Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the FinecoBank first quarter 2023 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, then they signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Alessandro Foti, CEO of FinecoBank. Please go ahead, sir.
Good afternoon, everyone, and thank you for joining our first quarter 2023 results conference call. As you know, our new dimension of growth is further underpinned by the new structure of interest rates. Thanks to this, adjusted net profit in the first quarter of 2023 was equal to EUR 147 million, up by 19% year-on-year and + 61% excluding first quarter 2022 profits from treasury management. Adjusted revenues at EUR 294 million, increasing by 15% year-on-year and mainly supported by Net Financial Income, with Net Interest Income increasing by 165% year-on-year, which is sustained by our clients that is seeking valuable transactional liquidity. The growth of revenues has been also supported by investing, thanks to the volume effect and the higher control of the value chain by Fineco's management.
Operating costs were under control at EUR 73 million, increasing by 4.6% year-on-year by excluding costs related to the growth of the business. Adjusted cost/income ratios was equal to 25%, decreasing year-on-year and confirming operating leverage as a key strength of the Bank. 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 costs. Our capital position confirmed to be strong and safe with a Common Equity Tier 1 ratio at 21.8%. Our commercial activity confirmed to be extremely solid also in April, with net sales at around EUR 800 million and a strong mix with around EUR 170 million in assets under management and another strong performance by Fineco Asset Management with a retail net sales at around EUR 340 million.
Assets under custody recorded around EUR 55 million inflows and deposits at around EUR -190 million. Estimated brokerage revenues in April were solid at around EUR 12 million, more than 10% higher compared to the average revenue of the same month on the period 2017, 2019. Please note that April is characterized by some seasonality as there are lower trading days and lower market volumes. This result thus confirms once again that the floor of the business is now definitely higher. Looking at 2023 and going forward, we expect to continue to deliver a strong growth thanks to our very diversified business model, despite the recent complex environment for the banking industry. On the right-hand side of the slide, you can find a summary of our 2023 guidance.
More in detail, our Net Financial Income, we expect an increase of around 70% in 2023 versus 2022. On investing, we confirm our 2023 revenues guidance expected to increase high single digits compared to 2022, with higher after-tax margins. For 2024, we confirm our net sales and management fees margins expectations. On brokerage, we confirm for 2023 expected revenues to remain strong with the floor higher versus pre-COVID period. For operating costs, we expect a 6% growth year-on-year in 2023, not including around EUR 2 million of additional costs for Fineco Asset Management and around EUR 3 million for U.K. operational costs and eventually additional marketing expenses. We expect our cost of risk in the range of 5 and 9 basis points. Finally, we expect a growing CET1 and leverage ratio.
Let's now move to slide five. As announced, ad-adjusted net profit in the first quarter of the year stood at EUR 147 million in a very challenging macro scenario, increasing by 19% year-on-year and by 61% on a like-for-like basis, excluding profits from treasury management realized in the first quarter of last year. Revenues at EUR 294 million, up by 15% year-on-year and by 41.5% by excluding profits from treasury management realized in 2022, as we have been able to Strong acceleration of the structural strength in place, mainly thanks to the robustness of our Net Interest Income and to the contribution of the investing business. Operating costs at EUR 73 million, while under control and increasing by 4.6% year-on-year, excluding costs strictly related to the growth of the business.
Let's now move on to slide six and start to analyze more in details the dynamics of our results. Net Financial Income in the first quarter of the year at EUR 157 million, increasing by 46.5% year-on-year, with Net Interest Income increasing by 165% year-on-year, thanks to the strong gearing to interest rates we have, driven by our clients' valuable and sticky transactional liquidity. Please note that this figure is extremely positive considering that, first, we don't remunerate clients' deposits. Second, we are one of the few banks not offering aggressively term deposits to clients, but we offer third-party term deposits to our clients through our platform. Third, we have a best-in-class platform for trading bonds, very efficient and convenient.
Non-financial income in the quarter reached EUR 136 million, mainly thanks to the positive contribution of net commissions. Please note that in the trading profit line, there are accounted EUR +4.3 million related to the ineffectiveness of hedging derivatives in accordance to the accounting standards IFRS 9, compared to the EUR +5.1 million in the first quarter of 2022. The value is influenced both by the spread between the €STR and the EURIBOR, and by the amount of the fair value of the derivatives. Excluding this effect, the non-financial income is decreasing by only 1.5% year-on-year. That is mainly related to a lower brokerage activity. Let's move on to slide seven to deep dive on the performance of the investing business.
Fineco's position is 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 delivering on its strategy to take more control of the value chain. As a result, investing revenues were equal to EUR 75 million in the quarter, increasing by 2% year-on-year, despite the negative market performance experienced during 2022.
Please note that the quarterly comparison is characterized by the usual seasonality on financial planners' costs related to the SIR and the Enasarco that are higher at the beginning of the year, and up to EUR 4.6 million of other commissions in the fourth quarter of 2022 related to the operating efficiency reached throughout the year in the value chain on the institutional classes by Fineco Asset Management, which are booked each year in the fourth quarter. Management fees margins after tax reached 53.4 basis points in the quarter, increasing both year-on-year and quarter-on-quarter, thanks to the strong contribution by Fineco Asset Management. Let's now move on slide eight for a focus on our asset under management company.
As you know, Fineco Asset Management is progressively taking more control of the investing value chain, resulting in higher revenues and margins for the group. The contribution of Fineco Asset Management to the group asset under management and net fees is further improving regardless of the macro scenario, moving from 86% in the first quarter of 2022 to 133% in the first three months of 2023. The contribution of Fineco's Asset Management asset under management out of the total stock of asset under management of the bank moved from 28.4% in the first quarter of 2022 to 32.2% in the first quarter of 2023. In April is 32.7%.
As shown by the most recent net sales numbers, Fineco Asset Management has been extremely effective in quickly developing the right set of products to catch what clients are currently looking for through the offer of the new generation of capital-protected investment solutions. Let me please underline that our Irish company is now launching a new product innovation with the Global Defence Multi-Strategy, a fully now developed solution allowing clients to build a protected exposure towards equity. Let's now move on to slide nine for a focus on brokerage. Brokerage as usual is emerging as a perfect counter-cyclical business. It registered an excellent quarter at EUR 53 million, resulting in a monthly average 58% higher compared to the monthly average revenues in the period 2017-2019. This confirming a structurally higher floor compared to the pre-pandemic levels regardless of market conditions.
Let me remind you that the growth of the brokerage business is driven by the contribution of three structural components. First, the continuous process of deep reshape of our brokerage business. Second, the widening of our client base using the platform, with the active investors growing significantly in absolute terms and standing around 35% above the average level of 2018, 2019. Third, we are continuously increasing our retail market share. Let's now move to the slide 10 for a focus on cost. This slide confirms once again efficiency to be part of our DNA and core in our bank, representing a clear and unique competitive advantage.
Operating costs in the quarter at EUR 73 million, growing by 6.4% year-on-year, and by 4.6% year-on-year, excluding costs related to growth of the business, mainly additional EUR -4.9 million costs for Fineco Asset Management, that they are current with acceleration to further expand its business and have a bigger control of the value chain. Additional EUR 0.4 million in marketing costs. Staff expenses at EUR 30 million in the period, increasing by 4.3% on a yearly basis, net of the costs related to the expansion of the business of Fineco Asset Management. Non-HR costs at EUR 44 million, growing by 4.7% year-on-year, net of the costs related to the growth of the business. Let's now move on to slide 12 for a focus on our capital ratio.
Fineco confirmed a rock-solid capital position on the wave of a safe balance sheet. Common Equity Tier 1 ratio at 21.8%, leverage ratio at 4.21%, risk-weighted assets at EUR 4.7 billion, and Total Capital Ratio at 32.41% as of March 2023. From slide 16 to slide 18, we made a focus on our liquidity position. Let's now move on the slide 16. First of all, let me start from the composition of our deposit base to underline its granularity and thickness, which resulting in a transactional liquidity equal to around 89% of our clients' deposits. As you can see from the slide, 97% of our deposits is represented by retail clients.
Second, our deposits are extremely granular, with an average ticket of around EUR 19,000, of which EUR 140,000 related to private banking clients, and with a median ticket of EUR 4,800, of which slightly more than EUR 47,000 related to private banking clients. Third, 75% of our deposits is under the protection of the Deposit Guarantee Scheme. On top of this, differently from other players, mostly focused on brokerage and investing, our one-stop solutions relies on a fully-fledged banking platform. Our clients are not just using our bank for brokerage or investing purposes, but all our quality banking proposition for their daily life. Indeed, we have a 50% of clients crediting salary with us.
On this point, let me underline that just through the salary credit last year, we gathered EUR 15 billion of fresh new liquidity, a number which has more than doubled over the last 10 years. All of this is the results of a clear strategy we have taken more than 10 years ago, when we stopped remunerating liquidity and focused on our client acquisition 100% on the quality of our one-stop solution. We confirm that we are not going to change this approach, which is the cornerstone of our clients' very sticky, granular and valuable transactional liquidity. On the bottom of the slide, you can see the relentless histories of growth of our deposits throughout the years, also going through some very relevant crises like the financial and sovereign ones.
Let's move on the next slide to deep dive on the net sales of our deposits during the first part of the year. On the left-hand side of the slide, you can find the evolution of net sales this year. As you can see, inflows of assets from clients continued to be very robust as the bank continued to benefit from the long-term structural trends underpinning the growth. We have observed a strong improvement in the client acquisition. Indeed, in the quarter, the monthly trend has increased by 25% compared to the average period 2020, 2022. Let's now focus on the breakdown of the net sales.
With deposits being negative to their investments into asset under custody and asset under management of the excess liquidity of our clients. Moving on the right side of the slide, on the top, there is an interesting graph where you can see how the balance of the bank transfers has firmly remained on the positive territory, also in the first four months of the year. This confirms that the bank is keeping on acquiring new liquidity from both new clients and existing clients, and that there are no liquidity outflows going in direction of other banks. For example, the ones remunerating liquidity. On the graph below, we gave a detail on deposit net sales split by cluster of clients.
As you can see, clients with total financial assets below EUR 100,000 increased the amount of liquidity in the bank, and this is mainly transactional. On the other end, the cash sorting process has been 100% driven by wealthier clients, which in the past accumulated excess liquidity waiting to be invested, and rising rates are making this process accelerating. Let me also add that looking at private banking clients, the liquidity as a percentage of total financial assets is now at 14%. That is the lowest level since 2015, suggesting that they are approaching the floor. Finally, please note that new clients acquired in the year also brought positive liquidity. To sum up, clients' behaviors are confirming what our internal models are, were predicting.
With transactional liquidity remaining sticky to the bank and excess liquidity being reinvested into asset under management or asset under custody. The main result is that transactional liquidity has increased at 89% of total deposits compared to the 85% as of December. Let's now move on to slide 18 for a focus on our liquidity ratios. Going to details of our liquidity ratios, Net Stable Funding Ratio at the end of March was 377%. This indicator measures the stability of the funding base. Considering the structure of our deposits, the business model, the retail-driven nature, the high percentage of deposit under the protection of the Deposit Guarantee Scheme, Fineco is one of the banks in Europe with the highest ratio, meaning that the probability of the bank losing a big weight base of deposit is the lowest among European banks.
Moving on the asset side, the balance sheet as shown in the graph at the bottom of the slide, you can see the High-Quality Liquid Assets from total deposits reaching 63% at the end of March. We've EUR 19.4 billion of High-Quality Liquid Assets. Also here, Fineco is emerging among the banks with the highest deposits covered by High-Quality Liquid Assets. Thus leading to a Liquidity Coverage Ratio at 803%. Once again, far above the average level of European banks. Let's now move on to slide 20 for a focus on our guidance. Let's now focus on our 2023 guidance and outlook going forward. On banking revenues, we expect Net Financial Income in 2023 to grow by around 70% with a peak in the last quarter of the year.
Let me remind you the assumptions behind the guidance. First of all, the guidance is updated with the forward rate curve as of May 8th, 2023, which has improved compared to the last guidance. We confirm that we will not pay any interest rates on current accounts, EUR -2 billion net inflows in deposits compared to the EUR 1 billion of the last guidance. In terms of our investment policy, we will continue the diversification of our bond portfolio, progressively reducing the exposure towards Italy and Spain in line with our strategy. Going forward, we expect Net Interest Income to keep on benefiting from the new interest rate environment. Overall banking fees are expected remaining stable compared to 2022.
On investing, taking into consideration the market asset up to the end of April, we confirm 2023 expected revenues to increase high single digits year-on-year with higher management fee margins after tax, but with different assumptions and a better mix. We are improving our expectations for Fineco Asset Management retail net sales up to around EUR 5 billion, as it is able to catch the outflows coming from the insurance wrappers in the new interest rate environment. As a result, we expect overall banks asset under management net sales at around EUR 4 billion. Our network of financial planners is expected to increase by around 120 financial advisors. In 2024, we confirm around EUR 5 billion expected net sales in the overall banks asset under management.
For our Irish company, we confirm retail sales at around EUR 4.5 billion. Finally, despite the challenging context, we also confirm the increase of our management fees margins after tax up around 55 basis points by 2024, thanks to the Fineco Asset Management operational efficiency. Pre-tax margins are confirmed at around 73 basis points by 2024. Brokerage revenues are expected to remain strong with a floor in relative terms with respect to the market context that is definitely higher than in the Covid period. Operating costs in 2023 are expected to grow at around 6% year-on-year, not including around EUR 2 million of additional costs related to Fineco Asset Management, around EUR 3 million for U.K. operational costs and eventually additional marketing expenses.
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. Systemic charges for 2023 are expected at around EUR 50 million. On capital ratio, we expect a growth in 2023 for both CET1 ratio and leverage ratio, currently with a combination of both a strong acceleration in the growth of the bank and the distribution of generous dividends. On dividend per share going forward, we expect it to hit constantly increasing, also thanks to the progressive delivery of our strategic discontinuities. Customer risk was equal to 4 basis points, thanks to the quality of our lending portfolio that is offered exclusively to our loyal customer base.
In 2023, we expect it to hit in a range between 5 and 9 basis points. Finally, we expect 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 23 for an update on our international business. Let me share the usual update on our U.K. business. We are very happy for the growth of the business we experienced despite we stopped our marketing activity due to talks still pending with the local regulator. Our client base kept on increasing thanks to the word of mouth, and our revenues generation has increased by more than 86% year-on-year, reaching GBP 1.3 million in Q1.
The next country we are assessing to enter is Germany, but if before, we are focused on finding the right setup for the U.K. business. Thank you for your time, and we can now open the call to questions.
This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone wishing to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. We kindly ask you to use the handset when asking questions. Anyone who has a question may press star and one at this time. The first question is from Azzurra Guelfi from Citi. Please go ahead.
Hi, good afternoon. Couple of questions from me. The focus is clearly on the NII guidance. You have lowered the guidance from growth of roughly 80% versus 2022 to roughly 70%. What has driven this change in guidance? Is it different deposit trend? Can you give us the indication of the outflows that you assume for the year in your guidance? Because just looking at rates, that would not square. The second one is on the guidance for flows for FAM. You have improved 2023, but you have kept 2024 unchanged and down versus the new guidance. I'm just trying to understand what is the moving part in there. That would be very helpful. Thank you.
Regarding the Net Interest guidance, the main driver is represented by the fact that we lowered our expectations on the deposits, moving from an expectation of a EUR +1 billion, by a growth of EUR 1 billion of deposits, down to EUR -2 billion. This is the main reason, is the main rationale behind. Regarding the FAM flows, clearly in 2023, we increased the guidance on Fineco Asset Management because this is related to the higher than expected outflows by the insurance partner. Clearly, Fineco Asset Management is playing the lion's share in capturing what is outflowing by the insurance partner.
We, for 2024, we expect a stabilization in the insurance business. We are back again to the normal guidance for Fineco Asset Management. In any case, also the so the fact that there is a combination of an lower expectation in terms of insurance partner. This is the only reason behind the lowering of the guidance on the net sales of asset under management for 2023. What is important to underline that this has not caused any change in the expected revenues and margins generated by the investing business because lower volumes by a better mix, because the insurance partner, as you probably know, are characterized by the lowest margins for us.
At the end of the story, what is important, the revenues and margins are remaining absolutely aligned with the previous guidance.
Sorry, if I can follow up on the deposit. Basically, you have a swing of roughly EUR 3 billion of deposit that has resulted in roughly 10% reduction of the NII. Is this the kind of sensitivity we should use? Do you expect further deposit decrease in 2024? Wouldn't you consider if these deposit outflows continue, especially for the private banking client, we, seems to be the one more actively moving deposit to have some form of remuneration?
As we explained during the, going into the details of our liquidity position, the composition of the deposits, there is, we, what we expect that is progressively, as much as we have the rates reaching the top and stabilizing, this cash sorting is going to progressively going down. We have the first evidence of this process in that this process in place. Second, practically the total amount of this investment in direction of govies, for example, has been driven by the wealthy clients that they are reinvesting their liquidity. These clients are now sit on the historical floor in terms of percentage of liquidity on their assets.
Also this is bringing us to the conclusion that the process is expected to keep starting on cooling down. Finally, the results is, and this is comforted by the fact that the percentage of transactional liquidity has increased because the transactional liquidity has not been touched by this process. So this is making the. So we are very comfort, we are very positive on the evolution of the liquidity position of the bank.
The next question is from Giovanni Razzoli from Deutsche Bank. Please go ahead.
Good afternoon. Thank you for taking my questions. I have a few. You mentioned it during the presentation, if I'm not mistaken, can you confirm that you have no intention to resume the issue on term deposit or your own deposits in the short term and also in the medium term? The other question is, there has been a lot of press coverage about, you know, the distribution of insurance policies with Eurovita. Can you share with us once and for all so that we are on the same page, what is the amount of the policies that you have distributed and the number of clients, please? The last question is on the target for the commercial flows at year-end.
You had EUR 1.2 billion of net inflows year to date and EUR 1.7 billion for FAM, you are guiding respectively EUR 4 billion and EUR 5 billion for the full year, even if there is a, you know, a couple of months that we should have negative seasonality. Seems to me that you are incorporating a quite significant acceleration in the coming months in terms of inflows. Do you share these views, and what are your assumptions for the rest of the year? Thank you.
Let me start by the first questions. We, yes, we confirm that we have no intention to pay interest rates on deposits, we are not planning to launch any term deposits offered to our clients. We are going to keep on giving to our clients the possibility of to invest on term deposits of other banks. The reason, the rationale behind this, that differently by many other banks, we don't have any liquidity problem because we, there is no reason that we gather liquidity that is expensive and worthless because it's absolutely not sticking, because the stickiness of this liquidity is just related to the maturity of this deposit. we don't need to do that.
We, as we explained, the most part of our liquidity is transactional liquidity that is there because the clients are using the platform. On this, we are not going to pay anything. The result and what's going on is extremely comforting because the percentage of transaction liquidity is increasing with respect to the overall base of deposits of the bank, because what is flowing out is the so-called hot money. For this reason, considering also that the balance is the is probably the most liquid balance sheet among the European banks, there is no reason that we are going to embark the bank in raising liquidity, paying skyrocketing rates.
On the insurance policies with Eurovita, our overall amount of this Eurovita policies, they represent more or less 13% of the overall insurance business, and the most part is represented by unit linked, and not by the so-called Gestione Separata. The overall amount, and the overall number of clients involved in this is less than 1% of the total client base.
Fitting everything together means that whatever is going to be the outcome of this Euribor situation, the final impact for the bank are going to be not significant, both by the PNL and balance sheet point of view, and also is going to be not material also in terms of reputational risk for the bank, considering the very small amount of number of clients involved. Clearly, it's not, we are not happy. It's a painful situation. If we look to the possible negative parts of the bank, these are extremely limited and not material. Target for commercial flows at year-end, because we have EUR 1.4 billion assets under management and EUR 1.7 billion of asset management.
Yes, we are what we are observing that the commercial traction of the network is extremely strong. The first part of this quarter has been clearly penalized in terms of inflows by the quite big amount of disinvestment on the insurance wrapper. Now this process is cooling down because the most part of clients that have been attracted by these products, mostly by the rates, they have left, they have disinvested. We expect then progressive normalization of the situation.
Considering that the commercial traction of the network has remained absolutely very strong throughout the month because of what I would like to underline that our nexus of asset under management have remained firmly positive also considering the negative outflows by the insurance partner. This performance has been absolutely very, quite amazing and is comforting us in the looking forward for the following part of the year.
Thank you.
The next question is from Enrico Bolzoni from JP Morgan. Please go ahead.
Hi, good morning. Thanks for taking my questions. The first question is you are revising up the guidance for flows in FAM, which clearly is margin enhancing, but you're not changing your guidance on the exit margin rates that you expect from investment products. Can you just give us some color why so? Are you being particularly conservative? Should we expect in 2024 or beyond an additional acceleration in the margin or the investment products? This is my first question. The second question is related to actually the advisor populations. You are hiring new advisors. Can you just remind us what happens when a senior advisor decides to retire and eventually pass over his book of clients to someone new?
Do you have any policies or practices to make these transitions smoother? The final question is on your leverage ratio, clearly has improved. Can you just remind us if ceteris paribus, so without taking into consideration other factors, does the reduction in deposits actually improve your leverage position? At what point would you consider additional capital distribution to your shareholders? Thank you.
Regarding the rising up guidance for FAM, Without changing the guidance on margins is because clearly is on one end we have this improved guidance with the development on FAM. At the same time, overall on the assets under management, we have lower volumes driven by the disinvestment by the insurance wrapper. Putting together the two components, the impact on revenues and margin is relatively neutral. On the 2024, we would prefer to keep the guidance unchanged because without embedding any additional acceleration in margins and so we remains.
We are very close now to the 2024, and so with the guidance we gave some years ago, and so we think that it's that's that's okay. When a senior advisor is leaving, we have different options on the table. There is one. There is an structural process that is making possible for the senior advisors to sell to another colleague, to another younger colleague, the portfolio. And so, and, with very well in advance the retiring moment, giving the plenty of time for making the new colleague familiar with the client base.
There is another option that is gaining momentum that is a kind of a generational change because it's more and more frequent having these senior financial planners retiring and leaving the floor to their sons, daughters, and so on. There is absolutely a very interesting trend there. For example, the possibility for our financial planners to work as a team, putting in common clients and portfolio is clearly quite helpful in this transition process. Leverage ratio, yes. Leverage ratio because the market is completely, fully focused just on the reduction of deposits on the possible negative impact.
For example, I don't want to be perceived as insane, but what's going on on the liquidity right now on a little bit longer term perspective, in our opinion, is extremely positive because it's helping us in getting rid of the so-called hot money. The hot money is now moving more quickly in direction to be invested or in asset under management or in asset under custody. Clearly, we would be more pleased to have a higher percentage of assets under management. In any case, the fact that we are experiencing a quite fast reduction of the hot money overall, it's a good news for the bank looking forward, because this is going to make our leverage ratio even more robust going forward.
As you are correctly underlying, leverage ratio is the only one possible constraint we have on the table in direction of becoming even more generous in regarding what we are giving back to the market. This, overall, it's this reduction of this kind of liquidity is positive also because it's completely not material in terms of regarding the liquidity position of the bank. Because as you can see, the bank is has the most liquid balance sheet among the European banks, so clearly losing a few billions of deposits doesn't make any difference from that point of view.
Thank you. Sorry, just following up. Is there any specific threshold you would consider adequate, beyond which you would consider, additional distributions?
No, at the moment we are not, this is not on the table. Again, what I'm on the point, the only theoretical constraints we have on the table regarding the, the, and the, in the higher distribution of profits to the market, of dividends to the market is the leverage ratio. When the leverage ratio is comfortably at the level that we think that it's absolutely incredibly rock solid and so on, clearly this is an option that by definition we have to consider, because clearly we can, we cannot keep on making our CET1 ratio growing and continuously or relentlessly. In any case, any just, I mean, my colleagues are giving me the sensitivity.
Every EUR 1 billion of liquidity worth 11 basis points of leverage ratio.
The next question is from Domenico Santoro from HSBC. Please go ahead.
Hello. Hi. Good afternoon. A few questions from my side. First of all, can we come back a bit to the NII, in particular on your guidance for this year vis-a-vis the previous guidance? I'm just wondering whether you can break it down the EUR 40 million difference, how much is due to a different, you know, yield for this year, given the way it's the way they moved, and how much instead is due to the different assumption in deposit outflows? The other question is whether you can give us the exit level for NII, in absolute terms, if you have, at the end of 2023?
Given the difference in annual rates, I know that you mentioned before that deposit outflows are sort of normalizing. I'm just wondering whether you're still confident that NII in 2024 can increase from 2023 level or at this point, this looks a bit ambitious. The other question that I have is on banking fees. I mean, you are reporting better numbers year-on-year. The sequence is positive, but you stick to the guidance that fees in banking are gonna be stable this year.
I'm just wondering whether there is a link with deposit outflows or closing accounts that makes you a bit more bearish on the evolution of this revenue stream during the course of the year or you're just conservative? The other question is on the hedging derivatives. That if my understanding was correct, the CFO explained in the past as hedging on the mortgage book. I understand the rationale behind the loss. I just wonder whether this is a one-off that we will see only in the first quarter of the year or as rates, they go up during the year, there might be some more trading losses. Thank you.
Let me start by the first question. How much is due to the different yields, and how much on the different assumption on outflows. The most part is driven by the difference in deposits. Yes. This is the main reason behind the change in the guidance. We took in account the evolution of the deposits. Second thing, the previous guides were based on the expectation of EUR 1 billion of growth. Now, the new expectation is for a reduction of EUR 2 billion. Yes, the most part of this is related to the decline in the deposit base.
The exit level on Net Interest Income at absolute level, I think that it's a relatively easy calculation because if you apply an 70% increase on financial income, respect to 2022.
EUR 666 billion.
How much, sorry?
EUR 666 billion.
666. So this is the, y eah, sorry.
It was more the level in Q4, to be very honest, if you can give.
Excuse me.
It was more the exit level in the fourth quarter rather than the year.
Yes, because as we said during the presentation, the peak on the Net Interest Income is expected to be achieved during the first quarter of 2024. This means that the first quarter of 2024 is going to be higher than the last quarter of 2023. Are you lost or I've been?
No, no. you say that the peak is in Q4 2023, if my understanding is correct. Can you tell us what's the number that you have in mind in the fourth quarter of this year?
I leave the floor to No, I leave the floor to the CFO because.
All right, thank you.
We'll return to you later on. Excuse me. Excuse us.
Okay.
Deposit outlook normalizing and recovery of net interest in 2024 can increase our ambitions. Yes, still we expect a slight rise of the Net Interest Income throughout 2024, also embedding this change in the guidance.
In the fourth quarter, we have a net interest that is 13% higher than the first quarter 2023.
The first quarter of 2024.
2023. The, in the fourth quarter 2023.
Yes.
We have Net Interest Income that is 13% higher than the first quarter 2023.
Yes, what is asking, is looking for, what is in comparison with the first quarter of 2024. Domenico, you have to be patient.
No, no, that's fine. That's fine. Let's make it very simple. That's basically the information that I was looking for. 2024, you said NII is still expected to go up. Of course, that's the assumption that is implied in your guidance is that deposit will stop, basically, reducing. Correct?
Yes.
Okay.
Then we have banking fees. Banking fees is not related to deposit outflows because is just related to the fact that we gave back to clients a certain percentage of the cost we charged them during the period of negative rates. According with the model suggestion made by Bank of Italy, we agreed, and we communicated to the market, to the clients. When we have communicated to market. March.
On March, we communicate to market that we are going to give back to them a part of the additional commissions we charge on the current accounts, because we used, at that time, the negative rates as a rationale behind the increase of cost for clients. Now with the interest rates returning positive, we are giving back to clients this amount. On the other end, clearly, we have the bank is continuously acquiring new clients. Putting everything together, this is driving to stable banking fees. On the hedging derivatives, on this, I'm leaving the floor to the CFO for giving you a little bit more details.
Yeah. As we already said, in the ineffectiveness of derivatives is due to the fact the derivatives are evaluated, taking into consideration a risk-free rate for the derivatives, coherently with the fact that thanks to the collateralization on daily basis, there is no counterparty risk. While the hedged assets that are not only mortgages but also bond portfolio, are evaluated using Euribor. This is why the value of the ineffectiveness is influenced by the spread between the two rates, and is also influenced by the amount of the derivatives.
Lorena, this is not.
Going forward, in the long run, the value of the ineffectiveness of each derivative will go back to zero due to the progressive expiry of the derivative. This, but it depends.
It's not driven by the rising rates.
Is driven by the.
Yes.
Domenico made a point that, at the rising rates, they are making this.
No, it's the difference between the two rates.
Yeah.
It's quite unpredictable.
Yeah.
To give, to know or to forecast what the value could be in the near future. We only know that in the long run, the value of the ineffectiveness of each derivative will go back to zero.
In simple terms, this one-off, regardless whether it's positive or negative, is something that we will see only in Q1, or there's a chance that other trading losses will generate during the year?
No, the question is, if there is the possibility to have this.
Yes. It depends on the difference between the two rates.
Is relatively unpredictable because we don't know exactly.
All right.
how in relative terms two rates are going to move.
All right, okay.
the problem is that we there is a. We are using different kind of rates for the. This is for accounting reasons, so it's not. This is a little bit random and unpredictable. Not, it's not related to market conditions, the level of rates, and so on.
Perfect. Thank you very much. Thanks for the patience.
We confirm that the peak of net interest is in the fourth quarter of 2023, and it is 13% higher than the first quarter of 2023. Regarding the first question or the second question that you asked.
Very clear. Thank you.
You're welcome.
The next question is from Marco Nicolai, from Jefferies. Please go ahead.
Hi. Thanks for taking my questions. The first one is on the retail investment strategy. I think there is a recent draft document out. Just wanted to know if you have any updated views on how this will impact your business, if it will impact it. Second one on the outflows of deposits that reduced in April versus March. Can you just give us a bit more color on the improvement month-on-month? Is it due to higher number of clients acquired, bringing in new deposits? Or is it also linked to, let's say, lower appetite towards fixed income products? Yeah, if you can give me more color on this. Thank you.
On the first question, the recent EU documents there, you are referring to all the everything related to the... so the, so inducement, something like that. Please, if you can, give me a little.
Yeah. Yeah, exactly that.
Yeah. Yes, first of all, the first point on this has been that the European Commission is slowing down regarding the initial project to introduce a ban on inducement. They are moving more in direction of making a little bit more restrictive than what is the intermediaries are doing in terms of getting a retrocession by the asset managers. Regarding this point, whatever is going to be the final outcome, Fineco is by far the best-positioned player in the market for very simple reasons. First of all, we have been by far the first mover in introducing advisory services on which clients are paying an advisory fee. At the moment we have nearly 50.
Which is the total amount of putting together. The service on which clients are paying an advisory fees. It's EUR 37 billion. Yes. We have more or less EUR 27 billion out of the EUR 50 billion we have on which clients are paying an advisory fee. In the case that the reason, in any case is going to refocus on favoring services in which clients are paying the advisory fees. Fineco is by far the most advanced players because our clients, financial planners and then so on, they are very well accustomed at this. Second, we clearly, there is also the possibility to have a little bit more restrictions in the retrocession.
Fineco has made a very important strategic move five years ago, launching Fineco Asset Management. This is going to make a possible impact on them extremely manageable. Overall, we see all the possible developments attached to these documents as positive for us because the final outcome is going to increase the level of transparency on the industry. Transparency is the base on which we built our business. The improvements on April has been driven by the confirmation of the very strong inflows related to the transactional liquidity, because everything is remaining absolutely strong in terms of net new liquidity entering in the bank, driven by new clients.
Clients are moving, increasing the share of wallets with the bank, and keeping on gaining traction on crediting on salary and so on. Together with a progressive declining interest and appetite by clients for investing in govies. This is current with the evidence we have in which our wealthy clients are approaching the historical floor of their in terms of % of liquidity on their total financial assets.
One quick follow-up. Do you have an updated split between transactional liquidity and hot money? I'm thinking about your deposit base. Shall we still keep in mind the 85% of the total deposit as transactional?
Now has moved up. We moved from 85%- 89% for a very simple reason, because practically 100% of the liquidity that has moved out in direction of investment is related to hot money. This clearly, and this is very important because it is confirming that the base of our deposits is really rock solid because mostly represented by transactional liquidity. In any case, this is the is captured by the Net Stable Funding Ratio. The main reason why FinecoBank has such an high Net Stable Funding Ratio, definitely the highest among the European banks, is mostly related to the fact that the kind of deposit we have is mostly related to transactional liquidity deposits.
Thanks a lot.
The next question is from Alberto Villa from Intermonte. Please go ahead.
Good afternoon, and thanks for the presentation. Just a few questions, and thanks for the answer to the many previous questions. I, Alessandro, I wanted just to go back to the dynamics in terms of inflows, deposits, and also assets under management. I'm referring to the fact that the Italian Treasury is launching a series of government bonds that are trying to attract retail investors. The aim seems to be to get significant inflows into these products from Italian retail. We'll have the next issuance at the beginning of June. I understand that the liquidity is currently mostly related to transactional. I agree with you that you are pretty safe on that front.
Do you see any risk maybe for you and for the rest of the industry that some clients may, let's say, dismantle some of their investments and move into this kind of products, which are pretty attractive in terms of yields right now? This could be, let's say, a potential risk going forward for inflows, being the situation for yields quite competitive compared to the return we have had on assets under management in the last 18 months. The second question is on the rumors about Italian government considering a taxation of extra profits made by banks on, well, huge increase in Net Interest Income.
So far, it doesn't seem to go through in the immediate future, but do you see any risk of this kind of levy being introduced on the Italian banks? The final one, very quick one, is on the rest of EU expansion. Do you have a priority list of countries you are looking at for the future? Thank you.
Regarding the expected new launch of Dedicated to retail clients. First of all, this is not a brand new story because it is several years that the Italian government is started on approaching directly the retail clients. In our expectation in terms of evolution of deposits, we are clearly embedding the expectations of additional proposal by the government directly to the retail clients. This is not going to change structurally the situation of the bank because it's going to keep on capturing the so-called hot money. Now we have 89% of liquidity that is transactional liquidity, and then the remaining 11% is hot money.
This net, we have a little bit more than still EUR 3 billion that is related to hot money. It's possible that this offer are going to keep on capturing. Consider also that the typical pattern we are observing, considering that Fineco is by far the platform of choice for not just trading stocks but also bonds, because we are characterized by we are not charging any fee for the custodian of bonds. The clients are not paying practically nothing. It's true that this is something which there are no commissions in case. Usually when you have this kind of situation, we have clients bringing additional money into the bank.
This is not. It's something that we had from the beginning on our radar screens. This is not going to change any significantly. Regarding your points at which kind of if this can represent a challenge for the industry, in my opinion, the biggest challenge is by considering the kind of observation point we have, is much more in direction of making even more difficult for example, banks that they are specializing lending in gathering liquidity. For example, what we are observing on our platform offering term deposits, the appetite by clients for this term deposits is pretty low.
This is exactly driven by the competition represented by the, the current bonds. On the other side, we are observing a continuously, growing number of banks that they are, starting on massively overpaying, term deposits, because we have, banks that now are paying definitely above the one year yield of the, of the gov. In my opinion, the biggest risk if the government becomes a little bit too aggressive in that direction, is really to create problems for banks that they are, in the necessity of, gathering liquidity for, sustaining their, lending business. Regarding the rumors about the Italian government continuing taxation, we…
The only calculation we made has been, we made a very basic assumptions. We made assumptions that to have the introduce in Italy exactly the same approach used by Spain that has been extremely penalizing for banks. In the case Italy is going to do something that is exactly the copycat of Spain, for us, the impact would be.
EUR 50 million, EUR 60 million. From EUR 50 million-EUR 60 million.
Yes, it would be between EUR 50 million-EUR 60 million pre-tax. This would be the impact on speaking. We are not making any consideration and we are not making any comments on that because our approach is we are not commenting the possible intervention by regulators or government. We are here for adapting our business according with the changing rules. We don't have any. At the moment, we are regarding the last questions, we are completely focused and concentrated on finalizing the talks with the U.K. regulators. Thereafter, we will put our highs on the possible expansion in other European countries.
Thank you.
The next question is a follow-up from Enrico Bolzoni from JP Morgan. Please go ahead.
Yes. Hi. Thanks for taking the additional question. Can you just remind us what proportion of your monthly or quarterly flows come from existing clients versus new clients? The second question is the proportion of deposits that on average the new clients bring to the platform. If you can give us a figure and if you saw also a change there. If, for example, you see more new clients coming directly invested rather than with a certain proportion in liquidity. Any color or statistics you can give us there would be very helpful. Thanks.
We, the percentage is more or less 60% is represented by new clients bringing in new assets, and 40% the increase of the share wallet of the existing clients. In the clearly, the last few months, we had the very evident effect of clients bringing, for example, there is bringing new liquidity and mostly for investing this liquidity because. Because they're starting by the beginning of the year, we had our clients buying, which is the total amount of bonds they bought. Nearly EUR 4 billion. That is huge. At the same time, we had positive net inflows for now considering also the number of April for EUR 3.6 billion.
This means that clearly we had clients, not just buying bonds but bringing additional liquidity for buying bonds and so on. At the moment, there is clearly the largest part of the liquidity that is entering into the bank is moving in the direction to be invested. This clearly is driven by in the past, there was a little bit more temporal lag between the moment in which clients were transferring their liquidity in the bank and the moment in which they were investing. Now, with this much higher rates, this process is very accelerated, so it's immediate.
Because clearly the clients that they know that they are, they know that they want to invest, clearly the opportunity cost is higher on leaving the liquidity on the current account. They are faster in reinvesting the liquidity immediately into the market.
The next question is from Panos Ellinas from Morgan Stanley. Please go ahead.
Yeah, hi. Thanks for taking my questions. Just on the FAM net sales, can you give us some color which products you see most demand? What's also incorporated within your net sales guidance for FAM? U.K. market, maybe an update on Q1 flows and what you expect or what you had in April as well. That's all for me.
FAM net sales at the moment are mostly focused in the direction of fixed income solutions. Now as we explained during the presentation, we are now we are launching a brand new generation of products that they are combining together the extremely popular fixed income solutions with a very innovative approach that is giving the possibility to clients to get an 100% exposure to the equity markets, but with a protection of the. Without risking the principal. We think that progressively this is going to be quite popular. On the update on Q1 flows in April, what do you mean exactly with these questions?
If you can give us a bit of color. You have seen demand for ISA products, for example, or something in particular for the U.K.?
On the U.K. No, on the U.K., we, honestly speaking, we. The most part of the activity of the clients is completely 100% in direction of brokerage activities.
Okay. then in Italy for the advisors, have you seen, sort of different dynamics or productivity from advisors you recruited over the past 12 months compared to the new ones? I think looking from the slide, 97% is from the organic, can you maybe comment a bit there, just what you have seen so far?
We, in terms of activity by financial planners, no, we are not observing any significant change. There is clearly a continuation of this higher propensity in direction of fixed income fixed income solutions. We are keeping on enjoying and quite brisk interest by banks employees in our directions. That's all. We are not observing any significant change in the structure of the market.
Thank you.
The next question is from Luigi De Bellis from EQUITA. Please go ahead.
Yes, good afternoon. Just a quick follow-up on the net inflow guidance and the acceleration of net new sales. In your guidance, do you expect this acceleration already May and June due to the cooling off of outflows insurance wrappers, or mostly in the second part of the year? Can you give us more color also on the new products to keep this acceleration? You mentioned it, Global Defence Multi-Strategy. Can you elaborate on this? Thank you.
Yes. If this deceleration, this, in regard, in the disinvestment of the insurance wrapper is continuing, yes, we expect, in both in May and June an acceleration in the asset under management production. The new product, as I was explaining, is a product that are combining together. On one piece is going to be represented by the, our Defence strategy. That is representing the lion's share of our net sales over the last few months.
It's going to be given to clients in a bundle with this new solutions that is giving to clients the possibility to get an 100% exposure, for example, to the Morgan Stanley World Index, with the capital protection. It's practically, it's. This is good, so because we. It's in direction of starting on making clients in moving again in direction of the equity products.
Thank you.
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