FinecoBank Banca Fineco SpA

MIL:FBK

Earnings Call Transcript 2019-Q1

[Operator]

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the FinecoBank First Quarter 2019 Results Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Alessandro Foti, CEO of FinecoBank. Please go ahead, sir.

[Alessandro Foti, executive]

Good morning, everyone, and thanks for joining our first quarter 2019 results conference call. We are going to introduce a slight change in the structure of the presentation, and so we are going to jump immediately in giving you a description of the just released press -- the joint press release we released a few minutes ago together with UniCredit. And then at the end of the presentation of this press release and communication, we are going to open the floor for your questions. And when we have finished to answer to your questions on this communication, we are going to move again in the presentation of the results of the first quarter. And then we'll have another session for -- Q&A session on the results. Thank you.

So as you know, the Board of Directors of UniCredit and Fineco approved certain actions and procedures to allow Fineco to operate as a fully independent entity from a regulatory, liquidity and operational standpoint, also potentially outside UniCredit Group in the future. This potential transition will be conducted in an orderly and smooth way and will have no implications on Fineco's strategy and business model.

Fineco already enjoys limited synergies with UniCredit, and we continue to focus on maximizing shareholders' value through healthy, sustainable and long-term growth.

Let's underline that Fineco's full independence will not have any implications for its customers and no material impacts on its capital and liquidity strength nor on its profitability, thanks to the transitional arrangement agreed with UniCredit.

Please note that the arrangements provide for a collateral granted by UniCredit on Fineco's existing intragroup exposures. That will allow us both to confirm our investment strategy without any substantial impact on net interest income and to maintain its solid capital and liquidity position comfortably above regulatory requirements.

Finally, in order to proactively maintain our leverage ratio comfortably above 3% and well ahead of the regulatory deadline in 2021, we are evaluating the issuance of an additional Tier 1 up to EUR 200 million in the next month. The potential AT1 issuance will be -- will best position our bank for its continued success in case it becomes a standalone company by safeguarding our rock-solid balance sheet and capital position, supporting our business growth needs and maximizing our strategic flexibility.

Let's now move on to Slide 4 to deep dive on the key pillars of the agreement. The transitional arrangements entered by Fineco and UniCredit cover the liquidity investment strategy, intragroup services and the trademark. Let's underline that such arrangements will be activated only in case Fineco were to fall outside UniCredit Group.

Let's now explore the details of the arrangements. The arrangement agreed between Fineco and UniCredit envisage the collateralization of the entire existing exposure towards UniCredit bonds, liquidity and guarantees with eligible securities, which will, first of all, ensure full compliance with the applicable regulatory limits; second, neutralize our capital impacts, risk-weighted asset absorption and the risk concentration limit coming from the potential deconsolidation from UniCredit; third, enable us to maintain in place our announced investment policy with no impact on our net interest income and profit and loss.

Please note that this arrangement has been defined and legally agreed between the parties as part of the framework agreement envisaged that the collateralization will remain in place until UniCredit bond portfolio entirely ramps off by 2024. The collateral will include CRR instruments eligible for credit risk mitigation and will be compliant with the large exposure framework.

Let's underline that following the issuance of the collateral on UniCredit bonds and liquidity accounts, Italy component in our portfolio will be massively de-risked. Therefore, we have room to increase the exposure on Italian government bonds, but maintaining our investment policy unchanged. Then we will deep dive a little bit more in that regard in investment policy during the presentation of the first quarter results.

Let's remind that our objective is to further diversify the investment portfolio in terms of geographies through a blend of European government bonds and covered bonds.

With regards to the trademark currently owned by UniCredit and licensed to Fineco consideration free on the basis of an agreement expiring in 2032. The new agreement will continue to be in the current conditions for Fineco and will include pre-agreed strike price for a number of given call option windows up to 2032. In particular, Fineco will have the first call option to purchase the trademarks from UniCredit starting from 2019 at a pre-agreed fixed price, which is not expected to have a material impact on Fineco capital position.

Finally, from an operational point of view, as you know, Fineco already operates largely independent from UniCredit. In case, we have signed an agreement with the latter that will be activated, should Fineco fall outside the UniCredit Group. This agreement states that UniCredit will continue to provide for pre-agreed transitional periods in a number of services to Fineco to allow the latter to act in full operational continuity.

Among the services, it is worth mentioning customers' access to banking services through ATMs and physical branches with an extension for 20 years at market conditions agreed time by time.

With regards to other services, contracts currently in place will be maintained in force without interruption for a period between 12 and 24 months. The activities of these contracts will be in the meantime internalized or replaced with new supply or outsourcing contract with third parties. Therefore, we don't expect any significant operating impact, not any material impact on cost. So we can confirm our guidance on cost/income ratio decreasing over time, thanks to our strong operating leverage.

Important to note, this potential operation won't change the strategic pillars of our growth story. Fineco will remain committed to maximize shareholders' value by running the business in a safe, robust and sustainable way and focusing on healthy and organic growth with a long-term horizon.

Now we can open the call for the questions on this first section.

[Operator]

[Operator Instructions] The first question is from Alberto Villa with Intermonte.

[Alberto Villa, analyst]

I have 2 questions on this. The first one is when you mentioned to exit from the perimeter, can you give us an idea what is the level of stake for UniCredit below which you would be considered to be independent and no more part of UniCredit? Is that a defined threshold or depends on deferred considerations?

The second one is on the impact of the AT1 of EUR 200 million and your long-term targets in term of leverage ratio. If you can give us an idea of what would be the additional -- the positive impact of the AT1 for EUR 200 million? And what is the level of leverage ratio that you would consider to be comfortable for Fineco in the midterm?

[Alessandro Foti, executive]

First of all, let me start from the first questions. So as you know, there is not any specific threshold fixed in order to establish which is the stake that is making you as a controlling entity of Fineco. And -- but -- and we think that is much more interesting to be concentrated on the real rationale behind. So what I mean that clearly is -- that what we presented is -- that indicates there is a disposal that is making as a -- producing as a result that Fineco is not any more part of the group and is not any more consolidating the group because this is the main point of attention we think about the market because clearly -- and as soon as if in case there is this transaction executed by the group. And we fall outside the perimeter of the group with deconsolidation of Fineco. Clearly, there is the question mark on the impact generated by the UniCredit bonds portfolio.

And this is the reason why there has been this freight agreement that in the case this is going to happen, thanks to the collateralization provided by UniCredit on the Fineco exposure on the UniCredit bonds, this is not going to create any impact on our capital position because the bond -- the UniCredit bond position is going to remain 0 in -- 0 consumption of risk-weighted assets. And clearly, this is a kind of arrangement that indicates there is, again, Fineco falling outside of the group is not going to impact the net interest income because we are going to continue to maintain the UniCredit bonds portfolio and keeping on running off the entire portfolio as we guided the market in the previous month. And so we think that it's not -- this is -- we think that to spot exactly which is the percentage that is going to make Fineco deconsolidate. Because in the case Fineco remains in the group, clearly, what we -- has been pre-agreed is not going to be put in place. And -- or if Fineco falls outside of the group, in this case, we are going to have the enforcement of this pre-agreed contract between Fineco and UniCredit.

Regarding the leverage ratio, clearly, if we move in the direction to fall outside of the group, clearly, we want to be proactive in being sure that everything that is related to leverage ratio is perfectly fixed. As you know, the regulation -- the final regulations on leverage ratio are not fully in place yet. They are expected based on the most recent interactions with regulatory bodies expected to be fully in place starting from 2021. Nevertheless, we want to be proactive. And so based on the projections, our plans and so on, we think that with an issuance of that kind of size, we can expect it to be in a very comfortable position.

In terms of what we have in mind as a target, we -- clearly, we want -- we are targeting to have a buffer. We expect the 3%. So probably we think that considering the extremely safe and conservative business model of the bank, we expect -- and considering the nature of their leverage ratio we are producing, we think that to remain in region of 3.5% is -- we think is a reasonable target level for Fineco.

[Alberto Villa, analyst]

If I can -- just a follow-up. When you mentioned about the pre-agreed price for the trademark, can we take the carry value of UniCredit that is slightly above EUR 90 million as a point of reference for the valuation?

[Alessandro Foti, executive]

No. No. No. So the strike options are definitely on -- is -- at a much lower level.

[Operator]

The next question is from Fabrizio Bernardi with Fidentis.

[Fabrizio Bernardi, analyst]

Just few questions. First, I'm curious why now? I mean who was the promoter of this kind of deal? And the second question is if you intend to sell back the bonds to UniCredit, should you find an easy alternative in terms of capital consumption?

[Alessandro Foti, executive]

So first of all, why now is you have to move these questions to UniCredit because, clearly, we -- they are the entity that is in control of Fineco. So I cannot give you an answer at this point. So probably in the -- tomorrow, we are going -- they are going -- we are going to have the presentation of the UniCredit results and there is an opportunity for making some questions to UniCredit regarding the timing and the decision to move in this kind of direction.

And then second, clearly, there is -- we have the arrangement. We have no interest in the case we -- Fineco falls outside of the group, clearly, we -- thanks to this kind of pre-agreed arrangement, we have no any specific interest in selling back the UniCredit bonds because, thanks to this pre-agreed arrangement, Fineco is going to be in a great position because we are going to have an incredibly safe and robust balance sheet because thanks to the collateralization, the exposure to the UniCredit bond is going to be almost entirely de-risked.

At the same time, we are going to keep on enjoying an interesting net interest income because clearly, as you know, the UniCredit bonds are characterized by gross margin that is above the prevailing conditions we have in the market. So it's -- in the case we have this transaction moving in direction of making Fineco falling outside of the group, we are going to find ourselves in an extremely comfortable position. And so there is no reason that we have to take any other alternative actions.

[Operator]

The next question is from Anna Adamo with Autonomous Research.

[Anna Adamo, analyst]

I have 2 questions, please. Firstly, on the UniCredit exposure, what is the level of total intragroup exposure related to UniCredit not just the bond portfolio, which is currently excluded from the calculation of Fineco leverage exposure? That's my first question.

And secondly, have you already received the green light from the ECB and the Bank of Italy in relation to this transitional agreement?

[Alessandro Foti, executive]

So regarding -- the overall exposure is EUR 11 billion -- more or less is EUR 11 billion. Regarding the -- clearly, all this -- the recent arrangement reached between UniCredit and Fineco, clearly, there's -- we had some -- there has been some discussion and meetings with regulatory bodies that had the opportunity to have full visibility on this possible evolution. And we didn't get any -- they didn't raise any kind of specific concern on the structure of this potential deal.

[Operator]

The next question is from Gian Luca Ferrari with Mediobanca.

[Gian Ferrari, analyst]

Very quick one about the timing. When will the financial collateral be given to Fineco by UniCredit? Do you have any exact date to share with us?

[Alessandro Foti, executive]

We don't for the very simple reason because as we explained, this is a pre-agreement. So this agreement is going to be put in force as soon as we have Fineco falling outside of the group. And so -- and we don't know if, when and -- this is going to happen because this can happen in the next few hours, in the next few days, in the next few months or in the next few years or never. We don't know so clearly. And so immediately as been explained in the press release, with this as pre-agreement that is going to be put UniCredit in the position to take all the -- for them best decisions in their best interest, considering also short-term actions because this is -- but we don't -- we have not the perfect timing. Clearly, the only thing on which we are sure that immediately after that there is a transaction that is creating the conditions for having Fineco outside of the group, immediately we are going to have the collateral in place. And so this is not going to -- it's going to leave the capital position of Fineco completely unchanged. So clearly, we don't need to go through any kind of capital increase of change in our approach in our dividend policy or something like that and so on. So this is the frame.

[Operator]

The next question is from Filippo Prini with Kepler.

[Filippo Prini, analyst]

Two brief questions. The first one, is it mandatory for you to buy the brand? And the second one is on the EUR 200 million of AT1 already on your balance sheet. This bond implies a provision for early redemption in -- [ ahead ] of June 2023 in case of change of control of Fineco, on the other case exit of UniCredit from Fineco shareholder base.

[Alessandro Foti, executive]

Regarding -- so we have no any stringent obligation of buying back the brand, the trademark. And clearly, because we have -- I want to remind that we have an agreement that remains in place -- that is going to remain in place also in the case we fall outside of the group that is giving Fineco the possibility to keeping on using the brand for free until 2032.

Clearly, there is also -- we have an additional opportunity throughout the exercising of these options of buying back before this date, the brand. And considering that particularly for the most immediate date, the provisions at which we can exercise these options, they are -- absolutely, they are not expected to cause any kind of impact -- significant or material impact on our capital position. Clearly, this is an absolutely interesting option that we have on the table.

Clearly, we have not taken any decision because, again, it is something that is going to be related to the -- in the case we have Fineco falling outside of the group. If we have this happening, we are going to decide. We think that both alternatives are absolutely interesting for us both going through a short-term exercise of the option or keeping on running the bank until 2032 without paying nothing. So again -- so the point is that the trademark is not going to be absolutely an issue and is not going to create any kind of real material impact on the capital position of the bank.

Now regarding the AT1 redemption, no, there is no close that they are imposing to us the redemption of the previous issued AT1 in the case we fall outside of the group.

[Operator]

The next question is from Luigi De Bellis with Equita SIM.

[Luigi De Bellis, analyst]

Just one very general question. Which are the main operating risks do you see from the transition? And what will change for you on a strategic point of view in case of total exit by UniCredit? We can expect an acceleration of what organic external growth? And generally speaking, looking at your future strategy, how much is important to have a shareholder like UniCredit than, for example, a private equity to implement your strategies? How much is important?

[Alessandro Foti, executive]

In the case we fall outside of the group, we don't expect any significant change in what we are doing. Because I want to remind that Fineco -- because this has been a choice taken by the group many years ago, Fineco has been also, before the listing, an independent company. So this means that we -- it's a long time that we are running our own IT and operational platform. We have our own brand, our marketing strategies and so on. And after the listing, this has been even more reinforced.

So in terms of -- so nothing is going to change. Fineco is going to remain pretty much the same in terms of what we are doing. And the bank is perceived as a standalone independent company. And so we don't expect -- clearly, we are not going to change our strategic direction. So the bank is going to remain concentrated on the organic growth because we expect to keep on growing extremely robustly.

I want to remind that UniCredit is different from strategy pursued by other European banks. However, we -- there has been in place any kind of commercial agreements between Fineco and UniCredit, so Fineco has been used to compete against UniCredit Banca. Yes, in a way, we are competing against all the other Italian banks and the same has been for UniCredit bank in regard -- in respect to Fineco. So we are -- also from this point of view, the clients are coming to Fineco. Clients that are directly coming to us just because they are interested in having a relationship with Fineco. So it's not the same business. It's not the business model run, for example, by the Commerzbank Group, in which come directly is the digital hub of the group. And so this is not the case.

From an operational point of view, the most part of the activities run by Fineco, they are being characterized by full independency. The only real very important to fix were related to the access to the ATMs, the next sort of ATMs of the group and the branches. And -- but based on this pre-agreement, this is -- Fineco is going to have the possibility to have access to the ATM's network and branches for the next 20 years. It's a period of time which probably we can expect probably some structural changes in the behaviors by clients and so on, and so we think that we are going to make us -- put us in a very comfortable position for managing the cash of the clients and so on. So this -- so we -- our story is not going to change. We are going to keep on continue on doing business as usual. And what clearly is extremely important to be sure that in the case the group is going to move in the direction to follow disposal of the stake making Fineco falling outside, clearly, this is not going to have any impact on our liquidity, capital and P&L position.

[Operator]

[Operator Instructions] Mr. Foti, there are no more questions registered at this time.

[Alessandro Foti, executive]

Thank you. So now we can move in the ordinary part of the presentation, so related to the first quarter results.

If we move to Slide 7. So the adjusted net profit in the first quarter 2019 at EUR 62.6 million plus 6.1% year-on-year despite more complex environment compared to last year. Once again, this set of results confirm the soundness of our business model able to deliver sustainable and industrial growth in every market condition. The quarterly comparison is affected by some effects occurred in the first quarter. We will deep dive on them in the following slides.

We generated EUR 158.2 million of adjusted revenues in the quarter, up 1.8% year-on-year, supported by investing in banking area while brokerage was affected by low market volatility. Quarterly comparison affected by days effect and write-backs on financial plan as incentives in the last quarter of 2018. Net of these effects, adjusted revenues would increase by around EUR 0.5 million quarter-on-quarter.

Operating costs stood at EUR 65.3 million, plus 2.6% year-on-year, mainly due to a different distribution of marketing cost as they are more effective in the first part of the year. Regarding this point, this means that we are not going to change our marketing budget. It's going to remain exactly the same with respect to last year. The only difference that there has been a deferral distribution from a temporary point of view. So we spent more in the first quarter. We are going to spend less in the second part of the year.

On this point, we confirm our guidance of marketing cost of around EUR 20 million. So net of this effect amounting to around EUR 2 million, operating cost would be flat year-on-year.

As usual, the first month of the year were affected by some seasonality such as financial plan and social security contribution, so not particularly relevant in commenting the operating performance. Net of seasonality effect and all the abovementioned difference in marketing cost distribution, operating cost would increase by around 2.7% quarter-on-quarter. Cost/income at 41%, well under control despite the continuous expansion in assets and clients, thanks to a strong operating leverage and to the scalability of the platform.

Please go through the following slides to analyze more in details all the dynamics of our results.

Let's start with net interest income dynamics in Slide 8. Net interest income increased by 2.1% year-on-year, supported by strong volume growth, both high-quality lending and sticky sight deposits even more valuable given the current remuneration or liquidity offered by the system. Volume dynamics more than offset the reduction in gross margins. As you can see at the bottom right of the slide, average gross margins on interest-earning assets lowered from 1.33% in the first quarter of 2018 to 1.26% in the first quarter of 2019.

Cost of funding remains very low at 5 basis points due to deposits in foreign currencies. Please let me remind that our cost of funding related to deposits in euro, which represents 97% of our total deposits is 0. Quarterly comparison mainly affected by days effect amounting to EUR 1.4 million. Net of these effects, net interest income would increase by 1.3% quarter-on-quarter.

In the following slide, you can find the focus on our bond portfolio. As you can see, our strategy to runoff the UniCredit bond portfolio and moving to a more diversified investment portfolio through a blend of European government bonds is progressing very well. Our government bonds portfolio now includes also France, Spain, Ireland, U.S., Poland, Austria, Germany, Belgium and supranational agencies in addition to Italy. Moreover, our bond portfolio now includes also covered bonds to take advantage of any favorable market conditions and further increase the diversification of the investment portfolio.

Let's underline that in the case we have Fineco falling outside of the group and in the case -- and for this reason, in the case we are going to have in place the collateralization of UniCredit bonds and current accounts, clearly, we are going to experience in that kind of case a massive decrease on our Italy exposure. And so this means that we have room for increasing a little bit more our exposure to Italian govies. To give you a more precise number, at the moment, we had an overall EUR 3.9 billion of Italian govies probably in the case we have the events of Fineco falling outside of the group and having the collateralization of the UniCredit bonds in place. In this case, we can expect by 2020 to have an overall exposure to Italian govies in the region of EUR 5 billion. So it's not a huge increase, but this is related to the fact that in the case we have these events happening, we are going to find the Fineco balance sheet massively de-risked. And so we have to recover a little bit more on that side.

Let me also remind our sensitivity to a potential increase on interest rates. The parallel shift of 100 basis points would generate EUR 113 million of additional net interest income.

Let's now move to Slide 10. Fees and commissions grew more than 8% year-on-year with management fees up 13.7%, thanks to a larger contribution of Guided Products & Services, which moved up from 64% in the first quarter of 2018 to 68% in the first quarter of 2019 and to the new -- and thanks to the new asset management company.

Let me highlight once again that our investing fees are strongly sustainable as for most represented by recurring fees, and the fees only weighed around 2% of investing revenues. And our business model does not rely on them as they are not aligned with the interest of clients, but they are just in anticipation of future profitability for the bank.

The profitability on assets under management calculated as management fees, net of taxes on assets under management reached 48 basis points in the first quarter of 2019. The quarterly comparison was mainly affected by write backs on incentives to financial advisers in the last quarter of 2018 with an impact of EUR 3.6 million and days effects in the first quarter of 2019 with an impact of EUR 0.6 million.

In addition, as previously mentioned, first quarter 2019 was characterized by a very low market volatility. Trading income positively impacted by VISA valuation quarter-on-quarter. Net of this item, adjusted trading income would increase by 6.8% compared to the last quarter of 2018 and 35% on yearly basis -- decrease -- excuse me, the adjusted trading income will decrease by 6.8% compared to the last quarter of 2018 and by 35% on a yearly basis due to the new ESMA regulation in place since the second half of 2018.

In the current environment characterized by higher regulation and low market volatility, clients are moving more and more towards multicurrency and are returning into listed products. Let's remind that our hope is already well diversified between over-the-counter listed products putting us in a better position to meet evolving request by clients. Please note that we are setting up new products and solutions to offset both the effects of higher regulation and the possibility of a market characterized by prolonged low volatility.

Slide 11 on cost. Let me remind that as mentioned on Slide 7, total operating costs in the first quarter were affected by a different distribution of marketing costs among the quarters as they are more effective in the first part of the year. Second, the usual first quarter seasonality related to higher financial planners' social security contribution such as Enasarco association and FIRR termination compensation fund as the payments are subject to a yearly cap. Net of these effects, operating cost would be decreasing quarter-on-quarter and would be flatter year-on-year.

Staff expenses were at EUR 21.7 million in the first quarter, 5.5% more compared to the first quarter of 2018, mainly due to the increase of the workforce related to the business development, costs related to Fineco Asset Management not fully in place in the first quarter of 2018.

Non-HR costs at EUR 43.6 million plus 1.2% year-on-year despite the enlargement of assets in clients confirming the operating leverage as a distinctive competitive advantage for our bank. Net of the abovementioned effects, non-HR costs would decrease by around 3.8% quarter-on-quarter and 3.6% year-on-year.

In terms of future evolution, we confirm our guidance on a continuously declining cost/income in the long run, thanks to the scalability of our platform and to the strong operating gearing we have.

Slide 12. Commercial loans grew 36% year-on-year with the usual strict control on credit quality. Let's remind that our lending is offered exclusively to our loyal customer base and our deep IT culture allows us to fully leverage on Big Data analytics. This translates into commercial cost of risk very well under control at 17 basis points as of March 2019 due to the improvement of expected losses on personal loans. For 2019, we expect stabilization of our cost of risk at around 25 basis points, much lower compared to the system.

Let's move now in analyzing our lending offer more in depth. Moving to Slide 13. Mortgages grew by almost 48% year-on-year, reaching EUR 918 million as the end of the first quarter. Average loan to value on total outstanding at 52% and average maturity at 19 years. Personal loans grew 15.6% year-on-year with very attractive margins. Lombard loans exceeded EUR 1 billion in March 2019, increasing by more than 45% in 1 year, thanks to the new Credit Lombard. We confirm our guidance for 2019 on mortgages, a new production of around EUR 350 million as we prefer not to compete against the system in right zones characterized by aggressive prices, high loan-to-value and longer maturities. On personal loans, new production of around EUR 250 million per year. On Credit Lombard, we expect around EUR 500 million annual growth.

Slide 14, capital ratio. Fineco confirmed the rock-solid capital position on the wave of a safe balance sheet. Common equity tier 1 ratio amounted to 20.98% and total capital ratio at 29.14%, including the additional Tier 1 issued at the beginning of 2018.

On Slide 15, we showed an overview of the total financial assets growing trend supported by the healthy expansion in new inflows. We guided at EUR 28.4 billion in net sales since 2013, leading total financial assets above EUR 74 billion in the first quarter 2019. Guided products increased their penetration rate to 68% from total assets under management from 67% on December 2018.

Jumping to Slide 18. Out of EUR 1.7 billion of net sales, the first quarter 2019, 88% was organically generated through the existing financial planners or directed by the bank and 12% come from recruits made in the last 24 month. For 2019, we expect robust net inflows driven by structural trends and by the high quality of our proposition. The recent launch of some brand new products and services such as Plus and CORE Target is helping us in offsetting the higher propensity of clients to remain in a wait-and-see mood in this very complex market environment.

Now I would skip directly to Slide 21 that is the shareholders' value. As you know, sustainability and healthy growth are at the heart of our business model and all our choices are current with this strategy. Currency is key to be long-term winner especially in a challenging macro environment characterized by pressure on margins, lower expected returns and demanding regulation. We're strongly committed in achieving the highest shareholders' value by running the business in a safe, robust and sustainable way.

In this slide, we summarize that the main aspects of our strategy: safe and diversified, low risk assets, which couple with valuable and sticky deposits. In fact, client acquisition is exclusively driven by our best-in-class service model without leveraging on short-term incentives. As a matter of fact, our cost of funding is close to 0.

Second, fairness and respect towards client is the right motive in our day-by-day activity as the relationship with our client is the most valuable asset we have. This translates into a sustainable fee structure and organic result as a main engine of growth. Our investing revenues are mostly recurring with just 2% upfront on total investing fees and no performance fees, solid capital position. And finally, in addition, a deep internal IT culture allows us to leverage on cutting-edge technology, difficult to replicate and leaving our operating leverage unmatched in the banking system arena. This allowed us to having a highly scalable, low-risk business and to exploit growth opportunity. Moreover, all the abovementioned aspect lead to high quality, recurrent and predictable profitability over the cycle characterized by diversified and sustainable revenue growth in all market conditions.

Let's now move on Slide 30 related to Fineco Asset Management. Fineco Asset Management is key to further improve operational efficiency in several aspects, meeting evolving customer needs and dealing with market challenges.

Just a few words on our main achievements and key activities for 2019. With regards to CORE Series, Fineco Asset Management actively worked on improving product efficiency and optimizing existing funds. For this year, it will work to further improve operational efficiency.

With regards to sub-advised funds, new 31strategies equal to 78 new ISIN were released in 2019. The offer will be released. And in 2019, the offer will be enriched through partnership exclusively dedicated to Fineco clients. The transformation of underlying assets with Insurance Wrapper is concluded.

Finally, the first 9 Fineco Asset Management building blocks were released and the new passing strategies are now available. In the first half of 2019, modern multi-thematic funds will be launched. The Fineco Asset Management will be working on further evolution of our advisory products.

Moving now on Slide 33. On this slide, a quick update on Fineco UK and Patent Box. In U.K., we acquired about 3,400 clients with a very interesting mix. 57% is represented by non-Italians, of which 42% net British. Considering the steady level of revenues constantly generated, we now started the second phase of this initiative with more boost on marketing commercial activities. ISA and multi-brand funds are now under implementation and expected within the first half of 2019.

A quick update on Patent Box. The closing of the process is still in the hands of the Revenue Agency. But let me remind you that we applied both for intellectual properties as our platforms are internally developed and also for the trademark. The fiscal benefit will cover 5 years from 2015 to 2019. Intellectual properties are renewable according to international guidelines.

We are confident to close the agreement with Italian Fiscal Authority by year-end as the deadline for the 5 years validity of the norm expires in 2019. Alternatively, we can't exclude to consider the option to self-determine the Patent Box benefit as set by the decree, Decreto Crescita approved in April 23, 2019 and according with further implementation details that should be provided by the tax agencies within 19 days from the approval of the decree.

Let's now move to Slide 34. In the second half of this year, we will start on preparing the launch of 2 brand-new platforms that will be available starting from 2020 and that will further strengthen the productivity of the bank. This definitely will be the third evolutionary step in the history of our bank. Leveraging on our internal IT culture and best-in-class technology, we are the only one player able to combine cyborg advisory approach with Big Data analytics. The new platforms are an additional step that will allow us to deal with pressure on margins by further improving productivity. They will help us to better exploit the potential growth of asset and clients at the same time to better serve them.

Let's now move to the next slide for more details. The Assisted Selling Platform will be an evolution of the X-Net platform, which will be further improved with clients' financial gaps in the financial adviser from tender. The bank will then provide a tailor-made solution to have the financial adviser solve the financial gaps of the clients. This will further help the financial advisers in managing their relationship with clients. The Co-Working Platform will enable the financial advisers to share clients with other colleagues in order to better serve them. It will therefore be a strong boost for our Assisted Selling Platform and will be particularly suitable to develop Private Banking customers as they could be covered by most financial advisers with a wider set of competencies.

Thank you for your time, and now we can open the -- to the -- the call to questions in the -- for this second section.

[Operator]

[Operator Instructions] The first question is from Gian Luca Ferrari with Mediobanca.

[Gian Ferrari, analyst]

Yes. Only one question, Alessandro. I spotted from [deconsolidated] numbers that out of your EUR 680 million net inflows in Q1 in asset management, the vast majority is classified as insurance. Now assuming that most of those products were so-called multiramo, can you give us the percentage of less traditional or ramo primo out of the EUR 680 million?

[Alessandro Foti, executive]

In the multiramo, the percentage is in the region -- probably in the region of 40%.

[Gian Ferrari, analyst]

Okay. So out of the EUR 680 million total inflows in Q1, probably EUR 250 million, EUR 300 million went in just in [indiscernible]. Is that correct?

[Alessandro Foti, executive]

Yes. Yes.

[Operator]

The next question is from Elena Perini with Banca IMI.

[Elena Perini, analyst]

I have 4 questions. The first one is on the trend of net inflows in April. Have you seen recovery in assets under management or clients are still moved by their cautious attitude?

Then on management fees, the year-on-year progress we saw in the first quarter could be considered as a proxy for a trend of the full year considering the increasing contribution of FAM?

Then on brokerage, I was wondering whether the level of revenues recorded in the first quarter could be considered as a run rate for the following quarters, too?

And finally, on lending, as regards to the cost of risk where we see positive trend -- reduction trend, could we expect it to be lower in the full year compared to the full year '18?

Always on lending, I was looking at the slide #13 on Lombard lending and I saw an expected yield of 80 to 85 bps, while in the full year results, if I am not wrong, you provided an expected yield of 110 bps. I was wondering if you could elaborate a bit on this difference.

[Alessandro Foti, executive]

Excuse me, let me start from the income trend. So the point of attention is not on the -- assets under management is, from the beginning of the year, we have done an absolutely a decent mix so because the bank has been able to be quite effective in driving clients in assets under management products. The point of attention is clearly that clients are maintaining a cautious approach. And so this means that they have a preference for more conservative solutions that clearly are characterized by immediate lower profitability. So for example, when we are talking about the accumulation of products, products that the clients are accumulating progressively from the ramo primo to the equity funds, clearly, the profitability tends to build up and increase going forward.

So we don't expect any -- we expected that the positive trend in terms of appetite of clients for assets under management products is going to continue. So we remain confident that to be able to achieving better results with respect to last year, but probably with a more conservative approach by clients because the mood of clients is in that direction.

On the management fees, clearly, we expect an increase -- clearly, an increase because we're going to have the building up of -- in terms of volumes. Clearly, we expect a growing contribution by Fineco Asset Management. And in this, we think that it's going to offset because, on the other side, the negative component is going to be represented by the clients moving in more conservative solution and the pressure margins that it keeps on building up. But overall, we expect continuation of this trend of increase of the management fees on -- for the bank.

Regarding the revenues, no, you cannot use the results of the first quarter as a kind of runoff. Clearly, we expect a higher level for the next few quarters, clearly assuming that we have no any dramatic significant disruption in the market. But assuming situation relatively stable, we expect that the running pace is going to be higher with respect to what we experienced in the first quarter.

Also, I want to remind that the first quarter has been -- we think and has been a quite remarkable quarter because we had several quite items against us, so there are all the -- for example, marketing expense is higher from a seasonal point of view. And particularly, what in my opinion is the -- has been the point of attention that the volatility in the market has been incredibly low. If you move, there's in the presentation -- Page 10 of the presentation, there's on the -- at the bottom right of the slide, there is -- this is a very -- it's a much more precise graph on the volatility of the market because it's the volatility produced by the futures market, so that is related to the most relevant markets in which our clients are working.

As you can see, with there has been a quite interesting pickup, volatility at the end of the year and this clearly has produced a quite decent result. And at the moment, the volatility is, let me say, at the rock-bottom. Nevertheless, so putting -- considering that we -- the results clearly have been affected by this very low level of volatility. In any case, the results of the bank has been -- has remained on the growing trend and without taking any kind of short term.

We remain confident that also assuming volatility remaining at the very low level, thanks to the progressive introduction of new solutions and products, mainly in direction of the option product to be able also in the case the volatility remains pretty low to having better results in respect to what we experienced in the first quarter, thanks to the continuous innovation of products.

On lending, we experienced quite substantial decrease in the cost of risk. And this is related to the fact that clearly, the real accounting cost of risk of the bank is much lower with respect to the -- clearly the portfolio. And progressively, this is embedded in the forecast -- in the expected cost of risk we are presenting to the market. And so we expect that this trend probably is going to continue, but we prefer to remain cautious. And so we are giving as a guideline the cost of risk of 25 basis points. But clearly, we cannot exclude it can go -- it can be even lower. But for the time being, my suggestion is to stay in that kind of range.

And regarding the yield on the Lombard loan, clearly, 110 basis points here is related to the all Lombard loans and not only the credit loan, but the new Credit Lombard is expected in the region of 80, 85 basis points. Considering that, clearly, this is the fastest growing -- is the component that is growing the most, probably we can expect a slight decrease on the overall yields on the overall Credit Lombard portfolio.

[Operator]

[Operator Instructions] Mr. Foti, there are no more questions registered at this time.

[Alessandro Foti, executive]

Many thanks to all of you. As usual, if you need to have some follow-up in our presentation, also related to the press release we released together with UniCredit and the results, please don't hesitate to call us to arranging a dedicated call with our team. Thank you very much.

[Operator]

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