Good afternoon. This is the Chorus Call Conference operator. Welcome, and thank you for joining the FinecoBank second quarter 2022 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 and General Manager of FinecoBank. Please go ahead, sir.
Good afternoon, everyone, and thank you for joining our second quarter results conference call. Before going into the details of our presentation, let me please remind you that in recent months there has been a huge change in the structure of the market, which is further enlarging our growth opportunities as a platform. As you know, our new dimension of growth is underpinned by the recent acceleration of the structural trends that are reshaping the society. This has been further strengthened by the increase in the interest rate scenario since the beginning of the year. The main outcome is that Fineco is becoming more and more a fast-growing and capital light business model with a structurally higher profitability and a structurally higher room to deploy it. As the leverage ratio is no more a point of attention.
This will allow us to distribute in a higher level of dividend, at the same time to be in the position to invest more into our growth. Let's now move on, slide five.
Ladies and gentlemen, please hold the line. The conference will resume shortly. Mr. Foti, please go ahead. Your line is open.
Thank you. Adjusted revenues at EUR 464 million, increasing by 15% year-on-year and mainly supported by the investing thanks to the volume effect and the higher control of the value chain by Fineco Asset Management. By the net financial income, which is sustained by our client very sticky and valuable transactional liquidity. Operating costs were well under control at EUR 136 million, increasing by 3% year-on-year and continuing operating leverage as a key strength of the bank. Adjusted cost-to-income ratio was equal to 29%. On cost, let me please remind you that the strategic decision to manage 100% internally our IT is protecting us from the inflation on IT cost. Our capital position confirmed to be strong and safe with a Common Equity Tier 1 ratio at 19.14%.
Our commercial activity continues to be extremely solid also in July, with net sales at around EUR 1 billion and a strong mix with around EUR 330 million in assets under management and around EUR 310 million in assets under custody. Estimated brokerage revenues in July at around EUR 13 million, around 25% higher compared to the average July revenues in the period 2016-2019. This result was achieved despite market volumes extremely low in the month and close to the historical lows. Thus confirming once again that the floor of the business is now definitely higher. As announced, we reached very strong results also in the first half of the year with adjusted net profit at EUR 222.5 million + 20.5% year-on-year on a like for like basis, despite the very challenging macro scenario.
The quarterly decrease is entirely explained by the contribution of profits from treasury management at the beginning of the year. Revenues at EUR 464.3 million, up by 15.1% year-over-year. We have been able to catch the strong acceleration of the structural trends in place, mainly thanks to the contribution of investing and to the robustness of our net financial income. Operating costs at EUR 136 million, well under control and increasing by 3% year-over-year, excluding costs strictly related to the growth of the business. Let's now move on slide seven and start to analyze more in detail the dynamics of our results.
Net financial income in the first half of the year at EUR 176.4 million, increasing by more than 19% year-on-year, with net interest income at EUR 127 million and profit from treasury management at EUR 49.4 million. Let me highlight that the net interest income is increasing again starting from this quarter, thanks to the strong gearing to interest rates we have, driven by our clients' valuable and sticky transactional liquidity. We are continuing to accelerate the growth of our non-financial income, which in the first half reached EUR 287.4 million, up by 12.7% year-on-year, mainly thanks to the positive contribution of investing and banking. Now jumping on slide 22, we will deep dive on the performance of the brokerage business.
Overall, brokerage registered an excellent first half at EUR 107.1 million, despite the negative market context in terms of volumes, confirming a structurally higher floor compared to the pre-pandemic levels, regardless of the level of volatility and volumes. As you can see in the chart on the top of the slide, in the second quarter of the year, brokerage revenues reached EUR 47.3 million, resulting in a monthly average 40% higher compared to the monthly average revenues in the period 2017-2019. Let me remind you that the growth of the brokerage business is driven by the contribution of three structural components. First, the deep reshape of our brokerage business, on which we will deep dive later in the presentation.
Second, the widening of our client base using the platform, as shown in the graph on the bottom of the slide, where you can see that investors have grown significantly in absolute terms, standing around 35% above the average level of 2018/2019. This trend has been confirmed also in the most recent quarters, despite the low volumes on the markets. Hence, our target market is focused on wealthy and financially aware clients able to trade in every market conditions. Third, we are continuously increasing our retail market share. Let's now move on slide nine for a focus on investing. Fineco is positioned in the sweet spot to capture the structural trends in place in Italy, and also thanks to our initiatives, we have experienced a strong acceleration towards asset under management.
On top of this, Fineco Asset Management is now reaching a new dimension in the economies of scale, thus making taking more control of the value chain. As a result, investment revenues were equal to EUR 141.1 million in the first half of 2022, increasing by 22% year-on-year, with management fees increasing by 22.6% year-on-year. Let me highlight that, the strong contribution by Fineco Asset Management has been able to sustain our margins and revenues in a quarter characterized by strong negative market performance, with average AUM decreasing from EUR 53.6 billion in the first quarter to EUR 52.2 billion in the second quarter.
Investment revenues in the second quarter increased by 3.1% quarter-on-quarter, with just a modest quarterly decline on management fees by 1.5% due to the negative market performance. Management fee margins after tax slight quarter-on-quarter at around 52 basis points. Let's now move on slide 10 for a focus on our cost. This slide confirms once again efficiency to be part of our DNA. Core in our bank, representing a clear and unique competitive advantage. This quarter was characterized by cost directly related to the strong acceleration of our growth dynamics in the new normal we are.
Operating cost in the first half of the year at EUR 136 million, growing by 3% year-on-year, excluding costs related to the growth of the business, mainly additional EUR 4.2 million costs for Fineco Asset Management that are correlated with acceleration to further expand its business and have a higher control of the value chain. Additional EUR 1.5 million in marketing costs. Staff expenses at EUR 57.5 million in the period, increasing by 4.8% on a yearly basis, net of costs related to the expansion of the business of Fineco Asset Management. Finally, non-HR costs at EUR 78.5 million, growing by 1.8% year-on-year, net of the above-mentioned costs related to the growth of the business. Let's now move on slide 12 for a focus on our capital ratios.
Fineco confirms once again a rock-solid capital position on the back of a safe balance sheet. Common Equity Tier 1 ratio at 19.14%. Leverage ratio at 3.82%. Risk-weighted assets at EUR 4,851 million. Total capital ratio at 29.45% as of June 2022. Let's now move on to slide 19. As anticipated at the beginning of the call, we are in the sweet spot to benefit from the new market structure. Let me add that despite the current volatile environment, the growth of revenues expected for 2022 is stable compared to the last quarter presentation, with a different mix, thanks to the quality of our well-diversified business model.
With regard to our banking revenues, we expect our Net Financial Income in 2022 to be around EUR 330 million with the current forward rate curve. In 2023, we expect the growth of the Net Financial Income in a range between +30%-+35% compared to the upward revised 2022 expectations and already cautiously considering early repayments of the TLTRO at the end of 2022. Going forward, we expect our Net Interest Income to keep on benefiting from the new interest rate environment, both thanks to the sensitivity and to the volume increase. Overall banking fees are expected above EUR 50 million in 2022.
In 2023, they are expected to keep on growing thanks to the increase of client base and to the previous repricing actions. On investing, taking into consideration the negative market effect up to June, we expect for 2022 revenues to increase by around 10% with higher management fee margins year-on-year. Overall, bank's assets under management net sales are expected at around EUR 4 billion. For Fineco Asset Management, we expect the retail net sales in a range between EUR 3 billion and EUR 3.5 billion and an increase of the funds underlying component that will offset the decrease of our retail net sales versus the previous guidance. We also expect it to increase by around 110-130 personal financial advisors in our network.
Going forward, we confirm the guidance of around EUR 6 billion net sales per year in the overall bank's asset under management. For our Irish company, we expect the retail net sales around EUR 5 billion per year. Also here, we expect an increase of the funds underlying component that will offset the decrease of our retail net sales versus the previous guidance. Finally, we confirm the increase of the bank's management fees margins after tax up to around 55 basis points and pre-tax margins up to around 75 basis points by 2024. Let me please underline that thanks to our increasing expectations in the funds underlying net sales component in our Irish company, we expect to reach our management fees margins target before 2024.
Brokerage revenues are expected to remain strong with a floor in relative terms, with respect to volatility that is definitely higher than in the pre-COVID period. Let me remind that the trend has been further confirmed in the first half of 2022, despite the worsening market conditions in terms of volumes. Operating costs in 2022 are expected to grow around 5% year- on- year, not including around EUR 7 million in additional costs related to Fineco Asset Management strategic discontinuity to improve the efficiency of the investing value chain. On cost, let me please underline that strategic decision to manage 100% internally our IT is protecting us from the inflation on IT cost.
Thanks to this, we will consider in the coming months the possibility to further accelerate the marketing expenses to take advantage of the strengthening of the structural trends. Let me please add that we expect Fineco Asset Management cost to stabilize going forward. Cost income, 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. This excluding potential higher marketing expenses. Systemic charges for 2022 are expected in a range between EUR 45 million-EUR 47 million, booked within the provisions for risk and charges based on the increase of protected deposits within the banking system. Tax rate for 2022, we expect a decrease around half percentage point, considering the most recent interest rate scenario, and therefore according to the revenues mix.
On our capital ratio, we expect the Core Tier 1 ratio to remain comfortably above the floor of 17%, and the leverage ratio comfortably as well in a range between 3.5% and 4%, currently with a combination of both a strong acceleration in the growth on the bank and the distribution of generous dividends. As you can see on slide 51, in the annex of our presentation, the point of attention related to the leverage ratio has been definitely fixed. On dividend per share, going forward we expect it constantly increasing, also thanks to the progressive deliver on our strategic discontinuities. Customer risk was equal to 2 basis points, thanks to the quality of our lending portfolio that is offered exclusively to our loyal customer base. In 2022, we expect to stay comfortably below 10 basis points.
Finally, we expect a robust and high quality net sales with a mix mainly skewed towards asset under management and with a lower component of deposits, thanks to all the new initiatives we are undertaking. Let's now move to slide 21. As anticipated during the presentation, Fineco Asset Management is progressively delivering in its strategic discontinuity to take more control on the investing value chain, resulting in a higher revenues and margins for the group. The contribution of Fineco Asset Management to the group asset under management net sales is further improving regardless the macro scenario, moving from 57% in the first half of 2021 to 81% in the same period of 2022.
In the first six months of the year, our Irish company recorded EUR 1.14 billion of net sales in retail classes in a market environment much more complex compared to the same period of 2021. Fineco Asset Management continued to deliver in the internalization of the value chain with a strong increase in net sales of funds underlying the wrappers. As a reminder, this process is linked to the substitution of Fineco Asset Management funds within the building blocks used for funds of funds or insurance wrappers, this leading to an additional margin contribution for the bank. To conclude, let me highlight that thanks to the full control of the value chain, our Irish company can offer at the same time both an efficient pricing for clients and retaining higher margins.
I'll now leave the floor to Paolo Di Grazia, our Deputy General Manager, for an update on the new initiatives that the bank is undertaking on slide 23. Please, Paolo.
Thank you, Alessandro, and good afternoon, everybody. In this slide, let me introduce the wide range of improvements we are undertaking throughout the whole one-stop solution to further simplify our already best-in-class user experience, thanks to new easy-to-use tools and more efficient marketing engine. This renewed platform will be the cornerstone of our international offer. On brokerage, we are introducing several initiatives to speed up the activation rates and to improve the client segmentation and cross-selling. In 2023, we will introduce a modular approach to further catch our next generation of active investors with the launch of a new brokerage-only account, with the possibility to upgrade to our full-fledged platform anytime.
This will be characterized by dedicated pricing, a faster onboarding process, and a redesigned front end for an easier journey towards trading ideas, and will allow us to better segment our client base and target clients only interested in brokerage. The new offer will be particularly appreciated by young clients and will also favor small ticket trades. On top of this, we will introduce the new trading page to let our clients access in an easier way to trading opportunities. Finally, the new brokerage platform will soon be in the family and friends phase, and its launch is expected by the third quarter. On the investing area, we have simplified our own page to better market investment solution, fitting to the best for each cluster of clients.
On the operational side, we have further improved the user experience of our process to allow clients interact digitally with our financial advisor. On top of this, we are preparing a new advisory platform, allowing for an even more tailored service for our clients in terms of pricing, reporting, and risk management. On banking, we have recently improved our onboarding service through an easier and a faster process, which was inspired by our experience in the U.K., in the very first weeks since the launch, has resulted in an increase of 30% of current accounts opened throughout our mobile application. On top of these activities, we are going through a strong improvement of our marketing engine in order to further exploit our big data analytics.
The results of the first tests are very satisfying as we are recording a far lower acquisition cost and better conversion rate. Let's now jump to the slide 25 for a focus on the international business. In this slide, we're presenting the strategy for the development of our business abroad, where we will leverage on simplified and digital-only offer. We're now getting ready to the development of our brand-new platform for investments that we have developed internally, which will be highly scalable and multi-language. This will allow us for a smoother and more straightforward startup process for entering new countries, as it will only imply business and marketing effort to identify the right set of products and services.
Moving on to the update on our U.K. business, let me first highlight we are in talks with the local authorities on the post-Brexit set up, and we are evaluating the pros and cons. For this reason, we have reduced our marketing activity over the last few months. Despite this, our business is gaining traction thanks to the word of mouth, and we are improving our revenues generation. As we have already anticipated, the new country we are planning to approach is Germany in 2023. Leveraging on our new platform for investment, our plans are to develop the offering two steps. First, brokerage and multicurrency, and second, investing with no network of financial advising.
The offer will tailor German customer behaviors, leveraging on CFDs, certificates, and ETFs, while the brand positioning will look to acquire sticky, high value, and financially aware clients looking for fairly priced quality service as in our DNA. Finally, in the next few years, we plan to approach different countries across Europe, depending on the opportunity that may arise. Thank you for your attention. I will hand it back to Alessandro, please.
Thank you, Paolo. Before moving to the Q&A session, let me please add that today the board of directors approved the 2050 net-zero emissions plan regarding both operational and financed emissions, defining intermediate targets by 2030. Thank you for your time, and we can now open the call to questions.
This is the CallScope 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 Enrico Bolzoni of JP Morgan. Please go ahead.
Good morning, and thanks for the presentation. Just a few questions from my end. Actually starting from one of the last thing you mentioned, which is this innovation and simplification project. Within brokerage, it seems that you want to step in a bit more into the, as you say, lower ticket, younger generation, younger demographic. Can you give us an idea in terms of what do you think is the addressable market in Italy? And if you can also give us any color in terms of what pricing are you thinking of. And again, related to that, you soon will be going to Germany. Is there an opportunity there to actually export this new platform for younger demographics? For example, I'm thinking of flatexDEGIRO, which might end up being a bit more of a direct competitor there.
That's the first question. My second question was related to the fee margins. The management fee margins were actually flat over the quarter despite the AUM came down, and I presume especially equities came down quite a lot. That clearly was impacted positively by the transformation of FAM. Can you give us an idea and quantify how much margins could have been if, let's say, equity markets would have remained flat over the last quarter? That would be helpful. Then finally, yeah, final question. NII is going up. Are you still of the idea of not paying deposit holders at the current stage? What should we expect over the next couple of years if rates continue to go up? Thank you.
No, thank you. Let me start by the innovation project. Clearly, the main rationale behind our decision is, I want to be extremely frank and transparent. In going forward, the most part of money is going to keep on being done on in the clients in range of age between 40 and 65 years old right now. This is not expected to change anytime soon. At the same time, is important that you start on building the base of your client of the future.
The driver behind this move is much more in direction of keeping on building up the what are going to represent our future clients, and is not driven. The main goal, clearly, we expect also a contribution in terms of revenues, but this is not exactly the main goal. The pricing is going to be, as Paolo was explaining, more efficient in segmenting in favor of small tickets, because at the moment, Fineco is extremely convenient for the decent ticket, but is less aggressive on the small tickets. This offer is going to be even extremely efficient on the small tickets.
Again, the rationale is not to take on board unaware and clients because we are going to remain stuck to the concept that every client we're going to take on board is to be a client aware of what they are doing. Clearly, this is going to represent the backbone of what we are planning to do in Germany, for example. I don't know, Paolo, if you want to add to give some more color on this point.
Yeah. Basically, three things. The first, it's an investment for the future. As Alessandro was saying, we're just investing on people that will be in the future our, you know, private clients, and people that will use the full platform. Second, is going to be very helpful for the international expansion. The third is that always when we think we design something for younger generation, we are forced to simplify everything to think even in a simpler way. This is something that we will use also for the rest of the offer. This is the basics. Of course, we are going to offer to this segment.
Actually, we already have a lot of things for younger generation in our offering, but probably we have to to do a better marketing to propose like things like the, you know, the ETF plan, all the ETF wrappers. We just sign a zero commission agreement with different houses. These kind of things we will market to this kind of younger generation.
On the point on the management fee margins, I agree with you that the resilience of our management fee margins has been quite impressive. Clearly, the main reason is that we are progressing in our journey of keeping a much more direct control of the value chain. This also is the rationale behind the extremely resilience of the guidance because we are confirming the achievement of the goal we gave to the market last year. We also remain on track for achieving that goals before the schedule. Behind this, there is the assumption that we return to neutral market conditions.
We are not embedding any positive or negative market effects. Assuming an absolutely neutral market, we can reiterate the initial guidance. To give you exactly which kind of margins we could achieve in the case of not negative market effect, probably I have to ask my colleagues of the Investor Relations team to make a follow-up, because I have nothing. I'm not able to give you any such a detailed precise number right now. Oh, okay.
On the net interest income going up, yes, we know we are not planning to pay anything to clients, but for a very simple reason, because as we are repeating, the largest part of the liquidity we are gathering is represented by transactional liquidity. The liquidity we are collecting is, for the most part, transaction liquidity. Then there is the remaining component that is liquidity that is just waiting to be put at work in the markets. As much as we return to more stable market conditions, the process is going to keep on accelerating, and this is going to move us in a direction of a business mix more skewed in the direction of Assets Under Management.
Again, the remaining part of the liquidity being transactional liquidity, we are not going to pay anything to clients. Just as a reminder, Fineco stopped paying interest rates on deposits in 2012, so many years ago. This has been a strategic decision because we are not interested in taking on board the wrong liquidity for the wrong reasons. This is the...
Thanks.
The next question is from Domenico Santoro of HSBC. Please go ahead.
Hello. Hi. Good afternoon. Thanks for the presentation. Some questions from me. First of all, on the net financial income for the second part of the end 2023, can you please confirm whether this number includes any profit from treasury management or is it confirmed what you said in the last call, that from now on, we should expect basically zero under this line? The second question is on the potential upside, if TLTRO conditions remain the way they are and whether you can grab additional NII going forward, and so if you could quantify. Then I noticed that you have increased the bond exposure in the quarter and also a little bit of the maturity duration came down. I mean, you're better positioned to grab the rates impact.
I was wondering whether from now on, given this PNL line is gonna be bigger and bigger, you can change again a little bit, you know, remix, increase the exposure and benefit even more from the rate increase. The second question is on investing revenues. I appreciate you gave this 10%. It is a bit. I mean, it's a bit probably conservative. I made a number, so I wonder whether you have included in the second part of the year, still difficult market. The question is whether could leave some upside going forward. Instead of brokerage, probably is the one that keeps a little bit disappointing. And also the July number, I know that it wasn't a great month when it comes to volatility.
Even when I redo the math and based on the number of executed orders, it looks like the average fee is coming down still quarter-over-quarter. I just wonder whether that's the effect of the mix, you know, less equity, or there is a little bit of competition in Italy, given new entrants. I see the EUR 6 million trading profit in the banking division on top of the profits from treasury management. I just wonder which source of revenue is that. Thank you.
Yes. Thank you. Let me start by the financial income. Yes, we confirm that there is going to be made exclusively by Net Interest Income, and we don't expect any material trading profits going forward. We prefer to give the guidance on Net Financial Income, excluding the TLTRO, because it's clear the TLTRO has been introduced with the rationale behind. I'm asking my colleagues if they can stop keeping on rolling the questions, because otherwise I'm getting a little bit lost. We prefer to give the guidance without including the TLTRO, because the...
This has been introduced in order to offset the negative impacts produced by negative rates. Now negative rates are disappearing, and so we think that there is a very high probability that the Tier 2 is not going to be offered at the same very favorable conditions. In any case, the case is going to stay. I don't know, Lorena, you have that number available immediately?
Good afternoon to everybody. Thank you, Alessandro. For 2023, in the case of, we have the Tier 1 in place, we can have EUR 15 million of additional margins at the-
Yes.
considering the current environment. We don't know exactly what will be the condition for tier zero. This is why we have excluded in our calculation.
Yeah. Regarding the third question, I'm not sure that I got correctly your questions because you are referring to increased the bond exposure in the second quarter. The increase of the bond exposure is related to the increase of the liquidity we are gathering. Going forward, we don't expect any significant discontinuity in respect what has been done until now. We expect it to remain to maintain an average maturity in a little bit above five years, and we don't expect to make any significant change.
The most part of the investments are going to be driven in the direction of the so-called Eurobonds, and so on. This more or less is what you can expect. This is exactly embedded in the guidance we are giving to the market, particularly when we are referring to the increase between 30%-35% of the financial income going through 2023. On question four, the investing guidance for 2022 is yes, probably you're right, because we are not. For example, we are not considering, we didn't consider the market effect, the positive market effect of the month of July.
That has been the best month of the year. As usual, we think you have to be extremely careful in considering the market effect because the market is volatile. Yes, there is. If these numbers are confirmed, again, it's probably a little bit conservative. I don't agree with the disappointment on July brokerage because clearly July has been characterized by market conditions in terms of particularly volumes. That has been really bad, but not just for online brokers, but for the overall market. The volumes are very close to the historical lows.
Nevertheless, the numbers has been strongly higher than the pre-pandemic events. We think that usually when we are trying to evaluate the floor of the business, we are looking to the poor months. July has been an extremely unfavorable month for brokerage. Nevertheless, we have been able to deliver absolutely resilient results. For this reason, this is the reason why we are not considering July brokerage as a disappointing one. See, we don't have any. Absolutely, we don't have any pressure on margins. Probably, I don't know if there is the average fees coming down. There is some, probably some technical reasons in terms of mix of products and some.
Probably, if you don't mind, we can return to you later on, being a little bit more precise, unless Paolo has something ready to explain this part of your question. I don't know Paolo, but-
It's also depending on the part of the flow we internalize. It depends on each month being different because the mix of you know trade execution in the exchange, the trade execution internally could be one of the reasons.
In any case, it are just purely technical reasons, and there is absolutely no pressure on margins, brought by the competition.
Sorry. In the six months, much trading in the banking crisis. Yeah. Thanks.
Yes, but if Lorena, if you want to-
Yes. Yes, I can answer to this question. Yes. The trading profit in the banking division is related to the hedging activities on mortgages and on our bond portfolio. As you know, in accordance with accounting standard IFRS 9, derivatives are evaluated taking into consideration a risk-free rate, that is ESTR. Coherently with the fact that thanks to the collateralization, there is no counterparty risk. While the hedged assets, mortgages, and bond portfolio are evaluated using the Euribor. The spread between these two rates widened in the last period, generating this increase. Going forward, we don't expect significant impact. Also, taking into consideration the expected increase of hedged assets that we will manage going forward.
Okay. Thank you very much. Sorry to be a pain. Thanks.
The next question is from Giovanni Razzoli of Deutsche Bank. Please go ahead.
Good afternoon to everybody. Just one question on my side. Can you provide us with an update on the performance of the U.K. platform in terms of operating profit in the first half? I was a little bit confused with your comments during the call because at the very beginning your detailed analysis seems to me to indicate that it remains a strategic option for the group, while then at the end of your speech you mentioned that you are discussing with your regulator about the post-Brexit outcome of that. Shall we take this as a possible, you know, strategic revision of the presence in the country? Thank you.
No. Yes, we prefer to be extremely transparent with the market. It is a matter of fact that at the moment the relationship between U.K. and Europe are not exactly at the best possible level. We are still in talks with the local regulators for understanding exactly what is going to be the final setup for running the business in U.K. We will remain positive on the outcomes, but clearly we cannot exclude 100% that to have an outcome that is going to make the activity there not efficient. Honestly speaking, I would be surprised. Considering that there is a discussion underway, we think.
This is the reason why we prefer to slow down the market activity in U.K., waiting to have by the local authorities the final setup for keeping on working there. On the performance, we confirm that U.K. is remaining profitable from an operational margin point of view. Means that just excluding the marketing cost, the business is generating more revenues than cost. This is a quite remarkable achievement, considering the still small dimension of the business. This is what is making us extremely relaxed on the possibility to keep on expanding in other regions.
Okay. Thank you. Very clear.
The next question is from Andrea Vercellone of Exane BNP Paribas. Please go ahead.
My questions have already been asked. I just ask again one of the questions. You mentioned that you haven't paid interest rates on current accounts since 2012. Obviously rates have been at zero since 2016 or 2015 or thereabout. They are gonna go to positive however. If I look back in 2012, 2013, you did have some interest expenses on your current accounts. Can you confirm that if interest rates were to go to 1%, 75 basis points, or even higher, as according to the forward, as expected in the forward rate curve, you're still gonna pay zero? I understand your liquidity is mostly transactional, but you still need it.
If the money goes away, maybe an incentive to keep it might be required.
No, thank you. It is a very good point. Let me go back to 2012. You're right, because if you go through our slides that you have, in 2012, we introduced the concept that we are not paying any more interest rates to the clients. At the same time, we had in place the so-called term deposits. We removed. The term deposits were attracting mostly not transactional liquidity, but liquidity that was looking for remuneration. Progressively we eliminated also. At the moment, we are not providing directly term deposits.
On the contrary, we put in place a platform in which we are offering to clients term deposits offered by third parties. This is going to remain the plan. We want to keep very clearly separated the transactional liquidity on which. Clearly, we are going to keep on paying zero because I would like to remind that transactional liquidity is the liquidity that is with you just because clients are using your transactional banking, your brokerage, and this liquidity is not moving for chasing interest rates. Then there is another kind of liquidity that is looking for a remuneration.
This liquidity is going to be captured by the third party's platforms or better is going to be invested in the market. We confirm that we can. Our point of attention is not to retain liquidity because the tailwind we have in terms of growth of clients. When we are continuously explaining that the real strength of the bank is that Fineco is much more a platform than a bank. The reason is that the clients are joining the bank because they are attracted by the fact that everything is working incredibly well, is smooth, is simple, and this is making the liquidity being extremely sticky and staying with us.
Yes, in case we have, for example, interest rates going up much higher than the market is expecting, we don't see any significant impact on our liquidity. What you can expect probably is a cannibalization process on the investing business. Historically wise, we know that when you have the three-month Euribor approaching the level of 2%, this starts becoming a little bit more challenging for the investing business. But on the liquidity side, absolutely no. We are going to keep on paying zero. This is probably still relatively not completely fully appreciated part of our platform.
It was at the beginning when we start our journey, and then has been progressively lost, considering the negative rates and so on. Yes, we confirm that we are going to keep on paying zero to clients.
Okay, this is very clear now. I'll ask a follow-up on this. I found interesting what you added to the question, that it won't cannibalize the banking business profitability, but it may have an impact, depending on client preferences, of course, on the investing income. On this point, your guidance on medium long-term flows has been around EUR 6 billion since last year. You haven't changed that, but Euribor has gone up. What makes you confident that that is still realistic so you don't risk-
Yeah.
This cannibalization impact?
No. As I explained, based on historical experience, the trigger level that is starting to produce an impact on investing business is mostly driven by the short-term rates. Because this is what is changing the appetite of clients. The level of rates that historically starting to represent a challenge for the appetite of clients on investing business is when you have the three-month Euribor approaching the level of 2%. Clearly this is above what is expected by the forward rate curve. I want to be extremely frank and transparent with you. If tomorrow
If you tell me that tomorrow morning we are going to have a three-month Euribor at a 2% level, we are going to be very happy because we are going to make a fortune on the financial income side and just with a small reduction in the expectation on the investing business. Overall is going to be a great scenario for us. The reason why we are remaining extremely, we are reiterating the guidance on the EUR 6 billion of net sales because the numbers on the Assets Under Management business in this first six months, the numbers has been in relative terms, incredibly strong. Because we went through the worst beginning of the year in the last probably 20 years.
Nevertheless, the flows are there. We are keeping on going. What we are observing that our commercial traction of clients has been definitely improved. As soon as we have, let me say, just natural market conditions, we are going to be back to the normal. We are quite relatively easing. This is the reason why we are remaining extremely confident on that numbers.
Very clear. Thank you.
The next question is from Luigi De Bellis of Equita. Please go ahead.
Yes, good afternoon. Two quick question for me. The first one is on the banking fees. Looking at the guidance for 2023, I'm just wondering if the increase expected in 2023 is only volume driven. I mean, in a scenario of sustained inflation also in 2023, I'm wondering if you can also think about a potential repricing of banking fees. You have still a huge gap in terms of price quality ratio compared to the main online and branch peer, even wider than in the past. The second question on the customer behavior, are you seeing a change in attitude from your customer due to the higher interest rate? When do you expect, if any, a change in attitude? What is the level of short-term interest rate that drive a change in the mix of products from your customer? Thank you.
On the banking fees, you are right. We have, in terms of relative gap to the traditional banking world, plenty of room for increasing what we are charging to our clients, but we are not planning to do that because we don't need to do that. The guidance is just only volume driven. Regarding the customer behaviors, as I was explaining, answering Andrea's question, we, based on our historical experience, usually expect a potential impact on the clients' behaviors and their appetite in subscribing investment products when you have the short-term rates. Let me say the three-month Euribor approaching the 2% level.
Because the clients are mostly driven by short-term rates, so they are not driven by the level of, for example, the 10-year and so on. The normal clients are driven by that. Yes, if we have, for example, three-month Euribor approaching the 2% level, it's reasonably expected the beginning of a kind of a cannibalization effect on the investing business. As I was explaining, the big advantage that Fineco has that being a platform, we can. It's much more what we can get, but that kind of scenario with respect to what we can lose in terms of declining revenues on the. Not declining revenues, slowing growth on the investing business.
Thank you.
The next question is from Angeliki Bayraktari of Autonomous Research. Please go ahead.
Good afternoon. Thanks for taking my questions. First of all, with regards to the cost outlook, that you have, reiterated for 2022, I was wondering how should we think about cost growth in 2023, considering, your international expansion plans in Italy, but also potentially in other European countries, as you have mentioned in today's presentation? With regards to the ETF introduction in the third quarter, can you give us some color, sort of which customers, will be targeted to be offered ETFs and what will be the pricing on those products relative to the, active funds that you have on the platform? With regards to the brokerage-only current account, can you explain to us what is the rationale for offering these current accounts separately from the banking current accounts that you have?
Am I right to expect that the remuneration on the brokerage-only current account is also going to be zero going forward? Lastly, on the third-party savings platform, you mentioned that for customers looking to get some yield from their deposits, you will direct them to off-balance sheet solutions via that platform. What are the volumes that you have collected in third party time deposits at the moment? Are those volumes included in your assets under custody? Thank you very much.
Yes. Thank you. On the cost outlook, really, it is related, as we explained to the organic growth, of course, for the operational running costs of everything. On top, we are not. If we are not considering additional expenses to put on, for example, international expansions, plans and so on. In case, considering that in 2023, also if we are particularly fast in expanding, for example, in Germany, you have not expect anything that is going to be really significant in terms of cost. In any case, when we are giving the outlook of cost is related to the ordinary activity of the bank, because what we think is the.
What we think that is important is to give to the market the flavor of the efficiency of the bank, and the operational gearing we have. Everything that is on top of that is another story. For example, if at a certain point we observe that we have in front of us particularly favorable market conditions and that can be a good idea to invest more in marketing. We are going to take the opportunity, but this is not going to change anything. It's going to be kept separated by the evaluation of the operational efficiency of the bank, because I think that for the investors, what is important for them is the operational gearing of the bank.
That is, this is the real point of strength. The FAM ETF. You probably are referring to that. Which is the rationale of this and the customer target. First of all, the main rationale is to be able to provide to our clients and to our financial planners solutions characterized to be extremely transparent, because there isn't anything more transparent than passive solutions. At the same time, characterized by a quite relevant level of convenience for clients, because as a matter of fact, these products are characterized by a much lower Total Expense Ratio for clients.
The fact that we are internalizing completely the production of these solutions, the result that in terms of margins, these products are extremely profitable for us. For example, our advisory solutions based on the usage of these passive solutions manufactured by Fineco Asset Management, at the end of the process, we expect a profitability that is going to be close to 60 basis points after tax. That is slightly above the target profitability we are giving to the market for 2024. This simply because everything is directly manufactured by us, and we have not to split anything with third parties.
The customer target, in this case, as we explained, the highest appetite for these solutions is different from what is sought by the market, is more in the direction of the rich clients. The rich clients are emerging as extremely interested in efficient, transparent, and low cost solutions. The nice part of the story, that thanks to the perfect control of the operational side of the story, we can combine together convenience for clients and profitability for the bank. On the brokerage-only current account, which is the rationale. Paolo, do you want to give us some more color on the rationale behind this?
Yeah. Yeah, sure. Basically, as I was saying before, three main reasons. The first is simplification. With a different brokerage-only account, we are much faster on onboarding new clients. We are required to ask much less data from our clients, from the new clients. It's much faster onboarding, and we are going to be much more also. The interfaces of the website and the application are going to be much easier because less, much more simplified. The second reason is that we are going to better segment in terms of pricing all the products we're offering. The third is this kind of brokerage-only account will be also the base for our international expansion.
Basically, these are the main reasons.
Paolo, if I can add also, because another very important point that Fineco is characterized by offering to clients a real powerful one-stop solution. Sometimes with some clients, particularly young clients and so on, the reaction of these clients in front of the Fineco platform is great, is incredibly rich platform, but it's too much. I don't need to have all these stuff together. What I need is something that is a little bit simpler. We are just providing something that with less items, components in order to fulfill the expectation of these kind of clients.
Yes, the remuneration is going to be zero because the liquidity attached to this kind of current account or this brokerage-only account by definition is transactional liquidity.
The next question is from Elena Perini of Intesa Sanpaolo. Please go ahead.
Yes, good afternoon.
No, excuse me, Elena, because there was another question because we had a delay in scrolling the question. There was a third party deposit platform. What volumes we have collected at the moment. These volumes are accounted in Assets Under Custody, and the volumes at the moment are relatively small because again the level of rates is still too low for really attracting the interest of clients. This is confirming that in order to have more interest by clients, this direction, we need to have definitely higher rates. Sorry, Elena, I interrupt you, but.
The next question is from Elena Perini. Please go ahead, madam.
Thank you. Thank you. I've got two questions. The first one is on the net financial income on your guidance for 2023 of +35%. If I understood correctly, you are taking the EUR 330 million as a reference point, the guidance for 2022 for a starting point. Basically you would have more than EUR 400 million net financial income next year made by net interest income. I was wondering what is the effect that you expect in terms of growth from volume contribution and from margins.
The other question is about the brokerage business because, well, in the first half, you had an average of 16-17 million per month in terms of revenues. Now in July, you had 13 million. I was wondering what we can consider as a new monthly run rate going forward, perhaps 15 million or something like this. Thank you very much.
Yes. On the Net Financial Income, you're right. We are keeping in order to give the guidance for 2023, that the reference point is the EUR 330 million of 2022. The assumptions behind is to have a probably net new liquidity, new gathered deposits in the region of a couple of billion EUR. That is absolutely perfectly linear with the history of the bank. Secondly, the other assumption these numbers is based on the forward rate curve that has been updated yesterday. That is probably the most updated forward curve we have.
Yes, clearly the net financial income is going to be definitely above EUR 400 million, and is going to be represented exclusively, practically by net interest income, so not with any treasury management. I'm asking Lorena to jump in if I'm saying something that is wrong. In terms of.
No, it's correct. It's correct.
Yes. In terms of volumes and margins, we said a couple of billion EUR more liquidity gathered, but this is perfectly consistent with the expected growth of the bank. The margins again are driven by the evolution of rates. We are using the forward curve, and the forward curve we are using is updated to yesterday. On brokerage, it's very difficult to give such a precise guidance on the average revenues generated on monthly basis by brokerage. Because brokerage is impacted by elements that we are not controlling. That is mainly the volatility and particularly the volumes on the market.
We don't know. This is the reason why we prefer to give the indication. That when we are. For us, what is important is to monitor the floor of the business. What we are producing in when the market is not favorable to brokerage. July has been an absolutely complex month for brokerage generally speaking, exactly for the lack of volumes. If I think that it's up to you because it depends which kind of expectations you can make in models.
If you want to be incredibly conservative, you can say, I'm expecting that the market's characterized by volumes that are going to be close to historical lows for the future or not. Or you can use volumes that they are more in line with the normal mean. It's very difficult to give such a kind of brokerage by definition is volatile exactly because we have the impact produced by elements that we are absolutely not controlling. For us, it's important to monitor the floor. The numbers are telling us that if we consider a period of times of the past characterized by level of volumes at the same low level, now the revenues we are generating are definitely much higher.
This is what is making us extremely positive and on the future evolution of brokerage.
The next question is from Gianluca Ferrari of Mediobanca. Please go ahead.
Yes. Hi, good afternoon. The first question is on the guidance on flows. I think you are confirming the EUR 6 billion a year in terms of total flows. I think last summer you also got a guidance on funds, specifically EUR 6 billion a year. We are at EUR 1.4 billion in the first half. I was wondering what are your expectations for 2022 in terms of overall flows in fund? The second is on recruitment. I think it is pretty tough to recruit people in this period. I remember you were also focusing on young people to train internally, but I was wondering what are your experiences so far with the most senior advisors, if you are able to recruit or you are experiencing a slowdown?
The third and final is on products, if you have any kind of appetite or demand for capital guaranteed products. I see you are due to launch a Smart Defence Equity and, I mean, products where it seems you are protecting a bit the performance of customers, if you can add a bit of color on the new product launches. Thank you.
No, thank you. Let me start by the guidance on flows on Fineco Asset Management. Thank you for raising the point because this is an interesting point. If you go through our presentation, we went through a lowering of guidance on the retail sales of Fineco Asset Management on both 2022 and also on 2023. This is driven by a change in the appetite of clients for products. Now, I'm taking the opportunity also to answer to another question you made. What we are observing is also a change in the appetite of clients for solutions.
For example, now what is emerging is a growing demand for investment solutions, insurance wrappers, and so on. In particular, the growth of the insurance wrapper, by definition is decreasing the room for sales of Fineco Asset Management retail sales. At the same time, is increasing the room for the underlying sales. The building blocks that are used for the insurance wrapper, for example, are made now 100% by the Fineco Asset Management underlying solutions. What we expect to miss in terms of Fineco Asset Management retail sales, we can say is going to be recovered through the underlying Fineco Asset Management solutions.
This is the reason why putting everything together is not changing too much in terms of expectation of the evolution of margins and revenues. Clearly in this part, because another question has been if there is interest by clients for protected products and so on. The answer is that there is interest by clients for solutions characterized by an approach that is conservative. For example, the wrap, the insurance wrapper that they are combining together, the protected components with a progressive exposure to markets are very well welcomed by clients, and the same story for the deaccumulation products. You are familiar with the story.
Yes, there is an increase of demands by clients for solutions that they are making the entrance on the markets a little bit more under control. If Gianluca and Frank are so kind to scroll the que- Yes. The recruitment-
Recruitment probably.
Yes. Recruitment, yes. Our recruitment, as we explained, there is a structural change in the market underway. First of all, now the lion's share is made by bankers. People that they are at the moment working as employees in banks that they are more and more deciding to jump in becoming agents and joining organizations like, for example, Fineco. These bankers, for them, the main priority is to have a business partner characterized by a high level of efficiency from an operational and technological point of view, because this is the new way, the new dimension of interaction with clients. Second, a business partner characterized to being extremely fair and transparent.
Fineco is emerging as the perfect landing spot for this new generation of future financial planners. We are recruiting bankers that they are in their forties mostly. They are absolutely senior guys with an extremely important future developments in front of them. At the same time as well, we are keeping on investing on the young generation in order to build up the financial planners of the future. Because one of the biggest challenge for the industry is the aging of the network. We have to keep on taking on board also young skilled colleagues.
The most interesting change that is underway in the market is this extremely important contribution generated by bankers. The bankers are definitely looking for efficient, fair and transparent business partner, because they want to keep on going and keep on doing their job for many years to come.
Thank you. As a reminder, if you wish to register for a question, please press star and one on your telephone. For any further questions, please press star and one on your telephone. Mr. Foti, there are no more questions registered at this time.
Thank you for the very interesting questions you raised. As usual, if you need to make some more deep diving in our numbers and evolutions, plans and so on, please make us a call, we can arrange a follow-up anytime. Thank you again.
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