Good afternoon. This is the Chorus Call conference operator. Welcome, thank you for joining the FinecoBank Full Year 2019 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Alessandro Foti, CEO of FinecoBank. 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 condition. We are very pleased to propose to the next annual general meeting a dividend per share of EUR 0.32, + 5.6% year-on-year.
Before we start going through the details of the presentation, let me please underline our key messages. First of all, in 2019, we recorded a net profit amounting to EUR 288.4 million, +19.5% year-on-year. These results benefit from the tax break coming from the patent box, which is estimated in about EUR 22 million. Adjusted net profit amounted to EUR 268.8 million, showing a double-digit growth despite a higher contribution to the deposit guarantee scheme.
Second, the growth of our very well-diversified stream of revenues was supported by all business areas. Please note that our brokers 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 offer.
Third, operating costs, as usual, were under control, with cost-to-income ratio declining by 0.9 percentage point to 37.9%, and confirming operating leverage as a key strength of the bank. Fourth, net sales confirmed a solid and robust commercial activity, with gathered products reaching 71% of the stock of assets under management. Let me please underline that Fineco Asset Management is increasingly becoming the cornerstone of our inflows in assets under management, as confirmed in the last quarter of the year.
Finally, we will later deep dive into the industrial measures we have undertaken to have a better quality business, a stronger push in moving customer liquidity in assets under management, and our focus on improving the quality of our customer base. Let's now move to the slide five and start commenting our full year 2019 results.
Adjusted net profit in 2019 reached EUR 268.8 million, + 10% year-on-year, reaching record results despite a higher contribution to the deposit guarantee scheme, which amounted to EUR 18.1 million. 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 657.8 million of adjusted revenues, up 4.7% year-on-year, supported by all business areas. Operating costs stood at EUR 249.6 million, +2.2% year-on-year on adjusted basis. Cost income decreased to 37.9%, 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 all the dynamics of our results.
Let's start with net interest income dynamic on slide six. Net interest income stood at EUR 281.3 million, increasing by 0.9% year-on-year, supported by strong volume growth, high-quality lending, and sticky sight deposits, even more valuable given the current remuneration on liquidity offered by the system and the current interest rate environment. As an example, five years [Unintelligible] moved from +35 basis points of 2018 to -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 2017 to 1.20% in 2019. Cost of funding remains very low, at four 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 deposits, is zero.
Let's now move on slide seven to deep dive in on our bond portfolio. Our strategy to run off the UniCredit bond portfolio and move into a more diversified and low-risk investment portfolio through a blend of European government bonds and covered bonds is progressing very well. Our bonds portfolio now includes also France, Spain, Ireland, U.S., Poland, Austria, Germany, Belgium, Portugal, sovereign national agencies, and covered bonds in addition to Italy.
Let me also remind our sensitivity to a change in interest rates. A parallel shift of + 100 basis points would generate EUR 129 million of additional net interest income, while a parallel shift of - 100 basis points would generate -EUR 119 million of less net interest income.
Let's now move to slide eight. Fees and commission grew by 8.2% year-on-year, with management fees up 11.7%, thanks to a larger contribution of gathered 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 over the incentives to financial planners related to the quality 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, is substantially flat quarter-on-quarter at 46 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 assets under management. For this reason, we are continuously updating our product offer, aimed at speeding up the conversion rate of customer deposits. We will come back to this point later in the presentation. Trading income, net of non-recurring items, is increasing by almost 1% year-on-year, despite lower market volatility and as more 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 2019, showing a growth of 19% year-on-year and of 15% half-on-half, following the deep offer reshape we announced early this year, which helped our brokerage business to fully recover from the results achieved in the first half of 2019 due to the persistently low market volatility and as more 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 nine 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 90.2 million, +6.1% on a yearly basis, mainly due to the increase in the workforce related to the 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 costs at EUR 159.9 million were flat year-on-year, despite the enlargement of assets and clients. Please note that the Q4 2019 non-HR cost increased by 16% quarter-on-quarter due to seasonality of costs related to the Q3. 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 and 2018.
Let now move on to slide 10. We have finalized the agreement with the Italian revenue agency on the patent box for the years from 2015-2019. Fineco is the first bank to sign the agreement, which relates to both intellectual properties, as our platform are internally created and developed, and trademarked. The amount of the fiscal benefits for the five years is estimated at about EUR 22 million, of which around EUR 5 million are related to the trademark.
For 2019, the fiscal benefit for the intellectual properties is estimated in a range between EUR 3.5 million and EUR 4 million. The bank will apply in order to renew the fiscal benefit on intellectual properties for the next five 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 o ur 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 EUR 1.2 billion at the end of the year. Average Loan-to-Value on total standing is equal to 53%. Average maturity to 19 years. Personal loans grew by 5.4% year-on-year with very attractive margins. Lombard loans totaled EUR 1.3 billion, increasing by 27% in one year, driven by Credit Lombard.
As for our 2020 guidance on mortgages, we increased our guidance on new production in the range between EUR 350 million and EUR 500 million, as we are observing clients preferring mortgages in a period characterized by very low fixed interest rates. The expected yield is between 70 and 80 basis points, considering also the cost for covering the interest rate risk.
On personal loans, we expect the new production in a range between EUR 200 million and EUR 250 million per year, around EUR 20 million net, with average yield between 380 and 410 basis points. On Credit Lombard, we expect an annual growth in the range between EUR 300 million and EUR 400 million, with expected yield between 75 and 85 basis points. Let me remind you that Credit Lombard 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, F ineco confirmed once again a rock-solid capital position on the wave of a safe balance sheet. Common Equity Tier 1 ratios 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 UniCredit 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 Q4 of the year, we adapted the standardized model approved by the regulators, and this allowed us to recover 136 basis points.
Leverage ratio remained flat at 3.85%. Please note that we are stepping up our initiatives in order to improve the asset mix of our clients, also to slow down 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 32.5 billion of net sales since 2013, leaving total financial assets at EUR 81.4 billion as of December 2019. Gathered products increased their penetration rate to 71% on total assets under management from 67% on December 2018. Jumping into slide 17, out of EUR 5.8 billion of net sales as of December 2019, 91% was organically generated through the existing Financial Advisors or directly by the bank, and 9% came from recruits made in the last 24 months.
We will skip directly to slide 21. Guidance for 2020. In this slide, we summarize our guidance for 2020. Please note that it does not include the revenues and costs related to the U.K. business development. Given current outlook, we expect net interest income to remain solid and resilient or slightly decreasing by a few million 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 a more dynamic management of our treasury.
Deposits are expected to increase in the region of EUR 2 billion - EUR 2.8 billion per year, and new production on lending is expected to be in the region of EUR 1 billion per year, equal to EUR 0.6 billion-EUR 0.7 billion net growth.
Investing fees are expected to increase low double digits with flat margins after tax, thanks to the acceleration of the conversion of customer deposits to asset under management and to the increased contribution from Fineco 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 a return of market volatility. Banking commissions are expected to increase between EUR 10 million and EUR 20 million. We will deep dive later during the presentation of our initiatives on banking.
Operating costs will be impacted by temporary overlap of costs following the internalization of some activities after the exit from UniCredit Group, an extraordinary general assembly for the governors, and an increased number of board members, theref ore 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 cost income to remain above our floor, equal to 17%, a level that we deem appropriate and massively above industry average. Leverage ratio is expected to remain above 3.5%, thanks to all the initiatives the bank is undertaking. Cost of Risk is expected to remain in a range between 10 and 15 basis points.
Finally, we expect robust, high-quality net sales with a continuous improvement of the asset mix, driven by structural strengths 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 higher 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 deep dive into the measures we are setting up for further improving the quality of our business. Slide 22, g oing forward, our key priority is to structure, improve the quality of our net sales and client base in order to increase better quality of recurrent 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. Keep the growth of our balance sheet under control.
Let me remind you that what are the industrial measures the bank has undertaken to achieve these results. First, the new generation of products with a very conservative risk profile, ideal for customers 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.
Second, repositioning the brand to increase the profitability of our low-value clients and to accelerate the growth of affluent, upper affluent, and private customers. Our actions are already delivering, and we will deep dive in 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 regards to the launch of new generation of products, among the new offer, it is worth mentioning Fineco Asset Management target t he accumulation product allowing customers to progressively invest in the financial markets. Fineco Asset Management Megatrends that allows customers to invest in secular trends. We will shortly release the new insurance capital guarantee product, a remunerated solution with a flexible exit window ideal for customers 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 will allow us to take more directly the driving seat in helping our financial advisors to develop their customers more efficiently, therefore, further accelerating the ongoing conversion trends towards assets 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 2019. On the left-hand side of the slide, you can see a breakdown of our quarterly net sales, showing a strong improvement in our asset mix.
In fact, the contribution coming from assets under management has been constantly increasing over the quarters, thanks to the new generation of products and to the increased productivity of the network. Please let me also remind you that the peak of deposits flows gathered in the Q3 was temporary as clients took profits from Italian govies b oth in the past and the percentage of deposits on 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% as of December 2018 to 49.9% 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 Asset 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 Fineco Asset Management is gaining commercial momentum, and in the latest month, it has further accelerated its contribution to Fineco's inflows.
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% of Fineco's assets under management net sales. This percentage was up to 78% in the first month of 2020. Finally, I would like to highlight that the penetration of Fineco Asset Management to 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 second industrial measure the bank has undertaken. Fineco's customer satisfaction rate equals 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 into slide 27. As announced during our Q3 results conference call at the end of November, we introduced some smart repricing on our current accounts due 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 end, it is not linear on all our customers, as it leverages on our deep internal IT culture to cluster customers according to their relationship with our bank.
On the other end, we will 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 50,000 and 60,000 closures of current accounts on top of the usual physiological closures. Let me remind you that clients closing their accounts up to now were low-value clients with 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 deep dive into 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 first nine months of 2019 grew by 23% compared to the private banking system, which according to Italiana Private Banking Associazione , only grew by 12%.
As of December 2019, total financial assets related to private banking clients grew by 29%, reaching more than EUR 33 billion of assets. Moving to slide 13 for a quick update on Fineco U.K. Fineco U.K. 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 U.K., we are offering our one-stop solution platform with an outstanding multi-currency offer, one of the best among U.K. players, which is also used for trading purposes.
With regard to the open side, we are continuously implementing our investing platform with new funds, and we will progressively complete our open architecture investing platform over the coming months. M&G Investments and Columbia Threadneedle funds are already live, w e also launched Fineco Asset Management funds, which give access to sub-advised funds of 80 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 U.K. regulators our intention to open a commercial branch in U.K. to better serve our clients with some new products like ISA, SIPP, and faster payments. These have no requirements of capital and no cost attached. I remind you that U.K. offer leverages 100% on the Italian platforms, meaning we have no additional fixed cost.
We are now ready to start our marketing activity. 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. plans by the end of the Q1 2020 through a dedicated conference call. Thank you for your time and n ow we can open the call for the questions.
Excuse me t his is the Chorus call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Domenico Santoro with HSBC. Please go ahead, sir.
Hi. Good morning t hanks for the presentation i have a number of questions. I'll try to be very quick. First of all, margins in the Q4. 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 two basis points. I was just wondering whether my calculation is correct and whether there is something going on in the quarter, and you might mention that. I've seen that you pay more variable component to the FAs in the Q4. I was just wondering whether this number will be repeated next year.
Coming back to your guidance in investing fees, low single digit. This year, if I see correctly, page 41, the growth was double digit. You mentioned before the margins are going to be stable. Assuming that you're going to have another very good year in terms of sales, I'm just wondering whether your guidance, your 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, I just wonder how much deposits also you expect to lose, and 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. The EUR 10 million-EUR 20 million or more commercial banking fees i 'm just wondering that this is the maximum, the EUR 20 million we should expect for the maneuver? or cumulatively, the impact in 2021 will be much larger. Thank you.
Let me start from the margins in the Q1 t here is no change because recently we started on giving the guidance after tax, because clearly there is the continuously growing contribution by Fineco Asset Management. The margins, they will remain practically stable so w e confirm 46 basis points after-tax margins on the asset under management solutions.
This is stable, and we expect it to remain this way unless we have an increase in the risk appetite by clients. There is no change regarding this point. Regarding the variable payments. I'm not sure that I got perfectly, but you were referring to a guidance of low double-digit. We don't expect any significant pressure on margins, and this guidance is absolutely the same we gave recently.
All right s orry for the mistake then. Thank you t hanks for clarifying.
Low double-digit. Regarding the variable payments of financial planners, clearly, there has been a higher than expected payment because clearly we are experiencing a sharp acceleration in direction of asset under management products.
If we assume that this trend is 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. The decrease we had in the investing fees in the last quarter is just a technical decrease because it is embedding these higher payments for financial planners for the over-achievement of their results.
Clearly, as you can imagine, this bodes extremely well for 2020 because we are starting by in a definitely better position in terms of total financial assets, quality of the mix, and so on and c learly, something that is driving up the variable payments for financial planners clearly is the acceleration in direction of guided products.
Let me make a comment. I would be extremely pleased to finish 2020 and bring it to you in another additional increase in the variable payment for financial planners, because this would mean that what we are putting in place is working even better respect than we are expecting.
Everything is perfectly under control, and the fact that we have paid to the financial planners in a higher variable compensation to year-end, it's a great news. Patent box. Reasonably speaking, we can expect, I'm using the wording reasonably speaking because every time that you are interacting with the Italian fiscal authority, you have to be always extremely cautious. In 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 3.5 million and EUR 4 million in terms of additional net profit.
Consider that the intellectual properties, 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, c learly, the guidance of between EUR 10 million and EUR 20 million 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 c learly, between EUR 10 million and EUR 20 million 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.
Yeah. 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 EUR million amount, and if there is any specific incentive for the conversion you are currently making from current accounts into asset management, an extra incentive on top of the normal incentive scheme you give to FAs t he second is on the repricing i think, in the latest calls we were speaking about EUR 20 million-EUR 25 million.
The EUR 10 million-EUR 20 million indication you are giving is because they gave more waivers because you have clients with more value-added products than you originally expected? or it is something driven by the network? The third question is, w hen you are guiding on NII 2020, 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 FAs i know that it is not a very appealing topic, but this is the second year in a row with the total number of FAs declining year by year. My question is, i s 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 net in the Q1, so for the full year is EUR 18.9 million, and EUR 8 million in the Q4. We didn't change the incentive scheme for the financial planners. We didn't introduce any additional incentive for moving from deposits to asset under management c onsider that financial planners, everything that is on deposit, they don't get nothing practically, so they have a structural increase in moving clients out of liquidity.
If your question is if the acceleration in asset under management is driven by a more aggressive incentive to the financial planner, this is not absolutely the case, because the incentive scheme has remained absolutely unchanged. The drivers that are behind the sharp acceleration is the continuous improvement of the productivity of the network, thanks to the implementation of the IT platform that is making the financial planners much more efficient, and the new generation of products.
On repricing, the reason why there is a range between EUR 10 million and EUR 20 million is because clearly considering that this is not repricing, that is not charging the clients in a linear way, so it depends on the clients' behaviors.
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 brokerage, but staying in the lower end of the repricing.
On the opposite, if the behaviors of the clients is absolutely linear with 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 level of interest rates right now, we confirm the guidance of net interest income staying flat or, in the worst case, just declining by few millions of EUR.
On recruiting, during 2019, our activity has been a little bit slower than usual. The reason is pretty simple because clearly the reason we have on the market some players that they are clearly massively overpaying financial planners, generating what we think is going to be a temporary overheating of the market. We are not interested in playing this kind of game. We are quite confident that the situation of the market is going to return to a more normal level in the following month. We are going to be able to return to a level of newly recruited financial planners, closer to 100 financial planners per year.
Thank you. Thank you very much.
The next question is from Federico Braga with UBS. Please go ahead, sir.
Yes h ello g ood afternoon, everyone. Just few follow-ups from my side, please. Going back to the gross management fee margin that also fed into my calculation decline one basis point 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 decumulation products, which start with lower fee margins, maybe we should expect a slight recovery over time as these products increase the allocation to more risky solutions.
As another follow-up on fee margins, for the sum of the FAM Megatrends, I saw that the total expense ratio of these funds are well above the 200 basis points, even close to 300 basis points i was wondering if this pricing can create, in your opinion, some issues longer term, considering that Fineco has always placed its pricing below some of that of some competitors. Then just a clarification also on the NII guidance, if you assume an ECB rate cut this year or not in your NII guidance for 2020? thank you very much.
Regarding the gross management fees, the decline from 65 to 64 basis points pre-tax. Pre-tax, this is currently with a change in the product mix so c learly there is a growing component represented by more conservative solutions. This is exactly perfectly in line with our expectation, because on the other end, because the guidance we're 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.
The result, the guidance we're giving to the market of flat margins and revenues growing in the region of low double digit is the results of an expectation of a modestly declining gross margins before taxes driven by the mix of products. At the same time, this offset by the higher contribution by Fineco Asset Management and the volume effect. Putting everything together, the results is this revenues growing low double digits with margins after tax remaining almost flat in the region of 46 basis points.
Megatrend is clearly 100% fully equity product, clearly is on the upper end of our offer. It's quite aligned with what you can expect to pay with such a kind of product. Clearly, it's a risky product. It is the highest profile in terms of risk. The pricing is not overpriced, is absolutely perfectly in line with the prevailing price for a product like this. On the net interest guidance, we're not assuming any further ECB cut, and this is current with what is emerging by the implied forward rate curve.
The next question is a follow-up from Domenico Santoro with HSBC. Please go ahead, sir.
Yes. Hi. Thanks for taking your time. Just to understand a little bit more the guidance on investing. You're mentioning here that the low double-digit is based on gross margin that you still expect declining during the year. Just wondering whether this is correct. Given that there is a tax component, given that there is migration to the FAM, apart from the EUR 4 million, if my understanding is correct, or recurrent contribution from patent box going forward to the taxes, can you give us an indication how the tax rate, net or gross of this, can evolve going forward?
Just to 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 January, we have seen also some outflows, the EUR 2.5 billion gross inflows in deposits, if this is net of potential clients that might leave, of course, the bank. Thank you.
Coming back to the investing guidance. When we expect the gross margins, let me say that just modestly declining. They are going to be almost flat, just probably declining by, I don't know, one basis point, something like that, but nothing particularly relevant. We confirm that the net margins after tax are going to be flat s o, 46 basis points. The contribution of the patent box. One second.
Just a second.
On the tax rate, net, without considering the contribution of patent box. Because we have on the patent box, there is this one-off 2019, and then we reasonably were expecting a continuation also in the following years because we are going to renew the patent box, without considering this expected 3.54%.
One second.
Sorry, because I'm not the biggest expert in this kind of stuff, I'm receiving some input by the CFO. Considering the recurring effect of the patent box and also what you can expect by the contribution of Fineco Asset Management, we expect an declining cost intervation with a run rate tax rate in the region of 1% per year.
Coming to the deposits, the guidance of between EUR 2.5 billion-EUR 2.8 billion of deposits is considering the expected outflows generated by the clients that closing the accounts c onsider that the clients that closing the accounts are clients with a very low average assets, so that they are below EUR 10,000. Assuming that we expect accounts closing in the region between 50,000 and 60,000 closure. This means that there is between half a billion, EUR 600 million of outflows generated by this. 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, 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 into funds under management, is also playing a part the aggressive commercial policies by some of your competitors, and if this may also continue in the couple of next months. Thank you.
Regarding the aggressive offer on 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 clients and deposits. Every year there is a brand new bank joining the pack.
As I had the opportunity to discuss during meetings, we have a 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 t he typical behaviors of these clients, they are clearly keeping with us the center of their transactional banking activities because the platforms are absolutely excellent.
Then when there is an offer, they move this money there, and then they are bringing the money back again. Clearly this is what is the largest part of this result so c learly the results is that the industry as a whole is giving to these clients a gift because they clearly are extremely clients that are, on which is practically impossible to have any significant impact in terms of cross-selling. They are just continuously making arbitrage among the different banks offering high deposits, but a gain-
-it's not a brand new story. Every year we are calculating that we are losing more than half billions of liquidity in favor of the banks, that they are aggressively pricing deposits but t his is a story that has started in 2012, so it's absolutely not a brand new story so t here 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 De Bellis with Equita SIM. Please go ahead, sir.
Yes, good afternoon t wo quick question for me t he first one on the capital ratios, where do you see the RWA evolution and CET1 at the end of 2020, considering the new production in terms of lending? 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, we are expecting considering the growth in risk-weighted assets is driven both by the growth in the lending business and also by the growth in operational risk. I want to remind that operational risk as measured as a percentage of the revenues generated by the bank. The more you grow your top line and the more you have a growth in the operational risk.
Considering everything put together, we expect to stay comfortably above the floor of the 17%. Honestly speaking, 17% floor is a conservative one because clearly we are living in an extremely unpredictable environment also by a regulation point of view a ssuming 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%.
On the asset under management business, the guidance on the revenues, growing by low double digits, is current. Even total assets under management hits the region of EUR 3.5 billion under management t hat clearly is not embedding. Let me say, it is an expectation business as usual. We expect if we keep on working in a linear way. Clearly what we are doing is, we are pushing as much as we can in order to be above this kind of number i n any 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 Prini with Kepler. Please go ahead.
Yes, good afternoon t wo questions, if I may t he first one is on the pricing cost, h ow much of your +5% guidance for this year is due to your commercial effort in U.K.? If you can, please quantify it also in absolute terms. The second, a clarification on your guidance on brokerage, +15% year-over-year d oes it make reference to both brokerage fees and trading? Thank you.
The guidance operating cost is not considering U.K. We raised the guidance on the upper end, because usually we are giving a guidance that is between 4% and 5%, 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. There is a temporary overlapping of this cost that clearly is not going to last.
Second, clearly, there is some other one-off that we are going to have two general assembly instead of one, because we just approved during today's board of directors a change in our statutory rules. Clearly this is going to be approved by a dedicated general assembly, and this is driving cost.
Finally, there is an increase of the number of the board of directors growing from nine to 11 so p utting everything together, we are moving the guidance a little bit higher than usual. On U.K., we are going to give more visibility during the dedicated call within the Q1.
On guidance on brokerage. The guidance on brokerage is + 15%, this is a guidance we are giving, assuming volatility staying not particularly high. For example, the month of January, in which the volatility has been higher than usual. Clearly, the generation of the revenues has been that much higher than we were expecting. In the guidance, we are not making any kind of assumption of particularly high volatility is current with this.
In terms of split between net interest income, commission and trading profit, clearly, the fastest growing component is for sure the trading profit, just because clearly there is a constant move, shift of clients 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 the client's order. Clearly, this is making the trading profit component growing faster than net interest income and commissions.
Okay, thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Fabrizio Bernardi with Fidentiis. Please go ahead, sir.
Hi, everybody. I have a question on fees o n page eight, you write no performance fees. I was wondering, given the strong results that most of your peers have 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, maybe 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. By definition, the topic represented by performance fees is many years that is under observation, considering that is the large component of the revenues generated by other peers of the industry. 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 are not interested in considering to introduce any kind of performance fees on our clients for a very simple reason, because a performance fee, as you were correctly considering, can be also fair and respectful of clients if you are aligning perfectly the interest of your clients with the interest of the bank t he only possible way of aligning perfectly the interest is to go to the client saying, "I'm giving to you something that is much less expensive, and in exchange, if there is an over-performance, I can benefit from this."
For us, if we are observing what's going on in the market at the moment, there is nothing that we can consider 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. If the market is going up, we are charging performance fees. If the market is going up, you're not charging performance fees.
This is not related to your capability to generate a real value. The demonstration that we have some of the players charging performance fees that have their own funds, that they are ranked among the third and the fourth quartile of the industry so t his means that they are delivering very poor quality to their clients, but nevertheless, they are charging performance fees thanks to the market t his clearly is not, and absolutely this is not the right way.
But a lso the fair way, at the end of the story, is going to bring volatility, uncertainty in what we are doing. We think that it's much better to be extremely transparent, 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.
For this reason, we are not interested in introducing. Also, for example, in the U.S., Fidelity Investments, that at the beginning was seen as extremely interested in introducing the so-called fulcrum fees, now is changing his mind and is coming back so w e think that it's much more linear to keep on doing what we are doing, because our goal is to keep on delivering fully visible industrial results, and not results that are just driven by what the market is doing.
Thank you.
Once again, if you wish to ask a question, please press star and one on your telephone. For any further questions, please press star followed by one. Mr. Foti, there are no more questions registered 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.