Ladies and gentlemen, welcome to the Avanza Bank Holding interim report, January to September 2019. Today, I am pleased to present Rikard Josefson, CEO, and Birgitta Hagenfeldt, CFO. For the first part of the call, all participants will be in listen only mode, and afterwards there'll be a question and answer session. I'll now hand the call over to Rikard Josefson. Please begin.
Okay. Thank you very much, and good morning, everybody. If we go to page two on the presentation, we can conclude that it's been a strong quarter for Avanza. Our net inflows is up 19% quarter-to-quarter and 22% for the full nine months, which is absolutely satisfactory. Total savings capital is up to SEK 377 billion. Also when we look at the statistics from the Swedish Investment Fund Association, we conclude that we are in all taking about 20% of all mutual funds, new savings in Sweden for the first nine months. Bear in mind that our total market share is 4.2%. We also did a lot of updates when it comes to our mutual fund offering with a new site on the mutual funds. We give more ESG data through Morningstar.
We also have better tools for analyzing funds, and last week we released a better engine to filter funds so you can sort them out since we have quite a few on the platform. If we go to the next page, we can see still strong customer growth at 14% better this quarter than Q3 last year, and year-over-year it's 4% better. We also have 940,000 clients at the moment, so we are on a good pace reaching our target for 1 million clients. When you look at the next page four, we saw a quarter with very high activity during the quarter. More customers than ever was generating a commission for us and the commission generating notes was at a record level. The good thing about this is that we did not have a Fingerprint Cards Bitcoin or anything that was trading extremely high.
Overall, it was an underlying good activity throughout the quarter. Going to the next page, we also just can note that our market shares when it comes to transaction on Nasdaq and First North, we were actually increasing that a bit during the quarter, which is a KPI that we keep close eyes on. On the next page, we can see that we have high pace and innovation during the quarter. We have new logins with biometrics. We also complementary released Swish for depositing money from other banks into Avanza. When it comes to the open banking area, we can now have other banks accounts on our platform and our customer experience. We can take up mortgage loans from other banks if we compare them to our own offering, and our increased focusing on asset under management has been bearing fruit.
We also did a bit of society work when it comes to the pension reform that is being in the Swedish Parliament to make a change that will be more to the customers and less to the pension companies, and we have been quite successful in that so to the lobby work. We will see whether it comes out from it, but I think it's a very important issue for the Swedish savers. Going back to next page seven, we also released my new pages, which was a very big change in how the customer will consume Avanza when they're going on the platform. We have been getting a lot of good credits from our customers and new navigation and a more tailor-made starting page for each client has been very appreciated by the clients.
I think this also shows that even we know that we have satisfied clients, we dare to always improve and change our customer experience and make it even better. We will never rest our case when it comes to the UX experience on Avanza platform. Going to the next page, you can see strategy for more recurring income is going quite well. We had a record quarter when it comes to brokerage income, which was satisfactory, but the fund capital is up to SEK 109 billion. The income per fund krona is down to 33 basis points from 34, but I think that's in line with my expectation, and we will compensate that via the volumes.
The corporate finance on the Q3 was quite low, which it seasonally is on Q3. We were part of the EQT introduction to the stock exchange. Actually 30,000 clients on Avanza became EQT owners in that issue. The new owners of EQT was in total 40,000. We think that's a proof of the distribution capacity that we have within the company. Going to the next page, to sum it up, we have a great growth in the company. We're proving that the pace of innovation has increased. That means that the cost increase the last couple of years is paying off. Important for me is that we also just recently did a survey with our employees that we do three times a year. The eNPS is at 54, which is more than our target of 45.
Also the income growth now for the full year is surpassing the cost growth, and we are comfortable that we will deliver on that target for the full year. We have a great momentum in the company, and we look at the future with a very positive outlook. With that, I will hand it over to Birgitta.
Thank you, Rikard. If you look a little bit at the figures, revenues were all-time high in the quarter, up 16% compared to Q3 last year, and all revenue lines improved. Comparing the nine-month period with last year, revenues were up 11%, mainly due to higher MII, but also higher brokerage income and fund commissions. Operating expenses increased by 10%, mainly due to higher personnel costs. Comparing the two nine-month periods, costs were up 9% and in line with our budget of 10.5% cost growth for the full year. The long-term guidance is a cost growth of 9%-12%. As Rikard mentioned, if nothing unexpected happens in the next two months, we believe there's a good possibility that we will reach our long-term target regarding income growth higher than cost growth also for the full year.
Operating profit increased by 23% year-on-year and by 11% for the first nine months. Consequently, the operating margin improved to 52% in the quarter, which was 2 percentage points higher than last year. Revenues per savings capital was up one basis point compared to last year and down one for the nine-month period, mainly due to higher average savings capital. Costs per savings capital was down one basis point to 16 year-on-year, and for the nine-month period, the cost to savings capital was 19 basis points, in line with last year. Our long-term ambition, as you know, is to lower the cost per savings capital ratio to close to 16 basis points, which is in line with the best international peers. Revenue were, as said, record high in the quarter and up 10% quarter-on-quarter, and for the first time over SEK 300 million.
Net brokerage income increased by 20% compared to previous quarter, mainly due to 8.5 more trading days, but also due to higher brokerage income per turnover krona. Income per turnover increased as a result of larger share of the brokerage fee being related to transactions made in lower brokerage fee caps. Number of commission-generating customers were record high, as was the number of commission-generating notes. Brokerage income per trading day increased by 4%. Compared to Q3 last year, net brokerage was 13% higher. Looking at the fund commissions, they increased by 4% quarter-on-quarter, mainly due to higher average fund capital. Income per krona on fund capital decreased marginally to 33 basis points, which is the same level as for the nine-month period. This is a decrease of close to two basis points compared to last year and a result of a somewhat higher proportion of index funds.
Fund commissions were, in the nine-month period, 6% higher compared to last year. Looking at the MII, it increased by 5% quarter-on-quarter. STIBOR decreased one basis point compared to the second quarter. In spite of this, the return on surplus liquidity improved slightly due to the three-month interest duration and subsequent lag in the bond portfolio. Income from margin lending and the Private Banking mortgage improved due to higher average lending volumes. For the nine-month period, the MII increased by 60%. This is of course mainly due to the repo rate in January and consequently higher STIBOR, which has turned the last year's cost for the surplus liquidity into positive yield.
All else equal, and without taking any changes in customer behavior into account, a one percentage point change in the interest rate from here with today's volume would affect full-year MII by around SEK 300 million, where the upside effect is larger than the downside effect. However, we don't see a repo rate high as likely. Other income increased slightly quarter-on-quarter, mainly due to higher income from FX and Avanza Markets. Revenues from corporate finance were seasonally low. Compared to Q3 last year, income from corporate finance increased, income from Avanza Markets increased by 29%, FX-related income was mainly unchanged, and payment services commissions increased due to increased trading in foreign securities. Operating expenses decreased by 10% quarter-on-quarter, and this is mainly a result of the seasonally low personnel costs that we had in Q3.
Compared to the nine-month period last year, personnel costs increased by 11%, mainly due to expanded development capacity. Also, costs for IT licenses were higher, whereas costs for external services decreased. Our capitalization is good, with a total capital ratio of 19.7 to compare with the requirements of 16.5, which is including all external and internal buffers as well as our Pillar 2 requirements. The total capital ratio increased compared to Q2 due to the nine-month results being reviewed by the auditors and consequently the net results have been included in own funds after deduction of assumed dividend. The main part, though, is due to the share issue as a result of the exercise of employee warrants, which increased our own funds with about SEK 180 million. The leverage ratio for the group was 3.5%. It is now settled that the requirement will be 3%, taking effect in June 2021.
The leverage ratio will be an important measure for us going forward when managing the capitalization. Since increasing deposits will have a negative effect on the LR ratio, we are discussing the size of buffering needed to comply with the requirements in all kind of market conditions as we grow. Our dividend policy to distribute at least 70% of the net profit stays sound. With that, Birgit, I think we can open up for questions.
Absolutely.
Thank you. If you do wish to ask a question, please press 01 on your telephone keypad now. First question is from the line of Peter Kopecky from SEB. Please go ahead, your line is now open.
Hi, good morning. I have a few questions. Start off with on the brokerage commission rate. As you mentioned, Birgitta, that you've seen more trading within the lower commission classes. Is that the only driver behind the all-time high commission rate? At least given the data I have, it's an all-time high level. There's been no other changes on, I guess, towards pro clients in terms of what they're being charged or anything like that?
Well, we haven't changed any prices or anything like that. Yes, the rest of the trades are more business as usual and even more trades. Yeah, I would say that is the main difference between the previous periods.
Okay. Would you expect that drift to continue, given that, as we've discussed before, you're taking in more younger clients, which then will have less savings on their accounts? In essence, the brokerage commission rate could, in essence, drift higher due to mix effects. Is that reasonable to assume or think about?
That is always hard to answer on because as you know, the brokerage revenues are so market-dependent and dependent on the volatility and so forth on the Stockholm Stock Exchange. We definitely see more new customers or the new customers that we are taking in. Of course, there are not so many day traders out there. Of course, we will take in more and more customers that is trading in little bit lower volumes and probably lower classes as well.
Okay. On the cost side, first of all, the fact that you've launched that one can deposit money through Swish on your platform. Does that change the cost picture anything? I mean, is Swish less expensive than Trustly? Could that have a positive impact, or is there only a minor difference?
Swish is better or lower cost for us. Then again, you should realize that with Swish, you can only transfer smaller amounts. If you want to transfer larger amounts, you still have to use Trustly. In some effect, of course there will be, but I would say that it's not significant.
No. I would say that on the margin, Swish will add that new clients will get going a bit quicker sometimes.
All right. On the cost guidance for the full year, where you reiterate your message, that implies quite a steep increase in cost in Q4. Is there anything in particular that is driving that, or is it just ordinary seasonality and that you will be recruiting a lot during Q4 for the next year?
We have been recruiting a lot during the year, and some of them won't be fully in place until in the fourth quarter. I would say it's a seasonal effect, and it's normal that we have higher costs in Q4 and in Q1.
Okay. That would imply that the hirings throughout 2020 should be lower than in 2019, at least how it looks on an absolute level.
Yes. As an absolute level, we are not planning to exceed the total number of employees in a significant way anyway next year.
Just the last question. On financial targets, Q4 is obviously the next quarter report. Should we expect any kind of new financial targets or updates or anything like that to be expected?
Yeah, exactly.
business as usual?
Since we hope we are reaching our 1 million customers close to after the interim report or the Q4 report, we definitely will launch our new forward-looking financial targets.
Okay. Thanks for that. I'll stop there.
Next question is from Ermin Keric from Nordea. Please go ahead, your line is open.
Good morning. Thanks for taking my questions. On the 1 million client goal you have, given the current pace, you would basically reach that by the end of Q1. How should we view that? Has it been progressing ahead of plan for you? Is there anything special that has driven that's above expectations, customer acquisition rates.
Well, I was not in the company when they set the target, but I would say looking at the year that we are close to reaching that target a bit earlier than we expected from the beginning.
We had said 2020, never went during 2020.
Sure. Also jumping to the brokerage income. I'm just wondering, with the recent development in the U.S. and we've seen especially new players such as Robinhood from Google intensifying price competition, do you see any risk for that playing out in Sweden?
In the mid to near term, I don't see that happening because if you look at the U.S. market, they have different regulation, which means that they can sell their order flows and make money on the spreads in other ways. If you look at Charles Schwab, when they lowered their commissions to zero on brokerage, it was 3%-4% of the total income. The methods of making money on trading is much larger than it is in Sweden, where we have MiFID II and best execution. We have also seen in Sweden a couple of years ago when DEGIRO came into the market with zero brokerage that they didn't really take any market share. We are quite comfortable that our clients appreciate the inspiration or the information, the overview, the decision-making tools, and they believe it's worth the brokerage they are paying.
I don't expect that to come into Sweden. You always keep an eye on price competition. I think the market has moved from price competition when it comes to brokerage to the UX experience and the customer journey on the platform and in the mobile phone being more important than the last SEK on the brokerage.
I understand. That's very helpful. Just if I can stay on that question. I don't know if you view a first-mover advantage to be any barrier to entry, but if you do, would this make you more inclined to expand to other Nordic countries before we see players such as those entering in Norway or the likes?
No, I said it before, I think that one of our success factors is our focus on the Swedish market, and we have a goal of increasing our market shares and our assets under management, and we believe we can keep on doing that for quite a few more years, focusing on Sweden. It doesn't change how we look at an international expansion.
Perfect. Thank you very much for taking my questions.
Next question is from Nicolas McBeath from DNB Markets. Please go ahead. Your line is open. Nicolas McBeath from DNB Markets, please go ahead. Your line is open. Looks like there is no answer on that line, so I will go to the next question, which is from Mats Lilliedahl from Handelsbanken. Please go ahead. Your line is open, Mats.
Yes. Good morning. Sorry for the hang-up here on the brokerage income, but that was the main deviation, at least in my models. Is there anything you can say about what the underlying in this? Was it driven by the EQT transaction? At least when I calculate it seems like brokerage income per commission note is up slightly in the quarter, which has not been a trend. It's just on the margin, but nevertheless, it's turning the corner a little bit. Also, usually you have a quite seasonal effect in Q4, maybe not last year, but Q4 is much stronger than Q3. Should we expect the opposite perhaps this quarter? What I'm aiming at is there anything particular that drove commission income this quarter?
No. I would just say just that we have more clients trading than ever. I think we are seeing results of innovation, larger customer base. We are inspiring our clients to trading. It's just, I would say, something that we get from just expanding the client base.
If brokerage per note goes up, is that because they are trading more foreign stocks or more complex products, or is there anything underlying behind that or just larger tickets or?
As we said before, more trades are being done in lower brokerage classes, which means that the percentage of the trade is a little bit higher. On an average, that is the reason for the brokerage turnover to go up.
Okay. Yeah. Thank you.
Next question is from Jens Hallén from Carnegie. Please go ahead now, your line is open.
Oh, perfect. Thank you. Jens Hallén here. Just some, I guess, almost follow-up questions. If we're looking at net inflows and net new customers in what throughout the Q3, there were record numbers. What's your take on the drivers of that? If it's something that you think is sustainable for the rest of the year, thinking both their inflows and customers
It's always difficult to predict the future. I think that we have satisfied clients. We have launched a lot of new functionality and a lot of new UX experience. We have a solid reputation. You see a little younger people are being more and more interested in finances and so on. We have all the ambassadors out there, and our biggest marketing tool is word of mouth. I think we have reached a position where it's actually, if you start saving in Sweden, you ask your friends, the answer will be go to Avanza, and we are benefiting from that on a broad level.
Okay. In other words, you actually do think this is sustainable, something that we should build on going forward.
You never know from quarter to quarter. Of course, we are growth company and we want to grow. We want to increase our market share, we want to have more clients. It's not a straight line in that growth. It goes up and down. Of course, we are very optimistic about the future.
Okay. Yes, some questions on Avanza Markets was actually, when I'm looking at it looks like a record quarter on the FX side at SEK 33 million, so actually at the top end where you've been trading in the past. Are there specific drivers for that? Should we extrapolate that?
I don't know why markets were growing, or if there was any specific reason for that more than activity in the market. Our revenues are based on both trades and volume. I would say that if the market is a little bit volatile or moving, the transactions will be more and so forth. When it comes to the FX, I would say that the FX part of our customers trading is growing even though it's not growing very fast, but we see that the part of the total transactions in foreign stocks are growing.
I think that's important note, because we also see that we have given better information of what stocks on the side. Of course, that creates more interest and more comfort. It's both that we increase or we make our offering in foreign trading better, the customers are more comfortable in trading. We can sort of see by ourselves the effect is a bit.
Okay. Very good. Yeah, finally, you do talk about the leverage ratio. You are 3.5, requirements would be 3. Will this be a constraint for Avanza? Either on dividends or maybe on the types of product that you had in pipeline that you may or may not now roll out?
Well, as I said, it will be a very important part when we manage our capitalizations, since we will be sensitive to whether customers have a lot of liquidity or not on our balance sheets. Therefore, we are discussing the buffer or the level that we should have, so that we always will be compliant to this. I wouldn't say that it will be a restraint, but of course, it will be an important tool for us to discuss regarding the capitalization.
Okay. Do you foresee in the medium term, you're having to put in some kind of limits on how much liquidity the customers have or make it less appealing to hold cash? How will you work on that?
We are still very customer friendly. I don't think that will be our first move. I think we will find other ways to handle this. That won't be that negative to our customers.
Okay. I presume then holding more capital is the other option, right? Or am I missing something?
It's one of the options. We have different kind of tools to handle that.
We have our Sparkonto+, where you can deposit with other companies through our platform. There are means of handling that. As Birgitta said, I think we are a long way from starting to limit how much cash the customer can have, because most of the cash the customer have is usually money on the sideline waiting to be invested. That's part of the volatility, so to speak.
Okay. Perfect. Thank you very much.
Just as a reminder, if you do have any further questions, please press zero one on your telephone keypad now.