Earnings Call: Q3 2019

Nov 5, 2019

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Fineco Bank Third Quarter 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. At this time, I would like to turn the conference over to Mr. Alessandro Foti, CEO of Fineco Bank. Please go ahead, sir. Good afternoon, everyone, and thanks for joining our Q3 2019 results conference call. Before we start going through the details of the presentation, let me please underline the key messages of the quarter. First of all, our 9 month results recorded our best net profit ever, confirming once again the sustainability of our sound business model, Able to deliver solid results in every market conditions. 2nd, the growth of our very well diversified stream of revenues It's been supported by all business areas. Please note that our brokerage business has strongly performed in the 3rd quarter, The best one since the introduction of ESMA regulation, showing that the in-depth review of our product offer is already producing tangible results. 3rd, operating costs as usual well under control with Cost income ratio declining by 1.4 percentage point to 37.9%, confirming Operating leverage is a key strength of the bank. 4th, net sales confirmed a solid and robust Commercial activity with guided products reaching 70% of our stock of asset under management. Let me please underline that Finneco Asset Management is increasingly becoming the cornerstone of our inflows in asset under management as confirmed both in September October. Finally, we will later deep dive into some industrial measures We are undertaking namely a stronger push in moving customers' liquidity and asset under management, A closer look to a possible smart repricing of our banking services, preserving our price, Quality premium and redesigned brokerage offer. Let's now move to Slide 7 and Start commenting our 9 month results. Adjusted net profit as of September 2019 reached €198,100,000 plus 10.8 percent year on year, Reaching record results despite a more complex environment compared to last year. Once again, This set of results confirms the soundness of our business model, able to deliver sustainable and industrial growth in every market conditions And shows how the actions we have recently undertaken are already delivering. Let me please underline that the quarter is impacted by the annual contribution in the Q3 of the deposit guarantee scheme Estimated in €17,500,000 therefore quarterly comparison is not relevant. As of September 2019, we generated €489,000,000 of adjusted revenues, Up 5.2% year on year, mainly supported by investing and banking area. Brokerage has recorded plus 10.5 percent quarter on quarter, thanks to an in-depth renewal of our product offer. Operating costs stood at EUR 185,200,000 plus 1.3% year on year On adjusted basis and 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 the following slides to analyze more in details All the dynamics of our results. On Slide 8, Net interest income. Net interest income increased by 1.9% year on year, supported by strong volume growth, High quality lending and sticky side deposits, even more valuable given the current interest rates environment. 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 Earnings assets lowered from 1.31 percent in the 1st 9 months of 2018 to 1.23% as of September 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 deposits in euro, which represents 90% of our total deposits is 0. Net interest income in the Q3 of 2019 is flat year on year and down 2.2% quarter on quarter, the latter mainly due to the strong decrease of interest rates Registered in the Q3. As an example, 1 month year rebar moved from minus 37 basis points to minus 42 basis points in the quarter, the strongest quarterly decrease registered in the last 3 years. As for the Q4, we expect net interest income increasing again on the back of volume effect and benefits coming from ECB Tiering. For 2019 as a whole, We confirm our guidance of a low single digit year increase in net interest income. We will deep dive on this later on during the presentation. Moving to Slide 9. In Slide 9, you can find A focus on our bond portfolio. We are progressing very well in 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, govies and covered bonds. Our bonds portfolio now includes also France, Spain, Ireland, U. S, Poland, Austria, Germany, Belgium, Portugal, sopranational agency and covenant bonds in addition to Italy. Let me also remind our sensitivity to a change in interest rates, partly shift of 100 plus 100 basis We generated EUR 125,000,000 of additional net interest income, while a parallel shift of minus 100 basis points would generate minus €114,000,000 of net interest income. Let's now move to Slide 10, fee and commissions. Fee and commissions grew by 11.1% Year on year, with management fees up 12.1%, thanks to a larger contribution of guided products and services On assets under management, which increased by 4 percentage points year on year to 70% And to the contribution coming from Fineco Asset Management. Let me highlight once again that our investing fees are strongly sustainable As 98% of 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 flat quarter on quarter at 47 basis points With customers looking for more conservative solution, let me please highlight that our priority is to move as much As possible, our customer liquidity into asset under management. For this reason, we are launching a new set of products aimed That's speeding up the conversion rate of customers' deposits. We will come back to this point later in the presentation. As for 2019, we confirm our guidance of flat margins after tax, but revenues growing Low double digit, thanks to volume effect and to the contribution of Fineco Asset Management. For 2020, we expect And low double digit revenues growth boosted by higher volumes. Trading income, Net of non recurring items is down 11.9% year on year due to lower Volatility in the into the new ESMA regulation in place since the second half twenty fifteen. Let me please underline the good performance of brokerage in the Q3 2019, which recorded a growth of 16.3% Quarter on quarter and of 40.6% year on year following the deep offer reshape that we announced earlier this year. Let's jump to Slide 39 for a focus on brokerage. Overall, Q3 2019 brokerage revenues recorded the best quarter since the introduction of ESMA and the 1st 9 months of the year almost recovered compared to the previous year. This was possible thanks to the initiatives undertaken by the bank to improve the business such as further enlargement of our offer. For these reasons, we updated our guidance on brokerage, which is expected to be slightly increasing year on year And around plus 15% in 2020. Let's now move back to Slide 11 for a detailed overview on cost evolution. As you can see from the slide, once again, our results confirm efficiency as a part of our DNA and core in our bank, representing a clear and unique competitive advantage. Staff expenses stood at EUR 66,600,000 As of September 2019, plus 5.6% on a yearly basis, mainly due to the increasing workforce Related to the business development, in particular to costs related to Fineco Asset Management not fully in place In the 1st 9 months of 2018 and to the internalization of some services After the exit from the Unigladed Group, like for example, the audit. Non HR cost at EUR118,600,000 down 100% year on year despite the enlargement of assets and clients. In terms of future evolution, we confirm our guidance on a continuously declining constant income in the long run, Thanks to the scalability of our platform and to the strong operating gearing we have. The Q3 of 2019 has been Authorized by loan seasonality and the different distribution of marketing expenses among the quarters compared to the previous year. For the last quarter of the year, we expect cost to increase again due to seasonality and staff expenses. Therefore, for 2019, we expect overall cost to increase low single digit and this trend is expected also for 20 Let's now move on Slide 12. As you can see on the left hand side of the slide, commercial loans grew By 24.7 percent 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 of clients And how 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, up 15 basis points as of September 2019, Due to the improvement in the quality of credit, for 2019, we expect our cost of risk further decreasing At a much lower level compared to the system. Let's now move in analyzing our lending offer more in-depth at Slide 13. Mortgages grew by more than 29.6% year on year, More than EUR 1,000,000,000 at the end of the 1st 9 months. Average loan to value on total outstanding is equal to 53% and average maturity to 19 years. Personal loans grew 9.7% Year on year, with very attractive margins. Lombard loans totaled EUR 1,200,000,000 As of September 2019, increasing by 30% in 1 year, driven by Credit Lumba. As for our 2019 guidance on volumes on mortgages, we confirm a new production of around €300,000,000, 350,000,000 As we prefer not to compete against the system in red zones characterized by aggressive prices, high loan to value and longer maturities. On personal loans, new production of around EUR 200,000,000 EUR 250,000,000 per year. On credit Lombard, We are adjusting our guidance to around €300,000,000 to €350,000,000 of growth as during the Q3 some customers closed Their credit line to take profits on the underlying collateral, mainly Italian goalies. Thus confirming once again how Fineco best in class brokerage platform is massively used by our With regards to 2020, we expect a new production on mortgages of EUR 200,000,000 EUR 250,000,000 On personal loans of EUR 250,000,000 and for Credit Lombard, an annual growth of EUR 500,000,000. Let me remind you that the latter can be impacted by our brokerage platform as it was the case in the 3rd quarter. As for the expected yields, please keep in mind that in the case the market environment changes, we would have to move accordingly. Slide 14, capital ratios. Fineco confirmed once again a rock solid capital position On the wave of a safe balance sheet, the slight increase of risk weighted assets in September is related to credit and operational risk, The latter due to a more prudential interpretation compared to June 2019. In fact, as you know, Following the exit from Unitiated Group, we applied a basic we are applying now a basic approach. Let me Please stress that this impact is only driven by the process of changing applied methodologies, While the risk profile of the bank has not changed at all, in any case, we are working on the process to adapt the standardized model And this is expected to absorb lower capital. Common Equity Tier 1 ratio stood at 17.37 percent, down by 47 basis points, mainly due to operational risk. At this regards, we confirm that going forward, we expect common equity Tier one ratio above 70%, A level that we deem appropriate and massively above industry average. Leverage ratio at 3.85 percent and we confirm our guidance to maintain it at 3.5% by mid-twenty 21, When the regulatory 3% threshold will come in force. Please note that we are Stepping up our initiatives in order to improve the asset mix of our clients, which we will describe later. Finally, total capital ratio stood at 32.58 percent as of September 20 Thank you. Slide 15, on this slide we show an overview of the total financial It's growing trend supported by the healthy expansion in new fee inflows. We gathered €31,100,000,000 net sales since 2013, leading total financial assets at €78,600,000,000 as of September 2019. Guided products increased their penetration rate To 70% on total assets under management from 67% on December 2018. Jumping to slide 18, out of €4,300,000,000 of net sale as Of September 2019, 89% was organically generated through the existing financial planners or directly by the bank and 11% came from recruits made in the last 24 months. Let me please spend a few words on recruiting as we are observing once again an aggressive approach in the industry. In our opinion, overpaying recruiting is not sustainable for the business. For these reasons, we are not interested in following this approach. Estimated net sales in October were solid and great quality, above €380,000,000 driven by inflows In asset under management, which are expected to be above EUR 510,000,000 This regard, it's worth mentioning that Fineco Asset Management contributed for more than EUR 350,000,000 Recording a new high on retail net sales for the 2nd consecutive month. We will come back later during the presentation on the growth potential of As for the remaining component, estimated direct deposits stood at minus €150,000,000 due both to the conversion into asset under management and tax payments by clients, Abstract and custody, minus EUR 20,000,000. Finally, we move to the next slide. Before we move to the next slide, let me please give you more color on 2019 net inflows. We expect a robust net inflows Driven by structural trends and by the high quality of our proposition. The recent launch of some brand new products and services, especially in Asset Management, Together with the upcoming insurance capital guarantee product offer are 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 Now I would skip directly to Slide 22. In this slide, we summarized our expectations in terms of net interest income and industrial measures we are undertaking going forward. For 2019, we expect net interest income growing by low single digit. For 2020, we expect a resilient net interest income with the following assumptions. 1st, Our bank portfolio has been built in a very conservative way, meaning that its runoff is very gentle with no major clips. 2nd, we expect a continuation of the positive effect coming from the building up of volumes and of the lending book, which we will continue to be offered only to our well known base of clients. 3rd, we will benefit from the effect of ECB decisions, namely the tearing and the gentle steepening of the yield curve 4th, No change in our investment policy as we will continue to invest in a blend of diversified European govies and covenant bonds with no increase In the bank's risk profile, in particular, the exposure towards Italian economies will be in the region of EUR 5,000,000,000. Last, our sensitivity, a parallel shift of plus 100 basis points would generate 125,000,000 of additional net interest income, while a parallel shift of minus 100 basis points would generate minus 114,000,000 Of less net interest income. All these assumptions are key making our net interest income Very resilient and low risk. Please let me also remind you that it leverages on very valuable and sticky deposits, Thanks to our sustainable and long term commercial strategy. Let me also remind you that It could decrease by a few millions according to the current forward interest rates curve. This is absolutely manageable by the bank, also thanks to the industrial measures we are undertaking, from which we expect Our revenue mix to change, leading to higher contribution from investing and banking fees, at the same time, further lightening of our balance sheet. In the next slides, we will deep dive on the measures we are setting up to accelerate the conversion of Customer deposits to assets under management and the room we have for a possible smart repricing of our banking services that would preserve our positioning as best price quality offer in the market. Let's now move on to Slide 23. On this slide, we summarize the main actions We are undertaking through the our assisted selling platform to accelerate as much as possible the improvement of our customer asset mix. Let me underline that the conversion of deposits into assets under management is our key priority And our actions are already delivering. In fact, October asset under management sale is expected to be The best one since the beginning of 2018. First of all, we are launching the new generation of products with a very conservative risk profile, For customer with a cautious stance, among the new offer, it's worth mentioning Fineco management target and the accumulation product recently launched by Fineco Asset Management allowing to progressively invest in The financial markets, the upcoming insurance capital guarantee program and a remunerated solution with a flexible exit window EDL for customers with short term horizon, Fineco Asset Management Megatrends that allows customers to invest in secular trends And finally, pension funds that will be offered directly to customers. 2nd, we are delivering new software developments in order To fully exploit our main competitive advantage coming from big data analytics. In particular, we will be able to automatically analyze the behavioral patterns of our customers And to better target our low touch clients. This will allow Fineco to take more directly the driving seat in helping Financial advisers developing their customer more efficiently with a strong improvement of the effectiveness of our commercial strategy. Finally, let me please highlight that our very first initiatives are already delivering as Fineco Asset Management target Infineco Asset Management megatrends have represented the lion's share of our strong asset under management Net sales both in September October. Moreover, we have already started the first test of our brand new platform offering Fineco's management megatrend directly through our assistance selling And the upcoming insurance capital guarantee product will come next. Let's now move to Slide 24. Fineco Asset Management is key in our move to accelerate the conversion of deposits Into assets under management, our latest net sales results confirm that Finneco Asset Management is gaining commercial momentum. And in the last couple of months, 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 platforms And enhancing our time to market in developing our offer to meet evolving customers' needs. At this regard, let me please underline that September was the best month of ever for Fineco Asset Management in terms of retail net sales, And our estimates for October are even better as retail net sales were above EUR 350,000,000, Reaching around 50% of Fineco's net sales. Again, Fineco's management target Infineco's administration legatrend were the best seller products, confirming that net sales are structurally skewed Towards retail classes. Please let me also underline that following the success of Fineco Asset Management target, We just launched a second edition of the product. Finally, I would like to highlight That the penetration of Fineco Asset Management that we take plus total assets reached 19% from Fineco Asset Under Management And we expect it to grow even further. Let's now move on to Slide 25 to deep dive As you know, our goal is to offer our customers the best price quality convenience through a fair and transparent approach. This allows us to make our customer even more satisfied and to generate long lasting relationship, which translates in sustainable results in the long run for the bank. As a result, Fineco already enjoys a customer satisfaction rate equal to 97% And is the number one bank in terms of reputation. The key indicator that allows us to affirm ourselves As a premium brand and generate a positive dividend on business results. On top of this, we are continuously upgrading our Banking services with a number of initiatives in order to improve our already best in class customer experience. Our positioning and long term approach with our customer give us room to eventually think about the possible Smart repricing to further support and diversify our revenues generation. Let me please spend few words on the 2 main Pillars of our smart pricing. On one hand, it will not be linear on all our customer as we will leverage on our Deep internal culture to clusterizing customers according to their relationship with our bank. And at this regard, our full control of data management is critical. 2nd, on the other hand, we will preserve our best price quality ratio. At the bottom right of the slide, we represented average cost for online operations of the main Italian banks. As you can see, we are the most convenient in relative terms And we have plenty of room for maneuvering, also considering that all the other banks are moving The direction of charging higher cost to clients. Let me please underline that this is not a brand new story for us In the past, we managed some smart repricing as it was the case when we when the cap on exchange fee on credit cards was introduced a few years ago. Let's now move into the next slide. In Slide 26, we summarize the results we have achieved after the in-depth reshape of our brokerage offer over the last Brokerage business suffered a change in the market structure due to a persistently low market volatility into the introduction of ESMA regulation. As you can see from the slide, we have been, as usual, quite proactive in completely redesigning our product buffer With the launch of new option products, the enlargement of our multicarals basket and the optimization of our A systematic internalizer. More recently, we also reprised our ForEx, lowering the spread To have a better commercial grip and introduce the 24 hours brokerage platform, which is key for the upcoming launch of our offer on Asian markets. Important to note, our actions have already delivered And the Q3 2019 was the best one in the last year. This once again confirms our strong Track record in dealing in a timely and efficient way with structural changes in the market where we operate. Let's now move on to Slide 27, developing opportunities. On this slide, a quick update on Fineco UK and Patent Box. In UK, we are growing nicely with about 6,000 clients and 87% of the New customers acquired are non Italian, of which 76% is native British. With regards to the offer side, we just launched our first funds, and we will progressively complete our open architecture Investing platform over the coming months. The 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 are evaluating the possibility to open a Permanent presents in UK. In any case, we will take the final decision only after Brexit outcome becomes clearer. I remind you that the UK offer leveraged 100% on the Italian platform, meaning that we have no additional fixed cost. A quick update on Patent Box. The closing of the process is still in the hands of the revenue agency. Let me remind you that We applied both for the intellectual properties as our platforms are internally developed and also for the trademark. The fiscal benefit will cover 5 years from 2015 to 2019. Intellectual properties are Renewable according to international guidelines. We are still working very close with the Italian Fiscal Authority To sign the agreement for the 5 years by the end of 2019, alternatively, we cannot exclude the option to self determine The Patent Box benefit in 2019 tax declaration as set by the decree the credit Christa definitely approved in the loan number 28 June 2019. Thank you for your time. And now we can open the call for questions. Excuse me. This is the Chorus Call conference operator. We will now begin the question and answer session. The first question is from Gianluca Ferrari with Mediobanca. Please go ahead, sir. Yes. Good afternoon, everyone. The first question is probably the second time I am asking this in a call. But your leverage ratio went down 18 basis points in Q3. So With an additional 4 quarters, we might be very close to the 3% Basel III threshold. So I understood the Project of converting deposits into asset management, but even assuming you managed to convert couple of billion, You are only earning 1 quarter of additional flexibility. So what are your expectations regarding these Switch into asset management and what are the sensitivities you made in order to Avoid getting to the dangerous threshold of 3%. The second is on non HR costs that are Pretty low. If you look at page 11, dollars 35,000,000 in Q3, but also $39,800,000 in Q2 Are well below the results reported last year. So it is all due in my opinion to development costs. So I was wondering if we have to set the new base here, a much lower base compared to last year Or there is the postponement of some costs in Q4, but what is the current run rate we should think about Going forward with reference to non HR cost. And the last question is on the smart repricing. I think you put a chart Where your current account is among the cheapest, I would say €25 per year. The repricing, I guess, applied across the board to all the 1,300,000 customers with some exceptions, I guess. Can you elaborate a bit more about this derogate you applied to your clients? Thank you. So let me start on the leverage ratio. First of all, we had considered that We had in the past few months some extraordinary effect in part on the liquidity Generated by a massive disinvestments of clients of their asset under cash acquisitions That has been generated by clients taking profits on their mainly the Italian govies, The tightening of the spreads on the Italian growth. And so this has generated in starting from the month of June And going through in July and into August, a massive impact on this. And clearly, this is a temporary effect, And we expect that this is going to be progressively reabsorbed going forward. 2nd, I would like to underline as the strategy we are putting in place for absorbing liquidity are starting on producing Quite relevant results because both the month of September that September as usual is not a great month for Asset under management nevertheless has produced an absolutely amazing results, but even better has been the results we achieved in the Month of October because more than €500,000,000 of euros of asset under management is being exactly generated by The beginning of these new initiatives gaining momentum. I'm referring to the New generation of products and also the fact that the bank is becoming more and more efficient in interacting more directly with clients. And so what we expect, we confirm our guidance of Remaining in the region of 3.5 leverage ratio mark going through 2021, 21. And clearly, this is current with a growth in our base of deposits in the range between €2,500,000,000 €2,700,000,000 per year. That is not too much a run rate and a run rate that is perfectly in line with The most the recent history of the bank, if we exclude the temporary effect caused by This massive reduction in asset under custody by the clients. And this is not taking fully It's not fully considering any additional possible positive impact produced by the new initiatives. So moving to the non HR cost. Clearly, the non HR costs are affected by seasonality. If you remind, In the 1st 6 months, we were commenting that the cost had been a little bit above expectations because we had the Marketing cost anticipated at the beginning of the year. And so clearly, it's not just and so this Lower level of cost is not being generated by a postponement cost, but we anticipated the cost in the first half. And the Q3 is seasonally low in terms of this kind of cost, and so we confirm that Our overall costs are going to grow in the region of low single digits by year end And the same pattern for next year. Clearly, we expect that, but as we Explained during the call, we expect for the Q4 higher cost compared to the previous quarter, but this clearly is mainly related to the Staff expenses. And coming to repricing, repricing As we presented, we label this repricing as Smart re pricing because it's not going to be linear. It's going to be an re pricing in which The most valuable clients are going to remain excluded by this repricing. So for example, clients with They have investment products or lending products or they are good clients for brokerage And so clearly, they're not going to be part of this repricing. In any case, it's going to be a flexible repricing because all the clients that in the meanwhile are going to Join the cluster of the good clients are going to be clearly they are not going to be charged with this repricing. Clearly, this is an approach that can be managed just by an extremely efficient bank, Because from an 2018 operational point of view, it's very complex, because it means that you have to make you have to go through in a quite in-depth Clustering of your clients. And second, it's extremely complex from the billing point of view, Because every month, practically, you have to change the way you are building your clients, considering that the clients, they are continuously changing their Behaviors and Approach. Thank you. The next question is from Elena Ferini with Bancaemi. Please go ahead madam. Yes. Good afternoon. I've got actually three questions. The first is about Your CET1 ratio, which was down quarter on quarter. I was wondering about the dynamics The second question is about Your outlook for brokerage, if I understood correctly, you mentioned a 15% year on year growth you expect in And a year on year growth you expect in 2020. Actually, big American players have reduced their fees on brokerage. What would you expect could happen here in Europe or Or in Italy. And then finally, you mentioned some Figures about your net inflows for October. Can you give us And overall rounding figure? Thank you. So let me start on the CORT Tier 1. So the CORT Tier 1 ratio went down just for technical reason Because clearly, this is still the follow through of the change of the methodology because after the exit from the group, we moved from the advanced model to the basic model. And so the final calculation has produced an additional reduction In the core Tier 1, and so I want to repeat that this is not being driven by an increase of operational risk for the bank, but just By a technical reason. By your end, we are clearly, as we explained to the market, we are working for moving from the basic approach To the standardized approach, that is an approach that is going to when the process is finalized, it's going to make for us Cable should recover core Tier one ratio in a region between 100 and 150 basis points, And so this clearly, but this is going to happen by the year end. Brokerage, we confirm that we expect for 2020 a growth In above 15% year on year, and this is mainly driven by the We shape of the product hoof. And regarding your point on what's going on in U. S, I would like to remind that the structure of the US market is totally different from Europe, because US It's in a quota driven market and Europe is an order driven market. So what does it mean? In Europe, The book of the order is made by the orders of the clients and this is what is making the is what It's generating the price. And so for this reason, Europe is remains mainly a commission driven market. U. S. It's a quote driven market in which the book is produced directly by the market maker that they are collecting the orders and then they're here. And so the most part of the revenues are generated by the market making activity. And so the recent move that That has been initiated by Interactive Brokers because Interactive Brokers is one of the most active market maker on the U. S. Market. So the decision has been to take advantage by this and lowering the commissions in order to get more on The market making side and taking volumes. And so and this has been generating the immediate answer by the other place. In Europe, it's a different story because as I was explaining, it's an order driven market. And so we and From a purely theoretical point of view, the only one player that theoretically is in the position to make such a kind of a move for increase even more The volumes we have is Fineco, because Fineco is the only one that thanks to the volumes and the quality of the volumes, we are able to internalize the orders. That It's a kind of is a causing of market making activity in which we are taking advantage from the spread. Clearly, We don't need to take such kind of a move, but theoretically, for us, this is more an opportunity than a threat. Because from a technical point of view, Fineco is the only one player that can take such a kind of bold step Because it's the only one player in Europe that is directly internalizing orders. And so we don't expect in the coming future any kind of change, Significant change in the commission structure in Italy. Regarding the number of October, The number of October has been absolutely very, very strong because so net sales, more or less €380,000,000 of euros But this number is particularly robust because we had also this month and higher than expected amount of tax Paid by our clients in the region between €60,000,000 €70,000,000 that is huge. And also, we had some impact that has been produced by the most recent launched Banking limiting that is get on liquidity considering the very high interest rates they are offering In the region of EUR 40,000,000 of euros, clearly, this is absolutely not a matter of concerns because It's touching the clients, the clients that they are historically, we call them the free riders They are continuously chasing for the opportunities that the most convenient opportunity on the market. And so the net sales have been very robust. But The most amazing part of the story has been for sure the asset under management because more than €500,000,000 That is of assets under management is the tangible evidence that what we are putting in place is starting working pretty well. And so the bank is start in the process of absorbing the excess liquidity, so generating higher revenues and assets under management And making the balance sheet lighter. And 3rd, another very important point that Fineco Asset Management is accelerating more than we were expecting, because it's now with €350,000,000 of Net sales means that the largest part of the front book, the net inflows in asset under management Has been captured by them. And this clearly, it's a very great it's a great news also considering that our penetration The penetration of Fineco Asset Management of the overall asset under management of our clients is still pretty low, So just 19%. And so we have very large room for growing. Okay. Thank you. Sorry, may I add another question? Because I'm not sure to have understood correctly about your net interest income. For next year, you would expect it to remain basically flattish. Just to give you any more Precise numbers, assuming that the situation of interest rates And the slope of interest score is pretty much what we are experiencing right now. We are going to stay we can expect In this case, a reduction just in the region of few 1,000,000 of euros. So that is not far away from particularly from being nearly flat. Yes. Okay. Thank you very much. The next question is from Domenico Santoro with HSBC. Please go ahead, sir. Hello. Hi. Good afternoon. Thanks for the presentation. I do have a number of questions. So I might go one By one, if you don't mind. First of all, on your revenue guidance for next year, did I get correctly that you expect Low double digit growth in terms of revenues, also given your guidance on brokerage revenues, please? No, we expect that so Low double digit growth in the investing revenues and a growth in revenues on brokerage That is going to be above 15%. And on the net interest income, As just we discussed with your colleague, we expect that something that is going to be net interest income being between Flat and just modestly negative by few 1,000,000 of euros. All right. That's very clear. On your capital instead, given this is a topic for questions, Is this 17.4 percent a bottom at this point given that you just mentioned that you Expect some 150 basis points from moving to standardize your model. And if I remember correctly, there is going to be another minus 80% instead of from the purchase of the Uniqlo brand. Yes. This is correct. So just in order to give you a little bit Longer term picture because clearly the core Tier one ratio is affected by clearly the risk on one side. The operation The operational risk continues growing because they are calculated as a percentage of the revenues generated by the bank. Then there is some lending. But on the other hand, there is the organic capital generated by the bank. So considering putting everything together, We expect that our core to our ratio looking forward on a little bit longer term Can be expected to be stabilizing in the region of 17%. All right, that's clear as well. Beyond 2020, I got all your comments about what you expect in the future. Also that You might probably want to sacrifice a bit NII in favor of Generating more fees going forward. How shall we consider this? Do you expect just of your P and L or actually sacrificing also Your NII in absolute terms in order to have a lighter balance sheet and also some comments on The dimension on your balance sheet on the bond portfolio would be very useful. On this topic then, I saw the slide Of FAMA and the migration of assets to FAMA, how do you Expect margin also going forward to benefit from this migration given that only 19%, If my understanding is correct, are now generated from some. And then on this topic as well, is there any cost of deposits that you might Switch into asset under management volumes in the short term, just to understand A bit how your P and L might change going forward. Thank you. So let me start from the revenue mix on 2020. So I would suggest to split the point in 2 components. The first one is, it's clear that when we There is what is related to the possible introduction of the smart repricing. In this case, what is going to be generated by the smart repricing It's going to increase the expected revenue overall the expected revenues of the bank because it's not going to it's not expected to cannibalize In a significant way, the net interest income. So this is the first point. The second one is related to the Absorption of liquidity through the asset under management products. In this case, Every €1 of liquidity that is absorbed by asset under management products It is better to generate all in all and increasing revenues, because clearly What we are going to get in terms of additional revenues on asset under management products is going to expected to be to We stated to more than offset regarding the decrease in the net interest income. So The more effective we are, direction of moving clients in direction of asset under management products and what you can expect is Both and balance sheet becoming lighter and second, an increase in terms of revenues, overall revenues Generated. I don't know if I've been clear enough on these two points. Regarding the dimension of the balance sheet, clearly the dimension of the balance sheet It's strictly related to the our capability to move as much as we can in direction of Asset under management products. It's clear that, for example, if we are assuming that we are able, but clearly this is not the guidance, But clearly, if we are able to replicate the month of October continues, clearly this would generate a massive Change in the balance sheet of the bank and also a massive change in the revenues generated by the bank. Clearly, this is not Please, it's not a guidance, but just to give you an idea of how does it work, the relationship Among the different components of our revenues. So again, the repricing It's going to generate nearly 100% additional revenues for the bank because It's not going to generate any kind of cannibalization of net interest income. Asset under management, the more we sell Of asset and demand products on clients and the more and what you can expect a combination of Lightening balance sheet at the same time growing revenues because the additional revenues generated by asset management products Are going to are expected to more than offset the cannibalization generated on net interest income. On Fineco Asset Management, so we on Fineco Asset Management, we expect The margins are expected to remain relatively flat because clearly there is there are Fineco's demand clearly is characterized by being more efficient and producing higher margins. But on the other hand, there is In any case, the continuation of the structural for the industry pressure of margins. And second, clearly, clients are Characterized by a low appetite in terms of risk. And clearly, with clients more interested in more conservative solutions. So putting everything together, we expect the revenues they are generated on the overall asset under management Products growing in the region of low double digit, but with margins remaining practically flat after tax. This clearly can be changed by the product mix. So for example, if We had clients becoming a little bit less conservative. In this case, you can expect a slight increase also of the margins, But clearly, we are not able to predict now the now we are assuming cautiously clients remaining maintaining the same kind of Approach that characterized them until now. All right. That's clear. Thank you. The next question is from Alberto Villa with Intermonte. Please go ahead, sir. A few from my side left. One is on the well, is Totally off the table, the possibility of introducing negative rates. So you're moving on a smarter pricing, I guess, To counter the current situation in interest rates and when will you take the decision to implement or not the Market pricing, what is the, let's say, the scenario in which you will move or not to introduce this measure? And the second question is on, I was quite impressed about the switch of assets and the growth of Fineco Asset Management, it's clearly a success story. I wanted to ask you, how are The ability of the different products you are launching, so the accumulation, the mega trend, the Target and so on. So just to have an idea of and if there are significant different So we are not considering to introduce any kind of negative interest rates Because introduction of negative interest rates, there is it's impossible to make a The smart re pricing has tailored for the clients because, for example, if you want to be effective in introducing a negative interest rate, you have To hit the most valuable clients, that is exactly the opposite that we want to do. So clearly, we have not on the table any plan of introducing a negative interest rate. Regarding the smart repricing, we It's expected probably to be in place probably to be announced to the clients by the year end And becoming fully operative probably during the Q1 of next year. Regarding the growth of Fineco Asset Management and the speed at which is growing The asset under management products, clearly, we are not surprised by the direction because this is perfectly current With the anticipation we gave to the market because we the market we anticipated the implementation of the new platforms Of the new products, and so what is going on is exactly the result of this kind of activity. Clearly, we are We have been taken a little bit by surprise by the dimension of the by the impact in terms of volumes and so we are very pleased. And In terms of the success of Fineco Asset Management is driven by a very simple concept that, for example, the Fineco Asset Management products They are characterized by being more convenient for clients Because they are less expensive, because thanks to the recovery of operational efficiency, we are able to give to our clients better products, But with a lower level of commissions and this is perfect for going through the challenges of the market and second, Fineco Asset Management is extremely efficient in because the main dividend of Fineco Asset Management That is an extremely fast, quick and agile company. So we are able to continuously generate new solutions For our clients, so for example, the fact that we have been so fast introducing these very efficient accumulation products, This has been thanks exactly to the efficiency of the company. The megatrends, the same concept. So There is no specific different incentive for the network on the Finneco Asset Management products. So the incentive scheme is exactly the same on all the products we have on the platform. The reason of the success is driven by the fact that Finneco Asset Management is able to give more efficient products, so that they are less expensive And more performance for the clients. And second, that we are very fast in tapping What are the continuously emerging new demands by clients because the market is a fast changing market And so you had to be very fast and flexible to give to the to your clients, your financial client exactly what they need. In terms of margins for you of the different products, are there differences? So clearly on the margins, The same answer I gave before to Domenico That is clearly the Finneco Asset Management products, thanks to the higher level of efficiency and more profitable. But on the other hand, clearly, we have a couple of headwinds represented by the fact that clients are more Skewed in direction of conservative solutions. And second, that clearly there is a structural pressure on margin. So putting everything together cautiously, we expect the margins remaining almost flat going forward. Also because we are not taking as approach, we are not using as a shortcut, the shortcut to move the clients In direction of taking more risk. So if the clients are fully convinced And they are interested in taking more risk, it's a story. Another story is to move clients in a not transparent way in direction of risky products. And this is not really what we are doing. Okay, thanks. And I was wondering if between megatrends and target, for example, there is a huge Clearly, there is a quite significant difference to a megatrend, but very reasonable because In Megatrend, the clients are investing immediately 100% from the market. On the fund target, The clients are investing progressively over the time on the market. So by definition, Megatrends is more profitable That's fantastic. Thank you. The next question is from Luigi De Berlis with Equitasim. Please go ahead. Yes, good morning. Two quick questions for me. The first one on the repricing strategy. Do you expect or not the potential impact of this strategy or the perimeter in terms of customers. A second question on the patent box. Could you quantify the impact expected on capital ratio? Or in another way, If the positive impact is included in the 17% CHAT1 indication. Thank you. Regarding the repricing, clearly it's by definition we expect some churn rate, Because as we said, it is not a brand new story for Finneco because Finneco, probably someone that is more familiar with Pwara history, They know that for a very long period of time, we had the pricing on our banking services. And so we expect And a churn rate in the region of few tens of thousands of clients are concentrated in the low end clients, though they are totally Irrelevant in terms of profit generation for the bank. So it's a move probably that As we had the opportunity to discuss with some investors in the past month, it's a move to take in any case also without considering The situation in interest rate because it's a moving direction of improving furthermore the quality of our base of clients Because and so the churn rate is expecting just a few tens of thousands of clients, but Represented by mainly represented by absolutely and margin of clients in terms of what is their contribution To the profitability of the bank. So Regarding the Patent Box, the quarterly action. In 2019, we expect to be around slightly above 17%, considering also the benefits from the Patent Box. Okay. Thank you. And if I may, on the repricing, could you quantify the potential impact On the strategy? Finishing on the core Tier one ratio. Clearly, this is not considering the possible positive impact produced by the model, we can expect an additional improvement of the core Tier one ratio between 100 basis points and 150 basis points. This is up of the 17% That clearly is considering also the patent box. On the pricing, Excuse me, that we Yes, if you could quantify the potential impact expected from the repricing strategy or Very little in terms of customer. Very little in terms of customer. Very little in terms of 1,000,000 of euros. Thank you. Mr. Foti, there are no more questions registered at this time. Thank you very much for Joining our call and as usual, if you want then headings any Follow-up and deep dive in numbers and figures, please. The team is available. Thank you again.