly high volatility is current with this. In terms of split in between net interest income commission and trading profit. Clearly, there is a growing company The fastest growing company is for sure the trading profit just because clearly there is a constant move shift applied in direction of over the counter solutions and also because The higher is becoming our market share in volumes, and the higher is the opportunity for us for internalizing declines order. And so clearly and so this is making the trading profit component growing faster than net interest income and commissions. Okay. Thank The next Question is from Fabrizio Bernardi with Fidentiis. Please go ahead, sir. Hi, everybody. I have a question on fees. On Page 8, You're right, no performance fees. So I was wondering, given the strong results that most of your peers booked in the Q4 of 2019. I was wondering whether we may see one day a Fineco with wise and fair performance fees, maybe applying a fee scheme where a client can decide to choose Recurring fees may be lower plus performance fees or skip everything and pay just higher management fees. Thank you. Clearly, as usual, we are continuously monitoring everything that's going on in the market. So by definition, the topic represented by performance fees. It's many years that is under observation, considering that is a large component of the revenue generated by other peers of the industry. And I jump directly to the conclusion, then I'm coming back in order to give you the rationale of our conclusions. Our conclusion that we don't we are not interested in considering to introduce any kind of performance on our clients for a very simple reason because the performance fees, as you were correctly considering, You can have or can be also fair and respectful of clients if you are aligning perfectly The interest of your clients with the interest of the bank. And the only possible way of aligning perfectly the interest Is to go to the client saying and give it to you something that is much less expensive in exchange There is an overperformance that can benefit from this. And for us to be really and If we are observing what's going on in the market at the moment, there is nothing that we can see that in this line because everything that is charged in terms of performance fees is not aligning the interest of clients with the bank because in the most part of the case, we are talking about performance fees that they are just driven by the direction of the market. So if the market is going up, you are charging performance fees. If the market is going up, you are not charging performance fees. This is not related to your capability to generate real value. The demonstration that we have some of the players charging performance fees that have their home funds, that they are ranked among the 3rd and the 4th quartile of the industry. So this means that they are delivering very poor quality to their clients. But nevertheless, The charging performance piece, thanks to the market. And this clearly is not an absolute this is not the right way. But also the fairway at the end of the story It's going to bring volatility, uncertainty in what we are doing. It's going to and so we think that it's much better to be extremely To keep on giving to our clients the best possible services in a very transparent way, position the bank as the best among the peers in terms of ratio between quality of services and pricing. And for this reason, we are not interested in introducing Perfant. Also in for example, in U. S, Fidelity that at the beginning was extremely seen as extremely interested in introducing the so called Full confidence now is changing his mind and is returning the is coming back. So we think that it's much more linear to keep on doing what we are doing and because our goal is to keep on delivering fully visible industrial results And not the results that they are just driven by the what the market is doing. Thank you. Mr. Forti, there are no more questions at this time. Thank you very much. Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.