FinecoBank Banca Fineco SpA

MIL:FBK

Earnings Call Transcript 2020-Q3

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the FinecoBank Third Quarter 2020 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 third quarter 2020 results conference call. Before we start going through the details of the presentation, let me please underline the key message of the quarter. This set of results confirms once again the soundness of our business model, able to deliver sustainable and industrial growth in every market condition and to accelerate growth in the current complex situation.

Adjusted gross operating profit stood at EUR 397 million in the first 9 months of the year, increasing by 31% year-on-year, thanks to the growth of our very well-diversified stream of revenues. Adjusted net profit increased by 23% year-on-year, reaching EUR 246 million in the period despite the increased contribution to systemic charges during the third quarter of the year.

Operating cost very well under control, with cost income ratio declining by 4.8 percentage points year-on-year to 33.1% and confirming operating leverage as a key strength of the bank. The first 9 months of the year recorded a strong acceleration in the commercial activity with net sales equaling EUR 6.4 billion, increasing by 40% -- 46% year-on-year. These results have been organically generated as only 6% came from recruits made over the last 24 months.

Let me please remind you that these results has been reached with no aggressive commercial offer and with a strong contribution from asset under management, also thanks to the success of the new generation of products launched by Fineco Asset Management. Those dynamics were also confirmed in the month of October with net inflows extremely robust at EUR 739 million and a solid asset mix despite a temporary lag in the pipeline of new products by Fineco Asset Management due to a slowdown in the authorization process in Ireland for Brexit. In the next few months, we expect to transform the strong amount of assets recorded, thanks to the launch of the new solution at the end of October and November.

As for brokerage, estimated revenues in the month of October were around EUR 13 million, increasing by 12% year-on-year with October 2019 being the strongest month of last year. Nevertheless, despite the volatility that has been contained with the exception of the last few days of the month, revenues have increased by around 28% compared with the average monthly revenues in the period 2019, equal to around EUR 11 million. This is confirming, once again, that the floor of our business is now definitely higher.

Finally, let me please highlight that at the end of October, S&P Global Ratings upgraded our bank's outlook to stable. Indeed, according to Standard and Poor's, Fineco is expected to be less exposed to risks related to the highly uncertain macroeconomic environment in Italy than purely commercial banks through our digitally innovative and well-diversified business model, which is only marginally focused on lending activity.

Let's now move on Slide 5 and start commenting our 9-month results. As announced, our diversified business model allowed us to reach, once again, very strong industrial results despite the complex scenario with adjusted gross operating profit at EUR 122.7 million in the third quarter of 2020, up by 13.8% year-on-year. In the first 9 months, adjusted gross operating profit reached EUR 397.5 million, increasing by 30.8% year-on-year, and adjusted net profit totaled EUR 246.3 million in the 9 months, up 22.7% year-on-year despite the higher contribution of systemic charges. Cost income decreased to 33% despite the continuous expansion in assets and clients, thanks to our strong operating leverage and the scalability of our platform.

Let's now move to Slide 6. As you can see from this slide, adjusted revenues in the first 9 months stood at EUR 594.2 million, up 21.5% year-on-year, thanks to the contribution of whole product areas as we have been able to capture the acceleration of the structural trends in place. Operating costs stood at EUR 196.7 million, increasing by 3.8% year-on-year, net of EUR 4.5 million of marketing cost in U.K.

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

On Slide 7, let's start with net interest income dynamics. Net interest income in the first 9 months of the year remained resilient at EUR 206.9 million. Despite the worsening of interest rates environment, it decreased only by few million, thanks to the continuous enlargement of our sticky side deposits to our quality lending book and positive contribution from treasury activities and other initiatives, on which we will deep dive later.

The lower interest rates environment led to a reduction in average gross margins on interest-earning assets from 1.23% in the first 9 months of 2019 to 0.03% in the same period of 2020. Finally, cost of funding decreased to 0 basis points in the quarter due to lower USD LIBOR. Please let me remind you that our cost of funding related to the deposits in Euro, which represents 93% of our total deposit is 0.

Let's now move on to Slide 8 to deep dive on our industrial actions to sustain net interest income. As you know, being a public company allows us to couple our high-quality balance sheet and our low-risk investment strategy with a more flexible management of liquidity. Therefore, we are able to undertake industrial actions to sustain our net interest income and to partially offset the pressure coming from the worsening interest rate environment.

Among the actions we are undertaking, it is worth mentioning, first, a more dynamic treasury management, resulting in yield enhancement strategies like collateral switch or unsecured lending in order to get an extra yield on the top-quality paper in our portfolio. Second, the enlargement of the scope of our investments towards investment grade, non-European govies, in order to exploit opportunity in the wholesale markets with more interesting yields. We are also starting to invest in financial corporates, senior bonds also to a lower extent.

Third, we are going to take full advantage of the ECB measures designed to contain the side effects in -- of its accommodative monetary policy, namely tiering and TLTRO. Want to underline, as in the results we are presenting, there is nothing coming from TLTRO because the TLTRO is going to start on giving to us a contribution starting by the end, beginning of next year. Finally, we are expecting an increase in the demand of our lending products by our existing good clients due to the low interest rates environment. Please note that we are not changing our cautious and conservative approach.

Let's now move on to Slide 9. Fees and commissions stood at EUR 307.6 million in the first 9 months, growing by 26.6% year-on-year, thanks to the contribution of old product areas. Trading income, net of nonrecurring items, reached EUR 78.1 million, increasing by more than 131% year-on-year, driven by the strong brokerage performance in the period. We will deep dive more in depth in the following slides.

Let's move on to Slide 10 for a focus on brokerage. Brokerage acted once again as the perfect countercyclical business, and it is producing structurally higher revenues compared to the recent past.

In the first 9 months of the year, overall brokerage revenue stood at EUR 178 million, increasing by 81% -- 84% year-on-year. On the top of the slide, you can find that the chart showing the monthly brokerage revenue since our listing. As you can see, brokerage revenues in the period are structurally higher. October has been another strong month, confirming that the floor of the business has increased. This is true regardless of the level of volatility, thanks to the contribution of the 3 structural components.

The first component is the deep reshape of our brokerage business we have undertaken. Please note that this is a never-ending process since the bank is extremely efficient, fast, agile in improving the platform, more than in the offer of products with new instruments and best-in-class solutions, expanding regions, which clients that can trade.

We are improving the efficiency of internalization hedging on which we can leverage, thanks to the dimension and quality of our volumes and to the technology we have in place. Finally, we are in the process of vertically integrating certificates, becoming an issuer, market maker and distributor through our -- throughout our platform. Considering that the leveraged certificates at the market size of around 13 billion volumes and estimated revenues of EUR 100 million, we have a strong potential for increasing our market share through the vertical integration of the business.

Just for as a matter of information, at the moment, the number of commissions produced by the certificates for us is just in the region of just a few millions of euros. So we are far away from our natural market share on the business. So this is absolutely -- an absolutely very relevant project for us.

Second, the client base using our platform is widening because the structure of the market is changing after the recent events, and there is an increasing interest into financial markets by clients. Third, the increase in our market share.

Let's now move to Slide 11 for a focus on the last 2 components. The graph on the left-hand side of the slide summarize the quarterly evolution of our brokerage clients since 2018. As you can see in blue, active investors are remaining stable in terms of percentage of total clients. But in 2020, they have grown significantly in absolute numbers, standing well above the average level of 2018 and '19. Please note that active investors have an average of 4 executed orders per month. All this confirms that building up -- that is building up of an overlap between brokerage and investing business as those clients are not speculative traders, but active investors realizing that the current situation makes it more compelling to directly manage their savings.

In addition, let me remind you that the Spat Phoenix is a market leader. Our market share keeps on growing. On the graph on the right-hand side of the slide, you can find a very strong evidence of this trend. The graph represents the top 10 banks of origin of our new brokerage clients. A very interesting note is that new clients are coming from traditional banks and not from vertical brokerage peers. On top of this, the number of new clients doubled in the first 9 months of 2020 compared to the same period of 2019, once again showing that we are the natural player of reference for clients looking for actively managing their savings.

Let's now move to Slide 11 (sic) [ Slide 12 ] for a focus on investing. Investing revenues amounted to EUR 179.8 million in the first 9 months of the year, increasing by 5.7% year-on-year, thanks to volume effect and strong asset under management net sales, driven by higher contribution of gathered products and services and to Fineco Asset Management. Investing revenues in the quarter have recorded from -- have recovered from the levels of the previous quarter, which was impacted by the negative market performance in March. Please note that the management fees increased by 8.9% quarter-on-quarter and by 3.7% year-on-year while management fee margins have remained flat in the quarter.

Let's now move on Slide 13 for a focus on our cost. Going forward, we expect our investing revenues to keep on growing and -- as a result of the combination of strong volumes effect and a resilient margin despite the cautious approach hold by clients. As you know, Fineco is a flexible and fast-moving company, and we are undertaking many actions to further boost our long-term sustainable growth. Let me please go into the details of our actions to strengthen both the volume effect and the increase in operational efficiency by Fineco Asset Management.

The strong volume effect will be driven by combination of: first, robust asset under management net sales and we are in the sweet spot to capture the acceleration in structural trends. Second, a new project aimed to offer even better quality solution to our clients with a strong focus on risk management. Since our Irish company allows us to have a daily look through on its solutions, we expect a strong acceleration in direction of Fineco Asset management. Third, the increase in financial plan as productivity, thanks to our cyber advisory approach.

As for the increasing contribution by Fineco Asset Management, let me highlight that: first, we expect a continuous extraction of additional operational efficiency, for example, on fund administration, cost, custodian cost and so on. Second, the increase in Fineco Asset Management volume will result in a geometrical growth of its margin contribution because institutional products can be used as underlying of investing solutions. Finally, our Irish company is developing a new product range based on advisory services by third parties. This is going to make Fineco Asset Management even more flexible and the value chain even more efficient.

Let's now move to Slide 14. The slide once again confirms efficiency to be part of our DNA and core in our bank, representing a clear and unique competitive advantage. Operating cost stood at EUR 196.7 million in the first 9 months of the year, growing by 3.8% year-on-year, excluding EUR 4.5 million of marketing expenses in U.K.

Staff expenses stood at EUR 73.5 million in the period, plus 10.4% on a yearly basis, mainly due to the increase in the workforce related to the business development and to the internalization of some services after the exit from UniCredit Group. Non-HR cost stood at EUR 123.1 million flat year-on-year, excluding U.K. marketing expenses.

Let's now move to Slide 15. On this slide, we summarize the breakdown of the bottom line in the third quarter. Within the provision for risk and charges, we accounted our contribution to the systemic charges for EUR 28 million, of which EUR 21 million related to the usual contribution to deposit guarantee scheme, increasing year-on-year according to the market share on guarantee deposits; and EUR 7 million related to our first yearly contribution for Banca Popolare di Bari.

Let me remind you that these contributions are estimates and adjustments could be made in December when we will receive the official communication. On top of this, we also accounted EUR 2.3 million of provisions due to the repricing on current accounts. As a reminder, the authority had to delay to the end of the year the application of smart repricing for 2020 to a cluster of clients that opened their current account in the past years under an online commercial initiative.

Also we are fully convinced that our decision were correct, we maintain our usual prudential approach not to challenge the regulators. Let me remind you that in the fourth quarter we are going to refund to that cluster of clients the banking fees paid during the year. And therefore, we will have a release of provisions for the same amount. Finally, let me confirm that the full effect of the smart repricing on the whole customer base will be in placed starting from January 2021.

Let's now move to Slide 16. As you can see on the left-hand side of the slide, commercial loans grew by 29.3% year-on-year, this was -- so -- with the usual strict control on credit quality. Let me remind you that our lending is offered exclusively to our loyal customer base, and our deep internal culture allows us to fully leverage on big data.

This translates into commercial cost of risk very well under control, decreasing at 11 basis points as of September 2020, in line with our guidance of a cost of risk between 10 and 15 basis points, which is confirmed also considering the present context of COVID-19 outbreak. Expected losses for mortgages and personal loans remain very low, thanks to the quality of our lending portfolio. As a confirmation of the quality of our lending book, we granted only less than 300 requests for mortgages moratorium. We will deep dive more in-depth analyzing our lending portfolio on the next slide.

Let's now move on Slide 17. For 2020 we confirm our guidance. On mortgages, yearly new production in the range between EUR 600 million and EUR 700 million, with expected yield in a range between 55 and 70 basis points. Our expected credit loss on this product is very low at around 19 basis points, thanks to the strength of the Big Data analytics and to the quality of our lending book.

To this regard, let me please highlight that after 45 months from the launch of our mortgage offer, only 3 clients are accounted in the NPLs. On personal loans, we confirm our guidance on new production in a range between EUR 150 million and EUR 200 million per year, with a net growth in a range between minus EUR 20 million and minus EUR 60 million, with average yield confirmed between 380 and 410 basis points. The expected credit loss is very low also on personal loans at around 55 basis points. On Credit Lombard, we confirm our annual growth in a range between EUR 300 million and EUR 350 million. We've expected a yield between 75 and 85 basis points.

With regard to 2021, we are not going to change our cautious and conservative approach for lending, but low interest rates environment should increase the appetite for lending solution by our good clients. Therefore, we expect a rebound in lending activities with production being higher than in the past.

Let's now move on Slide 18 for a focus on our capital ratios. Fineco confirmed once again a rock solid capital position on the wave of a safe balance sheet. Let me remind you that following the extension of the recommendation by ECB and Bank of Italy on July 28, we will refrain from paying dividends until January 1, 2021. In any case, our intention is to give back our excess capital to our shareholders at the first wind of opportunity. Common equity Tier 1 ratio stood at 23.28% as for September 2020. Please note that the indicator has been negatively impacted by a one-off effect.

In fact, in the quarter, we had an impact of 18 basis points -- minus 18 basis points coming from the deferred tax assets on the contribution to the deposit guarantee scheme that will be recovered in the fourth quarter. In addition, in order to have a more stable level of capital ratio during the year and to give a more conservative representation, we have started to deduct the AT1 coupon from the core Tier 1 capital on an accrual basis and not on a cash basis, with an impact in the quarter of minus 19 basis points. On top of this, the main reasons behind the quarter decrease in the common equity Tier 1 ratio has been the process of building up the dynamic management of our Treasury. Total capital ratio stood at 37.41% as of September 2020.

Now I would skip directly to Slide 26. In this slide, we summarized our guidance for 2020. Please note that it does not include revenues and costs related to the U.K. business development. Net interest income is expected to remain resilient, only slightly decreasing by just few millions on the back of volume effect and the benefits coming from ECB tiering. Let me remind you that this assumption incorporates no change in our investment policy, no increase in our risk profile and the more dynamic management of our Treasury. Please note that in 2020 we had no contribution from the TLTRO.

Investing fees are expected to increase mid-single-digit year-on-year with a stabilization of margins. Brokerage revenues are expected to remain strong with a floor that is definitely higher than in the past for 3 main reasons. First of all, the deeper continuous reshape of our product offer; second, the strong growth of new customers driven both by the enlargement of the market and by the increase of our market share; third, the levels of volatility, which will probably be higher than the extremely low levels registered in the past years. Banking commissions related to smart repricing are expected to be around EUR 11 million this year.

We are confirming our guidance on operating costs to a yearly growth of around 4% to our strong -- thanks to our strong operating leverage. Let me please highlight that this guidance does not include marketing expenses related to U.K. which are expected up to EUR 7.5 million, and we are increasing them, thanks to the good feedback reached so far. We expect the core Tier 1 ratio to stay comfortably above 70%, a level that we deem appropriate and massively above industry average. Leverage ratio stood at 4.35% in September 2020. And this is expected to remain above 3.5%, thanks to all the initiatives that the bank is undertaking.

Let's now move on Slide 27 for a focus on 2021 guidance. Net interest income is expected to remain solid and resilient following the worsening interest rate environment. We are now estimating a decline in the region of EUR 13 million, EUR 15 million in comparison to 2020. So this is just a fractional worsening with respect to the most recent indication we gave to the market that was in the region of more or less EUR 12 million.

Let me please underline that we are containing the effects of decreasing interest rates, thanks to the smooth run-off of our bond portfolio, the positive effect from volumes and lending, the benefits from ECB tiering and TLTRO, a more dynamic treasury management through the yield enhancement strategies and the enlargement of the scope of our investments to non-European govies. On top of this, we expect a contribution of structural revenues from the regular activity and maintenance of our investment portfolio in the present context of decreasing interest rates.

Let me please underline that also this contribution is accounting the trading profit line. This activity is not driven by market timing, but only by the continuous process on maintenance to have an efficient portfolio. For investing revenues, we expect a double-digit increase with respect to 2020 with resilient margins. Brokerage revenues are expected to remain pretty strong with a floor that is definitely much higher than in the past. Banking commissions related to the smart repricing are expected in the region of EUR 20 million, EUR 23 million.

Costs are expected to grow in the region of 4.5%, mainly due to the increase in the workforce. Going forward, we confirm our guidance of 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. We expect our core Tier 1 ratio to remain above our floor of 17%, leverage ratio is expected to remain above 3.5%. Cost of risk is confirmed in a range between 10 and 15 basis points even in this environment, thanks to our high-quality lending book. Finally, we expect a robust and high-quality net sales reflecting the acceleration of the structural trends in place.

Let's now move to Slide 29. Our key priority going forward remains to structurally improve the quality of our net sales and client base in order to increase better quality, recurring revenues and keep the growth of our balance sheet under control. Our focus on improving the asset mix is clearly delivering, and this year we are recording a strong acceleration in our net sales dynamics. That is the result of our industrial measures.

And we have not undertaken any aggressive and short-term commercial offer in the period and have not leveraged on the overpaying recruiting. As you can see from the graph in the slide, the first 9 months of 2020 asset under management, net sales have increased more than 35% year-on-year and the same has happened to the productivity of our network with net sales per financial adviser increasing by around 45% on a yearly basis.

Let's now move to Slide 30 to analyze more in-depth Fineco Asset Management. Fineco Asset Management is confirmed to be the key -- to be key in our move to accelerate the conversion of deposits into assets under management and to sustain margins, thanks to its strong operating leverage. Our related net sales results confirm once again that Fineco Asset Management is gaining commercial momentum, giving a strong contribution to Fineco inflows also in complex environment like the present one.

This is possible, thanks to its ability to create modern and innovative multi-manager solutions, reinforcing our guided open architecture platform and enhancing our time to market in developing our offer to meet evolving customers needs. The penetration of Fineco Asset Management retail total assets reached 23% of the FinecoBank's total assets under management and we expect it to grow even further. The penetration of asset under management, excluding insurance, reached 33% in September 2020, increasing by 6 percentage points in one year.

Finally, let me please underline that Fineco Asset Management is going through a further evolution of its business model and is catching a trend coming from the U.S. where asset managers are starting to give advisory in portfolio management. Starting from 2021, our asset management company will add to the present sub-advisory mandates, a new product range based on advisory services by third parties, giving us even more flexibility in making the value chain even more efficient.

Let's now move to Slide 31 for an update on the development of our U.K. business. Our one-stop solution offer in U.K. is proving to be very well welcomed by our market income, and our marketing campaign is providing a strong boost to quality client acquisition. As you can see from the graph on the top of the slide, since we have started our marketing campaign, the number of active current accounts have strongly increased, up by more than 50% year-on-year, in particularly, active current accounts on trading have increased by more than 3x higher year-on-year.

Please note that the strong feedback we are receiving from our first marketing campaign is driving us to increase our marketing expenses for 2020 up to EUR 7.5 million. As you can see from the graph on the bottom of the slide, the cross-selling through our one-stop solution is translating into an improved and better quality revenue mix since our very first marketing campaign at the end of the first quarter of 2020.

OTC and listed products confirmed to be the lion's share of revenues in the third quarter of 2020 despite seasonality and lower volatility. Coupled with our huge operating leverage, this is allowing us to be at operating breakeven, excluding marketing expenses within the first half of 2021. As for our next steps, we are progressively enlarging our fund offer and ISAs are now in the test and ready to be delivered, while SIPPS are confirmed for next year. You can find the detailed timetable on Slide 32.

Thank you for your time, and now we can open the call to questions.

[Operator]

[Operator Instructions] The first question is from Domenico Santoro with HSBC.

[Domenico Santoro, analyst]

A very well done presentation. I do have a couple of questions. First of all, on the dividend. Assuming that the regulator removed dividend ban at the beginning of the next year, now this seems also more likely given what is happening today, the vaccine and let's see what happens. But I mean, my question is, how shall we look at your dividend policy for next year? It's true that you are sitting on a huge pile of capital, but it's also true that you might want to have more appetite for lending next year, given the way rates are behaving and also your leverage might benefit.

So my understanding here is that there is a trade-off, of course, between capital and the dividend. Should we think that you, as other operators in the market, are going to pay also the 2019 dividend? Shall we assume like how they are doing, you will increase the payout for next year? So any thoughts on this will be welcome at this point.

The second question is on investing your guidance for next year -- for this year 2020. If my calculation is correct, your Q4 in investing in terms of revenues would be a bit lighter than the third quarter. So I'm just wondering whether there is any increase in the payout ratio to financial advisers had it happened last year? Or there is something more to say in terms of margin or whatever you might want to comment.

The other question is on investing for next year instead for the guidance for 2021. My understanding was that the migration to FAM was going to be margin enhancing while your guidance points out, stabilization of margins. So I mean, double digit means a lot of things. So can you give us more indication about margins, sales so we can extrapolate a bit more precise guidance in new generic double digit?

And I understand the comments that you made on the AT1 coupon, the DTAs, but there is also quite an increase of risk-weighted assets in the quarter. Can you comment if there is any change in mix that is more penalizing for risk-weighted assets or any other reason why risk-weighted are up 4.5%?

[Alessandro Foti, executive]

Thank you for your questions. Let me start by from the dividend. So first of all, on dividend, we prefer to remain -- to maintain a cautious wording because what we can expect by the regulators is still unclear. So it's not clear if banks are going to be allowed to pay the dividends. And if this is the case in which dimension and who is going to -- which kind of rationales they're going to use for making eventually a distinction among the different banks.

So we think that it's much more serious to remain extremely prudent and so on. We are confirming that we are going to give back to the market the excess of capital we are building up. The business model of the bank remains extremely capital light. So we can put together the -- our strong growth with a very generous dividend policy. And so this more or less is what we can -- the kind of comment we can make on dividends.

So we -- before being more precise exactly what we need to have is an exact -- is a much clearer picture by the regulators because for the time being, we have just rumors. And -- but there is nobody -- there is nothing that has come from the regulators on the official side. So our position is that, clearly, we are not interested in retaining excess capital. So we are going to give back to our shareholders.

The business model of the bank is extremely very well balanced, very -- extremely capital light and so we are going to -- perfectly in the position to keep on paying very generous dividends and sustaining our growth. Regarding the 2020 investing and -- the guidance for 2020 investing and also in 2021. In the second -- in the last quarter, there is -- clearly there is the final payments for financial planners.

And so clearly, there is clearly some kind of -- it depends on the dimension of the net sales that we're going to achieve in the last part of the year. Last year, we -- as probably we remind, we had an incredibly robust final of the year much above our expectations and this has driven higher cost for financial planners. So we -- in the case we are -- on investing, the net sales are going to be pretty much in line with our expectations, we don't expect any significant change in what we are paying to the financial planners.

Clearly, if there is a higher-than-expected acceleration, that in any case, is extremely very well welcome because it's going to create an even better base for 2021, in this case, there is the possibility to have a small increase in the -- in what we have to pay to them. Regarding the guidance on 2021, clearly, it's impossible to give more precise guidance because clearly, there are components of what we can expect to happen next year that are not perfectly under our control.

So I want to just -- presently if there is the market effect, we don't know. The time line of the net sales because clearly, the fastest are that sales made on asset under management, the better is and is exactly the counter in the case your net sales on asset under management is coming later on.

But clearly, as you can imagine, this is not completely in our hands because, for example -- the example has been 2020 in which there has been a totally unexpected impact caused by the month of March and this clearly has generated and clearly has been a drag for the revenues generation on investing. So we are extremely confident on this double-digit growth.

Regarding your point on if Fineco Asset Management is clearly continuously contributing in increasing margins, why we are giving a picture of stable margins because we know that, clearly, we have some -- for sure, Fineco Asset Management is going to keep on contributing in increasing -- in making our offer more efficient in sustaining the margins.

On the other hand, there is -- clearly, we expect the continuation of the headwinds represented by clients remaining, in any case, cautious and conservative. So if you put everything on the table, we think that a serious and conservative guidance is to expect margins remaining relatively stable going through 2021. Clearly, if we are more successful in driving the client's appetite, clearly, there is room for higher margins. But at the moment, we prefer to be cautious and giving us a guidance something that we think that is extremely robust and solid.

On the risk-weighted assets, if you don't mind, I leave the floor to the CFO that can give you a more detailed description of what's going on risk-weighted assets. Please, Lorena, if you want to.

[Lorena Pelliciari, executive]

Thank you. Thank you, Alessandro. Good afternoon to everybody. Regarding to risk-weighted assets, in the third quarter, we can see an increase of about EUR 150 million, driven for EUR 40 million by extraordinary impact. As already said by Alessandro, EUR 27 million one-off effect related to the DTA on the contribution to the deposit guarantee scheme. Consider that this impact will be recovered in the fourth quarter once the contribution to the deposit guarantee scheme will be paid.

And then we had also another one-off effect for EUR 13 million on other assets. It's a technical misalignment that has created an exposure, immediately recovered the day after the end of September. Then recurring but not recurring -- so what happened regarding commercial loans and treasury investment is a value of EUR 114 million of risk-weighted asset increase, of which EUR 19 million related to treasury activity.

Unsecured lending and investment in non-European government bonds, both of these activity have a risk-weighted asset equal to -- risk-weighted asset absorption of 20%. And then we had the usual increase in our commercial loans and Fineco Asset Management exposure. So this is the impact on the third quarter.

[Alessandro Foti, executive]

In any case, this is not clearly the impact caused by the building up of the enhancement strategy. Clearly, it's bigger at the beginning of the process, then when we are going to reach the target level, this is going to decelerate quite considerably. So you have not to keep this run rate in the increasing risk-weighted assets as a run rate for the future. So clearly, this has been higher because the process of building up is the moment in which clearly the impact on risk-weighted assets is higher and then progressively tends to keeps on going down.

[Operator]

The next question is from Azzurra Guelfi with Citi.

[Azzurra Guelfi, analyst]

A couple of questions for me. One is on the NII outlook. I see that you give a resilient outlook. I don't know if you can quantify it a little bit. And also, if you can give us some color on the TLTRO strategy and what is your sensitivity to the tiering potential changes? The other one is on the net sales. October's were very strong, but mostly driven by deposit. Do you expect if market normalized that the switch from deposit into AUM to accelerate very soon or it will still take a bit of time?

And the last one is on your digital angle. Clearly, you are very different from most of your peers and your IT platform. It's a key differentiating factor. We always talk about it in terms of efficiency and scalability of the -- of your business. But what do you think are the other main advantages with revenue generation and/or risk management, if you can give us some color on that?

[Alessandro Foti, executive]

So on the net interest outlook, so for 2020, clearly, we don't expect any significant change in the process. So because -- clearly, there is such a short period of time still. So there is no impact. So it's much more interesting to make comments on 2021. So the -- what we are going to do -- what we are trying to do on giving an indication to the market is to try to give to the market a precise number.

So during the last few months, the -- clearly, in which there has been a continuous deterioration of the interest rate environment, we moved in direction of expecting for next year a decline of net interest income in the region of EUR 12 million. Now considering that the interest rates kept on going down, we -- our outlook has become slightly worse. And so now we are giving as indication range between -- a decline between 13 million and EUR 15 million.

So not a big change. But clearly, what we prefer considering that the net interest income dynamics is extremely complex. We are trying to give to the markets the highest possible visibility in what's going on, on the market.

On -- regarding TLTRO sensitivity and regarding the tiering potential changes, I don't know, Lorena, if you want to make some comments on this point?

[Lorena Pelliciari, executive]

Yes. So regarding TLTRO, for the first time in December, our intention is to join TLTRO and ask to borrow the maximum available amount that is in the region of EUR 1 billion. So we expect a positive contribution to net interest income. And if we relate to tiering, we can say that on an annual basis, each EUR 100 million of TLTRO, we can have EUR 1 million of positive effect on net interest income, if we can count on tiering. So if we can invest this money on tiering. Now we have -- the tiering is possible for us for 6x the reserve, the regulatory reserve. And this is the situation.

Sorry, Alessandro, I interrupt you.

[Alessandro Foti, executive]

No, I'm not sure that we -- if we got correctly the question raised by Azzurra, so if we answered correctly to your questions on TLTRO and tiering potential.

[Azzurra Guelfi, analyst]

On TLTRO, yes. On tiering, I wanted to know like, for example, the multiple player gets increased, what's the sensitivity on the NII, if you can?

[Alessandro Foti, executive]

So to your point, if there is an increase in the...

[Azzurra Guelfi, analyst]

Multiple is 6...

[Alessandro Foti, executive]

At the moment, which is the total amount...

[Lorena Pelliciari, executive]

The multiple is 6x our mandatory deposit.

[Alessandro Foti, executive]

At the moment, the mandatory deposit is equal to...

[Lorena Pelliciari, executive]

EUR 262 million at the end of September.

[Alessandro Foti, executive]

Okay. And clearly...

[Lorena Pelliciari, executive]

At 0 rate.

[Alessandro Foti, executive]

Yes.

[Lorena Pelliciari, executive]

So EUR 206 million and the valuation on net interest income on an annual basis is EUR 1.3 million. This is the...

[Alessandro Foti, executive]

Okay. Now a comment on the net sales. So the month of October has been incredibly robust because we are continuously building up. And so now the net sales has been 91% higher than the past year, and again without any kind of commercial initiatives. So the bank has kept on doing business as usual, nevertheless. And so this is confirming that there is a massive contribution by the reinforcing structural changes. The reason why there has been such a large component represented by deposits because the month of October has been a combination of several -- some negative elements regarding asset under management sales.

The first one is the delay in the pipeline of the approval process by the Irish Central Bank of the new products, and this has been driven by the combination of the traffic jam caused by Brexit and also the fact that Ireland has been the first country entering in a very strict lockdown, but we expect it to recover in the next few weeks because the new pipeline of projects now is underway. And so this is going -- for sure, is going to bring a positive contribution in this direction.

And second, clearly, there is the increase of the assets we gathered has been definitely above our expectations. And so it's clear that we have such a sharp acceleration respect, the trend is normal that at the beginning you have an accumulation of liquidity on the asset. But this is boding extremely well for the future because it's the base on which we can start to work. And for sure, also the expectations by the incoming U.S. elections and so on has made financial plan as a client a little bit in a wait-and-see mode, but this is confirmed also by the -- what's going on in the market and so on.

So it's -- we are extremely confident that you resume very, very shortly an excellent base on the asset under management dynamics. And in any case, we are extremely pleased by the huge increase that we are experiencing in net sales by -- on the -- because it's confirming that the bank is definitely in a great position for capturing the structural trends.

So the internal IT, which are the advantages. So the advantages of an internal IT are so numerous that it would require probably a dedicated presentation for this, but I'm just concentrating on the most evidenced. So the first one, obvious, that clearly, we are doing things much better and spending much less for a very simple reason because when you are leveraging on externalized services or external system integrators, by definition, you rely on someone that is -- has to make emergence on what is provided to you.

And so clearly, if you are directly managing everything by yourself, it's much less expensive. But more importantly, is making you much more reactive, agile and faster because you can -- every time you need, you can change the course of what you're doing. Third is making your internal culture much better because you tend to retain internally the skills, the knowledge, the experience in what does it mean to run an IT infrastructure. If you are leveraging on externalized solutions, the knowledge, the skills are in the hands of someone else. And so clearly, you are not the owner of your future because this is put in the hands of someone else. And also, you can be in a very comfortable position to be in what is the best position for a bank to be a smart and fast follower.

So we can -- we can observe everything what's going on in the market, then deciding when there something makes sense to be used and when this makes sense to jump into a certain technology, avoiding to make extremely expensive and costly mistakes. But there are many other elements. So probably -- we are considering probably to arrange a dedicated presentation to the market on what is our IT infrastructures and what does it mean for us and which kind of strength represents for the bank.

[Operator]

The next question is from Angeliki Bairaktari with Autonomous Research.

[Angeliki Bairaktari, analyst]

Just one on my side. You mentioned in your presentation that Fineco Asset Management will add to sub-advisory mandate a new product range based on an advisory service. And so I was just -- I'm not sure I fully understand exactly what this mean. So will you be using third-party products from third-party asset managers as part of your offering to your clients? Or is it the opposite?

So you will be using Fineco Asset Management product as part of an offering of third-party players? If you could just give us a little bit more detail on that. And sort of what could be the potential contribution in terms of revenues from these initiatives?

[Alessandro Foti, executive]

So regarding this point, so just to be more precise on the point. At the moment, Fineco Asset Management is remaining consistent with an approach that is leveraging on third-party's contribution, and this is made throughout a scheme in which there is a Fineco Fund and then the reason we are giving to a third-party and sub-advisory mandate for running the fund, and we are paying a fee for this. The new generation of products, particularly on extremely -- the products that are related to extremely efficient markets, so simple markets and so on, the scheme is going to be instead of giving to the third-parties and sub-advisory mandate, we are going to get by them an advisory service.

So -- which is the difference in terms of structured portfolio is not such as great because clearly, we are going to put in place practically what is suggested to be done by the third party. But clearly, there is -- it's much less expensive for us because sub-advisory mandate can cost you up to 50 -- 40, 50 basis points and advisory service is usually in the region between 5, 6, 7 basis points. So it's a massive reduction of what you are paying to the third parties for running the business.

Clearly, this is not going to make a substantial difference because it's going to remain a fund in which the decision of what you -- where you want to invest, what you want to do is going to remain in the hands -- is going to be driven by a third-party, but is a scheme that is much more efficient, and this is making for us possible to extract a much higher amount of value. So in few words, becoming more efficient on the value chain.

[Angeliki Bairaktari, analyst]

And so the basis point difference that you mentioned is obviously quite big. But I presume you mentioned over a few years. So I guess, it's going to take -- at the moment, this will only be applicable to a small part of your Fineco Asset Management product offering. Is that correct?

Meaning, we will not see a big spike in margins in 2021 or 2022 from this initiative. Is that correct?

[Alessandro Foti, executive]

No. We -- it's going to be a progressive building up. So clearly, we are going to start. And progressively, this is going to build up. It's going to become a quite relevant way we are working. So yes, to look to this is something that is going to keep on building up over the months and the years.

But clearly, in the -- probably during the next year can be -- probably throughout 2021, probably think to have a few billions of assets that are going to be managed in this way can make sense. So clearly, it's not going to be -- it's not going to make a dramatic difference just immediately, but it's going to make a quite large -- quite important difference going forward, yes.

[Operator]

The next question is from Federico Braga with UBS.

[Federico Braga, analyst]

Sorry, just one clarification first. So the EUR 13 million to EUR 15 million decline to NII includes also the benefit from TLTRO and DCB tiering, et cetera, correct? The second question is still on NII -- actually, on TLTRO, I mean, in Q2, you said that you had no interest in participating to TLTRO. So just trying to understand what has changed? Is it just because of the yield environment or there is also something else?

And also, if you can please tell us what could you be to expect the -- what can we be to expect net impact to your leverage ratio of TLTRO, please? And the last question is on the tax rate. If the 20% tax rate that you reported in Q3, there was some one-off or we could expect the tax rate to go back closer to 30% in the coming quarters?

[Alessandro Foti, executive]

So on the net interest income, the guidance of net interest income 2021 are clearly including the benefits from TLTRO and tiering. Why we changed our mind on TLTRO because clearly the situation has changed. So the interest rate environment has become much more challenging when respect to the past. And so clearly, we think that considering that there is a gift left on the table and why we have not to take this gift. So this is -- very transparently, this is the reason why we changed our mind.

And net impact on the leverage ratio of -- on the TLTRO. Lorena, if you can give more details on this point?

[Lorena Pelliciari, executive]

Yes. The impact is estimated in about 14, 1-4 basis points.

[Alessandro Foti, executive]

And on the end, if you want to elaborate also on the tax rate, please?

[Lorena Pelliciari, executive]

Yes. Regarding tax rate, so in the third quarter, what happened was that FinecoBank stand-alone profit before taxes decreased compared to the second one, mainly due to 2 effects. One is the contribution to the systemic charges for EUR 28 million and we have also lower brokerage revenues for around EUR 14 million quarter-on-quarter. In the same period, so in the third quarter, Fineco Asset Management profit before taxes remained quite stable, slightly increased quarter-on-quarter. And this increasing its contribution to the consolidated pretax profit of Fineco Group.

And as a consequence, the consolidated tax rate decreased from 30% to 28% because in the quarter, the weight of the Fineco Asset Management profit that are subject to the Irish tax rate of 12.5% increased whilst the weight of in FinecoBank stand-alone profit subject to the Italian nominal tax rate of 33% decreased. And then for 2020, we expect a tax rate flattish, and we don't expect also, going forward, significant reduction in our consolidated tax rate as the majority of the consolidated income will continue to be represented by revenues generated by Fineco, which are growing more due to the outstanding performance of brokerage business.

[Operator]

Your next question is from Filippo Prini with Kepler.

[Filippo Prini, analyst]

Yes. Two brief questions, if I may. The first one is on last quarter, you gave an indication of ARPU of active clients that EUR 150 per year. If you can give an update of this? And 3, the last one is on your financial buyers? You increased a lot as per inflows but that's basically is unchanged in the last, let me say, trade.

So you made a lot of comment on the possibility of financial buyers to increase the profitability. But at some point, your assets will grow at a rate that are usually needed to increase the number of financial advisers?

[Alessandro Foti, executive]

So let me start from the financial planners inflows and then I will leave to Paolo Di Grazia to answer on the U.K. Regarding the financial planning for Fineco is in terms of productivity by financial planners is by far the most productive organizations in the industry because if you make the right calculations, so -- not considering the impact caused by recruiting, clearly Fineco is by far the most productive organization. So your point is, are you close to the level at which the productivity is -- cannot be increased even further more or not. Or in order to keep on sustaining what you're doing, you need to have more financial plans.

So first of all, the fact that we are much more productive than the industry, this doesn't mean that the industry is really productive because the level of productivity of the industry -- in the financial planner industry is extremely low in comparison what is the opportunity on the market. And so we are absolutely fine in saying that the room for increasing even more the productivity of financial planner is still huge. Because just to give you an extremely easy, simple number, at the moment, Fineco has 1.3 million of clients, of which 500 million -- 1.3 million of clients, of which 500,000 clients are mostly interested in transactional banking. So we are not of interest for financial planners. The remaining 800,000 clients, the number of them that are actively managed by the financial planners at the moment, they are probably between 200,000 and 250,000.

And so the remaining part is still awaiting for being directly managed. And clearly, if -- the point is, if you think to do this with the normal approach, clearly -- totally we knew that the productivity, there is no room for being increased. But if you're using technology, clearly, the possibility to increase the productivity of financial planners is still really huge. So this is the first point. So we expect the productivity of our financial planners is keeping on growing according with everything we are doing on the technological side.

Second, we are observing and growing natural interest by the markets in direction of what we are providing. And so we expect that the number of our financial planners is going to increase net of net by the year-end for a very simple reason because now financial planners that they are interested in changing the organization in which they're working. They are starting -- realizing that there is not just the upfront premium you're receiving as the main driver, but it's becoming incredibly important the business model, the service model, the technological platform because this is what is going to make you.

So for the combination of these 2 components is leaving us extremely relaxed on the capability of the bank on keeping on increasing the business with a very small impact on the operational side because the productivity of financial planners is still a lot of room for growing. And in any case, we are observing that our capability to take onboard financial planners is definitely growing, and we are not clearly changing our approach. So we are not interested on overpaying them for recruiting the new financial planners. Paolo, if you want to give an update on U.K., please?

[Paolo Grazia, executive]

Yes, about the ARPU you asked about it's -- the ARPU decreased, still strong but decreased at around EUR 500. And the reason why decrease is because of the seasonality and the lower volatility we had in the third quarter. And please note that the previous quarter was very strong related to the strong volatility, and it was a perfect quarter for the brokerage.

And so if you compare the third quarter with the first quarter, there is a big jump. There is an increase. And this is the reason why because we started investing with the right target and basically acquiring the right clients. And we're still working on the cross-selling activities, which is giving us some results right now, and we will start -- we will continue to invest and try to acquire the best clients we can in the U.K. in the next month.

[Operator]

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

[Luigi De Bellis, analyst]

Just one question on the certification. Could you elaborate on these new opportunities and quantify the potential impact in terms of additional revenues for Fineco?

[Alessandro Foti, executive]

Yes. This is a very large and huge opportunity for Fineco because clearly -- and this is another just for giving another evidence of how it's important to be perfectly integrated from an IT and operational point of view. The certificates market, it's a huge market here in Italy. That is a listed market. And the way we are saying is a market that is -- represents more or less EUR 100 million of revenues. Fineco has a market share on retail brokerage that is above 50%. And at the moment, we are capturing on this market probably just a few millions of euros.

So clearly, the way -- we are incredibly far away from our natural market share. And the reason of this, because until now, we were concentrated in doing something else. But clearly, now it's a market that is emerging as very interesting, particularly also looking forward for the our -- also potential expansion in other countries in Europe in which certificates are driving the lion's share of the business, like in Germany and France, clearly has become evident that was important for us to start to look to this market.

And so probably, what we're going to do, we are going to start on integrating the chain, so becoming issuer, market maker and distributor. So we are going to bring to the clients progressively instead of having our clients buying and selling products provided by someone else. Progressively, we are going to bring to them our products. And clearly, this is a very relevant innovation that we are going to introduce, and we are extremely confident this can represent an absolutely very interesting additional upgrade in the revenues generated by brokerage.

[Operator]

[Operator Instructions]

Mr. Foti, there are no more questions registered at this time.

[Alessandro Foti, executive]

Thank you very much. As usual, if there is -- there are any other questions, please feel free to contact us any time for having a follow-up. Thank you.

[Operator]

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