Welcome to the Avanza Bank Holding full year report 2021. Throughout the call, all participants will be on listen-only mode, so there's no need to mute your own individual lines. Afterwards, there'll be a question and answer session. Today, I am pleased to present Rikard Josefson, CEO, and Anna Casselblad, CFO. Please begin your meeting.
Okay. Good morning, everybody. Thank you for listening in on today's presentation. I would like to start with the first slide looking. It's of course satisfactory that we can conclude that, 2021 was a record year for Avanza. The most important thing during the year for us is, of course, that we for the 12th time in a row managed to have the most satisfied clients within the savings market in Sweden. We had a phenomenal growth within the company. Our net inflow was almost SEK 90 billion, and that was SEK 76 billion in 2020. Just for remembering, in 2019, it was the first time we had net inflows over SEK 30 billion. Both 2020 and 2021 has shown a tremendous growth. When it comes to number of clients, we almost added another 380,000 new clients on the platform.
One question we get a lot is the new clients different from the old clients? The simple answer to that is no. We can see that we're still gaining clients in the younger segments. The average age of new clients is actually 35, and the number of clients coming into the platform is in between 19 and 45 is the majority of the clients. The average age of our clients right now is about 40. Just to give a mark on that, it's the average age of the Swedish population is around 48. We have a younger client base than the market as a whole, but we see that as a positive because when the wealth transformation takes place, we're very well positioned for the future.
Another highlight for us, of course, was that the end of December, for the first time, we reached more than SEK 800 billion, almost SEK 810 billion in AUM, which is on a record level. For recollection, I think we ended 2019 with around SEK 400 billion. We have more or less doubled the company within 2020 and 2021. One thing that we talked a lot about in 2021 is our long-term financial targets. We released our financial targets for 2025 in January 2020, just before the COVID pandemic hit the world, and we thought we were very ambitious. We can conclude now that at the end of 2021, we have more or less reached those targets.
I will not go through the targets that we had previously, but I would say that the most important for me, of course, as the CEO is the ambassadorship with our employees that is at 67, when I think the average for the financial industry in Sweden is around seven. The strong employee engagement is very well in place, which is, of course, we're very happy about. On a small note also, which is I will come back to, is that 41% of our new clients during 2021 was female, and that was 39% in 2020. We're going in the right direction by attracting more female investors to the platform. We come to the update, the long-term financial targets that we released this morning. Customer satisfaction and employee engagement will remain unchanged.
That means that we want to have the most satisfied clients and an employee engagement that's over 50, which is a very high goal, even though we are at 67 at the moment. We're aiming to have 10% of the Swedish savings market at the end of 2025. That means that 1 out of 10 savings kronor will be on Avanza platform in the end of 2025, and Avanza will be a substantially larger company than it is today. I will come back to the cost and say that the return on equity that previously was between 25% and 30%, we have raised the target to at least 35% return on equity, and that we will pay out dividend at 70% on net profit. We are for the year of 2021 paying out 70%, which is 9.20 SEK per share.
The only thing about the dividend policy, of course, that we will do that as long as we can live up to the regulatory requirements for the leverage ratio. We are planning to do so, and we hopefully can deliver on that target. Coming to the cost issue, cost guidance, we have said that we want to have 12 basis points on the savings capital as a target. Viewing that target, you should view it more as a roof than a floor. That means that this could be a bit volatile because the savings capital can change just because of market conditions, stock markets going up and down. We believe that keeping it over time with 12 basis points is an ambitious target.
Of course, it's not a ceiling, so that means that if we have good days, good growth, we will be able to deliver at a lower number than 12 basis points. Given the cost, and we also guided for the nominal cost increase within the company for 2022, it's important to bear in mind that during 2021, as we have talked about previously, we had a growth that was above our expectations. We did add people in customer support units, back office units to be able to handle our answering times, our processes, making everything work. That will have, to some extent, the full year effect of 2022. From my perspective, it would have been easy for me to run Avanza at the lower cost increase for 2022 than the one we have communicated.
We have exciting plans for the future. We want to increase the pace of innovation. We want to do more for our clients, and that means that we're adding more people. We don't run Avanza with a development budget because we do everything internally. When we raise the ambitions, it's about investing for the long term and the future. That means that we're adding more talent into the company, and over 70% of our cost is staff related. You should view the cost increase as investment for the future. Because even though we have the number one position in customer satisfaction, my absolute conviction is that we have a superior user experience, we still believe that everything we do on the platform can be improved.
We can do every process, every product, every customer interaction in a better way than we are doing it today. That's why we are increasing costs to be able to get up to speed when it comes to innovation, time to market, and making sure that our competitors are moving forward, we will keep the distance by improving ourselves for the long term. That's the way we view the cost. Looking at the sustainability targets, it's of course sustainable investment. It's about creating a lot of tools and insights, pods, and blogs to our customer to make sure that they are well equipped to in a sensible way allocate their investment in sustainable investments. Of course, they are free of charge to invest in whatever they like.
I think today we have more than 70,000 investment opportunities on the platform, but of course, more and more customers demand information and inspiration about making sure their money is working in a sustainable way. When it comes to educate and challenge, a very important part for us, which I touched a bit on before, is of course getting more women and to invest in the platform. Because we can see from data that women with the same wage as men, they save less. They start saving later in life than men do. Of course, this creates a social problem in many different perspectives. We want to be in the forefront to make sure that young women, older women, and all women can take charge of their own personal finances, and we want to be an inspiration for that.
Of course, sustainable organization is about we will apply for the science, SBT, science-based target, where we do that during the year, and then we will communicate back with target that we will get, so to speak, from that application that we will file for. Q4 ended strongly. It was up 71,800 new customers, SEK 18 billion in net inflows. We did reduce the fees in our Auto funds by 40%. The take on that is, of course, that lowering the fees is of course short term, not beneficial for income, but we are absolutely convinced that in the long term, we will make that money back on the AUM growth within the Auto family of funds.
We also launched right now in the mobile apps, which make us more relevant for the customer because you immediately get the information that is connected to your personal investments. We did year 2021, which is always appreciated by the clients, where you can compare yourselves, which was your best days, your worst days, in investing for 2021. We also launched a sneak launch of what we call Pensionsjakten, where we actually developed a tool that will make our clients able to log in to other insurance company on a very easy way, see what life insurance do I have that is transferable, and if I click on that, then the transfer will immediately take place. We think this is a very, very good tool for increasing pension transfers.
We have launched it in a sneak way right now, but during January, February, we will roll it out for all our clients. It's also in my way looking at the team that's developed this from scratch. They started with this in, I think it was in the summer, and it's a very large project undertaking and in a very quick way they've been able to develop this for our clients. I think it will be very, very much appreciated. We also now have monthly savings in mutual funds automatically, which is close to SEK 1 billion. And also we have over 200 and I think it's around SEK 290 million in automatically pension premiums being paid in. That has been a focus for us to set up more automatically savings tools for our clients.
When you get your salary, you immediately start saving. Having said that, we can see that we have a lot of clients in Avanza who when they get their salary, they put money on the platform and they do monthly investments in different products, even though they don't have it in automatic way. The amount of net inflows each month is a lot higher. When you track it to who's doing it automatically, it's around SEK 1 billion. Looking at the growth, it's of course taking us to a higher level. In Q4, the turnover was up 11.5% and number of commission generating notes was up 4.6%.
Looking at the full year, the volumes was up 29% and 44% in commission generating notes. Number of commission or brokerage generating customers year-on-year has grown by 32%. That is comforting for us, meaning that even though we will have a more troublesome market going forward, we have once again proven that we have raised the bar for our lowest performance going forward into 2022 and further on. We also look at number of transaction on the stock exchange. We are by far the leader, and we are also the leader when it comes to turnover.
We have been that for a long time, and that is also very important for us because of course, being very large on the stock exchange secures very good prices when it comes to trading, which of course is beneficial for our customers. The last slide I will talk about is of course our long-term target, and I will never, so to speak, be not clear about that is customer satisfaction. All we do is about creating value for our clients, engagement for our clients, and looking at the 1.6 or more than 1.6 million clients, more than 0.5 million of those clients interact with us on a daily basis. Also coming to innovation, we have to also on a daily basis be relevant to our clients.
Customer satisfaction will always be the long-term number one target for us. Customer proposition is of course superior user experience. My opinion is that prices and products are extremely relevant for the client, but the way you consume digital platforms, the way the experience is, how you find things, the tonality that we give is absolutely number one priority when it comes to innovation and developing the platform. We also think that the growth potential within Sweden is still very high. We have different things that works in our way, in my opinion. We have, for example, a society, if it's to be, it's more up to me. You need to save money to fulfill your dreams, to buy your first apartment, to fulfill other goals in lives.
That is, personal savings is more relevant than ever, especially the younger generation have noticed that. We will see the next 10 years a wealth transformation from one generation to the next generation. Of course, part of the new generation that will benefit from that wealth transformation is on the Avanza platform. Of course, the business model has proven the last 2 years is with a very, very high scalability, and we will keep it that way. We will keep tight control on our cost, and we will also do everything we can to make Avanza even more efficient internally, which we do every day. With those words, I would like to give the word to Anna, who will talk about the quarter and the year when it comes to the financial figures.
Okay. Thank you, Rikard, and good morning, everyone. Once again, I'm happy to present a strong result and another record year for Avanza. Compared to last year, all income lines improved. When looking at Q4 versus Q3, all lines except NII improved. Quarterly operating expenses increased compared to Q3, which is seasonally lower. For the full year, costs grew by 13%. When including one-offs, costs increased by 16.7%. This means that we exceeded this year's cost guidance with around SEK 10 million. Altogether, we record an increased operating profit by 55% year-on-year. Compared to last quarter, operating profit was flat. The net profit for the full year was the best ever for Avanza. Return on equity was 50% for the full year, to be compared with a target of 25%-30%, which today has been raised to at least 35%.
This ensures the continued focus on profitability and the low-risk balance sheet. Earnings per share for the year were just over 13 SEK, and as Rikard mentioned, the board proposes to the AGM a dividend of 9.20 SEK for 2021. Over to revenues. This is yet another second-best quarter. Brokerage income increased as a result of higher activity on the platform, with higher brokerage generating turnover and transaction, as well as more customers. This was despite 2.5 trading days fewer than in Q3. Brokerage income per SEK of turnover decreased from 11.1-10.6 bps, as the largest share of the trades were generated within the Private Banking and Pro customer segments. Foreign trading stood for 15% of turnover, as in Q3. The overall volume increased, and consequently, the currency related income rose by 18%.
Fund commissions increased, likely due to higher volumes, and despite the lower income per SEK of fund capital, which was 1 basis point lower at 33 basis points. This is mainly due to a higher share of index funds. In November, we also lowered the management fee for our auto funds with 40% to 20 basis points, which affected fund commissions negatively with SEK 2 million. Income per SEK fund capital at year-end was 32 basis points. Net fund inflow in the quarter amounted to nearly SEK 6 billion.
Net interest income was the only income line decreasing compared to Q3. This was mainly a result of increased deposit guarantee fees due to higher volumes, but also as a result of us lowering the rate for our internally financed Private Banking mortgage with 10 basis points to improve the offering. Higher volumes in margin lending contributed positively, although the average rate decreased slightly.
Other income increased, mainly explained by higher income due to increased stock lending in endowment insurance. Income from Avanza Markets and corporate finance continued to increase. Year-over-year revenues increased by 41%. All income lines were higher. Last year Q4, we reported a capital gain of SEK 63 million in connection with the reduced holding in Stabelo. Excluding this one-off, revenues increased by 44%. The strong increase in brokerage generating customers has shown resilience in brokerage income as number of transactions and brokerage generating turnover per customer have declined somewhat. Fund commissions increased by 58% due to higher average fund capital. This is in line with our strategy to grow recurring income. Uncertainty in the market is high, with high inflation numbers, interest rate hikes, and speculations to increase rates further. In Sweden, the Riksbank is indicating a 0 repo rate until the end of 2024.
However, if rates would be raised 100 basis points, a repo rate hike would make over SEK 450 million on the NII. For the first 150 basis points, we don't expect to pay interest to customers. Here, we already have an attractive savings account offering together with our partners, where customers can deposit money and get an interest. Turning to costs. Staff costs are seasonally low in Q3. Costs excluding one-off items increased by 22% in the quarter. During this quarter, a so-called agenda decision from the IFRS interpretation committee affected our accounting principles and resulted in an extra SEK 18 million in other expenses. This means that a smaller share of the development costs related to configuration and customization of software as a service in connection with the development of the new back-office system was expensed directly through the P&L instead of capitalized.
This is just an accounting effect and doesn't mean higher overall costs for the back-office system. This is also in line with how we often handle development costs, meaning taking as little as possible off the balance sheet. Staff cost has increased in line with increased number of employees. The main increase is within IT and development, which is very positive. Cost growth compared to 2020 ended up at 16.7%, which I said is less than SEK 10 million higher cost than our communicated guidance. There is no specific cost that took off, but just a number of different staff-related costs being slightly higher than anticipated. From a man-management perspective, these are good costs and well spent for our development going forward. For 2022, we expect total costs to be within the range of SEK 1.05 billion - SEK 1.07 billion.
This replaces the guidance given in the Q3 report of a cost growth of around 20%. We prefer to indicate the range in nominal terms instead of percentage point guidance, since only small deviations from the guidance give large effects. As Rikard has already mentioned, one of our new financial targets is the cost to savings capital ratio of 12 basis points, implying that we will also leave our long-term guidance of cost growth of 9%-12% annually. The measure could be affected by market fluctuations, so the impact on the savings capital may differ in certain years. Obviously, the aim is to stay at 12 basis points or lower. The target highlights our focus on efficiency and costs, but still gives us room to develop and capture growth opportunities. High cost efficiency makes Avanza resilient in various market conditions.
At the same time, it provides an important competitive advantage. Looking at income to savings capital ratio, this decreased by 4 basis points from last year's to 47 basis points. This resulted in an operating margin of 74% for the full year and a profit margin of 62%. Avanza has a strong capital position, and what steers our capital is the leverage ratio, where we are at 4.8%. During this year, we will get our additional bank-specific Pillar 2 guidance from the Swedish FSA. Considering the same level as our sector colleague got at 0.9%, the position is still strong. Today, we have an internal target of 3.8, which of course must be updated accordingly.
To strengthen the leverage ratio and to optimize the capital structure, we are planning to issue additional Tier 1 capital during 2022, and we will come back with more information about that. In the quarter, the EGM voted for the proposed additional dividend of SEK 2.95 per share of 2020 year's profit, which only had a limited effect on capitalization for the consolidated situation since the largest part of the capital was distributed from the pension company. As said, for the financial year 2021, the board of directors proposes a dividend of SEK 9.20 per share, which is in line with the dividend policy to distribute 70% of the net profit. With that, I would like to conclude with a few remarks on Avanza's position going forward.
Customer focus. Maintain our most important long-term targets, and it is crucial to continue to grow savings capital and revenues. In the last two years, we have reported a return on equity well above targets. We cherish our low-risk balance sheets, and our updated return on equity target shows the continued focus on profitability and effective management of the balance sheets. Together with strong cost focus and high efficiency, this gives us flexibility for the future and makes Avanza resilient in various market conditions. Cost effectiveness is an important part of our strategy. With that, I would like to hand back to you, Rikard.
Okay. Thank you, Anna. I think with those remarks, we will open up for questions.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name's been announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. Once again, that's zero one to ask a question or zero two if you need to cancel. Our first question comes from the line of Nicolas McBeath of DNB. Please go ahead. Your line is open.
Good morning, everyone. I have some questions on costs. First question, you're guiding now for or targeting cost to savings capital at around 12 basis points, which is more or less where you are at the moment looking at the cost of savings capital for 2021. This implies that your guidance, you're not really targeting to grow assets on the platform faster than costs. Does this mean that you no longer see any more scale benefits, or why don't you target the further improvement in the cost of savings capital ratio? That's my first question, please.
I think I answered that because I said that the 12 basis point is to view as a ceiling and not the floor. We are ambitious absolutely to have a lower number than 12 basis points. We said that given the fluctuation in the savings capital, we want to communicate the highest level that we could accept over time, but we want it to become a lower number.
Okay. What kind of level are you targeting then?
Well, since it's a volatile measurement, we targeted that not above 12. Of course, if the stock markets go up tremendously, it could be in some cases a lot lower, but we have not communicated a target below 12. I would say we have targeted that we will not accept above 12 over time.
Okay. I mean, I guess just reading how you communicated the target, you're saying you're targeting 12 basis points. I think it's just a bit confusing if you at the same time also targeting it to be below 12 basis points. Yeah, I guess I have to accept that. Following on the costs topic, I mean, implicitly, you're guiding now for underlying cost increases quite well above 20% for 2022. That's the highest cost growth for Avanza, I think, yeah, for many years, except for the years shortly after the company was founded. Looking then at your customer growth now in Q4, for instance, it was somewhat below 20% looking at annual pace.
I mean, how do you see this kind of dynamic, cost growth relative to customer growth? Why do you think you need to grow costs so much faster than what you're currently expanding your customer base?
I think we can expand our customer base further. I will not take the long-term conclusion from one quarter. I think the second part to the answer is that, as I said, we have experienced during 2021 higher growth than we expected. We have additional staff in customer support units. At the same time, looking at our development agenda, our innovation agenda, we have raised our ambition. We need more people if we're going to materialize our ambitions in development when it comes to IT programmers, engineers and so forth. As I said, I think we are raising the cost and it should be viewed as investing for the future.
Okay. It seems like you also removed your earlier long-term cost growth guidance of 9%-12%. Should we read this that you expect to grow cost faster than 12% in the future?
No, I would say you could read it that we have also communicated the nominal terms of the cost we expect for 2022, and I would absolutely think that going into 2023, we will do the same thing. We're living in a changing world. We don't know what opportunities knock on the door or if they don't knock on the door. We just like to have a shorter planning horizon when it comes to how we grow cost. Of course, in also we take into account the development of the income side of that. That's the reason we took away the 9%-12%. You could expect that we would state the nominal cost growth for 2023 when we sit here a year from now.
Okay. Yeah, I'm just curious really to understand the drivers of the cost growth acceleration. I mean, you're doing good things with improving the app and the product offering, but from the outside, it's not clear that the innovation pace has really significantly accelerated. Historically, you've been able to innovate and all that at lower cost increases. Just, I mean, is there anything you could explain to make us understand what has changed? Has it got anything to do with your customer satisfaction gap versus peers narrowing in 2021 or recent reports about technical problems? Is there anything you could add to fill out the blanks there for us?
No, I wouldn't say it has anything to do with the technical problem we had three times during the quarter. That's not applicable to this question. I would say that we hired more people in customer service or customer support units, to put it as that, than we expected to do in 2021 since we grow the company more than expected. That will to some extent have a cost effect during 2022. We are competing for the talent out there, so we're expecting a wage increase for around 4% for the full year. That has an effect.
Adding that up and looking at my different development teams and the resources they want to be able to create new innovations, improvement on the platform, and so forth, that means that we will hire more people during this year when it comes to innovation and also some people in IT for maintenance of course. It's a lot of different things, but I would say that you should view the cost increase of 4%, then you have some cost increase due to full year effect of the customer support units, and then it's about innovation, making sure that we will be relevant for our customers in the future. We have a development agenda for 2022 that in my opinion is very exciting.
Okay, my final question. You have no formal target of operating margin, but I know previously you've been talking about 50% operating margin target as something you'd like to have over time, which I mean to not make you too profitable, so to speak, relative to your customer promise. How do you think about the operating margin going forward? Do you still find it unsustainable with an operating margin well above 50%, or has anything changed here that make you think it's okay to strive for that in the future?
I don't think that the customer promise is actually jeopardized because our operating margin. I think that our business model has become more, I mean, given the last two years, our scalability has skyrocketed, and that has made the profit margin going very high. I said, as I said to you before, Nicolas, I think that we lowered the prices in the Auto funds now by 40%. We gave all the money back if you are below 50% in mutual funds. I think that we have room for maneuver when it comes to using price as a mechanism for enhancing growth.
At the same time, when it comes to more to you, less to the bank, I think it's also about the customer experience, that feeling that the fees that I pay to Avanza is one thing, but the what I get back has a higher value for me as a customer. At the same time, 2020 and 2021 has been exceptional years when it comes to profit margins, and I think it creates flexibility for management using pricing as a tool. As I always say, when we use pricing as a tool, as we did in the Auto funds, we use it to lower prices short term to be able to gain it back in the long term. So that's my answer to that.
What was the answer really? Do you think it's, you know, okay to have a profit margin well above that, or will you continue to use price reductions to drive down the operating margin?
Not to drive down. We could use price reduction. What I'm saying is to run down the operating margin to some extent in the short term. In the long term, if we are as scalable as we have proven, I think that we will so to speak accept the profit margin above 50%.
Okay. Perfect. Thank you.
Thank you. Our next question comes from the line of Robin Rane of Kepler Cheuvreux. Please go ahead. Your line is open.
Yes. Good morning. Looking at the ROE target of at least 35%, you mentioned that you want to optimize the capital structure. Does this at least 35% target include some kind of payout, extra payout of equity or so on to be able to reach or not to reach because you're already there, but to sustain a high level of return on equity?
No, I would say that our target is to pay out 70% of the profit as return on equity, but then the capitalization within the company is steered very much by the leverage ratio. That's the disclaimer, so to speak, basically, that if we would have challenges with the leverage ratio, that could affect the payout ratio. That is not something we're planning for. Something external would have happened that made that we would have a lot of liquidity within the company. As Anna said, we're also planning to make Tier 1 capital. That's how we view it. Seventy percent of the profit last year amounted to the board proposing SEK 9.20 to the annual meeting. That's my answer to that question.
I mean, since you are pretty well capitalized already now on the leverage ratio and plan to issue Tier 1 capital, isn't that implying that you will make some kind of extra dividend or distribution of equity going forward?
I think we have to come back to that question when we get the Pillar 2 guidance from FSA, and we expect to get that all during the fall of 2022, because that guidance will very much steer how we will handle the leverage ratio. Before we have that information or that decision by the FSA, we will stick to paying out 70% of our profit as dividends.
All right then. You're not assuming in your financial planning that you will do so. That's. That would come on top of this, given the target of
If you looked at the sector colleagues and the demands that they got from the FSA, if we get the same demand, we need some headroom over that to have flexibility, to speak, to not jeopardize breaking that demand from the FSA. That will steer the capitalization. It comes theoretically, if we were way above that, of course, we have historically paid many years more than 70% of the profits. Looking at the leverage ratio, the uncertainty that we don't have the decision from the FSA, we will have to come back to that question when we know what the demands from the FSA will be on the leverage ratio, which is the most important factor steering our capitalization.
Okay, great. In the beginning of 2020, when you lost the previous target of 7% market share in 2025, you said that this would imply a doubling of the savings capital. What is your assumption into the growth of savings capital into 2025?
I will say that it's maybe the start of this year has also implied the volatility when it comes to savings capital. I'm not gonna say that exactly how much larger we will be, because the important thing is to get to 10% market share. I know I've said that implies a bit doubling the company, and we did that in two years actually. I will not guess how large we will be having 10% market share in 2025. The only guidance I can give is that we will be a substantially larger company than we are today.
All right, thanks. Lastly, coming back to the Niklas questions on the costs and the cost growth, which you say will be driven by the development. Can we get any sneak peek on the development agenda for the year or for the coming years?
My comment is as always, I always talk about what we have done. What we are going to do is a well-kept secret on the floor in Kungsgatan in our offices, because it's also part of taking our customers by surprise by launching things that they are not expecting and get that wow factor. We are a bit boring in that sense that we don't talk about what we are going to do in the future. I think that people in the room that I'm sitting can see a smile on my face when I'm looking at the agenda that we have going forward.
All right. Thank you very much.
Thank you. Our next question comes from the line of Maria Semikhatova of Citibank. Please go ahead, your line is open.
Yes, hello. Thank you for the presentation. I have three questions. First of all, we've seen quite strong performance of Avanza Markets in this quarter as well. Could you just flesh out if there were any extraordinary items or you think this is a kind of good base levels for upcoming quarters?
I would say that's very difficult because these kind of products are often invested in by our clients, very much related to the environment, so to speak, or the asset prices going up and down. It's very hard to predict going forward. Also as we communicated in Q3, we did get a better deal with Morgan Stanley that was full effect in Q3. That is of course positively. It's one of those income lines that I'm very difficult to predict because it has a lot to do with market conditions.
Okay, I understand. A question on pension savings. How much of the savings have been transferred to Avanza last year following the regulatory change? Given the launch of Pension Hunt, what are your aspirations for 2022?
Very difficult to have a market view on how much we got. We know that we have gained much more pension transfer since April going forward than we did previous regulation. I have not seen any market statistics for the full year, so we're satisfied with development for it. We think that the Pension Hunt, I don't dare to put in nominal terms what our expectations are, but if we think that we have launched something that will be very appreciated by our clients and will be used by our clients, and that will have a positive effect. But it's very, very difficult to have a prediction that what you should take on it is more that we have shown that we are developing things targeted for this marketing that is opening up a bit.
At the same time that I always say is that the administration around this, where former employees have to sign and so forth, and other pension companies basically try to hinder customers who transfer their pension, those obstacles are still there, even though we try to mitigate them the best we can. My prediction is that the net inflow in the pension company will be better than last year, but how much better, I don't know. My expectations are high, but it's also other factors that are in the industry that affects this. I'm actually quite disappointed that the e-pension industry in Sweden not can get their act together to build processes that will be customer-friendly when it comes to this and making sure the customer will make the decision and not the pension company.
Thank you for the color. Just to clarify, what is the addressable market for you today and how it will change if the policies older than from 2007 is also applicable within your easy transfers?
I think the addressable market for our pension offering, giving what we do, is. I think it's around SEK 890 billion. We still have a lot of market to gain given that, so to speak, limitation or what you like to call it. We are not afraid that we'll reach the potential within the company during 2022. I think we have room for a lot of growth for the next couple of years in our pension company.
Understood. Just finally, before we look at the December trading update that you provided, the number of commission generating notes per customer declined. I don't know if there's anything in your view, any reasons that you could flag that drove a little lower client activity for that specific month.
I would just say, if you compare November to December, November was a much more active month than December, which came into a bit of, how do I say, hesitant mood with some investors, and the turnover with the stock exchange was not as high as it was in November. It's always very difficult to take long-term trends from November. That was very strong. I think December was okay. As always, we are affected by the environment and the risk appetite and volatility in the market, and those things affect the trading patterns a lot. I think that a lot of clients became a bit more hesitant during December.
Okay. Thank you. Thank you for your answers. That's it from me.
Thank you. Our next question comes from the line of Mats Liljedal of SEB. Please go ahead. Your line is open.
Thank you, and good morning. A few follow-ups. First, we can start with pensions. On the transfer, you announced this new, that is you'd be fully digital to transfer your pension. Has that changed the time it takes to move a pension, or is that still the same? Because it takes up to 3-4 months to move your pensions. That hasn't changed from this new version.
No, no, I think that the way it works, sadly enough, is that if you use our new application that we launched, which is called the Pension Hunt, or in Swedish, Pensionsjakten, what happens is that when you have put it in that you want to transfer this pension, sadly enough, you get a paper in your mailbox home that you have to sign and send back to us because we need to send that to the pension company that you're leaving. On the back of it, the digitalization of moving pension has not moved forward. What we think is that we have created something that will make it at least as digital as it's possible given the dysfunctionality in the pension industry. It will not be increasing the pace of transferring pensions, sadly enough, I have to underline.
Okay. Thank you.
It will be much easier to find the transferable pensions that you have by using BankID to find out.
Yeah.
what you can move.
Move.
That part is much easier.
Yes.
more digitalized.
That's a very important point that Sofia says, because now you can sit with your mobile phone, and if you have pensions in, let's say, four other pension companies, you can very easily understand which are the pensions I have, which can I transfer. If I click transfer, you get the mail from us in your mailbox, or actually a physical mailbox. You sign it, you return it, and then the pension transfer is on its way. We do all we can to making sure that we do for our customers, so they have to do as little as possible more than ordering the transfer. On the backside of this, it's still a dysfunctional industry, in my opinion.
Thank you. Follow-up on costs. If I just play with numbers and say that you should have 10% of the savings market in 2025, and I base that on your current amount of savings capital, and then we say that there's no growth at all in the stock market, and then I take 12 basis points on that in terms of costs, I end up close to SEK 1.4 billion, annualized close to 14% annual cost growth. Is that how we should read this, that the old 9%-12% will
It's abandoned in a nice way, but in fact it's actually a higher cost guidance going forward. I would think you should view it as this. As we said, we think the 12 basis points should be viewed as the ceiling, so to speak, of cost in relation to savings capital. One of the things we also mentioned is that we plan everything year for year given our agenda. That means that we will in January 2023 guide you on how much cost do we anticipate that Avanza will carry for 2023. I have not an answer to that right now and because we need that flexibility given. It's more that we will take 12% as a ceiling.
We want to be lower, and then we will look at our plans, innovation initiatives that we want to do, which we do always in October, November, December. We will figure out what we think the resources are necessary for that year. That's the way we will communicate it and do it.
Okay. Yeah. Thank you. That's all for me, I think. Thanks.
Thank you. Our next question comes from the line of Andreas Håkansson of Danske Bank. Please go ahead. Your line is open.
Thanks, good morning, everyone. A few follow-up and some new angles. Just if we start with the above 35% ROE target, could you tell us, are you assuming anything in terms of higher interest rates in 2024 or 2025, and how big impact that would have?
No, we haven't planned.
No, we have not anticipated that, in our return on equity target.
Okay.
The 400. Yep.
Yeah. If you theoretically the Riksbanken tomorrow increases the interest rate to 1%, then we on a rolling twelve-month basis make SEK 450 million. We still stick to that the Riksbanken is not increasing interest rates. I think it's in end of 2024. We are not counting on that. That would be an extra icing on the cake, so to speak.
Without costs attached, I guess it would fall straight down to bottom line. On the cost, I have to go back to cost just a little bit. Being Avanza client, I noticed the downtimes. You mentioned three times. It felt like it was more maybe. But am I correct to say that those days happened when it was very high activity levels? And is it a fact that you have actually reached some sort of capacity ceiling in your platform and higher costs are also driven by those type of investments, not only new staff, or is that wrong?
That's wrong because those hiccups that we had during Q4 had nothing to do with volumes or loading within the system. They were network issues that occurred when two applications couldn't really speak to each other and were three different things. That was something that I'm very sad for and very, very troublesome for us. At the same time, if you look at, I would say from March 2020 when the market exploded and we implemented a lot of new hardware and so forth, our downtime has been, I've been thinking more or less zero until beginning of November when we had three hiccups. We learned a lot from this, so it's not a capacity problem. It's unlucky circumstances that occurred three times. We have of course taking every measurement so that this cannot occur again.
I'm always humble. We have a lot of applications running on the platform, and we have, if you look at the longer time perspective, extremely low downtime on the platform. Sadly enough, we had three hiccups during Q4, and we learned a lot from them, so those things will not happen again. That's my answer to that.
Yeah. Okay, fine. Last one, it's been a very volatile beginning of this year. Could you tell us just an indicator of how activity levels looked and how are clients acting in this environment?
I would say that our clients are net buyers of equities. I think everybody's trying to buy the dip a little bit. I would say looking at the statistic, I will not go into the details, it's one day is not as the next day. I think that we have daily. I would say normally you can say weeks, you can talk about trends during a week. Now we talk trends for a day. It's very volatile when it comes to activity from day to day, which is of course a reflection of the volatility and the uncertainty in the markets.
Okay. We have to wait for the January data, I guess. Thanks very much. That's it.
Absolutely. Thank you.
Thank you. Our next question comes from the line of Jens Hallén of Carnegie. Please go ahead. Your line is open.
Perfect. Thank you. No cost questions from me. I think we've covered them already. I have 2 growth questions. Rikard, I think in one of the slides, slide 7, you talked type of growth as taking up to a higher level. Can I ask to understand what you were saying? Are you referring there to the, you know, as normal, the greater number of customers should be generating a higher rate of volumes all else equal? Or do you now also believe that the higher number of customers and savings capital has increased, but also that the number of trades per customer has increased, i.e., the activity levels have increased during the last 2 years, that's here to stay. So I interpret you correctly.
No, I would say that the growth with number of customers, the 36% year-on-year more generating brokerage income, we have now more than 1 million customers invested in mutual fund. That was 500,000 customers in August 2019, not long ago. What I'm saying is that given the size of number of customers AUM, we are more resilient in a bear market, so to speak, even though we will have troublesome days than we were pre the pandemic, just because we have doubled the size of the company. That's what I'm saying. I usually use the words that we have absolutely increased the lowest bar for us. I have said many times during the year that a bad day now is not as bad as it was pre-corona.
No. Exactly. No comment there on what you think about activity levels per person or per customer.
It's also, I think, the activity levels are so interlinked with the market volatility and the turnover in the market. That's something that we in Avanza can affect or want to affect, because as I always say, we communicate two things to our customers in a thousand ways: diversify your investment, have a long-term view on the market. I think that Niklas Andersson also says, is time in the market is equally as important as timing the market. If we go into a market where our customers are not that active, of course short term, that could affect our income in a short-term perspective. If that's the best for our customers given the circumstances, I'm very happy if that happens, because in the long term, it's always back to the customer satisfaction.
It's very hard to predict. Once again, number of customers have a mutual fund, number of customers generating brokerage income is at record levels, and that is a sure bet that a bad day in the future will not be as bad as it was pre the pandemic.
Perfect. Thank you. I understand. Final question then on your ROE target and, you know, we talked about cost for a long time. What do you then assume? Do you assume that the activity levels and markets will stay as they've been? Do you extrapolate that or do you include that you think that we will have a maybe a tougher market going forward than we've had in the last year? How do you do that when you do your modeling and come up with your targets or ambitions?
Of course, when we look at our targets and ambitions, we try to project the future, and the only thing we know when we do that is that we know that we're wrong. Hopefully we're right in the long-term view, because if you look at the market, the growth, it's not going to be a straight line. It's going to be a line that goes up and down, sometimes above our expectations and sometimes below our expectations. Looking at the volatility in the market that we're in right today, my opinion could change after lunch from the opinion I had before lunch, because it's so difficult to predict the market and so many uncertainties out there.
What we can control is develop the platform, taking care of our clients, making sure that we can release new good things that will be appreciated by our clients and make them good investors. It will, what will happen will happen, so to speak.
Okay, fair enough. Thank you. That's all for me.
Thank you. Our next question comes from the line of Jacob Kruse at Autonomous Research. Please go ahead. Your line is open.
Hi, thank you. Just two follow-ups, I guess. Firstly on the capital side. Your leverage ratio was 4.8. I think you talked about 0.9 as the Nordnet comparison for the Pillar 2G. You already concluded that you want to raise additional Tier 1 capital to shore up the leverage ratio. I'm just not quite clear. You talked about some uncertainties around what the FSA is saying, but it sounds like you've already made a lot of the decisions. Are you looking at a higher additional buffer than you used to have for your leverage ratio, or is it that you see scope to optimize the capital structure once you have raised that AT1 capital?
Secondly, could I just ask, could you give some kind of guidance on the cost side, A, in terms of what your IT scalability is at the moment, so what kind of loads you're running relative to capacity? Secondly, if you could say anything around your staffing, the split of staff, what percentage are in customer support, say, trade administration, and what percentage are in IT development and maintenance? Thank you.
Okay. To start with the last question, I think that IT development depends on account. We are around 600 people in Avanza, and we say half of the company is IT, give and take, without doing the numbers, but that's a fair assumption. You could say about 300 is in IT development out of our 600. The rest is of course compliance, legal, accounting, customer. I think we are around 20 in customer support units, Private Banking, I think we are around 80 people, something like that, to give you a flavor of that. When it comes to the capitalization of the company, of course, the problem with the leverage ratio is that it goes down when customers sell off and sit on a lot of liquidity.
That's why we need to look when we get the guidance from the FSA, if it will be 3.9%, we have to figure out a bit, which of course is work in progress. What is our target gonna be? That makes us in a very bull market, so to speak, when people do a lot of sell-offs, we are not, you know, jeopardizing the 3.9%. Then of course, any excess capital that we have above that will be paid out in the 70% dividends of course. Theoretically, if we will go way above that for some reason I don't know, then of course we would be prepared to pay out more than 70% in dividends, but that's a very theoretical scenario.
If it happens, of course we will be optimizing our capital structure given the leverage ratio. If we are way above that gives us room to maneuver, so to speak.
Yeah. It's not that theoretical given that you're already saying you will raise AT1, and you already know what your closest peer had as the Pillar 2G buffer. So surely you must have a view on what you do if you raise, let's say SEK 600 million of AT1 that adds 100 basis points. Is that then too much if the minimum is about 4%?
We have not said how much AT1 capital that we will raise, so that will be communicated in due time. Okay, it's not theoretical, but if we are way above our leverage ratio targets and we have very good profits, I would expect that me and Anna as the CFO will propose to the board to pay out more than 70% of the profits.
Okay. No, that's just the SEK 600 million that Nordnet raised just, you know, keeping everything on the same, since that was-
Yeah
the Pillar 2G comparison. Okay.
I know that.
Okay.
Yeah. When it comes to scalability, I said that we have learned a lot during the pandemic. Number of trades and the scalability on our platform is not something that is hindering us. The scalability absolutely there, and we have taken a lot of measures since the COVID started to improve our scalability. Today I'm very comfortable that we can handle a lot more volumes, a lot more clients on the platform and operating that in a smooth fashion going forward.
On that, if that's the case, why would your cost guidance not be an improvement from current cost levels if you have a portion of the cost base that is already very scalable?
Basically because we're hiring. One, as I said, one is that we underestimated our growth in 2021, so we did hire people in customer service, back office, Private Banking to handle the massive volumes that we got. That has a full year effect on 2022. We also have a wage increase of 4%, and that is also a fight for talent, especially when it comes to IT. We are adding more people in our development teams to be able to innovate more, make good things for our customers. That is, as I said, very much you should view it as the cost increase next year is to an extent investing in a better Avanza for its clients going forward in the future.
This is basically if you go back to 2017, 2018, 2016, we grow our cost more than our income, and we got a lot of question about that. We said that we're investing for the future, and I think in 2020 and 2021 has shown that we took wise decision in investing in the company, and we will never look at our costs from a short-term perspective. Then as I said, in a volatile world, a digital world, we will also add to the cost guidance that we have given that we will every year state what we believe the neighborhood of cost will be for next year. I don't know the plans for 2023 yet. Of course I have idea where we want to move the company.
What resources it will take to make that move, I don't have the grip on that. That's why we have an increase of the cost this year as we have some legacy from last year, new initiatives, and that adds up to the cost increase that we have communicated. I will also always say there are good costs and bad costs, and I'm absolutely convinced that the cost on Avanza is beneficial for our customers in the long term and then also our shareholders in the long term.
Thank you. The next question comes from the line of Patrik Brattelius of ABG. Please go ahead. Your line is open.
Thank you. Yes, a lot of questions of mine have already been asked, so I just have one left, and I thought we could talk about mortgages. I saw that you lowered your mortgage rate here in Q4 in the Private Banking channel, while other banks they raised their list prices on mortgages. How should we interpret this? What was your thinking there?
That we are improving our offering for our clients. Basically if you look at the rate increase from other banks, it has been on, especially the longer part of the yield curve, the five-year, the two-year, I saw some bank increase the rates. Our Private Banking loan is connected to the repo rate, and we used to have 99 basis points above the repo rate, now it's 89, and that has to do with improving the offering, taking care of our Private Banking clients. It's an important thing to grow the Private Banking with volumes. You should view it as that. Basically because it's on the short term of the yield curve that the competition is when it comes to Private Banking.
Okay. Do you have any further ambition here in 2022 to ramp this up and gain more Private Banking customers and ramp up the mortgage lending ambition?
No, I mean, as you know, the Private Banking loan is connected to our liquidity, and we don't lend more than maximum 25% to our liquidity. Our liquidity has to grow to increase that loan. That's one part of it. The second part, of course, is that we expect our partner Stabelo to be able to improve their offering, especially when it comes to higher LTVs and being in the buy market, so to speak. We see promising results from our partnership with Landshypotek. As I said before, I would love Avanza to have even more partners on the mortgage platform. That's something that we would like to do, but it takes two to tango. Slow step by step, we're increasing our footprint in the mortgage market.
It's not going dramatically fast, but it's going in the right direction step by step, and I expect that to continue for the next couple of years.
Okay. Yeah. Because the mortgage lending, it didn't increase that much quarter-over-quarter, while the savings capital was up by 10% quarter-over-quarter. You don't think that you can do more within that channel?
Within the Private Banking, I think we are doing more, and that's a bit seasonal also because it's. We try to use that very effectively since we have a limit on how much we can lend to our Private Banking clients. We have increased that limit, but we're always we want to use it for the right clients that also gives the effect that the clients will move a lot of savings capital over to Avanza.
Okay, fair enough. Yeah, that's all from me then.
Okay. Thank you.
Thank you. Once again, if there are any final questions, please dial zero one on your telephone keypads now. It seems there are no further questions coming through at this time, so I'll hand back to our speakers for the closing comments.
Okay, thank you very much. Always interesting questions, and I wish you all a great day, and stay safe and take care of yourself. Thank you very much.
Thank you.