FinecoBank Banca Fineco SpA

MIL:FBK

Earnings Call Transcript 2023-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the FinecoBank First Quarter 2023 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 afternoon, everyone, and thank you for joining our first quarter 2023 results conference call. As you know, our new dimensional growth is further underpinned by the new structure of interest rates. Thanks to this, adjusted net profit in the first quarter of 2023 was equal to EUR 147 million, up by 19% year-on-year and plus 61%, excluding first quarter 2022 profits from treasury management. Adjusted revenues at EUR 294 million, increasing by 15% year-on-year and mainly supported by net financial income with net interest income increasing by 165% year-on-year, which is sustained by our clients very sticking valuable transactional liquidity -- the growth of revenues has been also supported by investing, thanks to the volume effect and the higher control of the value chain by Fineco Asset Management.

Operating costs well under control at EUR 73 million, increasing by 4.6% year-on-year by excluding costs related to the growth of the business. Adjusted cost income ratio was equal to 25%, decreasing year-on-year and confirming operating leverage as a key strength of the bank. On cost, let me please remind you that the strategic decision to manage 100% internally our IT, posting has from the inflation on IT cost. Our capital position confirmed to be strong and see with a common equity Tier 1 ratio at 21.8%. Our commercial activity confirmed to be extremely solid also in April with net sales at around EUR 800 million and a strong mix with around EUR 170 million in assets under management and another strong performance by Fineco Asset Management with retail net sales at around EUR 340 million. Asset under custody recorded around EUR 755 million inflows and deposits at around minus EUR 190 million. Estimated brokerage revenues in April were solid at around EUR 12 million, more than 10% higher compared to the average revenue of the same month of the period 2017-2019.

Please note that April is characterized by some seasonality as there are lower trading days and lower market volumes. These results, this confirms once again that the floor of the business is now definitely higher. Looking at 2023 and going forward, we expect to continue to deliver strong growth, thanks to the our very diversified business model despite the recent complex environment for the banking industry. On the right-hand side of the slide, you can find a summary of our 2023 guidance more in detail. Our net financial income, we expect an increase of around 70% in 2023 versus 2022. On investing, we confirm our 2023 revenues guidance expected to increase high single digit compared to 2022 with higher after-tax margins. For 2024, we confirm our net sale and management fees margin expectations. On brokerage, we continued for 2023 expected revenues to remain strong with a floor higher versus recovered period.

On operating costs, we expected 6% growth year-on-year in 2023, not including around EUR 2 million of additional cost for Fineco Asset Management and around EUR 3 million for U.K. operational cost and eventually additional marketing expenses. We expect our cost of risk in the range of 5 and 9 basis points. And finally, we expect a growing CET1 and leverage ratio. Let's now move to Slide 5. As announced, adjusted net profit in the first quarter of the year stood at EUR 147 million in a very challenging macro scenario, increasing by 19% year-on-year and by 61% on a like-for-like basis, excluding profit from treasury management realized in the first quarter of last year.

Revenues at EUR 294 million, up by 15% year-on-year and by 41.5% by excluding profits from treasury management realized in 2022 as we have been able to catch the strong acceleration of the structural trends in place, mainly thanks to the robustness of our net interest income and to the contribution of the investing business. Operating cost at EUR 73 million, well under control, increasing by 4.6% year-on-year, excluding cost strictly related to the growth of the business. Let's now move on to Slide 6 and start to analyze more in details the dynamics of our results.

Net financial income in the first quarter of the year at EUR 157 million, increasing by 46.5% year-on-year with net interest income increasing by 165% year-on-year. Thanks to the strong gearing to interest rates we have driven by our clients' valuable and sticky transactional liquidity. Please note that this figure is extremely positive considering that. First, we don't remunerate client deposits. Second, we are one of the few banks not offering aggressively time deposits to clients, but we offer third-party t deposits to our clients to our platform.

Third, we have a best-in-class platform for trading bonds very efficient and convenient. Nonfinancial income in the quarter reached EUR 136 million, mainly thanks to the positive contribution of net commissions. Please note that in the trading profit line, the rate accounted minus EUR 4.3 million related to the ineffectiveness of hedging derivatives in accordance to the accounting standard IFRS 9 compared to the plus EUR 5.1 million in the first quarter of 2022. The value is influenced both by the spread between the STR and the [indiscernible] by the amount of the fair value of the derivatives. Excluding this effect, the nonfinancial income is decreasing by only 1.5% year-on-year. That is mainly related to a lower brokerage activity. Let's move on the Slide 7 to deep dive on the performance of the investment business.

Fineco's position in the sweet spot to capture the structural trends in place in Italy, and also thanks to our initiatives, we have experienced a strong acceleration towards assets under management. On top of this, Fineco's Management is delivering on its strategy to take more control of the value chain. As a result, investing revenues were equal to EUR 75 million in the quarter, increasing by 2% year-on-year despite the negative market performance experienced during 2022.

Please note that the quarterly comparison is characterized by the usual seasonality on financial plan costs related to the fear and [indiscernible] that are higher at the beginning of the year and to EUR 4.6 million of other commissions in the fourth quarter of 2022 related to the operating efficiency reached throughout the year in the value chain on the institutional classes by Fineco's Asset Management, which are booked each year in the fourth quarter. Management fees margins after tax reached 53.4 basis points in the quarter, increasing both year-on-year and quarter-on-quarter, thanks to the strong contribution by Fineco Asset Management. Let's now move on Slide 8 for a focus on our asset under management company.

As you know, Fineco Asset Management is progressively taking more control of the investing value chain, resulting in higher revenues and margins for the group. The contribution of Fineco Asset Management to [indiscernible] assets under management and net seats is further improving regardless of the macro scenario moving from 86% in the first quarter of 2022 to 133% in the first 3 months of 2023. The contribution of Fineco's Asset Management -- assets under management after the total stock of assets under management of the bank moved from 28.4% in the first quarter of 2022 to 32.2% in the first quarter of 2023. And in April, is 32.7%.

As shown by the most recent net sales numbers, Fineco Asset Management has been extremely effective in quickly developing the right set of products to catch what clients are currently looking for through the offer of the new generation of capital protected investment solutions, -- let me please underline that our His company is now launching a new product innovation with the global defense multi-strategy, a fully now developed solution allowing clients to build a protected exposure towards equity. Let's now move on Slide 9 for a focus on brokerage.

Brokerage as usual, is emerging as a perfect countercyclical business. It registered an excellent quarter at EUR 53 million, resulting in a monthly average 58% higher compared to the monthly average revenues in the period 2017-2019. This confirming a structurally higher floor compared to the pre-pandemic levels regardless of market conditions. Let me remind you that the growth of the brokerage business is driven by the contribution of 3 structural components. First, the continuous process of deep pre-shape of our brokerage business; second, the widening of our client base using the platform with active investors growing significantly in absolute terms and standing around 35% above the average level of 2018, 2019. Third, we are continuously increasing our retail market share. Let's now move to the Slide 10 for a focus on cost.

This slide confirms once again efficiency to be part of our DNA and calling our bank, representing a clear and unique competitive advantage. Operating costs in the quarter at EUR 73 million, growing by 6.4% year-on-year and by 4.6% year-on-year, excluding costs related to the growth of the business, mainly additional minus EUR 4.9 million cost for Finecos under management that they are current with acceleration to further expand its business and have a bigger control of the value chain, additional EUR 0.4 million in marketing costs. of expenses at EUR 30 million in the period, increasing by 4.3% on a yearly basis, net of the cost related to the expansion of the business of Fineco Asset Management. Finally, non-HR cost at EUR 44 million, growing by 4.7% year-on-year, net of the costs related to the growth of the business. Let's now move on to Slide 12 for a focus on our capital ratio.

Fineco confirmed a rock-solid capital position on the wave of a safe balance sheet. Common equity Tier 1 ratio at 21.8%, leverage ratio at 4.21%. -- risk-weighted assets at EUR 4.7 billion and total capital ratio at 32.41% as of March 2023. From Slide 16 to Slide 18, we made a focus on our liquidity position. Let's now move on to Slide 16. First of all, let me start from the composition of our deposit base to underline its granularity and stickiness, which resulting in a transactional liquidity equal to around 89% of our clients' deposits. As you can see from the slide, 97% of our deposits is represented by retail clients. Second, our deposits are extremely granular with an average ticket of around EUR 19,000 of which EUR 140,000 related to private banking clients and with a median ticket of EUR 4,800, of which slightly more than 47,000 related to private banking clients. Third, 75% of our deposits is under the protection of the deposit guarantee scheme. On top of this, differently from other players, mostly focused on brokerage and investing. Our [indiscernible] solutions relies on a fully fledged banking platform.

Our clients are not just using our bank for brokerage or investing purposes, but all our quality banking proposition for their daily life. Indeed, we have 50% of clients crediting salary with us. On this point, let me underline that just through the salary credit last year, we gathered EUR 15 billion of pressure liquidity, a number which has more than doubled over the last 10 years. All of this is the result of a clear strategy. We have taken more than 10 years ago when we stopped remunerating liquidity and focused on our client acquisition, 100% on the quality of our one-stop solution. We confirm where we are not going to change this approach, which is the cornerstone of our clients, very [indiscernible] and valuable transaction liquidity.

Finally, on the bottom of the slide, you can see the relentless histories of growth of our deposits throughout the years, also going through some very relevant crisis like the financial and sovereign ones. Let's move on the next slide to deep dive on the net sales of our deposits during the first half of this year. On the left-hand side of the slide, you can find the evolution of net sales this year. As you can see, the inflows of assets and clients continue to be very robust as the bank continued to benefit from the long-term structural plans underpinning the growth. We have observed a strong improvement in the client acquisition. Indeed, in the quarter, the monthly trend has increased by 25% compared to the average period 2020, 2022.

Let's now focus on the breakdown of the next, with deposits being negative to their investment into assets under custody and assets under management of the excess liquidity of our clients. Moving on the right side of the slide. On the top, there is an interesting graph where you can see how the balance of the bank transfers has fairly remained on the positive territory, also in the first 4 months of the year. This confirms that the bank is keeping on acquiring new liquidity from both new clients and existing clients. And that there are no liquidity [ outflows ] going in the direction of other banks, for example, the ones remunerating liquidity. Then on the graph below, we gave a detail on deposit [indiscernible] by cluster of clients. As you can see, clients with total financial assets below EUR 100,000 increased the amount of liquidity in the bank, and this is mainly transactional.

On the other hand, the cash sorting process has been 100% driven by [ Walter ] clients, which, in the past, accumulated excess liquidity waiting to be invested and rising rates are making this process accelerating. Let me also add that looking at private banking clients, the liquidity as a percentage of total financial assets is now at 14%. That is the lowest level since 2015, suggesting that they are approaching the floor. Finally, please note that new clients acquired in the year also brought positive liquidity. To sum up client behaviors are confirming what our internal models we're predicting with transactional liquidity remains sticky to the bank and the excess liquidity being reinvested into assets under management or assets under custody. The main result is that transactional liquidity has increased at 89% of total deposits compared to the 85% as of December. Let's now move on to Slide 18 for a focus on our liquidity ratios.

Going to details of our liquidity ratios. Net stable funding ratio at the end of March was 377%. This indicator measures the stability of the funding base, considering the structure of our deposits, the business model, the retail-driven nature, the high percentage of deposit under the protection of the deposit guarantee scheme Fenix is one of the banks in Europe with the highest ratio, meaning that the probability of the bank to losing a big wave base of deposits is the lowest and long European banks.

Moving on the asset side. The balance sheet, as shown in the graph at the bottom of the slide, you can see the high-quality liquid assets on total deposits, reaching 63% at the end of March with EUR 194 billion of high-quality liquid assets. Also here, Fineco's emerging among the banks with the highest deposits covered by high-quality liquid assets. This leading to a liquidity coverage ratio at 83%, once again, fast above the average level of European banks. Let's now move on to Slide 20 for a focus on our guidance.

Let's now focus on our 2023 guidance and have to look at going forward. On banking revenues, we expect net financial income in 2023 to grow by around 70% with a peak in the last quarter of this year. Let me remind you exclude the assumptions behind the guidance. First of all, the guidance is updated with the forward rate could as of May 2023, which has improved compared to the last guidance. We confirm that we will not pay any interest rate on current accounts minus EUR 2 billion net inflows in deposits compared to the EUR 1 billion of the last guidance. In terms of our investment policy, we will continue the diversification of our bond portfolio progressively reducing the exposure towards Italy and Spain, in line with our strategy.

Going forward, we expect net interest income to keep on benefiting from the new interest rate environment. Overall banking fees are expected remaining stable compared to 2022. On investing, taking into consideration the market has said half to the end of April, we confirmed 2023 expected revenues to increase high single digits year-on-year with higher management fee margins after tax but with different assumptions and a better mix. We're improving our expectations for Fineco Asset Management retail net sales up to around EUR 5 billion. And it is -- as it is able to catch the outflows coming from the insurance waters in the new interest rate environment.

As a result, we expect overall bank's assets under management net sales at around EUR 4 billion. Our network financial plans is expected to increase by around 100, 120 financial advisers. In 2024, we confirm around EUR 5 billion expected net fees in the overall bank's asset under management. For our [ age ] company, we confirm retail sales at around EUR 4.5 billion. Finally, despite the challenging context, we also continued the increase of our management fees margins after tax up around 55 basis points by 2024, thanks to the Fineco's Management operational efficiency. Pretax margins are confirmed at around 73 basis points by 2024. Brokerage revenues are expected to remain strong with the floor in relative terms with respect to the market context that is definitely higher than in Covid period.

Operating costs in 2023 are expected to grow at around 6% year-on-year, not including around EUR 2 million of additional costs related to Fineco Asset Management, around EUR 3 million for U.K. operational costs and eventually additional marketing expenses. Cost income, we confirm our guidance on a continuous decline in cost income in the long run, thanks to the scalability of our platform and to the strong operating gearing we have. systemic charges for 2023 are expected at around EUR 50 million. On capital ratio, we expect a growth in 2033 for both CET1 ratio and leverage ratio currently with the combination of both a strong acceleration in the growth of the bank and the distribution of generous dividends.

On dividend per share going forward, we expect the heat constant increasing, also thanks to the progressive delivery of our strategic [indiscernible]. Cost of risk was equal to 4 basis points, thanks to the quality of our lending portfolio that is offered exclusively to our loyal customer base. In 2023, we expect it in a range between 5 and 9 basis points. Finally, we expect a robust and high-quality net sales with a mix mainly towards asset under management, and we will lower component of deposits, thanks to holding new initiatives we are undertaking.

Let's now move to Slide 23 for an update on our international business. Let me share the usual update on our U.K. business. We are very happy for the growth of the business. We experienced despite we stopped our marketing activity due the talks still pending with the local regulator. Our client base kept on increasing, thanks to the word of mouth, and our revenue generation has increased by more than 86% year-on-year, reaching EUR 1.3 million in the quarter. The next country we are assessing to [ entries ] Germany, but before, we are focused on finding the right setup for the U.K. business. Thank you for your time, and we can now open the call to questions.

[Operator]

[Operator Instructions] The first question is from Azzurra Guelfi from Citi.

[Azzurra Guelfi, analyst]

A couple of questions from me. The focus is clearly on the NII guidance. You have lowered the guidance from a growth of roughly 80% versus 2022 to roughly 70%. What has driven this change in guidance? Is it differing deposit trend. Could you give us the indication of the outflows that you assume for the year in your guidance? And you just looking at rates that would not square. The second one is on the guidance for flows for FAM. You have improved 2023, but you have kept to 2024 unchanged and down versus the new guidance. So, I'm just trying to understand what is the moving part in there -- that would be very helpful.

[Alessandro Foti, executive]

So, regarding the net interest guidance, the main driver is represented by the fact that we lowered our expectations on the deposits. moving from an expectation of plus EUR 1 billion by a growth of EUR 1 billion of deposits, down to minus EUR 2 billion. So, this is the main rationale behind. Regarding the FAM flows, clearly, in the -- during the 2023, we increased the guidance on Fineco Asset Management because this is related to the higher-than-expected [ hardflows ] by the insurance wrapper. And clearly, Fineco Asset Management is playing the lion's share and capturing what is outflowing by the insurance [ rate ] -- we -- for 2024, we expect a stabilization in the insurance business.

And so, we are back again to the normal guidance for Fineco Asset Management. But in any case, also the -- so the fact that there is a combination of an expectation in terms of insurance rate. And this is the only reason behind the lowering of the guidance on the net sales of assets under management for 2023. But what is important to underline that this has not caused any change in the expected revenues and margins generated by the assets under management investing business because lower volumes by a better mix because the insurance wrapper probably characterized by the lowest margins for us. So, at the end of the story, what is important, the revenues and margins are meaning absolutely aligned with the previous guidance.

[Azzurra Guelfi, analyst]

Sorry, if I can follow up on the deposit. Basically, you have a swing of roughly EUR 3 billion of deposits that has resulted in roughly 10% reduction of the NII. Is this a kind of sensitivity we should use? And do you expect further deposit decrease in 2024? And would you consider is this deposit outflows continue, especially for the private banking client seems to be the one more active in moving deposit to have some form of remuneration...

[Alessandro Foti, executive]

As we explained during the -- going into the details of our liquidity position, the composition of the deposits, there is we -- what we expect that is progressively as much as we have the rates reaching the top and stabilizing this cash sorting is going to progressively going down. We have the first heavies of this process in this process in place. Second, that particularly the total amount of this investment in direction of govies, for example, has been driven by the West clients that they are reinvesting their liquidity. And these clients are now sit on the historical floor in terms of percentage of liquidity on their assets. And also, this is bringing to the conclusion that we are -- the process is expected to keep starting on cooling down. And finally, the results is -- and this is comforted by the fact that the percentage of transactional liquidity has increased because the transaction liquidity has not been touched by this process. And so, this is making -- we are very positive on the evolution of the liquidity position of the bank.

[Operator]

The next question is from Giovanni Razzoli from Deutsche Bank.

[Giovanni Razzoli, analyst]

A few. You mentioned it during the presentation, if I'm not mistaken, but can you confirm that you have no intention to resume the issue on term deposit or your own deposits in the short term and also in the medium term? And the other question is you can -- there has been a lot of press covers about the distribution of insurance policies with Eurovita, -- can you share with us once for also that we are on the same page. What is the amount of the policies that are -- that you have distributed at the number of clients, please? And the last question is on the target for the commercial flows at year-end, you had EUR 1.2 billion of net inflows year-to-date and EUR 1.7 billion for pharma, and you are guiding, respectively, EUR 4 billion and EUR 5 billion for the full year, even if there is a couple of months that we should have a negative seasonality. So, it seems to me that you are incorporating a quite significant acceleration in the coming months in terms of inflows. Do you share these views? And what are your assumptions for the restart of the year?

[Alessandro Foti, executive]

Let me start by the first question. We -- yes, we consider that we have no intention to pay interest rates on deposits, and we are not planning to launch any term deposits offer to our clients. We are going to keep on giving our clients the possibility of to invest on to deposits of other banks. The ratios behind this differently by many other banks. We don't have any liquidity problem because we -- and so there is no reason that we get liquidity that is expensive and worthless because it's absolutely not sticking because the stickiness of this liquidity is just related to the maturity of these deposits. So, we don't need to do that.

So, as we explained, the most part of our liquidity is transactional liquidity that is there because the clients are using the platform. And so, on this, we are not going to pay anything. And the result and what's going on is extremely comforting because we -- the percentage of production liquidity is increasing. We expect the overall base of deposit of the bank because what is flowing out is the so-called hot money. And for this reason, so considering most of the balance is that it's probably the most lipid balance sheet among the European banks. There is no reason that we are going to embark the banking raising liquidity, paying skyrocketing rates.

On the insurance policies with Eurovita, we -- our -- the roll amount of this Eurovita policies. That represents more or less 13% of the overall insurance business. And the most part is represented by unit-linked that are not by the so-called [Foreign Language]. And the overall number of clients involved in this is less than 1% of the total client base putting everything together means that we -- whatever is going to be the outcome of this Eurovita situation. The final impact for the bank are going to be not significant, both by the P&L and balance sheet point of view. And also, it's going to be not material also in terms of reputational risk for the bank, considering the very small amount of number of clients involved. Clearly, it's not -- we are not happy. It's a painful situation. But if we look to the possible negative impact of the bank, these are extremely limited and not material.

Target for commercial flows at year-end because we have -- we have EUR 1.4 billion assets under management and EUR 1.7 billion of Fineco Asset Management. Yes, we are -- what we are observing that the commercial production of the network is extremely strong. The first part of the -- this quarter has been clearly penalized in terms of inflows by the quite big amount of these investments on the insurance wrap. Now this process is cooling down because the most factor clients that have been attracted by this progress, mostly by the rates the last this invested. And so, we expect the progressive normalization of the situation and [indiscernible] at the commercial traction of the network has remained absolutely very strong throughout to the math because of what I would like to underline that our net sales of assets under mentioned remained fairly positive, also considering the negative outflows by the insurance wrapper. And so, this performance has been absolutely very quite amazing and is comforting us in looking forward for the following part of the year.

[Operator]

The next question is from Enrico Bolzoni from JPMorgan.

[Enrico Bolzoni, analyst]

The first question is, you are revising up the guidance for flows in FAM, which clearly is margin enhancing, but you're not changing your guidance on the exit margin rate that you expect from investment products. Can you just give us some color why so are you being particularly conservative? Should we expect in 2024 or beyond an additional acceleration in the margin or the investment products. So, this is my first question. The second question is related to actually the adviser populations, you're hiring new advisers. Can you just remind us what happens when a senior adviser decides to retire and eventually pass over its book of clients to someone new. Do you have any policies or practices to make this transition smoother? And the final question is on your leverage ratio, clearly has improved. Can you just remind us if Ceteris paribus, so without any consideration of other factors, does the reduction in deposits actually improve your leverage position? And at what point would you consider additional capital distribution to your shareholders?

[Alessandro Foti, executive]

So, regarding the rising up guidance for [indiscernible] without changing the guidance on margins is because clearly is on one end, we have this improved guidance with development on FAM. At the same time, overall on the assets under management, we have lower volumes driven by the investment by the insurance broker. So, putting together the 2 components, the impact on revenues and margin is relatively neutral. And we -- and on the 2024, we would prefer to keep the guidance unchanged because without embedding any additional acceleration in margins and so on. So, we remain -- we are very close now to the 2024. And so, with the guidance we gave some years ago, and so we think that that's okay. So, when a senior adviser is leaving, we have different options on the table.

So, there is one. There is a structural process that is making possible for the senior advisers to sell to another colleague to another younger colleague, the portfolio -- and so -- and we've very well in advance the retiring moment, giving the plenty of time for making the new colleague familiar with the client base. And there is another option that is gaining momentum that is a kind of a generational change because it's more and more frequent having the senior financial planners retiring and leaving the floor to their sons, total and so on. So, there is an absolutely a very interesting trend there. And for example, the possibility for our financial plans to work as a team, putting in common clients and portfolio is clearly quite helpful in this transition process.

Leverage ratio, yes, leverage ratio because the market is completely fully focused just on the reduction of deposits on the possible negative impact. But for example, I don't want to be perceived as insane. But what's going on on the liquidity right now on a little bit longer-term perspective, in our opinion, is extremely positive because it's helping us in getting rate of the so-called hot money. So, the hot money is now moving more quickly in the direction to be invested or in assets under management or in asset under [ casted ]. Clearly, we would be more pleased to have a higher percentage of assets under management. But in any case, the fact that we are experiencing a quite fast reduction of the hot money overall, it's a good news for the bank looking forward because this is going to make our leverage ratio even more robust going forward. And as you have correctly underlying, leverage ratio is the only one possible constraints we have on the table in the direction of becoming even more channels in -- regarding what we are giving back to the market.

So, this -- and so overall, is this reduction of this kind of liquidity is positive also because it's completely not material in terms of the -- regarding the liquidity position of the bank because as you can see, the bank is -- has the most liquid balance sheet among the European banks, so clearly losing a few billions of deposits doesn't make any difference from that point of view.

[Enrico Bolzoni, analyst]

And sorry, just following up. Is there any specific threshold you would consider a request beyond which you would consider additional distributions?

[Alessandro Foti, executive]

No. At the moment, we are not -- we did -- this is not on the table. But again, on the point, the only theoretical constraints we have on the table regarding and a higher distribution of profits to the market of dividends to the market is the leverage ratio. So -- and so when the leverage ratio is comfortably at the level that we think that it's absolutely incredibly rock soil and so on. Clearly, this is an option that by definition, we have to consider because clearly, we cannot keep on making our CET1 ratio growing and continuously relates -- in any case, any just mainly my colleagues and giving me the sensitivity. Every EUR 1 billion of liquidity worth 11 basis points of leverage ratio.

[Operator]

The next question is from Domenico Santoro from HSBC.

[Domenico Santoro, analyst]

A few questions from my side. First of all, if we come back a bit to the NII, in particular, on your guidance for this year vis-a-vis the previous guidance. I'm just wondering whether you can break it down the EUR 40 million difference. How much is due to a different yield for this year, given the way the way they moved and how much is that is due to the different assumption in deposit outflows. The other question is whether you can give us the exit level for NII in absolute terms, if you have at the end of 2023. And given the different scenario rates, I know that you mentioned before that deposit outflows are sort of normalizing. I'm just wondering whether you are still confident that NII in 2024 can increase from 2023 level? Or at this point, this looks a bit ambition ambitious.

The other question that I have is on banking fees. I mean you are reported better numbers year-on-year. The sequence is positive. But you stick to the guidance that fees in banking are going to be stable this year -- so I'm just wondering whether there is a link with deposit outflows or closing accounts that makes you a bit more bearish on the evolution of this revenue stream during the course of the year or you're just conservative? And the other question is on the in derivatives that if my understanding was correct, the CFO explained in the past as hedging on the mortgage book. I understand the rationale behind the loss. I just wonder whether this is a one-off that we will see only in the first quarter of the year or as rates they go up during the year, there might be some more trading losses.

[Alessandro Foti, executive]

So let me start by the first question. So -- so how much is due to the different fields and how much on the different assumption on outflows. So that the most part is driven by the difference in deposits, yes. So, this is the main reason behind the change in the guidance. So, we took into account the evolution of the deposits. And so, continue the previous guidance was based on expectation of EUR 1 billion of growth. Now the new expectation is for a reduction of a couple of billions. But yes, the most part of this is this related to the decline in the deposit base.

So, the exit level on net interest income at absolute level, I think that it's relatively is a calculation because if you apply a 70% increase on the financial income. So, on the respective 2022. So, it's... How much so. EUR 660 million. EUR 666 million. So, this... Yes, sorry.

[Domenico Santoro, analyst]

It was more than level in Q4, to be very honest, if you can give us. So, excuse me, it was more the exit level in the fourth quarter rather than the year.

[Alessandro Foti, executive]

Yes. one... Yes, because the -- as we said during the presentation, the peak of the peak on the net interest income is expected to be achieved during the first quarter of 2024. So, this means that the first quarter of 2024 is going to be higher than the last quarter of 2023. Have you lost or I've been...

[Domenico Santoro, analyst]

No, no, no. Well, you say that the peak is in Q4 '23, if my understanding is correct. Can you tell us what's the number that you have in mind in the fourth quarter of this year?

[Alessandro Foti, executive]

I leave the floor today. I leave the floor to the CFO because...

[Domenico Santoro, analyst]

All right. We return to you later on, excuse me, excuse us. Okay.

[Alessandro Foti, executive]

And so, deposit outlook normalizing and constant net interest in 24 can increase for ambitious. Yes, still, we expect a slight rise of the net interest income throughout 2024 also inventing this change in the guidance.

[Lorena Pelliciari, executive]

So, in the fourth quarter, we have an interest that is 13% higher than the first quarter of 2020 in the first quarter 2023.

[Alessandro Foti, executive]

So the first quarter 2024.

[Lorena Pelliciari, executive]

That's in the fourth quarter 2023, we had interest income date 13% higher than the first quarter 2023.

[Alessandro Foti, executive]

Yes. But what is asking is looking for what is in comparison with the first quarter of 2024. Domenico, you have to be patient in terms of we are...

[Domenico Santoro, analyst]

No, no, -- that's it. Let's make it very simple. That's basically the information that I was looking for. So, 2024, you said NII is still expected to go up. But of course, that -- the assumption that is implied in our guidance is that deposits will stop basically reducing, correct?

[Alessandro Foti, executive]

Yes. Then we have banking fees. Now banking fees is not related to deposit outflows because it's just related to the fact that we gave back to clients and a certain percentage of the cost we charge them during the period of negative rates. So accordingly with the moderation made by Bank of Italy, we agreed and we communicated to the market, to the clients when we have communicated the market March. On March, we communicated to the market that we are going to keep back to them a part of the additional commissions we charge on the current accounts because we used at that time the negative rates as a rationale behind the increase of cost for clients. And now with the interest rates returning positive, we are giving back to clients this amount. And on the other hand, clearly, we have the bank is continuously acquiring new clients. And so, putting this thing together, this is driving to stable banking fees. And on the hedging derivatives, and this, I'm leaving the floor to the CFO for giving you a little bit more details.

[Lorena Pelliciari, executive]

Yes. So as we already said, in the ineffectiveness of derivatives is due to the fact the derivatives are evaluated taking into consideration a risk-free rate for the derivatives coherently with the fact that thanks to the collateralization on daily basis, there is no counterparty risk, while the hedge assets that are not only more than is but also on portfolio evaluated during Euribor. And so, this is why the value of the effectiveness is influenced by the price between the 2 rates and is also influenced by the amount of the [indiscernible] going forward in the long run, the value of the effectiveness of each derivatives, will go back to 0 due to the progressive expiry of the derivative subsidies. But it depends...

[Alessandro Foti, executive]

But it's not driven by the rising rates.

[Lorena Pelliciari, executive]

Is there the difference?

[Alessandro Foti, executive]

Yes. But because... Dominic made the point that the rising rates that are making this...

[Lorena Pelliciari, executive]

No is the difference between the 2 rates -- and it's quite unpredictable to give -- to now or to forecast what the taco be in the near future. We only know that in the long run, the value of the ineffectiveness of each derivative, will go back to the [ opco ].

[Domenico Santoro, analyst]

But in simple terms, this one-off regarding us whether it's positive or negative, is something that we will see only in Q1? Or is the chance that the trading losses we generate during the year...

[Alessandro Foti, executive]

No, the question is if there is the [indiscernible] to have this...

[Lorena Pelliciari, executive]

Yes. Depends on the difference between the 2.

[Alessandro Foti, executive]

Is relatively unpredictable because we don't know exactly how the relative terms to rates are going to move. So, because of the problem that we have there is a kind of -- the reason we are using different kind of rates for that, but this is for accounting reasons. So, it's not -- and so this is a little bit random unpredictable but not -- it's not related to market conditions, the level of rates and so on.

[Lorena Pelliciari, executive]

And we confirm that the peak of the net interest is in the fourth quarter of 2023. And it is 13% higher than the first quarter of 2023. Regarding the first question or the second question that you asked.

[Operator]

The next question is from Marco Nicolai from Jefferies.

[Marco Nicolai, analyst]

The first one is on the retail investment strategy. I think there is a recent draft document out. Just wanted to know if you have any updated views on how this will impact your business if it will impact it. And second one on the outflows of deposits that reduced in April versus March. Can you just give us a bit more color on the improvement month-on-month. Is it due to a higher number of clients acquired bringing in new deposits? Or is it also linked to, let's say, lower appetite towards fixed income products Yes, if you can give me more color on this.

[Alessandro Foti, executive]

So, on the first question, so the recent document, you are referring to all the resting related to the -- so the -- so inducement something like that. So please, if you can give...

[Marco Nicolai, analyst]

Yes, exactly that. Yes.

[Alessandro Foti, executive]

So yes, we -- so the -- first of all, the first point on this has been that the European Commission is slowing down regarding the initial project to introduce a ban inducement, but they are moving more in direction of making a little bit more restrictive than what is the intermediaries are doing in terms of getting a retrospection by the asset managers. So, regarding this point, we -- whatever is going to be the final half comer. Fineco is by far the best positioned player in the market for very simple reasons.

First of all, we have been, by far, the first mover in introducing advisory services on which clients are paying an advisory fee. At the moment, we have nearly pit. So, it's is a total amount of -- on the betting together. So the service on which clients are thin and advisory fees, is EUR 27 billion, EUR 30 billion Yes. We have more or less EUR 27 billion out of the EUR 50 billion we have on which clients are paying an advisory fee -- so the key is the reason many case is going to remain a focus on [ farming ] services in which clients are paying in base fees, piece by far the most advanced players because our clients, financial planners and all they are very well customer that is. Second, we clearly -- and this is -- there is also the possibility to have a little bit more restrictions in the retraction, but Fineco has made a very important strategic move 5 years ago, launching Fineco Asset Management. And this is going to make a possible impact on the extremely manageable.

So overall, we see all the possible developments attached to these documents as positive for us because the final outcome is going to increase the level of transparency on the industry and transparency is the base on which we build our business. The improvement in April has been driven by the confirmation of the very strong inflows related to the transactional liquidity because everything remains remaining absolutely strong in terms of net new liquidity entering in the bank driven by new clients and clients are moving -- increasing the share of wallet with the bank and keeping on gaining traction on crediting on salary and so on. And together with a progressive declining interest and appetite by clients for investing in [indiscernible] this is current with the evidence we have in which our wealthy clients are approaching the historical floor of their -- in terms of percentage of liquidity on their total financial assets.

[Marco Nicolai, analyst]

One quick follow-up. Do you have an updated split between transactional liquidity and hot money? I'm thinking about your deposit base. Shall we still keep in mind the 85% of the total deposits as transaction?

[Alessandro Foti, executive]

Now has moved up. We moved from 85% to 89% for a very simple reason because practically 100% of the liquidity that has moved out in the recon investment is related to hot money. So, this clearly -- and this is very important because it is confirming that the base of our deposits, it's really rocksolid because mostly represented by transaction repeat. In any case, this is captured by the net stable funding ratio. The main reason why Fineco is such a high net stable funding ratio technically the highest among the European banks, is mostly related to the fact that the kind of deposit we have is mostly related to transactional liquidity deposits.

[Operator]

The next question is from Alberto Villa from Intermonte.

[Alberto Villa, analyst]

Just a few questions, and thanks for the answer to the many previous questions. Alessandro, I wanted just to go back to the dynamics in terms of inflows, deposits and also assets under management. I'm referring to the fact that the Italian treasury is launching a series of government bonds that are trying to attract retail investors and the aim seems to be to get significant inflows into these products from Italian retail. We'll have the next issuance at the beginning of June. I understand that the liquidity is currently mostly related to transactions. So, I agree with you that you are pretty safe on that front. But do you see any risk maybe for you and for the rest of the industry that some clients may, let's say, this month to some of their investments and moving to these kind of products, which are pretty attractive in terms of yields right now, and this could be, let's say, a potential risk going forward for inflows being the situation for yields quite competitive compared to the return we have had on assets under management in the last 18 months.

And the second question is on the rumors about Italian government considering a taxation of extra profits made by the banks on, well, huge increase in net interest income. So far, it doesn't seem to go through in the immediate future, but -- do you see any risk of this kind of levy being introduced on the Italian banks? And the final one, very quick one is on the rest of EU expansion. Do you have a priority list of countries you are looking at for the future.

[Alessandro Foti, executive]

Regarding the expected new launch of bonds dedicated to retail clients. First of all, this is not a very new story because it's several years that the Italian government has started on approaching directly the retail clients. In in our expectation in terms of evolution of deposits, we are clearly embedding the expectations of additional proposal by the government on the direct to the retail clients. This is not going to change structurally the situation of the bank because it's going to keep on capturing the so-called hot mining.

So now we have 89% of liquidity that is transaction liquidity and then the remaining 11% is hot money. So, this, we have a little bit more than still EUR 3 billion of that is related to hot money. So, it's possible that this offer are going to keep on capturing this candidate. You consider also that the typical pattern we are observing continue that Fineco has by far the platform of choice for not just trading stocks but also bonds because we are characterized where we are not charging any fee for the custodian of bonds and what we -- the clients are not paying practically nothing. It's true that this is [ statin ] which there are no conditions in the case. But usually, when you have this kind of situation that we have clients bringing additional money into the bank. So no, we -- this is not -- it's something that we have -- we had from the beginning on our radar screens. And so, we -- this is not going to change any significantly.

The only -- regarding your points, which kind of -- if this can represent a challenge for the industry. My opinion, the biggest challenge is considering the kind of observation point we have is much more in the direction of making even more difficult for banks that they are specialized in lending in gathering and liquidity because, for example, what we are observing on our platform offering time deposits, the appetite by clients for this term deposits is pretty low, but this is exactly driven by the competition represented by the [indiscernible]. And on the other side, we are observing and continuously growing number of banks that they are starting on massively overpaying term deposits because we have banks that now are paying definitely above the one here. So, in my opinion, the biggest risk if the government comes a little bit too aggressive in that direction is really to create problems for banks that they are in the necessity of gathering liquidity for sustaining their lending business.

Regarding the rumors about the Italian government continued taxation, we -- the only calculation we made has been we made a very basic assumptions, we made assumptions that we have introduced in Italy, exactly the same approach used by Spain that has been extremely penalizing for banks. And in the case, Italy is going to start that is exactly the copycat of Spain. For us, the impact would be...

[Lorena Pelliciari, executive]

We say EUR 60 million from 15 million to 16 million...

[Alessandro Foti, executive]

Yes, it would be between [ EUR 15 million ] to EUR 60 million pretax. So, this would be the impact on the only speaking, we are not making any consideration. And we are not making any comments on that because we -- our approach is we are not commenting the possible intervention by regulators of government. We are here for adapting our business according with changing rules. And we don't have any -- at the moment, we are -- regarding the last question, we are completely focused and concentrated on finalizing the talks with the U.K. regulators thereafter. We will put our highs on the possible expansion in other European countries.

[Operator]

The next question is a follow-up from Enrico Bolzoni from JPMorgan.

[Enrico Bolzoni, analyst]

Additional question. Can you just remind us what proportion of your monthly or quarterly flows come from existing clients versus new clients? And the second question is the proportion of deposits that, on average, the new clients bring to the platform? If you can give us a figure and if you saw also a change there. So, for example, you see more new clients coming directly invested rather than with a certain proportion in liquidity. Any color or statistics you can give us there would be very helpful.

[Alessandro Foti, executive]

We -- the percentage is more or less 60% is represented by new clients, bringing new assets and 40% the increase of the share of wallet of the existing clients. And in the -- clearly, in the last few months, we had the very evident effect of clients bringing, for example, [ Dris ] , bringing new liquidity and mostly for investing this liquidity because they -- for example, we -- because the starting beginning of the year, we had our clients buying, which is the total amount of bonds they booked. So nearly EUR 4 billion that is huge. But at the same time, we had positive net inflows for now considering also the number of April for 3.6%.

So, this means that really, we add clients not just buying bonds, but bring bringing additional liquidity for buying bonds and so on. So, at the moment, there is clearly the largest part of the liquidity that is entering into the bank is moving in a direction to be invested. But this clearly is driven by in the past, there was a little bit more temporary lag between the moment in which clients whether we're transferring their liquidity in the bank and the moment in which we're investing. Now with this much higher rates. This process is very accelerated. So. it's immediate because clearly, the clients that they know -- they know that they want to invest. Clearly, the opportunity cost is higher on leaving the liquidity on the current account. And so they are faster in reinvesting the liquidity immediately into the market.

[Operator]

The next question is from Panayiotis Ellinas from Morgan Stanley.

[Panayiotis Ellinas, analyst]

Just on the farm net sales. Can you give us some color on which products you see most demand? And then what's also incorporated within your net sales guidance for farm and also [ Kmarket ], maybe an update on Q1 flows. And what do you expect -- all what you had in April as well. So that's all for me.

[Alessandro Foti, executive]

So, farm net sales at the moment are mostly focused in direction of fixed income solutions. And now as we explained during the presentation, we are -- now we are launching a brand-new generation of products that they are combining together the extremely popular fixed income solutions with a very innovative approach that is giving the possibility to clients to get a 100% exposure to the equity markets, but with a protection of -- so without risking the principle. And so, we think that progressivity is going to be quite [ predeparture ] update on Q1 flows in April, so what do you mean exactly with these questions because...

[Panayiotis Ellinas, analyst]

Can give us a bit of color you have seen demand for ICAP products, for example, or something in particular for the U.K.

[Alessandro Foti, executive]

On the U.K. No, in the U.K., we are speaking, we -- the most part of the activity of the client is completely 100% in direction of brokerage activities.

[Panayiotis Ellinas, analyst]

Okay. And then in Italy for the advisers, have you seen sort of different dynamics or productivity from the prices you recruited over the past 12 months compared to the new ones. I think looking from the slide 97% is from the organic. But can you maybe comment a bit there, just what you have seen so far?

[Alessandro Foti, executive]

We -- in terms of activity by passions, no, we are not saving any significant change. So, there is clearly a continuation of this higher propensity in direction of fixed income solutions. -- we are keeping on enjoying quite brisk interest by banks, employees in our directions. And that's also -- we are not observing any significant change in the structure of the market.

[Luigi De Bellis, analyst]

The next question is from Luigi De Bellis from Equita. Just a quick follow-up on the net inflow guidance and the acceleration of net new sales. In your guidance, do you expect this acceleration already in May and June due to the cooling off of outflows insurance wrappers or mostly in the second part of the year? And can you give us more color on the new products to keep this acceleration? You mentioned in Global Defense Moti strategy. Can you elaborate on this?

[Alessandro Foti, executive]

Yes. If this deceleration in these investments of the insurance rate is continuing. Yes, we expect in both in May and June and an acceleration in the asset under management production. And the new product, as I was explaining is products that are combining together. And one piece is going to be represented by our defense strategy. We are -- that is representing the lion's share of our net sales over the last few months. But it is going to be given to clients in a bundle with these new solutions that is giving to clients and the possibility to get a 100% exposure, for example, to the Morgan Stanley with the index, but with the capital protection. So, it's practically -- and this is good because we -- it's in direction of starting on making clients and moving again in direction of the equity products.

[Operator]

[Operator Instructions] Mr. Foti, there are no more question available at this time.

[Alessandro Foti, executive]

Thank you very much for attending our conference and for the very interesting questions. As usual, you are available then for 20 request for deep diving in the numbers, concept, evolutions and so on. So, thank you again.

[Operator]

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