FinecoBank Banca Fineco SpA

MIL:FBK

Earnings Call Transcript 2023-Q2

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the FinecoBank Second 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 half 2023 results conference call. Adjusted net profit in the first half of 2023 was equal to EUR 309 million, up by 39% year-on-year and by 63%, excluding first half 2022 profit from treasury management. Adjusted revenues at EUR 601 million, increasing by 29% year-on-year and mainly supported by net financial income, which is sustained by our clients very sticky and valuable transactional liquidity and by investing, thanks to the volume effect and the higher control of the value chain by FinecoBank Management.

Operating costs well under control at EUR 144.5 million, increasing by 5% year-on-year by excluding costs related to the growth of the business. Adjusted cost-income ratio was equal to 24.1% and decreasing year-on-year and confirming operating leverage as a key strength of the bank.

In the first half of this year, Fineco recorded an outstanding commercial performance, thanks to our organic growth strategy. First of all, we recorded a further acceleration in our new client acquisition increasing by around 25% year-on-year. This is a particularly healthy and remarkable growth, considering that we have not changed our client acquisition strategy and that the competitive environment is crowded with short-term aggressive commercial offers on rates.

Second, our net sales confirmed to be very solid with EUR 5.2 billion inflows in the first half of the year. This trend is confirmed also in July with estimated net sales at around EUR 500 million, of which deposits at plus EUR 200 million, despite the EUR 260 million of higher taxes year-on-year paid by clients in the month, driven by the decision by the government to anticipate in July, taxes that last year were paid in August. Assets under management at around EUR 40 million due to around minus EUR 160 million of outflows from the low margin insurance business and assets under custody at around EUR 250 million.

July brokerage estimate revenues are equal to EUR 14 million, more than 35% higher compared to the average July revenues in the period 2017-2019. Third, our net personal financial advisers continue to be once again the leader in terms of productivity within the asset gathering space, thanks to our powerful organic growth engine and the Fineco team. Our capital positions continue to be strong and safe with a common equity Tier 1 ratio at 23.2% and a leverage ratio at 4.68%.

Looking at 2023 and going forward, we expect to continue to deliver a strong growth, thanks to our very diversified business model and our organic growth strategy. On the right-hand side of the slide, you can find a summary of our 2023 guidance, which are whole confirmed more in detail, our net financial income, we confirm it to increase in 2023 by around 70% versus 2022.

On investing revenues, 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 sales and management fees margins expectations.

On brokerage, we confirmed for 2023, expected revenues strong with a floor higher versus pre COVID period. On operating costs, we expect a 6% growth year-on-year in 2023, not including around EUR 2 million of additional cost for Fineco Asset Management, strategic discontinuity and at least around EUR 3 million of additional marketing expenses. We expect our cost of risk in a range between 5 and 9 basis points. And finally, we expect a growing cost CET1 ratio and leverage ratio.

Let's now move on Slide 5. As announced, adjusted net profit in the first half of the year stood at EUR 309 million in a very challenging macro scenario, increasing by 39% year-on-year and by 63%, excluding profits from treasury management realized in the first half of last year.

Revenues at $600.7 million, up by 29.4% year-on-year as we have been able to catch the strong acceleration of the structural trends in place. The strong growth of our net financial income increasing by 86% year-on-year, supported by our high-quality and capital line net interest income growing by 158.5% year-on-year and with a very low contribution by lending.

Net commissions increased by 4.1% year-on-year, thanks to the contribution of investing and banking. As for the trading profit, let me remind you that in this line, there are accounted minus EUR 5.1 million related to the ineffectiveness of hedging derivatives in accordance with the accounting standard IFRS 9 compared to the plus EUR 11.7 million in the first half 2022. The value is influenced both by the spread between the euro short-term rate and the Euribor and by the amount of the fair value of the derivatives. Excluding this effect, the decline on the trading profit is mainly related to the lower brokerage activity due to the level of market volumes.

Operating costs at EUR 144.5 million, well under control and increasing by 5% year-on-year, excluding costs strictly related to the growth of the business, mainly additional cost for FinecoBank management to further expand its business and have a higher control of the value chain, additional marketing costs to catch the strong momentum of the business.

Let's now move on Slide 6 for a deep dive on the performance of the investment business. Investing revenues were equal to EUR 156.2 million in the first half, increasing by 4.8% year-on-year. Let me please remind you the quality of our investing revenues, mirroring our transparent and fair approach towards clients. As a result, our revenues are exclusively driven by recurring management fees with only 1% contribution from placement fees and no performance is at all.

In the second quarter, management fees margin after tax increased to 53.8 basis points, up both year-on-year and quarter-on-quarter, thanks to the strong contribution by Fineco Asset Management.

Let's now move to Slide 7 for a focus on our asset 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 the group asset under management, Net sales is started improving regardless of the macro scenario moving from 81% in the first half of 2022 to 122% in the first half of 2023.

At the end of June, the contribution of Fineco Asset Management out of the total stock of assets under management of the bank moved from 28.8% in the second quarter of 2022 to 33.4%. The commercial performance by Fineco Asset Management this year has been outstanding, not only in absolute, but also in relative terms.

Down in the slide, we are showing a benchmarking based on [indiscernible] retail net sales as of June. As you can see, our Irish company delivered the highest net sales compared to the most relevant asset managers operating in Italy. This remarkable result is due to some effectiveness in quickly developing the right set of products to catch what clients are currently looking for. Our Irish company has recently developed a new generation of capital protected investment solutions, which is now further widening to allow clients to build a protected exposure towards EBIT.

Let's now move on to Slide 8 for a focus on brokerage. Brokerage as usual, registered an excellent first half at EUR 96 million, resulting in a monthly average 43% higher compared to the more monthly average revenues in the period 2017-2019, confirming a structurally higher floor compared to pre-pandemic levels regardless of the market conditions. Let me remind you that the growth of the brokerage business is driven by the contribution of these structural components.

First, the continuous process of deep reshape 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/'19. Third, we are continuously increasing our retail market share.

As you can see on Slide 9, all of this is translating in a very resilient revenue generation regardless of the market context, delivering a far better performance compared to peers.

Let's now move on Slide 11 for a focus on our capital ratios. Fineco confirmed once again a capital position well above requirements and expected to grow on the wave of a safe balance sheet. Common Equity Tier 1 ratio at 23.2% and leverage ratio at 4.68% and wider risk-weighted assets at EUR 4.6 billion and total capital ratio at 34.04% as of June 2023.

As for the liquidity ratio, liquidity coverage ratio is at 785% and net stable funding ratio at 384%. Before moving to the next slide, let me underline that our rock solid capital position has been confirmed by the results of the stress test by European Banking Authority and the European Central Bank. Fineco emerged among the top 3 Italian banks and among the best European banks and even in an adverse scenario, we reported an improvement in our CET1 ratio.

Let's now move to Slide 14 for a focus on acceleration of our commercial dynamics. Let me spend a few words on the strong acceleration of our new client acquisition, which is even more remarkable considering the context. As you can see from the graph on top of the slide, new clients in the first half were 25% higher year-on-year. This result has been achieved keeping our marketing strategy unchanged. This is clearly shown by our most recent marketing campaign, which was only focused on Fineco positioning and not relying on any short-term aggressive offers on rates.

Our clear aim is to build up a reputable brand that generates a positive word of mouth. This translates in the acquisition of a high-quality and sticky client base key to growth and healthy business in a long-term horizon.

Let me also add that we have recently increased the efficiency of our marketing engine, thanks to our brand new onboarding process. First of all, we introduced responsive onboarding and up accessibility, making it easier for customers to open accounts from any device. Secondly, we streamlined the entire onboarding journey by simplifying each step. This optimization has significantly improved our conversion rate while also lowering acquisition cost, as you can see down in the slide.

Let me also quickly comment on Slide 18 as another key driver for our organic growth is the best-in-class productivity of our personal financial planners, helped by our fintech DNA. As you can see in the slide, the productivity of our network in terms of assets under management sales has been by far the best one within the sector.

Let's now move on to Slide 19. Deep dive on our transactional liquidity. The granularity and stickiness of our deposit base is confirmed quarter-by-quarter with a transaction and liquidity around 90% of our client deposits. 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. As you can see from the slide, 98% of our deposits is represented by retail clients. Second, our deposits are extremely granular with an average ticket of around EUR 19,000 and the median ticket at EUR 4,700. Third, 76% 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 one-stop solution relies on a fully fledged banking platform. Our clients are not just using our bank for brokerage or investing purposes, but all of our quality banking proposition for their daily life. Indeed, we have 50% of the clients crediting salary with us.

Let's now move to Slide 20 to decide on the net fees 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, inflows of assets and clients continue to be very robust as the bank continued to benefit from the long-term structural trends underpinning the growth. Let's now focus on the breakdown of the net fees. With deposits being negative due to the reinvestments into assets under custody and asset under management of the excess liquidity of our clients.

To give you the sense of the strong underlying drivers of our transaction liquidity in the box down on the left of the slide, you can see that in the first half of the year, the bank collected plus EUR 8.4 billion of liquidity coming from salary and pensions and plus EUR 6 billion from bank transfers. After the expenses in cards, bills, taxes, deposits were still up by EUR 4 billion and taking into account also the investments in assets under management and asset under custody, the final result is minus EUR 2.1 billion of deposit net sales.

Moving on the right side of the slide, we share our usual graph on the daily balance of the bank transfers. As you can see, it has firmly remained on the positive territory, meaning that Fineco is keeping on acquiring new liquidity from the banking system, also from institutions that they are remunerating liquidity. Then on the graph below, we confirm the trend in terms of liquidity plus the cluster of clients, clients with total financial assets below EUR 100,000 increased the amount of liquidity in the bank, this is mainly transactional. On the other hand, the cash sorting process has been 100% driven by wealthier clients, which, in the past, accumulated excess liquidity waiting to be invested.

Let me also add that looking at private banking clients, the liquidity as a percentage of total financial assets is now at 13%, the lowest level since 2015, suggesting that they are approaching the floor. Finally, please note that the new clients acquired in the year also brought positive liquidity.

Let's now move on to Slide 22 for a focus on our guidance. On banking revenues, we expect net financial income in 2023 to grow by around 70%. Going forward, we expect the net interest income to keep on benefiting from the interest rate environment and the stabilization of deposits. Overall, banking fees are expected to stable compared to 2022. On investing, taking into consideration of the market effect up to the end of July, we confirm our 2023 expected revenues to increase high single digits year-on-year with higher management fee margins after tax. And Fineco Asset management, retail net sales up to around EUR 5 billion as it is able to catch the outflows coming from insurance after in the new interest rate environment. And overall, bank's asset under management net sales at around EUR 4 billion.

In 2024, we confirmed around EUR 5 billion retail net sales in the overall bank's asset under management. For our Irish company, we confirm retail net fees at around EUR 4.5 billion. Finally, despite the challenging context, we also confirmed the increase of our management fee margins after tax up to around 55 basis points by 2024, thanks to the Fineco Asset Management operational efficiency. Pretax margins are continued to at around 73 basis points by 2024. Brokerage revenues are expected to remain strong with a floor - in relative terms with respect to the market context that is definitely higher than in the pre-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 strategic fees continuity and at least EUR 3 million of additional marketing expenses. Cost income, we confirm our guidance and continuous declining cost income in the long run, thanks to the scalability of our platform and to the strong operating gearing we have. Systemic charges for the year expected at around EUR 50 million. On capital ratios for this year, we expect a growing 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 a constantly increasing, also thanks to aggressive delivery on our strategic [indiscernible]. Cost of risk was equal to 5 basis points, thanks to the quality of our lending portfolio that is offered exclusively to our loyal customer base. In 2023, we expect a hitting range between 5 and 9 basis points. Finally, we expect robust and high-quality net sales, keeping our priority in direction of asset under management.

Let's now move to Slide 25. Let me share the usual update on our U.K. business. We are still dialoguing with the local regulators to find the right setup post Brexit. We will continue to develop our U.K. business only if we will be allowed to remain with the branch and a very capital-light business model, leveraging on the Italian infrastructure. Business-wise, the performance has been quite strong, considering that we stopped our marketing activity. Our client base kept increasing, thanks to the word of mouth, and our revenue generation has increased by more than 58% year-on-year, reaching EUR 1.5 million in the first half. Once we will finalize our discussion with the U.K. regulators we will focus on the rest of the European Union.

Thank you for your time. We can now open the call to questions.

[Operator]

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

[Azzurra Guelfi, analyst]

I have a couple of questions, if I can. One is on the NII. And I hear you have confirmed your guidance, but the rate curve has moved and if anything, the deposit trend seems to be stabilizing and improving from now on. So can I just ask you why you didn't review your guidance? And how do you expect the outlook for 2022 in terms of like net interest income development? The second one is on the slide that you put on the AUM Slide 18. Clearly, I guess, of this good performance on AUM is linked to FAM. So if you can give us a little bit more color on what are the initiatives that has been taken better in terms of new products? And if you can elaborate a little bit more on what the pipeline for the second half?

And if I may, one more on the leverage ratio. Leverage ratio has improved sizably quarter-on-quarter because of the deposit trend, I guess, and this could lead to higher capital returns. So if you can give us some color on your thinking about capital return?

[Alessandro Foti, executive]

So let me start by the first question. So it's clear that an environment in which we have a higher rate and a clear indication of stabilization of the base of deposits and so on. Clearly, this is, by definition, is positive for the evolution of net interest income. At the same time, we want to keep a reasonable, and let me say it's decently a conservative approach because we know that market conditions that can change, so particularly the expectation of rates and so on. And so this is the reason. So we think that it makes sense to stay where we are, that it's an excellent number in any case. And then we will see maybe the most important -- so clearly, the -- on the rates, we cannot do anything because it's not in our range. And we think that what is extremely interesting is that as expected, we are progressively observing a stabilization of the cash sorting process.

On the Slide 18, yes, we -- throughout our asset management company, we have been absolutely an -- absolutely positive outlier in comparison with the -- in terms of productivity. And the reason is mostly related to the fact that Fineco is using an historically a lot of technology in interacting with the network, and this is making by definition everything. We -- our financial plan is, they are really in a position to spend nearly 100% of that timing running their job as a financial plan is not like administrative employees. And in Fineco Asset Management, the initiatives are mostly in direction of capturing in real time, the emerging needs by the clients and the financial plans. So the secret is to have a company that is incredibly fast, agile, reactive. And so the -- we have been quite effective in bringing to the clients solutions, smart solutions, focused on fixed income solutions that are very well in demand. Same story with exposure to equities with the protection of capital. And clearly, we have plenty of additional initiatives that they are in the pipeline.

The leverage ratio has improved in a big way. So if someone is interested in having a little bit more color on of the recent evolution of the leverage ratio, probably we can ask to our CFO to give more details. But it's clear that the bank is also assuming a very generous -- the continuation of a very generous dividend payment is on track for keeping on building up additional and excess amount of capital. So as we had the opportunity to discuss in the -- recently, in the next few months, we will explore all the what can be the best way to use this excess of capital.

We can rule out from the beginning any direction in increasing our lending activity. Lending is going to remain an ancillary business. So we -- and also, we can rule out any interest in entering any M&A transactions. So everything is going to be just focused in managing the excess of capital management.

[Operator]

The next question is from Domenico Santoro from HSBC.

[Domenico Santoro, analyst]

A bit of questions from my side because I guess there is a little bit of conservatives in the guidance that you just gave. First of all, let's dig a little bit more on the NII because if I look at your guidance for this year, I guess, that the quarterly run rate for the third and the fourth quarter is around EUR 170 million more or less of NII, if I'm not wrong. So if I look at the breakdown on Page 35, your lending component increased by EUR 10 million more or less quarter-by-quarter. So that means that the financial component will go down sequentially in the second part of the year. So I'm just wondering in your guidance, what's the implied decline in the stock of securities, which is, I guess, symmetric to the loss of deposits. So the question is what you have implied in terms of deposit outflows and symmetrically in terms of the financial investments. I saw that you removed in your guidance, the hints and the fact that the NII will pick in the fourth quarter. So I'm just wondering now what's the sequence of NII that you have in mind.

The other question is on the stock of securities because I see that you cut the exposure to Italy by EUR 2 billion and the securities portfolio by EUR 2 billion. While you lost EUR 800 million more or less of deposits in the quarter. So I'm just wondering why you cut more the securities portfolio? And maybe you anticipated something, and what should we expect going forward?

The other question is on banking fees as well. Because if I look at your guidance, your guidance implies that the second part of the year will be weaker than the first part of the year. So why is that? And if you have in mind any cut in banking fees or anything that you can tell us? The other question is on investing fees because I mean you are doing better here compared also to the other competitors. And I wonder what the implied market performance in your guidance. Is it 0? Because I guess you can do a little bit better. So I'm just wondering whether or not you are more confident maybe to stay in the upper end of the high single digits that you mentioned.

And then a question on the systemic charge for next year. I wonder whether this will disappear completely from your P&L. So what's your assumption in 2024? And then to come back to the question of your colleague about the shareholders' remuneration. Just wonder, I know that you would tell us more going forward. But I mean, why we should think about a share buyback at this point given the valuation of the stock, where it is, if this is an option and whether you are considering is that distribution of a dividend of an extraordinary dividend very much.

[Alessandro Foti, executive]

Thank you. First of all, so I'm not sure that I got correctly your point on the first question because your point is so focused Domenico, I mean understanding exactly which is your point because...

[Domenico Santoro, analyst]

On the NII, I mean, right?

[Alessandro Foti, executive]

Yes.

[Domenico Santoro, analyst]

Sorry, if I've been probably a little bit complicated. If I look at your guidance in terms of NII, right? For the year, that means that Q3, Q4 is going to be more or less a run rate of around 170 more or less, right? -- or maybe it might be different. You tell us. That means that the lending component, it keeps increasing quarter-by-quarter because of the repricing because of the lending book. So that means that the other part of your NII, the financial component will go down if my -- this makes sense for you. So I'm just wondering how much you think about cutting the securities portfolio more from now on? What's the implied assumption in terms of deposit outflows because it's all based on that, I guess.

[Alessandro Foti, executive]

So as we said, we are keeping -- let me say, every time that you are talking about the evolution of NII, as explained, there are components that we are controlling, which we have let me say, a reasonable and decent visibility. So for example, we -- with the fact as we -- over the last few months, we continue to repeat it to the market that we were extremely relaxed on the cash sorting process because we were lucky by the fact that we have set on a huge amount of transactional liquidity at a certain point of this cash sorting is expected to stabilize. And so this is clearly something on which we can make a decent forecast. Then there is the other company that is related to the market. And so as you can see, because we saw the reaction of the market recently when we gave a guidance that was perfectly consistent with the forward rate curve and when this has been changed, considering the change and so on, that the market has not been pleased. So we think that it makes sense to stay on, let me say, I'm not saying on the decently cautious side. So this is the point.

And regarding the peak, the peak is going to be -- it's difficult to predict exactly the perfect timing of the peak of the -- but it's going to more or less in the region are going throughout the year-end. There is going to probably we expect to have the peak in the financial income in the -- yes, in the net interest income. And Stock of security, we cut exposure to Italy by EUR 2 billion while you lost EUR 800 million of deposits in the second quarter. Yes, but this has been yet to look to that because overall, we finished the first half with a decline of deposits that was more or less in the region of EUR 2 billion. So the sales of Italian bonds is perfectly current with the decline of the deposits.

And the reason why we sold Italian bonds is absolutely perfectly aligned with the guidance we gave several years ago that our goal was to keep on reducing our exposure to Italy and Spain, not because we have any concern on Italy and Spain, but because we want to keep on running an extremely very well-diversified balance sheet in order to decrease the what, let me say, the cost of equity attached to this. Banking fees guidance implies a weaker second half. This is related to the currently with the indication with the indication received by Bank of Italy. We reduced the fee charge to the client. We introduced when we had -- when we were in a period of time with negative rates. So because we -- at the certain point, we introduced additional fees to clients justified by the negative rates. Now the negative rates that have gone. And so now we are going to bring back these clients to the original conditions.

Investing fees our approach, we embed the market situation at a certain point. So for example, we -- here, we have embedded the market performance at the end of the first half. And then for the remaining part of this year, we have a natural approach. So we are assuming a 0 performance by the market. On systemic charges for 2024, I'm asking to Lorena if you can give more color on what we can expect going through 2024.

[Lorena Pelliciari, executive]

Thank you, Alessandro. Good afternoon to everybody. So for 2024, we expect a contribution in a range between EUR 38 million, EUR 40 million, of which around EUR 37 million related to deposit guarantee scheme and EUR 1 million related to the single resolution fund because the contribution of single resolution fund has to reach a percentage of 1% of the protected deposits and the deposit guarantee scheme has to reach by the middle of 2024 percentage of 0.8% of protected deposits.

[Alessandro Foti, executive]

Okay. Thank you, Lorena -- regarding the shareholders' remuneration. So let me -- so that what is it's clear that Fineco is on track for progressively accumulating excess capital. The reason is pretty simple. The business model is completely capital light. The only potential point of attention was represented in the past by the leverage ratio, but the leverage ratio now is with the combination of continuous growing profitability of the bank and extremely very well under control growth on the base of deposits. Leverage ratio is expected to keep on going up and up. So it's clear that also remaining consistent with the very high remuneration of the past. The bank is expected to keep on building up excess of capital.

As I was saying, we are not considering increasing the lending and also any M&A option. And what is remaining on the table, we have practically, there is practically several options. One option is to, for example, reimburse the AT1 expiring next year. Another one can be to increase progressively the dividends. And another one is to consider a blend of increasing the dividends and entering a buyback process. And -- but this is going to be addressed in the next few months by the bank also as usual, we are going to dialogue with the regulator in order to be sure that everything we have in mind is perfectly aligned with that point of view. But what is pretty clear that the bank is on track for keeping on building up and having an excess of capital.

[Domenico Santoro, analyst]

This is very clear. Can I just ask what the assumption in terms of deposits loss in the second part of the year, I think it's important to understand assumptions behind your guidance?

[Alessandro Foti, executive]

Yes, our assumption is that as -- what my suggestion has been also in the past, to be extremely prudent in trying to make forecast on the evolution of deposits month by month because as we can see, there are seasonality, plenty of situations and so on. The assumptions we are what we expect clear the assumptions are remaining, as we discussed, we are remaining cautious because the definition is we think that is the right approach. At the same time, we think that it's reasonable to expect a progressive stabilization of the cash sorting but evident reasons. The largest part of our liquidity is transaction liquidity that is completely unaffected by what's going on, on rates. And the clients that are the most interested in the cash stocking process are now approaching and kind of floor level that is -- and going below that level is becoming less and less -- it's becoming very, very difficult. So this is it. But again, we are keeping on and maintaining a cautious approach.

[Operator]

The next question is from Giovanni Razzoli from Deutsche Bank.

[Giovanni Razzoli, analyst]

Three questions, but very fast and 3 details. First one, if you can share with us if you have this data, what percentage of product client assets are now invested into domestic sovereign bonds. The second question is, if you can share with us what was the contribution of the new product launched since the beginning of the year, that is the target date funds, Interesting to know what is the year-to-date contribution and the one in June and July? And the last question is a clarification on the EUR 4 billion of AUM inflow target for 2023. If I read correctly on Slide #3 or 4, you are mentioning that in July, the AUM inflows were EUR 40 million with still negative insurance contribution. So I struggle to reconcile this figure with the EUR 4 billion with the relatively weak performance in July. So I was wondering whether I got your feedback -- sorry, your guidance correctly and the clarification for July?

[Alessandro Foti, executive]

Yes. Regarding the first 2 questions, if you don't mind, we are going to come back to you later on because we only speaking, we don't -- I don't have in front of me the percent of product lines that they are invested in Italian bonds, but I think that it's a quite interesting number, but we prefer to come back to you with the right numbers. And the same story for the second question.

So -- and regarding the EUR 4 billion assets under management target, Yes, we think that this is achievable considering the new pipeline of solutions. At the same time, it's a matter of fact that the lack of interest by clients for insurance wrapper is remaining. And so we can rule out the possibility to have additional [indiscernible] by the insurance wrapper. At the same time, we are not particularly concerned by this because as we explained several times, the insurance wrapper characterized by extremely low margins. So at the end of the story for us, what is important is the -- what does it mean in terms of impact on revenues and margins. Regarding the point we are absolutely relaxed. And so in any case, we think that EUR 4 billion of net sales and assets under management is challenging but achievable by the bank.

[Operator]

The next question is from Enrico Bolzoni from JPMorgan.

[Enrico Bolzoni, analyst]

So one is on NII actually for 2024. If I look at consensus, it's still pretty flattish year-on-year, even if clearly, the forward curves suggesting an increase and deposits seem to stabilize. Do you have any comment to make there on whether you think that a flat NII consensus year-on-year is a sensible number to have? Or actually seems maybe a bit too cautious. So that's my first question.

My second question relates to the flows insurance product. Can you just remind us what is the total stock of these products just to get an idea of how much more outflows we could see for the rest of the year.

Third question. I noticed that the spread on the floating part of the portfolio has been decreasing. It was 50 bps in Q1 and now it's 36 bps. Can you give some color on what to expect? We reached the floor for the spread on the floaters or actually can potentially go down a bit more? And then finally, at the European level, they have been discussing a number of proposals in terms of regulation for the asset management industry. And 2 in particular, call our attention. One is the introduction of a value for money and one of the best interest principles for clients. It can be quite material for the industry. Have you looked into those? And can you give any comment on whether you think Fineco is prepared to withstand a change in the regulatory environment?

[Alessandro Foti, executive]

Yes. So regarding the 2024, as we discussed before, it's always extremely difficult to make a precise comment on the 2024 because as we were saying, we have 2 components, one that is more or less in our hands, that is the evolution of deposits on which we are more and more confident considering the -- what we discussed before for industrial reasons. And then there is the evolution of rates. And so we -- it's very difficult to make a bet on that. So because there is the forward rate code. But as we are continuously seeing is frequently wrong. So to make a comment on a forecast a rate that -- which clearly that can change any time, it's very difficult. But for us, what is very important, that is the largest part of our deposits is incredibly sticky, and we can keep on running our strategy of not using rates for running the business and so clearly, so this is my comment for 2024. It's clear that the combination of stabilizing deposits and the forward core remaining strong. Clearly, it's positive for us.

And insurance, the total stock of the insurance wrapper is just below EUR 15 billion. So this is the total stock of the insurance product. But clearly, as we -- honestly speaking, these outflows for the insurance wrapper. Clearly, we see this more than an opportunity than a threat because as we were saying, the insurance wrapper are, by definition, the least profitable products that we have on the shelf, just for a simple reason that we don't have product factory internally, so we have to rely on external counterparties. So this part of the business is the part that is characterized by the lowest level of profitability.

Spread on floating bond has decreased because we sold clearly the EUR 2 billion we sold. We saw that being represented by swapped Italian govies that by definition characterized by the highest bracket. So this is not -- so there is anything different. And then there is...

[Enrico Bolzoni, analyst]

On the regulatory environment?

[Alessandro Foti, executive]

Yes. On the -- yes, we are looking to the -- what's going on there. Fineco is by definition, as you probably are very familiar, has been always characterized by running a business model, which the fairness, transparency and try to give to clients the best pressure between quality of services and pricing has been driving our driving priority. And so clearly, we are in -- we're thinking in relative terms in a great position for managing any kind of outcome by the authorities.

[Operator]

The next question is from Panayiotis Ellinas from Morgan Stanley.

[Panayiotis Ellinas, analyst]

I have a couple of follow-ups, if I may. My first question is on cash migration. In the first half of the year, there was strong demand for fixed income products and the PTP which accelerated the cash migration into [ UC ]. What trends do you expect in the second half of the year? Do you see customer demand shifting more into equities and funds or you see similar trends to previous months? And my third question is on management marketing. In addition to the fund penetration and the market impact, do you see any product mix effect, which could positively or negatively influence the market fee expansion. I mean you mentioned the opportunity from less profit up or the insurance wrappers, which are shifting and also recently launched new products. So just wondering what would be the impact, if any, to the market?

[Alessandro Foti, executive]

Regarding the cash migration, we don't see any significant change in the mix of the appetite by clients. So we think that still for the foreseeable future, the appetite of clients is going to be mostly in the direction of fixed income solution or at best equity solution, but with the protection of capital. So this is not going to change significantly anytime soon. So this is the -- our -- this is what we are expecting to happen within the next few months.

On management fee margins, we have several elements contributing to the evolution of managed mark because on one hand, there is very positive is the strong percentage represented by Fineco Asset Management that is definitely higher than the in the last year, and this is positive. Then clearly, there is something that is less positive, that is the SKU in direction of fixed-income solutions that by definition are less profitable. And finally, there is theoretically and going forward, and a positive effect, so represented by the substitution of the insurance products with the other kind solution. But putting everything together, we think that it makes sense to remain stuck and consistent with the guidance we are giving on margins. because it's an extremely complex environment, which we have -- is like to be on a cross wave seat, which have waves coming from different directions. The result is more or less. It's nothing. So we think that makes sense to keep the margins where the expected margins where they are.

[Operator]

The next question is from Alberto Villa from Intermonte.

[Alberto Villa, analyst]

A couple of questions from my side as well. One is related to the guidance. You didn't put any indication on the financial advisers last time you indicated EUR 100 million, EUR 120 million. I was wondering if that number is confirmed. The second one is on the international expansion. Maybe I missed because I was disconnected but during the call, but you are rephasing the timing of the entrants in other markets like Germany or -- all the plans are confirmed? And finally, a question on the competitive environment and technology. Now there has been a lot of discussion about the impact of artificial intelligence on many industries, including Asset Management. I was wondering what is -- what you are expecting in terms of investments in technology, there would be more to address this potential opportunities? And how do you think it can impact revenues and cost in the future? I'm also referring to what I've heard from the largest Italian bank that has pushed a lot in the last presentation towards Artificial intelligence and technology and launching this initiative Fideuram direct that eventually could look at a potential competitor. And you, let's say, not you because Fineco has been there since many years and before the others, but potentially approaching clients with more technological and innovative twist and, so I was wondering what are your thinking about the opportunities for a company like Fineco, which is digital since day 1 on those factors?

[Alessandro Foti, executive]

So regarding the first point, on recruiting, probably we -- at the moment, we probably can expect a few tens of less financial planners recruited going throughout the year-end, but it's a little bit too early to say. But if we want to stay on the cautious side, probably we can expect a little bit softer on the recruiting side. But again, this is not -- doesn't make any material difference considering that our growth is mostly organically driven. So never we relied on the recruiting our new financial plan is for growing.

On the international expansion, we are -- as we explained during the presentation, we are waiting the final hardware by the U.K. authorities. If they are going to allow to have to stay in U.K. as a branch, so without putting in place a capital-intensive business model and also because our key results to remain in U.K. to keep running a capital-light business model and leveraging on our local infrastructure. If this is not going to be the case, we're going to leave. As soon as we have finished this interaction with the U.K. authorities and we have the final [indiscernible]. We are going to start reassessing process on what to do in the other European countries.

On the technology artificial intake, first of all, let me make just a very quick and straightforward comment. Artificial intelligence is among us by many years. Now has become cool but artificial intelligence is everything in which you are able to manage data and so on in order to get an extremely efficient and automated control of processes and so on. And this is among us by many years. And Fineco is using this approach by quite largely by several years. And we have the advantage that we are in complete control of our technology. So it's much easier for us to implement new solutions and so on. So we -- for this reason, we don't expect any material impact on revenues and costs.

Regarding all the initiatives that they are underway overall, I'm not going to make a direct comment related to the single player. But what is all these players that have in common that they are providing a tactical solution for their clients because the case of the digital bank launched by the largest Italian bank is practically a payment gate is not going to be considered a full-fledged solutions. And the same story for you are mentioning Fideuram Direct, -- it's a solution that is just so for example, -- the Fineco is a different story because we are offering something that is unique, that is the one-stop solution. So from the same banking account that you are using for the day-by-day life, you can do everything you need. So you can trade on all the markets all over the world in a very sophisticated way. You can interact with investing platform, one single account for all your life. And from this point of view, I think that still all the most partnered banks are very far away from this.

And again, behind this, there is an extremely incredibly complex infrastructure point of attention and second is a matter of business model because in Fineco, we bought that way. So we have no -- we don't have the problems of cannibalizing, for example, clients. So all our clients are on the same platform, doing everything. So this is the huge difference is the massive advantage we have.

[Operator]

The next question is from Andrea Vercellone from BNP Exane.

[Andrea Vercellone, analyst]

I've got 2. The first one is on personnel expenses. I wanted to know if in those that you have -- in the cost that you have booked in the first half of the year, you have already made a degree of accrual for the banking contract or if you haven't. And the same vis-a-vis the 6% guidance in total growth in operating costs for 2023. In that number, have you left a certain amount for possible increase related to the banking contract or that will come on top if there is one?

The second question is on Eurovita now that all of the parties have agreed on what to do with it. Can you confirm that you do not expect any kind of negative one-off associated to this when withdrawals are allowed from October onwards?

[Alessandro Foti, executive]

Regarding the first question, expenses, yes, there is our HR department is clearly they cannot put the precise numbers because nobody knows exactly which kind of hardware you can expect, but is starting on considering is increasing the expected personnel cost for considering the high probability to have a change in the banking corporate. So yes, we are starting on in this guidance, we are starting on embedding an expectation of higher personnel costs driven by the highly probable new banking contract. And on Eurovita, yes, we can confirm that we don't expect any significant negative one-off when the withdrawals are going to be low.

[Operator]

Next question is from Filippo Prini from Kepler Cheuvreux.

[Filippo Prini, analyst]

Two questions. The first one, could you give us an indication of which is the maturity of corporate government bonds that your client as both this year, taking the liquidity on the current account. And so how much of them will be -- could be redeemed next year and be available for investment. And the second is regarding Eurovita, -- your guidance of EUR 4 billion AUM for this year and also for -- and also for next year. Does it take into account an acceleration of outflows of Class I insurance product, once it would be possible to redeem Eurovita? Or do you expect that would be -- most of them will be absorbed by inflows from [indiscernible]?

[Alessandro Foti, executive]

It's -- first of all, it's -- it depends also from an administrative point of view, what's going to happen. So when we were going to -- so the EUR 4 billion of asset under management clearly, they are not considering fully the possible impact generated by the -- an acceleration of how from the insurance raptor. But -- and so we will see on that point. But as we explained, this is completely material from in terms of impact on revenues and margins. And then clearly, we -- our goal is to capture the largest part of this throughout our other solutions. But in any case, the point of attention on the insurance wrapper is not -- is here because it's not something that is going to start with -- when these investments by Eurovita will be allowed. There is a structure is affection by clients for the insurance products. So it's something that we are -- on which we are dealing with by several months. So it's not -- it's not going to be anything that is going to change the projection of our revenues and margins.

Excuse me, so I jumped directly to the second question. The largest part, so we have the clients, so the clients that are more on the investing side that they are mostly concentrated within 3-year maturity. So it's clear that we're going throughout the next few years, we expect a huge amount of these bonds expiring. And so as we -- many times, we explained, we think that overall, it's much more an opportunity than a problem. Because what is important is to keep on bringing the assets in the bank. The clients investing on the longer maturities are much more trading-driven clients. So -- and in this case, we -- what we can expect in the case of the beginning of a decline on yields, we can expect these clients starting on starting on selling but this client that they tend to trade. So -- but the clients that are most part of the traditional cash sorting process are mostly concentrated within 3 years maturity.

[Operator]

The next question is from Adele Palama from UBS.

[Adele Palama, analyst]

I have a question on the incentive for the financial adviser. Did you change or are you planning to change the incentive based on total financial asset flows as opposed to AUM flows only? And then the second question is in case of possible rate cuts, which are the levers that you have or you can put in place to protect the revenue growth.

[Alessandro Foti, executive]

Regarding the incentive scheme for financial planners, No, we didn't change anything. So the incentive scheme for financial planners is remaining just related to the sale of assets under management solutions. So we -- and we are not planning to reduce any change going forward. But this what is a remarkable point of strength of the bank. We don't need to use rates for underpinning the growth of the bank. So it would be easy for us to incentivize for example, in net sales, so also on the gathering liquidity. But we don't need to do that, and we think that it's on the long run to be a mistake.

In the case of possible rate cuts, in my opinion, is my -- my suggestion is to look to the full picture, not just being focused on one single piece time because one in my opinion, the biggest mistake is to just say common rates are going down. So this is going to -- this means that present definition if rates are going down, but net financial income is going to go down as well. But this -- at the same time, with rates going down, we can expect some other kind of effects happening, like, for example, is a reason to expect a big jump in the investing business. So it's -- I think that the best guarantee for the market is that Fineco is an incredibly diversified business model. And we have demonstrated in the past that it is going to be the same also going forward. we are able to keep on delivering growing revenues and profit in every market conditions, exactly for this extremely diversified business model that is ranging from transactional banking, investing in brokerage. So this is -- and again, my suggestion is to look to the full picture because just looking to one single piece of the story, in my opinion, is a little bit misleading.

[Operator]

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

[Luigi De Bellis, analyst]

Just one question for me on the brokerage side, more resilient than peers in the first half. So what can we expect going forward in terms of new initiatives products to maintain or speed up this outperformance? Can you elaborate on the competitive scenario for brokerage and on the profile of active investors in the brokerage, if there has been a change or not in the active profile for the investor in brokerage?

[Alessandro Foti, executive]

I'm leaving the floor to Paolo, Paolo, you know very well, it is our debt General Manager that is on the driving seat for developing the new initiatives, not just on brokerage, but also on the banking side, the onboarding side. So please, Paolo.

[Paolo Grazia, executive]

Yes. So basically, on brokerage, we will continue to target clients with, let's say, active trader clients. So basically, people, they do 4 to 5 trades per month, and we are going to work on the easiness of the platform. We have delivered already a lot of new user experiences on the sites and the application, but we have a lot more coming next year. We're launching at the end of August, the brokerage only account, so it's going to be much more easier for people. They just -- they want to trade with us or invest in stocks and bonds and EPS. It's a good development also for the younger people, they want to invest. And so basically, this is that we will continue to do some marketing on that, leveraging on pricing, best-in-class. We're going to use a lot the govies attention to gather new clients that are going to use the platform for govies. I just want to remind you that we're the best platform in Italy, if you want to buy govies -- and for us, it's a fantastic entry product. So people they start using govies and then they use other products and they trade stocks. And of course, they eventually link with the financial plan. So this is pretty much the main thing we are working on.

[Operator]

Next question is a follow-up from Enrico Bolzoni from JPMorgan.

[Enrico Bolzoni, analyst]

Sorry, very quickly. Can you tell us what's the total customer number at the end of July?

[Alessandro Foti, executive]

The total number is around 1 million, 500 -- the precise number is...

[Enrico Bolzoni, analyst]

I just wanted to -- either the net customer just to see how many customers you onboarded. I know it's probably an estimate by now, but...

[Alessandro Foti, executive]

So which is the gross new clients and the next, please. Sorry 8,000 - 8,500.

[Enrico Bolzoni, analyst]

8500.

[Paolo Grazia, executive]

In July the gross... And the stock is EUR 1.2 million...

[Operator]

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

[Alessandro Foti, executive]

Thank you very much for all of you attending our conference. And as usual, if you need to deep dive a little bit more in our numbers and concepts, please contact us for any follow-up. Thank you again for your attention.