FinecoBank Banca Fineco SpA

MIL:FBK

Earnings Call Analysis

FinecoBank Reports Strong Q3 2023 Results

FinecoBank reports a strikingly positive third quarter in 2023, with adjusted net profits skyrocketing to EUR 454.2 million, a leap of 50.1% compared to the previous year. The bank anticipates that Net Financial Income (NFI) will burgeon by at least 70% within the year compared to 2022, while operational cost is expected to climb by 6%, excluding certain additional expenses. For 2024, they forecast a possible modest dip in NFI with deposits stabilizing, and operating costs should still inflate by 6%. October's performance was notably robust as brokerage revenues hit approximately EUR 17 million, surging over 50% relative to the 2017-2019 average and eclipsing October 2022 by more than 25%.

Strong Profit Growth and Efficient Cost Control

FinecoBank showcased impressive profit growth in its third-quarter 2023 results, with adjusted net profits surging to EUR 454.2 million, marking a significant year-on-year rise of 50.1%. The bank capitalized on strong net financial income growth, which soared by 95.1% compared to the previous year, indicating robust revenue generation capabilities. Even when factoring out treasury management profits from 2022, the profit growth still stands out at 68.4%. Keeping costs well in check, operating expenses only rose by 4.8%, excluding growth-related costs, and the adjusted cost-to-income ratio improved, decreasing to 23.5%, which underscores the bank's laser focus on maintaining operational efficiency.

Accelerated Client Acquisitions and Solid Net Sales

The bank achieved a 22% year-on-year increase in new client acquisitions without altering its marketing strategy, even amidst a highly competitive environment. This growth trajectory continued into October, marking the best month since March 2021 for new clients at around 12,000. Net sales remained sturdy with EUR 6.8 billion in inflows over nine months. Investment inflows combined with a spike in brokerage activities contributed to October being a particularly robust revenue month, with brokerage estimated revenues at EUR 17 million, a notable jump above both historical and the recently preceding October figures.

Robust Capital Position and Forward Guidance

FinecoBank maintains a safe capital position with a Common Equity Tier 1 (CET1) ratio at 24.7% and a leverage ratio at 4.96%. For future guidance, management predicts a continued increase in NFI of at least 70% in 2023 and high single-digit growth for investing revenues. Brokerage revenues are expected to remain strong with healthy projected growth of operating costs around 6% for both 2023 and 2024, excluding specific additional costs. The bank anticipates its CET1 and leverage ratios will continue to grow year-on-year.

Investing and Asset Management Performance

Investing revenues climbed by 5.6% year-on-year to EUR 240.6 million, underpinned chiefly by recurring management fees. After-tax management fees margins saw a year-on-year ascent to 53.6 basis points, benefiting from the substantial input of Fineco Asset Management (FAM). FAM’s contribution to Asset Under Management net sales improved, with remarkable commercial success despite challenging market conditions, affirming the company's adeptness in creating products aligning with client interests.

Outlook on Brokerage Business and Dividends

The brokerage business sustained strong performance with revenues for the first nine months at EUR 140 million, significantly higher than the pre-pandemic levels. Ongoing efforts to reshape the brokerage offerings and expand the active investor base have fortified its retail market share. The successful growth trajectory promises continued revenue resilience irrespective of market fluctuations. Furthermore, the bank is committed to an acceleration of growth along with the distribution of generous dividends, supporting an upbeat outlook for shareholders.

Strategic Focus: Growth Initiatives and Client Base Quality

New client acquisitions rose notably, credited in part to Fineco Days, an innovative marketing campaign blending advertising with physical events, thus fostering a quality and sticky client base. The optimization of the marketing engine has enhanced conversion rates while reducing acquisition costs. The financial planners' productivity stands out as the best in the sector in terms of Assets Under Management net sales, which points to FinecoBank’s strengths in organic growth capabilities.

Effective Capitalization on Liquidity Movement and Investing Business

FinecoBank's granularity and stickiness of its deposit base remains evident, with transaction liquidity forming over 90% of client deposits. The deposits are characterized by their stickiness and granularity, and the bank has managed to significantly outperform in stabilizing its deposit base when compared to the system. The bank's approach to Eurovita's large portfolio disinvestments is opportunistic, viewing such disinvestments as potentially benefiting from increased new liquidity that will fuel future investing business growth.

CashPark Initiative and UniCredit Bond Strategy

The CashPark initiative aims to simplify and enhance the investment process for clients, supporting financial planners' efforts, although currently demonstrating modest figures. As to financial flexibility, FinecoBank has set a new coupon rate at 7.36% till June 2028 for its UniCredit AT1 bonds, indicating strategic planning in its treasury management operations.

Cost-Income Ratio and Risk Outlook

The bank projects to maintain its cost-income ratio comfortably below the 30% mark for the medium and long term. With the lending business serving an ancillary role and a stringent lending approach to well-known clients, the bank does not foresee substantial changes in its cost of risk, affirming an outlook of remarkable financial fortitude.

International Expansion

FinecoBank is approaching its international expansion prudently, particularly following its exit from the UK market. Plans surrounding a potential launch in Germany are currently under careful consideration, but are not suspended, reflecting a strategic and thoughtful approach to growth beyond Italy.

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon, this is Chorus Call conference operator. Welcome and thank you for joining the FinecoBank Third 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 third quarter 2023 results conference call. Adjusted net profits in the first 9 months of 2023 was equal to EUR 454.2 million up by 50.1% year-on-year, and by 68.4% excluding first 9-month 2022 profits from treasury management.Adjusted revenues at EUR 916.7 million, increasing by 34% 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 effects and the higher control of the value chain by Fineco Asset Management.Operating cost, well under control, $215.8 million, increasing by 4.8% year-on-year, by excluding costs related to the growth of the business. Adjusted cost income ratio was at the 23.5%, decreasing year-on-year, and confirming operating leverage as a key strength of the bank.In the first 9 months of the year, Fineco recorded an outstanding commercial performance thanks to our organic growth strategy. First of all, we recorded further acceleration in our new client acquisition, increasing by around 22% year-on-year. This is particularly healthy and remarkable growth, conceding that we have not changed our client acquisition strategy, and that the competitive environment is crowded with short-term aggressive commercial offers rate. Let me also underline that October recorded the best number in terms of new clients' acquisition since March 2021, with around 12,000 new clients.Second, our net sales continue to be very solid with EUR 6.8 billion inflows in the first 9 months of the year. The trend confirmed also in October with net sales at around EUR 500 million, of which deposits at minus EUR 900 million and influenced by one-offs due to the subscription for EUR 620 million of BTP Valore in the recent auction, where we added 3.5% market share, and by liquidity being temporarily used by short-term traders buying on the dips both equity and govies, given the market correction in the month. As a consequence, brokerage recorded a very strong month, the second this year, with estimated revenues at EUR 17 million more than 50% higher compared to the average revenue in the period 2017-2019, and more than 25% higher versus October 2022. Asset Under Management at around EUR 10 million due to around EUR 220 million outflows from the low margin insurance business. And Asset Under Custody at around EUR 1.4 billion.Third, our network of personal financial advisors confirmed to be once again the leader in terms of productivity within the asset gatherers space, thanks to our powerful organic growth engine and Fintech DNA.Our capital position continues to be strong and safe with a common equity Tier 1 ratio at 24.7% and the leverage ratio at 4.96%. On the right-hand side of the slide, you can find a summary of our 2023 and 2024 guidance. More in detail. On net financial income, we expect NFI to increase in 2023 by at least 70% versus 2022. For 2024, we expect the potential slight decline year-on-year with a progressive stabilization of deposits.On investing revenues, we confirm our 2023 revenue guidance expected to increase high single digit compared to 2022 with higher after-tax margin. For 2024, we expect revenues increasing high single digit year-on-year with a neutral market assumption. On brokerage, we confirmed for 2023 expected revenues strong with a floor higher versus pre-COVID period.On operating costs, we expected 6% growth year-on-year in 2023, not including around EUR 2 million of additional cost for Fineco Asset Management strategic discontinuity, and at least around EUR 3 million of additional marketing expenses. For 2024, we expect a growth around 6% year-on-year, not including additional cost for both Fineco Asset Management and marketing expenses.We expect our cost of risk in a range between 5 and 9 basis points in 2023. And finally, we expect in 2023, a growing CET1 and leverage ratio year-on-year.Let's now move on to Slide 5. As announced, adjusted net profit in the first 9 months of the year at EUR 454.2 million in a very challenging macro scenario, increasing by 50.1% year-on-year and by 68.4% excluding profits from treasury management realized in the first 9 months of last year.Revenues at EUR 916.7 million, up by 34% 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 95.1% year-on-year, supported by our high-quality and capital line net interest income growing by 140.6% year-on-year and with a low contribution by lending.Net commissions increased by 4.5% year-on-year, mainly thanks to the contribution of investing and banking. As for the trading profit, let me remind you that in this line, there are accounted EUR 4.8 million related to the effectiveness of hedging derivatives in accordance with the accounting standards IFRS9 compared to plus EUR 14.6 million in the 9 months 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 in the trading profit is mainly related to the lower brokerage activity due to the level of market volumes.Operating costs at EUR 215.8 million, well under control and increasing by 4.8% year-on-year, excluding costs strictly related to the growth of the business, mainly additional cost for Fineco Asset Management to further expand its business and have a higher control of the value chain. Additional marketing cost to catch the strong momentum of the business.Let's now move on the Slide 6 for a deep dive on the performance of the investing business. Investing revenues were equal to EUR 240.6 million in the first 9 months, increasing by 5.6% 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 fees at all. In the first 9 months of the year, management fees margins after tax at 53.6 basis points, increasing year-on-year, thanks to the strong contribution by Fineco Asset Management.Let me please underline that this set of results is particularly remarkable given the more challenging marketing environment for the asset management teams. Also, let me underline that the bank has already started to deeply reshape its product and services offer to better fit with the new context. This will give more fuel for our growth engine in the months ahead and will allow us to keep adding new market shares.Let's now move on 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's Asset Under Management net sale is further improving regardless of the macro scenario, moving from 75% in the first 9 months of 2022 to 117% in the first 9 months of 2023.At the end of September, the contribution of FAM out of the total stock of assets under management of the bank moved to 33.5% from 29.1% in the third quarter of 2022.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 Assogestioni retail net sales as of September. As you can see, our Irish company delivered the second-best net sales compared to the most relevant asset managers operating in Italy. These remarkable results despite the very challenging environment is due to Fineco Asset Management effectiveness in quickly developing the right set of products to catch what clients are currently looking for.Let's now move on Slide 8 for a focus on brokerage. Brokerage as usual, registered an excellent first 9 months at EUR 140 million, resulting in a monthly average more than 35% higher compared to the monthly average revenues in the period 2017-2019. This confirming a structurally higher floor compared to the pre-pandemic levels regardless of market conditions. As a reminder, October has proven to be a very strong month, thanks to our short-term traders buying, which both on the dips, both equity and govies given the market correction in the month. This resulted in the second-best month this year, with revenues at around EUR 17 million of revenues, more than 50% higher versus the average in the period 2017-2019, and more than 25% higher compared to October 2022.Let me remind you that the growth of the brokerage business is driven by the contribution of 3 structural components. First, the continuous process of deep 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 and 2019. Third, we are continuously increasing our retail market share.As you can see on Slide 9, all this is translating in a very resilient revenues generation regardless of market context, delivering a far better performance compared to peers.Let's now move on to Slide 11 for a focus on our capital ratio. Fineco confirmed once again its capital position well above requirements on the wave of a safe balance sheet. Common equity Tier 1 ratio at 24.73% and the leverage ratio of 4.96%, while risk-weighted assets at EUR 4.48 billion and total capital ratio at 35.9% as of September 2023.As for the liquidity ratios, liquidity coverage ratio is at 808% and net stable funding ratio at 389%, while the ratio high quality -- with the ratio of high-quality liquid assets and deposits is at 66%, well above the average of the industry, and positioning Fineco as the best positive outlier, as you can see on Slide 12.Let's now move on Slide 14 for a focus on the acceleration of our commercial dynamics. Let me spend a few words on the strong acceleration in our new clients acquisition, which is even more remarkable considering the context. As you can see from the graph on the top of the slide, new clients in the first 10 months were 22.7% higher year-on-year. This result has been achieved keeping our marketing strategy unchanged when it comes to the new client acquisitions, and translates in a quality and sticky client base, key to grow a healthy business in a long-term horizon.Let me also underline the very positive further acceleration in October, recording the strongest month since March 2021 in terms of new clients, thanks to the new marketing initiatives undertaken by the bank. In particular, the figure benefited by the Fineco Days, a very innovative marketing campaign, combining both advertising and physical events. As a reminder, let me also underline that we have recently increased the efficiency of our marketing engine, thanks to our brand-new onboarding process. This optimization has significantly improved our conversion rate while also lowering acquisition costs, as you can see down in the slide.Let me also quickly comment on Slide 18, as another key driver of 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 net sales has been by far the best one within the sector.Let's now move to Slide 19. The granularity and stickiness of our deposit base is confirmed quarter-by-quarter with a transaction liquidity slightly above 90% of our client deposits. As you can see from the slide, the private banking clients have further reduced their excess liquidity, while our deposits continue to be extremely granular with an average ticket of around EUR 18,000 and the median ticket of EUR 4,500. On top of this, differently from other players mostly focused on brokers in investing, our one stop solution relies on a fully fledged banking platform with 50% of our client crediting salary and pension with us.Let's now move on Slide 20 to deep dive on net sales of our deposits during the first 9 months of this year. In the graph on the top of the slide, we show the trend seen this year against this level on the sight deposit. The most recent figures are related to August. And as you may see, FinecoBank deposit base has been holding up much better compared to the system, which in order to stabilize deposit base has been very aggressive in offering term deposits. Our relative overperformance is explained by the very different nature of our deposits, which, for the vast majority are represented by a very sticky transactional liquidity.Down in the slide, we show our usual breakdown of deposits net sales, where we once again show a healthy increase in the net new liquidity before investments. As you can see, in the first 9 months of the year, the bank collected EUR 14.5 billion of liquidity coming from salary and pensions and EUR 9.3 billion from bank transfers. After the expenses in cards, bills and taxes, deposits were at EUR 5.6 billion, increasing compared to September. Once taking into account investments in Assets Under Management and Assets Under Custody, the final result is minus EUR 3.8 billion of deposits net sales. As in October, investment has been quite high due to the one-off of the BTP Valore auction and to the brokerage clients buying the dips, both on equity and bonds.On the graph down on the right, we confirm the trend in terms of liquidity flows per cluster of clients. Clients with total financial assets below EUR 100,000 increased amounts of liquidity in the bank, and 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 -- waiting to be invested.For private banking clients and the liquidity as a percentage of total financial assets is at 11% as of October, 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 Slide 22 for a focus on our guidance. Let's now focus on our 2023 guidance and 2024 outlook. On banking revenues, we expect net financial income in 2023 to grow by at least 70% year-on-year. For 2024, we expect a potential slight decline year-on-year, with a progressive stabilization of deposits as worker -- customer, leading the cash sorting process have already used a lot of their excess liquidity. Overall, banking fees are expected stable compared to 2022, and the same holds for 2024 compared to 2023.On investing, taking into consideration the market effect up to the end of October, we confirmed 2023 expected revenues to increase high single digits year-on-year with higher management fee margins after tax. For 2023, we expect Fineco Asset Management retail net sales at around EUR 3 billion, and Fineco overall Asset Under Management net sales at around EUR 3 billion. For 2024, we expect revenues to increase high single digit year-on-year with a neutral market assumption.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 cost 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 discontinuity and at least EUR 3 million of additional marketing expenses. For 2024, operating costs are expected to grow at around 6% year-on-year, not including additional costs for both Fineco Asset Management and marketing expenses.Cost/income, we expect to hit below 30% in 2024, 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 2023, we expect a growing CET1 ratio and the leverage ratio year-on-year 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 in full year 2024, we expect the hit increasing also thanks to the progressive delivery on our strategic discontinuity. 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 hit in the range between 5 and 9 basis points.The one-off win for tax will be allocated as non-distributable reserve. Finally, we expect a robust and high-quality net sales, keeping our priority in direction of Asset Under Management.Thank you for your time. We can now open the call to questions.

[Operator]

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

[Azzurra Guelfi, analyst]

I have a few questions. I'm a bit puzzled on your 2024 outlook. Can you give us a little bit of color on what are the moving parts of your NII for 2024, especially on the fixed income portfolio, which the yield seems to have changed significantly versus the previous quarter?The second question is on the investing margin. You used to give us a detailed guidance on margin. This is not there anymore. And while I understand the change in the guidance for net sales because of the market trend, I would like to have a little bit more color on the margin progression because the FAM should contribute positively to the margin progression.And the last one, if I may, is on capital return. You are now indicating an increase in dividend for shareholders for 2024, and you have a very strong book leverage ratio and capital level. So can you give us some color on capital allocation given previously you were discussing about different option?

[Alessandro Foti, executive]

So, let me start on the NII. So, the moving parts, so clearly are -- we are considering, as usual, as a find reference, the expected evolution of interest rates by the market. So, this is the first point.Second, there is -- we have also there is the evolution of the base of deposits. And on the fixed income portfolio, we -- there is anything particularly different from what we have been used to present to market. The only probably still remaining point on the table is related to the, clearly the point on the Fineco has the lowest percentage of Italian govies in the portfolio. And clearly, we have been challenged by some investors if this is going to be the case to stay. And so now there is a discussion underway in the bank on this point. But this has not been embedded in the guidance we are giving on the net interest income, is a potential evolution that is going to be discussed into the bank. Clearly, at the moment, there is not too much to discuss because we don't have any new liquidity to invest. But we expect that this topic is going to return on the table in the next few months, considering that we expect a progressive stabilization of deposits. And so clearly, this is going to make gain additional liquidity available to be invested.On investing margins, we are just giving a guidance based on the revenues for a very simple reason, because there is no enough visibility on what's going on, on the insurance wrapper. And regarding insurance wrapper, there is a very clear trade-off between volumes and margins, because we built our guidance based on 2 different scenarios. One, with the outflows by the insurance wrapper continuing in a strong way. In this case, what you could expect is probably lower volumes but with even better margins. And our second scenario in which there is a progressive deceleration of the disinvestment by the insurance wrapper. In this case, you can expect higher volumes but with lower margins. So, there is -- and it's very difficult to make -- to give a precise guidance on this point right now because the situation clearly -- is underway.Regarding capital return, the increasing dividend per share in 2024 is perfectly current with the very strong capital position of the bank. We confirm that the bank is in the process of keeping on building up additional capital because we expect, not just in 2024 but also in the following years, a continuously growing CET1 ratio and leverage ratio. And so, this means that the bank is at a certain point has to take a decision in what to do with this -- what is going to emerge as an excess amount of capital. At the moment, nothing has been discussed in that. The only thing that is pretty evident that at a certain point, the Bank is going to start the process of considering how to use the excess of capital that is expected to keep on building up.

[Operator]

The next question is from Giovanni Razzoli of Deutsche Bank.

[Giovanni Razzoli, analyst]

The first one is on the guidance for 2024. On net financial income and investment fees, is it fair to assume that in the guidance for net financial income for 2024, the contribution from profit from treasury management will be close to 0?And the second question on the guidance for '24 on investing fees, what assumptions have you made in terms of inflows of FAM for '24? I understand it is a little bit difficult, I think, given the several moving parts to make a precise assumption, also given your previous comment on the margins. But is it fair to assume that the FAM inflows, which are embedded in the guidance of 2024 for investing fees should be at least in the region of EUR 3 billion?And another question is on the Eurovita. If I'm not mistaken, now, clients are free to redeem their policies. I wanted to understand whether my -- this is correct. If this can impact the deposit trend going forward, and you can remind us what is the stock of Eurovita policies that you still have as of now and whether this can actually impact, to some extent, the investor policy of the bank?And the very last question, allow me to ask you this, that given the several guidance that you provided us, the NII slight decline and the increase in the investing revenues given the magnitude of those 2 items, is it fair to assume that the earnings will peak, or less than equal in '23? So, in '24 less than equal, we should see a decline in profit?

[Alessandro Foti, executive]

So first of all, I have to apologize with Azzurra because I didn't answer to the more color on margin progression thanks to FAM, but I'm taking the opportunity by the questions made by Mr. Razzoli. And so I'm just jumping directly on the -- clearly, Fineco Asset Management is going to play -- is going to keep on playing the lion's share in contributing in keeping robust our margins on the investing business. And they are going to remain the largest part of the net sales on investing products also going throughout 2024.Clearly, I cannot give you an extreme precise guidance on the amount because there is a very strong trade-off between, for example, what's going on in the insurance wrapper and the FAM inflows, because they clearly -- if we have, for example, an acceleration in the outflows on the insurance wrapper, it's fair to assume that a decent part is going to be captured by Fineco Asset Management.So, coming back to the guidance 2024, our net financial income investment fees. On net financial income, the contribution from Profit from Treasury Management, yes, it's fair to say that it is expected to remain at 0.And Eurovita. Eurovita, clearly, we -- for sure, we don't expect any negative impact on the deposit trends going forward. That is the contrary because it's -- if we have a massive disinvestments by Eurovita, it's reasonable to assume that at least -- is also the historical trend, at least a certain percentage is going to remain on the current account of the bank. So, considering the Eurovita, the case has not been anything that we can consider as something great. But in this case, in terms of -- on the deposits can play just in a positive way.And on the last question, so may you repeat what you mean because we missed what you mean with peak, peak on what?

[Giovanni Razzoli, analyst]

Yes. So, if I look at the consensus figure for 2023 and I incorporate the guidance that you are providing in terms of NII, a slight decline and the double-digit -- single-digit growth in investing fees, and they square it with growing the cost base. It seems to me that we will see the peak of the profit of the bottom line in '23, given the trends you are giving us. I wasn't asking what --

[Alessandro Foti, executive]

As you know, never, we are guiding the market on the -- never we guided the market on the net profits. And clearly, there are too many components that can play a role in determining the final net profit. And so, in my opinion, it's I think that probably the main driver up there is clear that it is showing very clearly the consolidation of the bank at a very high level of profitability. And so then to tell you if this is going to peak or not, there are -- we need to put in place too many assumptions and so on that we -- no, we are not guiding on this.

[Operator]

The next question is from Domenico Santoro of HSBC.

[Domenico Santoro, analyst]

A number of questions to dig more on your NII guidance and fees. And then one on systemic charge. Can you tell us when you expect the repricing of the lending book to end? Because this is adding EUR 5 million quarter-by-quarter and is an offset, of course, if there is any pressure from financial investments contribution? The other question is on Q4, with all the visibility that you have at this point whether you expect NII to have peaked in Q3 or to be stable in Q4 or down or up, direction would be nice to have.The other question is on the guidance for 2024 NII. I see that the average Euribor that you used in your guidance in 2024 is higher than 2023. And also, the base I guess, the ending base for 2023 is higher. So, I'm just wondering at this point, which kind of assumption you have made in terms of deposit outflows? And if you could elaborate also on the initiatives that you have in place in order to stabilize a bit the deposit base going forward?The question on investing fees is instead of margins, because with all the comments that you've have made so far, I would have expected the switch from the insurance, the FAM, I would have expected Q3 margins to be up or actually stable. When I see them down, I guess, I wonder whether this is just due to market effect in the third quarter? And then how much is the pot of insurance wrapper in total debt, of course, as part of your guidance for investment fees?And then on the banking charges, banking the line of provision that you use. So, deposit scheme and the resolution fund, I see your guidance for 2023. But what about 2024? Because all the other banks are expecting this contribution this year, but it's still a drag on your profitability, so a guidance for 2024, also 2025 would be nice to have.

[Alessandro Foti, executive]

Let me start by the first one. Sorry, what do you mean exactly repricing of the lending book to end? So, I'm not sure that I --

[Domenico Santoro, analyst]

In simple terms, when I see the breakdown of your NII, right, the NII that comes from the lending book, it keeps growing quarter-by-quarter. So, this is, I guess, also due to the repricing.

[Alessandro Foti, executive]

But this is not. This is driven by the rates because we are not -- we are not repricing. It's just a --

[Domenico Santoro, analyst]

Yes, yes, exactly. Automatic repricing. I mean, so when do you expect this repricing to end?

[Alessandro Foti, executive]

It depends on the -- on what's going on in the market. So as soon as we have the 3-month Euribor peaking and stabilizing, this is the end of the repricing of the lending book. So, this is very simple.

[Domenico Santoro, analyst]

So there is no time lag, basically?

[Alessandro Foti, executive]

No, no.

[Domenico Santoro, analyst]

Given that you have also mortgage portfolio, so, it might take a while to --

[Alessandro Foti, executive]

This portfolio is -- the variable component is -- there is at worst a 1-month temporary lag, but I don't know, but it is practically pretty immediate. So…

[Domenico Santoro, analyst]

So, that is done. So, considering that this is done, given that rates have stabilized. Now, --

[Alessandro Foti, executive]

If we assume that the ECB is not going to hike again rates, probably, yes, yes.

[Domenico Santoro, analyst]

Assuming that rates stay where they are, the NII that you reported in Q3, is it a peak at this moment with the visibility that you have right now? What's the direction in the fourth quarter?

[Alessandro Foti, executive]

It probably makes sense, in the case, we don't have any additional assuming that the ECB is done with what -- with the actions probably the third quarter can be considered at the peak, yes. Yes.

[Domenico Santoro, analyst]

And Q4, I mean, what's the direction --

[Alessandro Foti, executive]

And Q4, it's not going to be very different. So probably slightly lower, but it's consistent with the guidance we gave of an NII growing by at least of -- by at least 70% year-on-year, but --

[Domenico Santoro, analyst]

Yes. So, at least, it might mean a --

[Alessandro Foti, executive]

At least means that it's going to be higher than 70%.

[Domenico Santoro, analyst]

Sure. In 2024 instead, given that we've basically explained very well, Q4, what's the assumption that you have made in terms of deposit outflows, if you can tell us? If you can also elaborate on the initiatives that you have in place to stop the outflows?

[Alessandro Foti, executive]

First of all, the assumption is a progressive stabilization of deposits, but this is based on the quite clear evidence. Because let me start by -- because it probably can be perceived as a little bit kind of intuitive because when someone is talking about the stabilization of deposits at the end of the month, which we had the highest outflows so it seems. But the month of October is much better than it looks because as usual, you have to go throughout the numbers, because for the very simple reason because first of all, the month of October, as we said, has been affected by the one-off of the placement of the BTP Valore, that this is something happening to us except for the all the other banks, and our market share was 3.5%, EUR 620 million and definitely by June of this year because June has been the last month, which we had the placement, the last placement of the BTP Valore, and the outflows have been definitely lower. But which is the reason, the reason is pretty simple because when you are looking to Fineco, you have to remember always that Fineco is not just a pure asset gatherer or a bank. We are also running the large -- by far, the largest brokerage platform in Italy. So more than 50% of the Italian retail clients are trading on our platform. So, 1 Italian out of 2. We are in control of 26% of the volumes of the Italian Stock Exchange, considering also the institutional volumes despite we don't -- we are not involved in the institutional brokerage business. This means that if there is something big happening on the -- in the brokerage world, in the trading world, this, by definition, has an influence on the evolution of our liquidity. But without any structural impact and typically in June, the June has been characterized by being a month with merely the peak of the equity market because if you remind, June -- the peak of the equity market has been between June and July.And second, we have, in relative terms, the lowest level of the hits on the bonds. And so, we had the trading clients selling because our clients are contrarians. When there is a big move, they are doing exactly the contrary. If the market is going up a lot, they are selling. If the market is going down big, they are buying. So, in June, they bought -- so they sold equities. And also, they bought much less on the secondary market, considering the hits were lower.In October, we had exactly the opposite situation. And so, we are -- the traders clients that they don't have anything in common with what is done by the normal clients that they are buying govies for investing their liquidity. These are trading -- just trading. The difference between October and June in relative terms, in terms of what they've done, the clients on the -- just on the equities is more than EUR 700 million they sold, and this is a huge -- but this is -- as we are saying is temporary because these clients are not going to -- they're not going to stay seat on the equities they book, as soon they have a profit they are going to sell very quickly.So, the -- and so if you combine together everything of this, the numbers are showing very clearly that the stabilization process deposits is very well underway. And so, the assumption is to have a stabilization of the deposit base in terms of action for stabilizing the deposits. So, we don't need to put in place anything extraordinary because everything is moving, is expected to move in the right direction, so because the bank is expected to keep on gathering quite abundant amount of liquidity. The clients that they are structurally buying, for example, govies for liquidity reasons are coming very close to a level below which it's very difficult to go below. And so, these are the assumptions. And again, October, because we -- October is, in terms of numbers, if you summarize, the passion to deep dive into the numbers, is much better than it looks apparently.

[Domenico Santoro, analyst]

Understand. I thought there were some instruments to lock clients for a period. Back to your margins in the quarter, I mean, what happened? Is it the market effect to drive a decline in margins? I know that we can see the -- we can also calculate on --

[Alessandro Foti, executive]

Investing?

[Domenico Santoro, analyst]

Yes --

[Alessandro Foti, executive]

Yes, we are talking about a very fractional so decline is stable because, one now that my CFO is telling to me that it's practically completely negligible because we cannot describe this as a decline. So, let me say that we are in the range of the -- yes. It's pretty small. In any case, we -- on the margins, we have to be -- the reason why we are not giving precise guidance going forward because the impact of -- what is going on on the insurance wrapper can be big -- can be large.So still, we have probably EUR 13 billion, EUR 14 billion of insurance products in the portfolio of our clients. And we tend to see this -- so this investment is more an opportunity than a problem because I'm repeating, so the insurance wrapper for us are by far the least profitable solutions we have on shelf. So differently by the other players, we don't have an internal factory.And so, we are not in control of the value chain. We don't have for this has been our choice. We don't have any binding agreements with insurance players, the results that our margins on the insurance wrapper are very, very low. And so, it's clearly, this can make a quite significant difference in terms of composition between volumes and margins.But at the end of the story, what we think is relevant for the market is what is the result in terms of revenues. And we are confident that we expect to grow in the region of high single digit. And this without assuming a completely neutral market effect.We think that this is an absolutely amazing results, considering the absolutely huge challenges that is paced by the wealth management and asset management industry because all around the world, the most part of the players are showing declining revenues not growing revenues.

[Domenico Santoro, analyst]

Can you give us just the systemic charges for 2024 and '25?

[Alessandro Foti, executive]

I don't know if -- I'm leaving the floor to our CFO, Lorena, if you want to give an answer on the systemic charges.

[Lorena Pelliciari, executive]

Yes. Thank you, Alessandro. Good afternoon to everyone. So systemic charges, we have 2 components: Deposit Guarantee Scheme and Single Resolution Fund. In 2024, the Deposit Guarantee Scheme, we reached the target that is 0.8% of Italian protected deposits. This means that 2024 will be the last year in which is expected a strong contribution from Italian banks. But the point is that the level target must be maintained also going forward in the following years. And additional contribution will be requested to the banks in 2 cases, increase of protected deposits or event of banks failure.

[Alessandro Foti, executive]

Yes. But Lorena, what is important, we are not different by the other banks.

[Lorena Pelliciari, executive]

Absolutely.

[Alessandro Foti, executive]

The same rules.

[Lorena Pelliciari, executive]

Yes. Regarding Single Resolution Fund, this has already reached the target in 2023, that is equal to 1% of protected deposits at the European level. So, -- and also for Single Solutions Fund in the following -- in the following years, we can expect additional contribution in case of increase of protected deposit or event of banks failure. But the most important contribution has already finished for Single Resolution Fund and will finish in 2024 for the Deposit Guarantee Scheme.

[Operator]

The next question is from Panayiotis Ellinas of Morgan Stanley.

[Panayiotis Ellinas, analyst]

Most of my questions have been answered, but I have a few follow-ups. On the investing revenues, the guidance for the net sales for this year implies only about EUR 300 million net for FAM, but for the AUM net sales implies an additional EUR 700 million. That's for November, December to hit the EUR 3 billion guidance for both. So, I was just wondering why is the share of lower compared to previous months for the remaining of the year? And then on the 2024 investing revenues guidance, again, can you maybe give us some of the drivers there? Do you see ongoing challenges in selling funds or with customers opting for fixed income products, mainly the trend's continuing? And then on the cash balances from the private banking clients, I think now it's around EUR 6 billion. Can you give us maybe a sense of how much of that is transactional versus surplus liquidity? And if it's the same split to the rest of the customer base where you said around 90% is transactional.

[Alessandro Foti, executive]

So if -- correct me if I'm wrong. So, the first question is you are assuming by the numbers we are giving of a declining percentage of the share of FAM regarding the remaining part of the year. So, this is your point?

[Panayiotis Ellinas, analyst]

Yes, because you guide for about EUR 3 billion, but FAM only has EUR 300 million to go and AUM has EUR 700 million. So, I'm just wondering why is that?

[Alessandro Foti, executive]

This is a good point because as I'm trying to explain, we had to be extremely to take the guidance on the number on the net sales on Asset Under Management cautiously because this can be influenced by what's going on the insurance wrapper. So, this is not an indication of a change in what FAM doing. So please, it's -- and in case, it's completely relevant for the evolution of the revenue generation. So, I'm trying to -- what I'm trying to explain that on the insurance side, there is a lot of action by the clients. And so, it's -- and if the clients are a little bit slower in this investing, for example, this can bring at a lower percentage of the -- in the composition of the final end of the year. But don't -- it's -- there is not anything interesting in terms of reading by these numbers.And it's much more interesting, the second question on the ongoing challenges in selling funds, and you are completely right. So, we think that the industry overall is expected to face a lot of headwinds. And generally speaking, there are in 2 directions. One is the -- clearly is the -- for example, everything is driving in direction of a compression of margins. And but as you very well know, Fineco is by far in the Italian scape the best position player for managing this kind of challenge. And second, it's the challenge represented by clients interested in fixed income products. and this is part of the new -- the reshape of our product offer. So recently, we launched a brand new advisory platform that is an extremely broad and is giving the opportunity to our financial plans to provide advisory to clients on the full range of the solutions we have on the platform, considering also the govies. And so, at the moment, what we are observing, it's an extremely very interesting trend in which, for example, we have clients that they are very happy to pay a fee on -- an advisory fee for having the financial planner, building for them a portfolio made by govies together with other mutual funds or ETFs or something else. And so, this -- and then what is important is to be ready with a platform that is able to fulfill the client needs.Fineco, considering that we are a tech company, we are incredibly fast in deploying this solution like this. And for example, the solution that is giving to our financial plans, the opportunity to use govies as a component of an advised portfolio is growing quite a lot. And so, this is a great response to the change in terms of habits by clients.And regarding deposits, now the private banking clients, they have percentage of liquidity on the total assets of 11%. That clearly is definitely below the historical lows. And so, this means this does not mean that they cannot go even lower. That is the reason why we are not showing a transactional liquidity at 100%. But it's clear that we are progressively approaching the level that below which it is impossible that they can go.On the other clients, the so-called small clients, by definition, the percentage represented by the transaction liquidity. Clearly, the percentage of liquidity in their total assets by definition, is higher, but this is totally correct that the smaller is the client and the more the total assets tend to be in line with the transactional liquidity. For example, the very small clients with few thousands of euros on the current account by definition that is that 100% that is liquidity, but this 100% is transactional liquidity.So, this is the reason why we are continuously trying to draw the attention of the market on the average deposits of our clients and the median deposits, because this is showing very clearly that is the best demonstration that the largest part of liquidity is transactional. And this is the reason why we are absolutely comfortable in saying that this cash sorting process is approaching an end.

[Operator]

The next question is from Elena Perini of Intesa Sanpaolo.

[Elena Perini, analyst]

Actually, I have only one left, which is about the direct deposits and the outflows. Taking into account on what you have said about the fact that the cash shortage is coming to end, that potential outflows from Eurovita policies could increase your deposit base. Can we assume that with the negative minus EUR 3.8 billion that you had year-to-date in the first 9 months of the year in terms of outflows from direct deposit could be considered the final results for the year? Also taking into account that it is true that in November, you have tax payments. But then in December, you also have an additional monthly payment for your clients. I don't know if you can elaborate a bit just to have some more precise guidance on the outflows from direct deposits?

[Alessandro Foti, executive]

So as you know, we don't -- it's very difficult to make such a precise forecast because, for example, we don't know what's going on in the market, if the markets are going to go throughout the correction of north and south. But from a seasonal point of view, you are completely right. We are progressively entering in the period of time that is -- it tends to be more and more favorable in terms of the liquidity evolution. So, this is a matter of fact.So, because -- and so unless we have anything absolutely disruptive on the market, we can see that this process is going to progressively -- the process is going to improve. So, the definition, so it's -- because as I explained, the month of October has been a month that has to be read in the proper way. That is much better than it appears. And at the same time, this is confirmed by the combination of this with very high numbers on the brokerage side because the client has been very actively buying in this case. But in any case, if we are entering in period of the year that tends to be progressively more benign for the liquidity evolution of the bank.

[Operator]

The next question is from Alberto Villa, Intermonte.

[Alberto Villa, analyst]

I think you already answered to most of the questions about the guidance. Just a clarification on the plus 6% in operating cost for 2024. You said it excludes additional expenses. I was wondering if the additional expenses that you are expecting in 2024 are more or less in line with 2023? Or you expect a lower impact from these expenses?The second one is a couple of considerations on the new clients onboarding, you had almost 12,000 new client acquisition in October. This is a remarkable figure for sure. But I was asking if the quality and the type of clients is different from the past or if you are acquiring clients with significant assets? And probably linked to this, I've noticed that you are making a lot of advertising for the trading-only account. I was wondering what is the success of this initiative? And what could be the impact for your brokerage revenues going forward?

[Alessandro Foti, executive]

So first of all, on the additional expense in 2024. So, we -- on the fund side, we don't see any huge difference with what we had in 2023. On marketing costs, we as usual, we are taking an extremely pragmatic approach. Every time when we perceive that there is that are the right conditions for pushing more in terms of client acquisitions and so on, we are going to spend, because Fineco is absolutely in the best position of players for capturing the structural trends and every time that is the -- so the favorable conditions are when we don't have any significant particularly disruptive situation underway that is a little bit taking the attention of the client. But the moment is incredibly favorable for accelerating our growth for a company like Fineco.Now, Paolo Grazia, the Deputy General Manager of the Bank can give you a flavor of the clients we are onboarding and what's going on, on the trading-only accounts. So, please Paolo.

[Paolo Grazia, executive]

Yes. Good afternoon, everybody. So basically, we launched the only -- the brokerage account, the pure brokerage account. Before the summer, we started investing a few money on September and October. And the goal is actually to better target new clients, especially young clients. So, we see this as an opportunity to better target clients, especially young clients as an entry product. So basically, people that they don't want to pay for -- they don't want a banking account. They don't need yet a financial planner. They just want -- they just need a plain pure brokerage account without costs. So, it suggests a reshaping for young clients at the moment. So, we will see the number in the next coming months.Yes, about the new clients onboarding, it's a bit too early to disclose the quality of the clients. So, it takes pretty much between 3 and 6 months to see the full value of the clients we are acquiring. But we are very confident because most of the clients are coming from the Fineco Days initiatives. So that means they're coming from the financial planner directly. So usually, when the financial planners open an account to a client, there is a good chance that the client is willing to invest with us. So, it's -- we are quite confident on the quality also.

[Alberto Villa, analyst]

If I may follow up on the new products. You mentioned about the products that are capturing clients interest in fixed income, government bonds, et cetera. I was wondering if these products have a similar margin to the rest of the offering or lower margin?

[Alessandro Foti, executive]

It's difficult to say exactly because clearly, we are talking about -- it depends on the -- because the financial planners are left completely free to determine what they want to charge to clients in terms of advisory fees. So, there is a range and so on. So clearly, there is -- but we can say that the margins are extremely interesting, particularly if you are able to use internally this wrapper, also simple and easy solutions provided by FAM.So, it's -- and in any case, it's another reason why it's important now to be focused on revenue generation and not just being driven by the margins because by definition, in an environment like this, you have to expect some kind of trade-off between volumes and margins, not just driven by the insurance wrapper, but everything.So, if we have a front of us a client that is, for example, big client that is interested in an advisory solution, very simple, straightforward made by mostly, I don't know, govies and ETFs, clearly, we are -- this is less profitable, but this is a great opportunity for accelerating in the volumes. At the end of the story, what is important that the revenues we are generating.So, it's -- the message that we would like to transfer that is a world that is incredibly fast and deep transformation, and Fineco is by far a greatly positioned company for capturing this. And all the fixed income the clients are buying is going to emerge going forward with the progressive stabilization and decline of rates as a secular opportunity for accelerating a big way in the investing business. So, we are extremely positive on this development because the clients are investing. This is the most important thing. And then we have all the -- now we are taking on board all the fuel we need in order to make the investing business growing in a big way going forward.

[Operator]

The next question is from Gian Luca Ferrari of Mediobanca.

[Gian Ferrari, analyst]

Alessandro, 3 from me. The first one is what was the success of the -- promo CashPark you made in October. The second one is if you got already some requests for surrenders from Eurovita policies? And if so, if you can split between units and G&A savings? And the thirdly, if I'm not mistaken, your EUR 200 million private placement to UniCredit is callable right now. And I was wondering, I presume you are not calling it. If you can share with us the resetting rule for that AT1?

[Alessandro Foti, executive]

So the CashPark initiatives only is just on the new liquidity service of making the life easier for our financial planners for making clients investing into the market. So, it's just a combination. At the moment, the numbers there are absolutely pretty small and not anything is just started. But in any case, the main rationale behind is to support in a better way the -- our financial planners in their process of making clients investing. So, it's a kind of combination between liquidity and investing.On the Eurovita, this is the second day that from the operative second day. For the time being, the numbers are very, very small. So, it's -- we think that it's too early to call to say what's going on because for the time being, the numbers, I'm asking to Lorena, that is the numbers for Eurovita are absolutely negligible.

[Lorena Pelliciari, executive]

Yes, negligible.

[Alessandro Foti, executive]

But I think, again, it's too early to say what we can expect to happen there. And on the UniCredit AT1, again, Lorena, if you were to give some color.

[Lorena Pelliciari, executive]

So, UniCredit bonds, we have fixed the new coupon equal to 7.36% until June 2028. And there are call date each 6 months in June and December. The current reset spread is below the current spread on the market is in the region of, if I remember correct, 450 basis points more or less.

[Gian Ferrari, analyst]

So 7.35%, if I am seeing correctly, right?

[Lorena Pelliciari, executive]

The coupon until June 2028 is the new coupon that is -- that we have fixed in June 2023.

[Operator]

The next question is from Isobel Hettrick of Autonomous Research.

[Isobel Hettrick, analyst]

I have 2, please. So, the first one is on the cost/income ratio guidance for 2024. So, in the 9 months this year, you're already operating at a cost-to-income ratio less than 30%. And if we expect that your net interest income is going to decrease in 2024, should we actually expect a slight increase in the cost/income ratio, but still below 30%? And then related to this, how far below 30% of your cost/income ratio, do you think you can sustainably operate in the medium to long term? And then just a question on the cost of risk outlook. Beyond 2023, do you expect a material increase in your cost of risk? Or do you expect it to stay fairly benign?

[Alessandro Foti, executive]

On the cost-income ratio, we can say that also going forward on the medium, long-term trend, we expect to stay -- to remain comfortably below the 30% level, yes. So, the 2023, clearly, has been -- we experienced a massive drop. So, it makes sense that going forward, we can have some kind of consolidation a little bit higher. But the cost/income is going to remain definitely very well comfortable below 30% going forward in the medium term.And the cost of risk, yes, because our lending business is absolutely an ancillary business. We don't have any rate appetite for the lending business. And we are extremely restrictive just for our best very well-known client. So no, we don't expect any significant change in the cost of risk.

[Isobel Hettrick, analyst]

Can I just circle back on to the cost/income ratio. So, I understand your point about it staying below sustainably below 30% over the medium to long-term. But if we think about what '22, '24 looks like versus 2023, should we expect a linear decline? Or should we expect maybe a slight pickup if your net interest income is decreasing slightly in 2024?

[Alessandro Foti, executive]

It's reasonable to state that probably the cost/income ratio in 2024 is going to experience some kind of modest uptick, yes, so this makes sense.

[Operator]

[Operator Instructions] The next question is from Adele Palama of UBS.

[Adele Palama, analyst]

I have 2 questions. One is on the sensitivity on NII. If you can provide the sensitivity on a 100 basis point decline in rates? And then the second question is on the German launch. Can we assume that, that is suspended for now?

[Alessandro Foti, executive]

On the sensitivity of NII, I leave the floor to our CFO. So, Lorena, please.

[Lorena Pelliciari, executive]

Yes, the sensitivity on a parallel shift of 100 basis points of interest rate curve is slightly above EUR 100 million.

[Alessandro Foti, executive]

And on the German launch, as we explained after we left from U.K. Now we are taking our time on reasoning on what's next eventually at the European level. And so, the plan is not suspended but we are taking our time and thinking about it.

[Operator]

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

[Alessandro Foti, executive]

Thank you to everybody for the very interesting questions. As usual, we are available for any follow-up in the next few days. So, thank you again for attending our conference.

[Operator]

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