Banca Generali SpA

MIL:BGN

Earnings Call Transcript 2020-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Banca Generali First Quarter 2020 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Gian Maria Mossa, CEO and General Manager of Banca Generali. Please go ahead, sir.

[Gian Mossa, executive]

Hello, good morning and thank you for attending our first quarter results conference call, and I hope you are all safe.

Before starting with numbers I would like to share with you how we have been managing the situation since the outbreak. And so in Page 3, you see the 3 main pillars of the strategy: first of all, of course, to protect our clients, our people and more in general, our stakeholders through working from home, continuing communication and medical assistance; the second pillar of the strategy was to stay very, very close to our clients without, of course, the physical presence and being proactive in giving continuous communication on products, markets and investment solutions and providing innovative products, for example, to manage liquidity; the third pillar of the strategy, of course, was about action to support our country. First of all, we provide liquidity to small and medium enterprises. Thank you to our innovative approach to securitization. Second, we provide facility -- credit facilities in line with the recommendation of the authorities. And third, of course, we stay very close to the health system and health organization through donations.

So now moving on to numbers and on Page 4, let's say that during the first 4 months of this year, we saw a very, very high volatility in our total assets linked to the market of course. We reached a maximum in February when we closed March with EUR 65.2 billion, and we partially recovered in April with total assets at the end of April at EUR 67 billion.

On the advisory services side, numbers are pretty good because we more than offset the fall of the markets with inflows. So at the end of April, we have assets higher than the asset at the end of the last year.

And probably the most positive news is about inflows because we closed the first quarter with EUR 1.5 billion. It means almost EUR 0.5 billion per month. And the mix and the quality of these inflows are among the highest for the bank.

Net profit at EUR 79.1 million, thanks to solid operating trend and positive contribution from variable fees.

And moving on, on the capital position. As you know, during our AGM, all of the -- in the 23rd of April, we approved the dividend policy for this year. So the capital ratio, one consider the first quarter contribution of the net profit. And in working out capital ratio, we exclude also from equity the dividend matured in 2019. So with this consideration, total capital ratio resulted at 15.5%, so well below -- well above, sorry, the capital ratio requirement.

Page 5, there is our usual representation of the P&L. We changed the representation of the gross fees, splitting it in 2 part: the gross recurring fees and variable fees. Let's say that the result of the first quarter is definitely higher than the first quarter of the last year thanks to the contribution of almost all items. Net financial income up 20%, net recurring fees up 16% and as a result, total banking income was 26% higher than the first quarter last year.

If you look at operating costs, are inflated by the change in the perimeter, and you will see that we have adopted a conservative approach below the operating line. The tax rate is a little bit higher than in the past due to a one-off in the tax -- in the payment of the dividend from Luxembourg to Italy. It means that basically since the amount of this dividend from Luxembourg to Italy was twice the amount of the previous year, the taxation is a little bit higher and impact a couple of points on the tax rate.

So before analyzing line by line, Page 6 offer a breakdown of the net profit between variable net profit and recurring net profit. And as you can see on the left side of the slide, the recurring net profit is almost stable, but I think that the quality is definitely higher.

On the right of the page, you can see a graph with the contribution of both operating and nonoperating items. The first, operating items, up EUR 11.4 million, the not -- nonoperating items down EUR 11.3 million. So at the end of the day, the result is the same but the quality is much better.

Moving on to Page 8. Let's start with net financial income. In line with expectation, total net financial income for the first quarter at EUR 24.2 million with the contribution of the net interest income at 20% -- EUR 20 million. Now we are pretty confident of increasing a little bit the projection for this year, so you can consider a double-digit growth as a full year result. Why? Because we are confident to increase marginally the yield on the financial assets above 0.8%, and we are confident to maintain at least the same level of total assets. So last time, we said 1 single digit. Now we are definitely above 10%.

Page 9, there is the split between gross recurring fees and variable fees. This is a new slide. If you look at -- on the left of the slide, you can see the increasing importance and relevance of entry fees and banking fees. Now they account for almost 15% of gross recurring fees and allowing us to maintain almost stable the yield on total assets also in this difficult time. While variable frees closed the first quarter with a contribution of EUR 53.4 million, in this case, our projection for the year is of an increase of [ other ] EUR 20 million, EUR 30 million maximum, so a little bit lower than the previous projection.

Page 11, you can see the other recurring fees, so in particular banking and entry fees. Impressive the acceleration on one -- on year-on-year basis, EUR 29.7 million versus EUR 17.8 million. Great part of this increase is explained by the new revenue streams, and you can see it on the right of the page -- on the right page -- on the right graph of the page, sorry, with an increase of EUR 10 million of the sum of certificates, advisory fee plus an increase in brokerage -- retail brokerage. So now the yield on these other fees, other recurring fees on total assets is around 0.17%.

Moving on to -- sorry. I, sorry, skipped one page. Sorry, I don't know why. I skipped Page 10, sorry. So Page 10 is focused on the management fees. So if you come back to this page, Page 10, you see the trend of management fees and on average managed assets and the margin. You see a reduction on margin of about 3 basis points, which is some round effect. This is basically linked to a different way to get the commission from the financial wrappers because you take the commission only once per quarter, at the end of the quarter, so we took the commission in the -- probably in one of the worst day of the quarter in terms of total AUM. So we are pretty confident to see a recovery of this 2 basis point in this quarter and in the next one.

So now coming back to Page 11, we already described the trend in banking and entry fees.

So we can move on Page 12 where we have the fee expenses. On this side, good news, total payout ratio down from 54.6% to 53.4%. This reduction is basically driven by a reduction in the payout to the network in both components, so cost of growth and ordinary payout, while in the payout to third parties you see a small increase, is driven by one-off there. And that is a consequence of an integration with Nextam, but we are confident to confirm the range 5.5%, 5.6% for the end of the year. So again, good flexibility in the structure of the cost for, first of all, for the network and for the third parties.

Going on to the operating costs, Page 13, here, you can see that the core operating costs increased by 3.8% from EUR 46.5 million to EUR 48.3 million. And you can see the contribution to costs of the integration of Nextam and Valeur, EUR 5.1 million, of which EUR 1.2 million one-off of cost for the integration.

You can also see the contribution, the costs related to COVID-19. We estimate overall costs at EUR 1.8 million, of which EUR 1 million of donation. And also for operating costs, we slightly review our guidance, reducing the range, 3%, 5% to a range 2%, 3%. And we are, as I said, confident also to see a slightly reduction in the cost of growth.

Page 15, we have the capital position. Capital position, as I said, see the total capital ratio at 15.5%. This is the effect of the mark to market of the banking book for the part held to collect and sales. And as I already said, the first quarter capital ratio are excluding the net profit of the first quarter as well as the 2019 dividend. In terms of liquidity ratio and leverage, we continue to maintain a very strong position.

So just to sum up this first part of the presentation, I'm very proud of the increasing diversification in the revenue streams in the revenues and also within the management fees with a positive contribution of all the product innovation we launched in the last 2, 3 years. And I can say also that the operating leverage is working very well, and the overall costs are under control with a projection for the full year, as I said, slightly lower than previously communicated.

So now move on to the chapter related to net inflows, assets and recruitment, so Page 17. We closed the first quarter of the year with a reduction of total assets of EUR 3.8 billion with performance, a negative performance in the range 7%, 8%, minus 7%, 8% and with a negative performance of managed solution in the range 11%, 12%. In -- during April, we have recovered part of this performance with an overall performance since the beginning of the year for the total assets at around 5.56%.

As you can see in the slide on the top right, managed solutions, the best -- relative best performers are in-house funds and insurance wrappers, while the most hit are third-party funds first and then financial wrappers.

Next page, Page 18, a focus on total net inflows. We said very, very strong inflows for the first quarter, EUR 1.5 billion. If you look at the breakdown of the managed solutions, you can see the positive contribution of insurance wrappers, more than EUR 200 million, and the positive contribution of Luxembourg platform, almost EUR 300 million and while negative sign in both in-house funds and financial wrappers.

Page 19, you can see the contribution from existing sales force, highest level ever, 79%. It's not about percentage, but it's about absolute value because it implies something like EUR 1.2 billion in 3 months coming from the existing sales force, and the outflows are almost in line with last year's. And while the recruitment trend, of course, is frozen, let's say we are around 25 now, 24, we expect, of course, that this can be probably hit by the lockdown. So now we change our projection for the recruitment for full year from the range 80, 100 in the range 70, 80, so 20 financial advisers less than previously expected.

Page 20, there is a focus on the numbers, the April numbers, positive in terms of quality, 100% coming from managed solution. And we already said the total assets at EUR 67 billion and asset under advisory EUR 4.8 billion.

So to sum up also this second part, I would say that I'm pretty confident on the quality of the inflows in the coming months. And I just see a sort of delay in the recruitment activity because we are more and more perceived as a safe harbor and probably the right place to work in an uncertain world. So as I said, I think that recruitment is a very important activity, and I see even higher opportunities in the medium term due to the fragility of the banking system and the perception of our brand.

Now the last part of the presentation is in the business update, Page 2-2, 22, and there is the slide we presented during our -- in the full year results conference call. Just to remind you that we identified 3 main blocks of initiatives. The first block is about our core business, and it's about the focus, the strategic focus on our Luxembourg platform, the new commercial approach on ESG and SDGs, plus the focus on the insurance solutions.

The second block is about new business levers, and it's about the launch of new initiatives in the lending space, the acceleration in the private markets and the internationalization. The third block that is in the bottom of the page are the 3 new revenue engines that you know pretty well, so advanced advisory, certificates and BG SAXO. And now we're going through these blocks with a particular focus on the first one.

So Page 2-3, focus on LUX IM, what impressed me more is the constancy of the inflows quarter by quarter. You can see it on the top right of the page, EUR 500 million, EUR 600 million per quarter, and also April and May are working pretty well. This is due to a continuing innovation of solutions, a well-diversified portfolio plus new services that we have launched -- we have been launching since the second part of last year.

The first one that we continue to innovate is about the, what we call, TWIN MIX that are scheduled switch plans. So the client invests immediately all the amount of money in the platform, and then we gradually switch from low-risk to high-risk solution. We have an amount of EUR 400 million of services activated. And on top of that, you have to add also initiatives we launched during the crisis that is a dedicated fund and to manage the next 6 months as sort of liquidity plus fund. So we have almost EUR 600 million that in the next 12, 18 months will be converted in higher volatility solution.

And then you have the traditional accumulating saving plans, and also, this is a new opportunity for the bank. First time we're focusing our attention also on saving plans for affluent clients. And also during these last 2 months, pretty challenged, we have continued to see positive numbers in the new contracts.

The second part is about the, let's say, the sustainability new commercial approach. It's Page 2-4, 24. This is very important strategically because we are sure that it's another way to approach clients. We developed a proprietary platform, as you know, when -- where clients can personalize their preferences in terms of sustainable development goals. And on top of the platform, we developed also a dedicated offer. In the graphs, you can see in the first one the net inflows, so part of the acceleration of the inflows for the existing sales force comes also from this new project, almost EUR 1 billion in the last 5 quarters. And the -- let's say, the share of ESG assets on total managed assets now account for 7.7%. I confirm we launched the initiative with Generali Italia. We manage a unit linked. We are focused on ESG solution, and let's say that the inflows are around EUR 300 million since the launch.

Page 2-5, 25, you see the third component of the core business. It's about insurance. Insurance products account for almost 37% of our total investments and you see that we continue to have positive inflows, almost EUR 800 million. And we are confident to accelerate the share of wallet for the top clients thanks to the launch of our Luxembourg LUX Protection Life. It's a very innovative solution at the European level, and this needs necessary -- the presence of the client because it's pretty important to share the strategic relevance of this kind of solution. At the moment, we have something like between [ EUR 50s million ] and EUR 100 million of net inflows, but I'm confident to see higher number in the next months.

Page 26, you see the second block of initiatives on the new business levers. On lending side, we've just launched Lombard Plus for professional clients, and we are leveraging a new offering on the state guarantee fund with credit facilities with a guarantee up to 90% provided by government agencies. So this will allow us to increase the numbers of lending, and we expected for the full year more than EUR 200 million of new lending -- on new loans, sorry.

The second is about private market. We continue to see great interest in our securitization activity, that it works pretty well and allow us to offer more advanced advisory services. You know that we have in pipeline 2 dedicated initiatives under the brand of BG 4 Real, the ELTIF and the FIA. And these 2 initiatives can have a boost also from the recent law announcement of higher contribution for such kind of solution and products.

Last but not least, we have the internationalization. In these 2 months, we start seeing growing interest in receiving advisory services in Italy but with at least part of the booking in Switzerland. We already closed operation for EUR 60 million, EUR 70 million, and we received some requests for about EUR 200 million. And we will see what happens in the next months, but of course the opportunity to diversify also the booking center is really relevant when uncertainty increase.

The Slide #2-7 is about the new revenue engines, so the third pillar. We know pretty well this slide. You see advanced advisory services where now we reached 7% of total assets, and we are pretty confident to continue proposing this kind of service to our clients. So we raised our expectation in the range of 8%, 10% at the end of the next year from 7%, 8% this year.

Structured products, you know we have a target of EUR 150 million and confirm this target for the following quarters. We saw an acceleration last year in the first quarter of this year. But let's say that it was for particular condition, market condition. When the volatility is very high, it's pretty difficult to give solution, high-quality solution because we offer this kind of solution per product line and our product placement where you need the price in 1 day. And so the counterparts have different problems in providing these kind of prices when the volatility is so -- when it moves so quickly. So we need stabilization of the volatility to resume the previous volumes, but we are pretty confident to confirm EUR 150 million for quarter.

While brokerage fees, brokerage fees accelerate thanks to an acceleration in the volumes, in particularly in the third -- in March. I see 2 reasons under this acceleration. One is a structural trend of the bank. You can see the graph, thanks to the partnership with Saxo, thanks to the focus on advisory services. I'm very, very confident to see rising volumes over the next quarter, and then there is a one-off driven by the volatility. So also these 3 strategic new revenue engines will contribute in the medium term to increase more and more the diversification of our revenues.

The last page, we start with this presentation with an update on COVID, and I would like to close with a focus on the number of operation and the quality of the operation during the lockdown because I'm very impressed by the results, the quantitative results, the number of operation and the resiliency. First of all, let's start on the left side of the slide where 9 out of 10 financial advisers complete operations fully digitally, and this is a confirmation of the great investment we did in the last 3 years to be ready. Second, 10 out of 10 complete training programs thanks to our new, very innovative training digital platform.

Second, if you look at clients, 2 out of 3 complete operation digitally, and 1 out of 3 leverage new operation processes we launched for the crisis in particular and the possibility to give orders also via call -- from call and via mail. So this is another example of great flexibility of the bank and a great, very, very innovative approach in technology not just as a front end for our financial advisers with our BG advisory platform but also in terms of processes and procedures.

On the right, you see the number of operations that is a sort of proxy of the commercial activity, and we focus on 2 particular topics. We exclude trading because trading in March increased everywhere. But we focus on 2 different activities, pretty complicated in such a challenging time. The first is about assets transferred. This is commercial activity, when a client transfer position from one bank to another one. And you see that the numbers of transfers in, so from an external bank to Banca Generali, was in line with the last year when the markets were pretty different and when COVID didn't exist. And if you look at the out is lower than last year, it means that the churn rate of the client is lower and lower.

The second focus is on fund activity because during challenging time, the risk is to see significant outflows on funds is real. And here, you can see that the operation in is even higher than the last year. The operation out are definitely lower, and what surprised me more, and I'm very proud of this, that the advisory activity, so the switch, the repositioning of the client accelerate. So it's a way to say that our financial advisers were proactive. And when you have the commercial activity that is in good shape and of great quality, this is our core business, this is our competitive edge, and this is the element that make me very confident on the future.

Thank you. And now I hand over to a Q&A session.

[Operator]

[Operator Instructions] The first question comes from Gian Luca Ferrari of Mediobanca.

[Gian Ferrari, analyst]

I have 3 questions. The first one is on the flows you reported in April. The quality in particular was very strong. I think we have to go back to 2017 to see mutual funds reporting EUR 370 million of net flows. You also mentioned in your speech that you're placing a unit linked, ESG unit linked on behalf of Generali Italy. I was wondering if that helped to reach that number. And which kind of margins do you have on the unit linked you manage on the house of Generali Italia?

The second one is on an update on performance fees, [ free ] cash in April if it's possible, please.

And the third one is on the incredible results you are achieving the new revenue stream. I understood that, in some cases, they might be a bit affected by volatility in the continued situation. But you are running well ahead of 2001 (sic) [ 2021 ] targets in all the 3 business areas. Where do you feel more prudent in increasing your 2021 targets?

And linked to that, we discussed with one of your competitor if the increase in brokerage fees are mix related or more structural. I think you mentioned that it is probably a bit of both. But do you have any data to share with us regarding April in which volatility went down but it seems that revenues remained as good as in Q1?

[Gian Mossa, executive]

Thank you, Gian Luca. Starting from unit linked, unit linked numbers doesn't account for the inflows of April. We keep well separate. We provide numbers only for the financial advisers. What kind of unit linked? Historically we provide some advisory on the unit linked, in particular, with some risk engine approach. But since the end of the last year, we focused on managing actively and proactively some unit linked with the focus on ESG. So we define 5 different portfolios with different bias in SDG goals, and we -- are offered through the trade agents. And we start in November, so now we are at EUR 250 million more or less of underline invested also in our funds because, at the same time, we launched also some dedicated solution, ESG solution in our Luxembourg platform. So to -- just in -- to sum up, no inflows of unit linked, Generali unit linked accounts for the inflows that we communicate to the market.

Performance fee in April, 0. We have some strategies that are not distant from the high watermark. And when we still have the runoff of selection and we have some projection for performance fee in selection for June that is around EUR 8 million, EUR 10 million.

Targets for advisory, brokerage and certificate, I think that certificate are at full speed. EUR 150 million, EUR 200 million is the target we have in mind, and I don't see room to increase significantly and structurally these numbers. Advisory fee, I'm positive. I see room to increase and accelerate, and this is the reason why we increased also the target of the percentage out of total assets.

And then brokerage fees. While I'm very confident to see increasing volume for the bank due to the partnership with Saxo and due to the fact -- the focus on advisory, I don't see any structural shift on this kind of activity. And I can give you some flavor because we have the advantage to see the numbers of Saxo that is an international platform. And the numbers in particular, many are very, very low compared to the March 1. So it's normal. Brokerage fees are correlated 100% with volatility of the market, so it depends on your expectation on volatility. But if expect a stabilization, brokerage fee will diminish. No way to change structurally the attitude of investors, in particular in Italy. And I think it will answer all the questions.

[Gian Ferrari, analyst]

Yes. Yes, very clear.

[Operator]

[Operator Instructions] The next question is from Luigi De Bellis of Equita SIM.

[Luigi De Bellis, analyst]

Yes, 3 questions for me. The first one is on the financial asset. Can you elaborate on your strategy on financial investments and on Italian government bond? In particular, would you invest more in BTP given current rates or not? Second question on capital position. Where do you see CET1 and RWA evolution for the next quarter and at the end of 2020? And the last question on Switzerland and international growth. Could you give us an update on the strategy goal for 2020 in terms of inflows, recruitments and banking license?

[Gian Mossa, executive]

Thank you, Luigi. Let's start from the banking book. We set a target of Italian government bonds in the range of EUR 5 billion, EUR 5.5 billion. And we are maintaining constant this exposure to the Italian government bonds because it -- we run several back tests. And also in a very, very extreme scenario, we could, let's say, react positively to the hurt, to the consequence, so for example, downgrading or something like that. So for us, EUR 5 billion, EUR 5.5 billion is manageable and as part of the banking book is invested in other European government bonds, part in financial and corporate of very high quality. We started to diversify the banking book also thanks to some illiquid solution and -- but it will represent a maximum 5% of the whole portfolio. And in terms, let's say, that we project a yield on the banking book in the range of 0.8% to 0.85%, so not such a big increase, but they're necessary to provide double-digit growth in the net interest margin.

And second, capital position. We have in mind a range of 14.5%, 15.5% as I say the projection. But since we are maintaining probably a much prudent approach in this moment to the banking book than what we expected in the past, the capital ratio could be a little bit higher.

And about international growth, for us, international growth means 3 things. The first one is to provide, say, a very, very innovative services of multi-booking center to Italian clients in order to maintain the investment services in Italy and to diversify the deposit of the asset. This is our first priority, and I think also the most important in terms of inflows. And we confirm increasing interest in this activity. Let's say that the only risk is that you need the physical presence for this kind of activity.

Second, the second business line in Switzerland is to develop a dedicated distribution channel there, and at the moment, recruitment activity is frozen. But I don't honestly see the urgency to accelerate also because then we have the third priorities that is to provide portfolio management solutions through our insurance vehicle from Switzerland. So we provide unit linked, our Luxembourg platform solution, some unit linked that are managed directly by Switzerland.

So if you think of these 3 goals, the most important is the first one, and I think that we will see positive inflows, in particular, in the second half of this year, significant inflows. I have a target around -- between EUR 300 million and EUR 400 million. In, let's say, Luxembourg platform insurance solution for private insurance, we do expect the target around 200 million, 300 million to sum up to the first number I gave you.

And while in terms of development of a distribution channel in Switzerland, this must be considered as an opportunistic approach. So if we see the opportunity, we're going to buy assets. But my priority in this moment, due also to the [ context of the ] situation, are to achieve the first 2 goals.

[Operator]

The next question is from Elena Perini of Banca IMI.

[Elena Perini, analyst]

Yes. Congratulations for your results. I've got essentially 2 questions. The first one is about the recovery you mentioned in the customers' assets at end April, EUR 67 billion if I remember well. Can you split for us in managed assets, traditional life products and banking products just to have an idea, not precise numbers?

Then the second question is a follow-up on the guidance you provided on the net interest income. Have I understood correctly that you mentioned a double-digit increase for this year, as my line was not very good at that time? And then another follow-up, if I may, on the level of risk-weighted assets, the question which was posed by my colleague before, as I'm not sure to have understood well.

[Gian Mossa, executive]

Sorry, Elena, can you repeat the last question? Sorry, the line was a little bit disturbed.

[Elena Perini, analyst]

Yes, yes. I'm sorry about that. It was on the level of risk-weighted assets, I think, at year-end or the trend. It was the question which was posed by my colleague before I follow up.

[Gian Mossa, executive]

Okay. Thank you, Elena. So the recovery, the recovery was well spread among all the asset management solutions. So let's say that if you consider that, at the end of March, the loss was around 12.5%, now we are in the range of 8%. And this is well spread among funds and unit linked and discretionary accounts.

The second on capital, catch-up with the question of TCR, and I answer that we have in mind the range of between 14.5%, 15.5%. But considering that we are confident to achieve a double-digit growth in the net interest income, probably we will save, let's say, save some extra capital because we decided during this quarter and the next quarter to have a more conservative approach in investing in risk-weighted asset.

So at the beginning, we set the target that I already said. Due to the crisis, we decided to reduce a little bit the use of risk-weighted asset in the banking book also because we see the opportunity to reach double-digit growth in the net interest income, also saving part of the capital that we had in mind. When I say double-digit growth, I mean that we are closer to 20% than 10%.

[Operator]

The next question comes from Alberto Villa of Intermonte.

[Alberto Villa, analyst]

I have 3 questions. The first one is on the management fees that were down. You explained 2 basis points were related to, let's say, a temporary factor. I was wondering if the current turbulence of markets is posing any acceleration in the margin erosion or if you are confident to keep on a stable margin or a very slight decrease of margin as you mentioned in the past.

The second question is on the tax rate. Apart from the spike this quarter, if you can provide us a guidance for 2020 in terms of tax rate you're expecting.

And the last question is a more, say, strategic one. The current situation has created a lot of disruptions. You mentioned a lot of elements in your presentation especially on the short term. I was wondering if you can share with us what are your thoughts for the industry in the midterm, if you expect acceleration or any specific area of the interest that could be a risk or an opportunity for your company. You mentioned the opportunities on the recruitment side. Well, any thoughts on that would be helpful.

[Gian Mossa, executive]

Thank you, Alberto. Let's say that, in terms of margin, I do not see an acceleration in the erosion of margins. I confirm a very slight, slight decrease in the next 2, 3 years. Of course, there is a more conservative approach in this space. So you saw the switch. And I think that it's healthy to have some resources to reinvest when we start seeing the normalization. So I see upside, in particular in our Luxembourg platform more than downside in the Luxembourg platform.

Where we see some downward pressure is of course for the runoff of this selection that is continuing but is slowing as expected and some little more down pressure on the, let's say, in the financial wrappers solution. But at the same time, I see some more space on the insurance wrappers. So in the end, the sum should be almost 0.

And second topic, tax, so tax rate suffered for a higher dividend this year as explained. The result of taxes for this year will be -- will depend on the mix of revenues. We do expect a tax rate in Luxembourg in the range of 10%, 12%. And you know then there is the tax on dividend that's around 4% and then the tax in Italy for the other revenue stream. So it depends on the mix. If you have lower performance fee, normally you have a little bit higher tax rate, but it's in line with the historical average, I think.

The third topic is about my view on the midterm for the industry. I'm very positive for the industry, not only for Banca Generali because I see the need of -- the increasing need of advice for entrepreneurs for -- and also for savers. So -- and the banks will be more focused on the balance sheet side, not on the services. This is my perception. So I see the opportunity in the recruitment. But recruitment, to me, is not just about financial advisers, but it's also for clients. And so I'm positive structurally for inflows for the industry as a whole. Then if -- the question is do you see also some consolidation. I don't understand how small companies can survive in such a kind of environment.

[Operator]

The next question is from Federico Braga of UBS.

[Federico Braga, analyst]

Yes. Just 3 questions for me, please. The first one is a follow-up. If you can please actually give us the percentage of how much of your managed asset calculates the management fees at the end of the quarter rather than on the average AUM.

The second question is if you could give us a little bit more color on the feedback from clients on the SAXO platform, brokerage platform, especially given the fact that March was pretty volatile environment as we all know. I was wondering if clients -- yes, if you could share us a little bit more feedback from clients and if you can remind us how many clients actually now have asked full access to the platform and what stage is the implementation of this process.

And then the last question is more related on performance fees. I mean after the changes that some of your competitors made in the last years, you will be the name with the highest contribution from variable fees. So I was wondering if this is something that is fine for you or you would consider maybe some changes in order to increase your reliance on nonperformance fee earnings.

[Gian Mossa, executive]

Sorry, Federico, can you repeat the first question? I'm sorry, but the line is really disturbed. Sorry, just the first question. I get...

[Federico Braga, analyst]

Yes, yes. No. The first one, if you can please tell us how the size of the assets, managed assets, which charge performance -- I'm sorry, management fees at the end of the quarter rather than on the average AUMs. You say in the presentation -- yes...

[Gian Mossa, executive]

Yes. No, no, no, it's clear. It's clear. No, it's clear. I start with SAXO and then I hand over to Tommaso to give you the numbers on performance fee.

SAXO, let's say that SAXO as an average in the last 3 months account for 15% of the revenues, and in April, we opened up the platform to the B2B2C model. So until now, it was only for the B2C and internal clients. Because we wanted to test the platform, we had to complete the integration for, for example, derivatives and so forth. So I can say that after a first wave of platform only for the B2C of internal clients, on April -- in April, we opened up the platform also to the B2B2C. That means that financial advisers can insert order for the clients, on behalf of clients.

The third wave is about opening up the platform to the B2C also for external clients, and we project this launch by the end of the first half of the year. So the numbers and the contribution to the revenues start to be significant because it's 15%, is in line with our projection, and we see an acceleration in the second half when we will complete the release and rollout on the 3 targets of clients, direct clients with a direct access to the platform, financial advisers and external clients. These are the 3 waves. The first is done. The second has been completed in -- during April, and the last will be in June.

The third question is the -- is about performance fees, so Tommaso, if you can...

[Tommaso Russo, executive]

Yes. Performance fee are calculated on our Luxembourg platform, which is -- at the end of the quarter was around [ 15 billion ] of assets. And in April, we had a rebound, so now it's around 60 billion of assets. Performance fee, as we said before, are expected to be low in April, but we have an expectation of positive performance fee by the end of the next quarter, especially in June because some compartments are near to the [ whole market ] level. So it could be -- if the market remain at the same level, we could have some performance fee in the next quarter, especially in June. And the range that we expect is between, as we said before, between EUR 8 million and EUR 10 million.

[Gian Mossa, executive]

And the last question on the performance fee calculation, I do not see in the short term any changes. We are thinking of a dedicated offer for different targets of clients, and we are working on a new offer and will be launched probably in the last part of this year. And we are considering also a different mix of revenues, so a different mix between management fees, front fees and performance fee. We don't have any deadline. We are just considering to develop also dedicated offering for other targets of clients to increase the penetration of such a kind of products on the total wallet of our client.

[Operator]

The next question comes from Angeliki Bairaktari of Autonomous Research.

[Angeliki Bairaktari, analyst]

Just 2 on my side, please. First of all, you mentioned in the beginning of the call that you have suspended some loan repayments from clients and financial advisers. Could you give us the amount of these loans that are effectively now in moratorium? And what is the outlook for cost of risk this year considering the change in the economic environment?

And the second question, the lower recruitment of financial advisers should have some impact, I would imagine, on that cost of growth and, in general, on the payout to financial advisers this year. So could you give us some guidance for this line item of your P&L, please?

[Gian Mossa, executive]

Okay. I start with the payout, and then I hand over to Tommaso for the lending. On the payout, I would say that we have a target for the ordinary payout ratio that is in the range of 36%, 37%, and we confirm this target, while the cost of growth depends mostly on the volume and on the mix. And I think that, in this case, let's say that we have normally a range between somewhere between 12% and 14% more or less, and we are probably in the lower range of the band probably. Depends on the acceleration of recruitment the second part, but I'm pretty confident to stay under -- below the level of the last year. Tommaso, please?

[Tommaso Russo, executive]

On the lending side, if I understood correctly your question, the moratorium, we had a small amount because we just have EUR 10 million of payments, which have been postponed and EUR 100 million of exposures more or less. And -- but I mean we don't see this have any impact in terms of net interest margin because, of course, it's just a cash postponement of the payment. But the interest still occurred in the lending book, so it's just a very small impact for us.

[Angeliki Bairaktari, analyst]

And with regards to the potential impairments on loans, you don't see any spike there for this year?

[Tommaso Russo, executive]

No, because our lending was with Lombard. Basically, we are over-collateralized, and we don't see any major impact from that. The level of the guarantees is still very high. And so we have -- we think that we won't have any pressure on that also if there is -- let's say the market goes down.

[Gian Mossa, executive]

This is a great advantage for our bank because we have -- our lendings are over-collateralized. So we do not see -- we do not expect any, say, NPL in the future even if we assume very, very difficult context and very, very deep recession in Italy.

[Operator]

The next question is from Domenico Santoro of HSBC.

[Domenico Santoro, analyst]

Just a couple of follow-ups on my side. As to Page 26, when you talked about lending to SMEs via the state guarantee, are we talking about the loans backed by guarantees as per the Decreto Cura Italia in Italy? And if yes, I mean those loans are pretty unattractive in terms of interest, so I'm surprised that if the answer is yes, you will leverage on this considering also the narrative that if banks -- the leverage on business lending, there will be also counter agreement in terms of distribution of dividend. Is it correct? Are we talking about those loans?

[Gian Mossa, executive]

Thank you, Domenico. Let's say that, first of all, you are right. We are in Slide 26, we are dealing with the lending activity with the guarantee of MCC, Mediocredito Centrale, who provide a coverage up to 90% of the loan. And we are providing this kind of facility only for our existing clients. And we have a target maximum at EUR 200 million -- between EUR 150 million and EUR 200 million maximum.

It's just about the guarantee at 90%, nonguarantee at 100%. In the guaranteed 100%, you must apply a predefined rate yield at 1%. In the one we are providing, you can have a target that is a little bit higher. For us, it is in the range of 1.5%, 2.5%. And in terms of capital absorption, I don't see a significant impact because if there is the guarantee, the risk-weighted asset is equal 0.

[Domenico Santoro, analyst]

Yes. This is very clear. Of course, this part is very clear. My question is, given this is already fixed at this point, the payment date for the dividend, like in how confident you are because of course this is a discussion that I have every day with investors, how confident you are to pay this dividend according to the talks that you had with Bank of Italy, how realistic it is. And I'm just wondering whether -- I mean the leverage used -- utilization of this guarantee, it might preclude you in a way to be totally independent in the distribution of dividend, which is -- I mean I cover the banks, so this is larger, the narrative that basically invest, they use for the banks, for the traditional banks.

[Gian Mossa, executive]

Okay. I got the question, sorry. As of today, I'm confident 99% because we just postponed the dividend payment in October. And let's say that we do offer this kind of lending just to be, say, in line with the condition of Bank of Italy of providing liquidity to our existing clients and ancillary services, and we are providing these facilities to be compliant with the recommendation of regulators. I don't know if Tommaso wants to...

[Tommaso Russo, executive]

Basically, I mean it's something that we offer especially to our clients, so it's -- in many cases, it's also, let's say, a transformational lending that we already have. So also the impact in terms of leverage is we don't expect to be -- I mean to have any problem from this point of view. But the main point is that we open to our clients and just is basically for that is a change of the programming that we have. In many cases, some entrepreneurs can ask to access this kind of lending, and they are probably changing the guarantees that they are collateralizing this lending activity.

[Domenico Santoro, analyst]

All right. Understand, very clear. Then can I ask you as a follow-up on margin and sales? First of all, I understand your point about margin compression over the next couple of years. But what about more short-term guidance for the second quarter? I was just wondering whether the marked effect of March is all in the gross margin that you presented in the slide. Or should we expect some further decline in the second quarter? And then net sales for the end of the year, I know it's a very difficult situation, very volatile. Just wonder whether we should keep it as a consideration, the one that you presented in the plan, as a fair number for this year as well, as a normal run rate.

[Gian Mossa, executive]

Let's say that in terms of margins for asset management products, with this market, you should consider the number for -- of the first quarter as a sort of floor. So some recovery in the second quarter basically due to the discretionary accounts if the situation is confirmed as of today. So it will be below the last year but higher than the one of March.

In terms of net inflows, we confirm our target of EUR 4 billion, EUR 4.5 billion even if probably the contribution of new financial advisers will be lower, while probably the productivity of the existing sales force will be higher and in line with this first quarter.

[Operator]

Mr. Mossa, at this time, there are no questions registered.

[Gian Mossa, executive]

Okay. So thank you very much for the participation, and I wait for you for the next conference call. Thank you. Bye.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.