FinecoBank Banca Fineco SpA

MIL:FBK

Earnings Call Transcript 2019-Q4

[Operator]

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

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

[Alessandro Foti, executive]

Good morning, everyone, and thank you for joining our 2019 results conference call. 2019 confirmed once again a successful story of growth based on a sustainable strategy and a sound business model able to deliver solid results in every market conditions. We are very pleased to propose to the next annual general meeting a dividend per share of EUR 0.32, plus 5.6% year-on-year.

Before we start going through the details of the presentation, let me please underline our key messages. First of all, in 2019, we recorded a net profit amounting to EUR 288.4 million, plus 19.5% year-on-year. These results benefits from the tax break coming from the Patent Box, which is estimated about -- in about EUR 22 million. Adjusted net profit amounted to EUR 268.8 million, showing a double-digit growth despite a higher contribution to the Deposit Guarantee Scheme.

Second, the growth of our very well-diversified stream of revenues was supported by all business areas. Please note that our brokerage business has strongly performed in the second half of the year, with the last quarter of 2019 being the best one since the second quarter of 2018 as a result of the in-depth review of our product offer.

Third, operating costs, as usual, well under control, with cost/income ratio declining by 0.9 percentage point to 37.9% and confirming operating leverage as a key strength of the bank.

Fourth, net sales confirmed a solid and robust commercial activity with guided products reaching 71% of the stock of assets under management. Let me please underline that Fineco Asset Management is increasingly becoming the cornerstone of our inflows in asset under management as confirmed in the last quarter of the year.

Finally, we will make a deep dive into the industrial measures we have undertaken to have a better quality business, a stronger push in moving customer liquidity and asset under management and our focus on improving the quality of our customer base.

Let's now move to the Slide 5 and start mentioning our full year 2019 results.

Adjusted net profit in 2019 reached EUR 268.8 million, plus 10% year-on-year, reaching record results despite a higher contribution to the Deposit Guarantee Scheme, which amounted to EUR 18.1 million. Once again, this set of results confirms the soundness of our business model able to deliver sustainable industrial growth in every market condition and shows how the actions we have undertaken during the year are already delivering.

In 2019, we generated EUR 657.8 million of adjusted revenues, up 4.7% year-on-year supported by all business areas. Operating costs stood at EUR 249.6 million, plus 2.2% year-on-year on adjusted basis. The cost/income decreased to 37.9% despite the continuous expansion in assets and clients, thanks to our strong operating leverage and to the scalability of our platform.

Please go through now the following slides to analyze more in details all the dynamics of our results. Let's start with net interest income dynamic on Slide 6.

Net interest income stood at EUR 281.3 million, increasing by 0.9% year-on-year, supported by strong volume growth, high-quality lending and sticky sight deposits, even more valuable given the current remuneration on liquidity offered by the system and the current interest rate environment. As an example, 5-years Eurirs moved from plus 35 basis points for 2018 to minus 14 basis points in 2019.

Volume dynamics more than offset the reduction in gross margins. As you can see at the bottom right of the slide, average gross margins on interest-earning assets lowered from 1.30% in 2018 to 1.20% in 2019.

Cost of funding remains very low at 4 basis points due to deposits in foreign currencies. Plus, let me remind that our cost of funding related to the deposits in euro, which represents 97% of our total deposit, is 0.

Let's now move on Slide 7 to deep-dive in on our bond portfolio. Our strategy to run off the UniCredit bond portfolio and move into a more diversified and low-risk investment portfolio through a blend of European government bonds and covered bonds is progressing very well. Our bond portfolio now includes also France, Spain, Ireland, U.S., Poland, Austria, Germany, Belgium, Portugal, supranational agencies and covered bonds in addition to Italy. Let me also remind our sensitivity to a change in interest rates. A shift of plus 100 basis points would generate EUR 129 million of additional net interest income, while a parallel shift of minus 100 basis points would generate minus EUR 119 million of less net interest income.

Let's now move to Slide 8. Fees and commission grew by 8.2% year-on-year, with management fees up 11.7%, thanks to a larger contribution of guided products & services on asset under management, which increased by 4.3 percentage points year-on-year to 71% and to the contribution coming from Fineco Asset Management. Please note that the decrease of investing commissions registered in the fourth quarter 2019 versus the third quarter 2019 is due to increase of the incentives to financial planners related to the quality of inflows in asset under management realized in the last quarter of the year. Let me highlight once again that our investing fees are strongly sustainable as 98% of the investing revenues have recurring fees and we have no performance fees. The profitability calculated as management fees, net of taxes on asset under management, is substantially flat quarter-on-quarter at 46 basis points with a mix more skewed into more conservative solutions. Please let me remind you that our priority is to move as much as possible our customers' liquidity into asset under management. For this reason, we are continuously updating our product offer aimed at speeding up the conversion rate of our -- of customer deposits. We will come back to this point later in the presentation.

Trading income, net of nonrecurring items, is increasing by almost 1% year-on-year despite lower market volatility and ESMA regulation in place since July 2018.

Let's jump into Slide 40 for a focus on brokerage. Let me please underline the good performance of brokerage revenues recorded in the second half of 2019, showing a growth of 19% year-on-year and of 15% half-on-half following the deep offer reshape that we announced early this year, which helped our brokerage business to fully recover from the results achieved in the first half 2019 due to the persistently low market volatility and ESMA regulation in place since July 2018. Let me please underline that the last quarter of the year recorded the best results since the second quarter of 2018.

Moving back to Slide 9 for a detailed overview on cost evolution. As you can see from the slide, once again, our results confirm efficiency to be part of our DNA and core in our bank, representing a clear and unique competitive advantage. In 2019, staff expenses stood at EUR 90.2 million, plus 6.1% on a yearly basis mainly due to the increase in the workforce related to the business development, in particular to costs related to Fineco's management are not fully in place in 2019 and to the internalization of some services after the exit from UniCredit Group like, for example, the audit service.

Non-HR cost at EUR 159.9 million (sic) [ EUR 159.4 million ] were flat year-on-year despite the enlargement of assets and clients. Please note that the fourth quarter 2019, our non-HR cost increased by 16% quarter-on-quarter due to seasonality of costs related to the third quarter. Let me please highlight that the overall operating cost increased by 2% year-on-year, below the run rate given as a guidance for 2019 and below the growing trend registered between 2019 and 2018.

Let's now move on the Slide 10. We have finalized the agreement with the Italian Fiscal Authority on the Patent Box for the years from 2015 to 2019. Fineco is the first bank to sign the agreement, which relates to both intellectual properties as our platform are internally created and developed and trademarked. The amount of the fiscal benefits for the 5 years is estimated at about EUR 22 million, of which around EUR 5 million are related to the trademark. For 2019, the fiscal benefit for the intellectual properties is estimated in a range between EUR 3.5 million and EUR 4 million. The bank will apply in order to renew the fiscal benefit on intellectual properties for the next 5 years.

Moving into Slide 11. As you can see on the left-hand side of the slide, commercial loans grew by 23.9% year-on-year 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 IT culture allows us to fully leverage on big data analytics. This translates into commercial cost of risk very well under control, decreasing at 12 basis points as of December 2019 due to the improvement in the quality of credit.

Let's now move in analyzing our lending offer more in depth. Mortgages grew by 35% year-on-year, reaching EUR 1.2 billion at the end of the year. Average loan-to-value on total outstanding is equal to 53% and average maturity to 19 years. Personal loans grew by 5.4% year-on-year with very attractive margins. Lombard loans tallied EUR 1.3 billion, increasing by 27% year-on-year driven by Credit Lombard.

As for our 2020 guidance on mortgages, we increased our guidance on new production in the range between EUR 350 million and EUR 500 million as we are observing clients preferring mortgages in a period characterized by very low fixed interest rates. The expected yield is between 70 and 80 basis points, considering also the cost for covering the interest rate risk.

On personal loans, we expect the new production in a range between EUR 200 million and EUR 250 million per year, around EUR 20 million net, with average yield between 380 and 410 basis points.

On Credit Lombard, we expect a normal growth in the range between EUR 300 million and EUR 400 million, with expected yield between 75 and 85 basis points. Let me remind you that Credit Lombard can be impacted by our brokerage platform, as it was the case in the third quarter. Please keep in mind that for the expected yields, in case the market environment changes, we would have to move accordingly.

Let's now move on Slide 13, capital ratios. Fineco confirmed once again a rock-solid capital position on the wave of a safe balance sheet. Common equity Tier 1 ratio stood at 18.12%, down by the 304 year-on-year basis points mainly due to the change of model for calculating operational risk and to the purchase of the brand following the exit from UniCredit Group. Let me please stress that the impact due to the operational risk is only driven by changing methodology while the risk profile of the bank has not changed at all. As anticipated in our last conference call, in the fourth quarter of the year, we adopted the standardized model approved by the regulators, and this [ cloud ] has to recover 136 basis points.

Leverage ratio remained flat at 3.85%. Please note that we are stepping up our initiatives in order to improve the asset mix of our clients, also to slow down the balance sheet growth.

Finally, total capital ratio stood at 33.7% as of December 2019.

On Slide 14, on this slide, we show an overview of the total financial assets' growing trend, supported by the healthy expansion in new Plus. We generated at EUR 32.5 billion of net sales since 2013, leading total financial assets at EUR 81.4 billion as of December 2019. Guided products increased their penetration rate to 71% on total assets under management from 67% on December 2018.

Jumping into the Slide 17, out of EUR 5.8 billion of net sales as of December 2019, 91% was organically generated through the existing financial planners or directed by the bank and 9% came from recruits made in the last 24 months.

Now we would skip directly to Slide 21, guidance for 2020. In this slide, we summarized our guidance for 2020. Please note that does not include the revenues and costs related to the U.K. business development.

Given current outlook, we expect the net interest income to remain solid and resilient or slightly decreasing by a few millions on the back of volume effect and the benefit 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 a more dynamic management of our treasury. Deposits are expected to increase in the region of EUR 2 billion up to EUR 2.8 billion (sic) [ EUR 2.5 billion ] per year, and new production on lending is expected to be in the region of EUR 1 billion per year, equal to EUR 0.6 billion, EUR 0.7 billion net growth.

Investing fees are expected to increase low double digit with flat margins after tax, thanks to the acceleration of the conversion of customer deposit to asset under management and to the increased contribution from Fineco Asset Management despite the conservative approach by clients.

Brokerage revenues are expected to increase around 15% year-on-year, thanks to all the initiatives undertaken by the bank to improve the business. Let me please underline that January recorded the best brokerage result ever, thanks to the enlargement of our offer and to a return of market volatility.

Banking commissions are expected to increase between EUR 10 million and EUR 20 million. We will deep dive later during the presentation of our initiatives on banking.

Operating cost will be impacted by temporary overlap of cost following the internalization of some activities after the exit from UniCredit Group, an extraordinary general assembly for the governance and an increased number of Board members. Therefore, for 2020, operating costs are expected to grow by around 5% year-on-year. In terms of future evolution, we confirm our guidance on a continuously declining cost/income in the long run, thanks to the scalability of our platform and to the strong operating gearing we have.

We expect our 2020 cost/income ratio (sic) [ common capital ratio ] to remain above our floor, equal to 17%, a level that we deem appropriate and massively above industry average.

Leverage ratio is expected to remain above 3.5%, thanks to all the initiatives the bank is undertaking.

Cost of risk is expected to remain in a range between 10 and 15 basis points.

Finally, we expect a robust, high-quality net sales with the continuous improvement of the asset mix driven by structural strengths and by the high quality of our proposition. The continuous enlargement of our product offer with new conservative products and services is helping us in offsetting the higher propensity of clients to remain in a wait-and-see mood in this complex market environment and improving our asset mix.

Let's now move to Slide 22 to better deep-dive into the measures we are setting up for further improving the quality of our business. Slide 22.

Going forward, our key priority is to structurally improve the quality of our net sales and client base in order to increase better-quality recurring revenues with a more pronounced continuous contribution coming from investing, banking and brokerage fees and trading profit and the lower dependence from net interest income and keep the growth of our balance sheet under control.

Let me remind you that -- what are the industrial measures the bank has undertaken to achieve these results. First, the new generation of products with a very conservative risk profile either for customer with a cautious stance and a new software development in order to fully exploit our main competitive advantage coming from big data analytics, further improving the productivity of the bank. Second, repositioning the brand to increase the profitability of our low-value clients and to accelerate the growth of affluent, upper affluent and private customers. Our actions are already delivering, and we will deep dive in the following slides.

Let's now move to Slide 23. On this slide, we summarized our actions to further accelerate the conversion rate of customer deposits into assets under management. With regards to the launch of new generation of products, among the new offer, it is worth mentioning Fineco Asset Management Target decumulation product allowing customers to progressively invest in the financial markets, Fineco Asset Management Megatrends that allows customers to invest in secular trends. We will shortly release the new insurance capital guarantee product, a remunerated solution with a flexible exit window either for customers with short-term horizon. Pension funds that will be offered directly to customers in the next few weeks. In the next few months, we are also going to launch new protection funds and income strategy, which are very suitable for volatile markets, that are going to be manufactured by Fineco Asset Management.

With regard to the software development, let me remind that -- remind you that will allow us to take more directly the driving seat in helping our financial advisers to develop their customers more efficiently, therefore further accelerating the ongoing conversion trends towards assets under management.

Let's now move to Slide 24. Our focus on improving our asset mix is already delivering in particular starting from the second part of 2019. On the left-hand side of the slide, you can see a breakdown of our quarterly net sales, showing a strong improvement in our asset mix. In fact, the contribution coming from asset under management has been constantly increasing over the quarters, thanks to the new generation of products and to the increased productivity of the network. Please let me also remind you that the peak of deposits flows gathered in the third quarter was temporary as clients took profits from Italian govies booked in the past and the percentage of deposits on total inflows is decreasing as a result. This is consistent with our strategy to improve the quality of our revenues mix and to slow down the growth of our balance sheet.

On the right-hand side of the slide, you can see how the acceleration in the conversion of deposits into asset under management has improved in the mix of our total financial assets, with assets under management moving from 48.3% as of December 2018 to 49.9% as of January 2020.

Let's now move into Slide 25 to better deep-dive on the contribution that Fineco Asset Management is giving to the improvement of asset mix.

Fineco Asset Management is key in our move to accelerate the conversion of deposits into asset under management. Our latest net sales results confirm once again that Fineco Asset Management is gaining commercial momentum. And in the latest month, it has further accelerated its contribution to Fineco's inflows, this 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 the evolving customer needs. In 2019, Fineco Asset Management's retail net sales reached 52% of Fineco's asset under management net sales. This percentage was up to 78% in the first month of 2020.

Finally, I would like to highlight that the penetration of Fineco Asset Management to retail class total assets reached 20% of Fineco asset under management, and we expect it to grow even further.

Let's now move into Slide 26 to deep-dive into second industrial measure the bank has undertaken. Fineco's customer satisfaction rate equals to 97%. And in terms of reputation, it is ranked as the #1 bank, a key indicator that allows us to affirm ourself as a premium brand and generate a positive dividend on our business results. On top of this, let me remind you that we are continuously upgrading our banking services with a number of initiatives in order to improve our already best-in-class customer experience.

Let's now move into Slide 27. As announced during our third quarter results conference call at the end of November, we introduced Smart repricing on our current accounts due to further reduction of interest rates and increased contribution of systemic charges.

Let me please spend a few words on the main pillars of our Smart repricing. On one hand, it's not linear on all our customer as it leverages on our deep internal IT culture to cluster customers according to their relationship with our bank. On the other hand, we will preserve our best price/quality ratio. At the right side of the slide, we represented the cost for the most convenient current accounts offered by the main Italian banks, both online and through branches. As you can see from the graph, we remain among the most convenient banks in relative terms even after repricing.

Following the repricing for 2020, we expect between 50,000 and 60,000 closures of current accounts on top of the usual physiological closures. Let me remind that clients closing their account up to now were low-value clients with average total financial assets below EUR 10,000, mainly liquidity. Going forward, we expect it to further improve our customers base, attracting a lower number of new clients but of higher quality. Let me please underline that we're continuously increasing our affluent and smart affluent and private banking clients.

Let's now move on to Slide 28 to deep-dive in the progressive improvement of our client base. In this slide, we summarized our growth on our Private Banking business when our efforts for improving the quality of our clients are starting to pay. Total financial assets of our Private Banking clients represents more than 41% of total financial assets in the bank. As you can see from the graph at the bottom of the slide, total financial assets by Private Banking clients in the first 9 month of 2019 grew by 23% compared to the private banking system, which, according to Private Banking Italian Association, only grew by 12%. As of December 2019, total financial assets related to Private Banking clients grew by 29%, reaching more than EUR 33 billion of assets.

Moving to Slide 30 for a quick update on Fineco UK. Fineco UK is progressing well with more than 6,500 clients at the end of December mainly reached through the word of mouth with no marketing campaign. Let me remind you that U.K., we are offering our one-stop solution platform with an outstanding multicurrency offer, one of the best among U.K. players, which is also used for trading purposes. With regard to the offer side we are continuously implementing our investing platform with new funds, and we will progressively complete our open architecture investing platform over the coming month. M&G Investments and Columbia Threadneedle funds are already live, and we also launched Fineco Asset Management funds, which give access to sub-advised funds of 8 different asset managers through Fineco Asset Management Series. Let me also remind you that platform is very convenient. Also, in terms of cost, we then competitive pricing of 25 basis points per year.

In order to further improve the offer, we recently notified U.K. regulators our intention to open a commercial branch in U.K. to better serve our clients with some new products like ISA, SIPP and Faster Payments. This has no requirements of capital and no cost attached. I remind you that U.K. offer leverages 100% on the Italian platforms, meaning we have no additional fixed cost. We are now ready to start our marketing activity, and the first move we will leverage on our best-in-class brokerage offer from which we expect a faster contribution in terms of revenues. In the meanwhile, we will keep on developing the rest of the platform.

We will give you more details on our U.K. plans by the end of the first quarter 2020 through a dedicated conference call.

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

[Operator]

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

[Domenico Santoro, analyst]

I have a number of questions. I'll try to be very quick. First of all, margins in the fourth quarter. You mentioned that they are flat, adjusted for tax. I got a different number here because I have almost 64 basis points, down quarter-on-quarter some 2 basis points. So I was just wondering whether my calculation is correct and whether there is something going on in the quarter. You might mention that.

I've seen that you pay more -- a variable component to the FAs in the fourth quarter, I was just want to -- I mean, also the -- whether this number will be repeated next year.

Coming back to your guidance in investing fees, low single digit. I mean this year, if I see correctly, on Page 41, the growth was double digit. You mentioned before the margins are going to be stable. So assuming that you're going to have another very good year in terms of sales, I'm just wondering whether your guidance or reality implies some pressure on margin as we have seen in the third quarter.

The loss of clients that you expect for repricing of commercial banking fees, I just wonder how much deposits also you expect to lose or whether we should expect a sort of a shift in the size of the balance sheet.

Tax rate, Patent Box. My understanding was that there was also some benefit going forward. If you can quantify.

And then the EUR 10 million, EUR 20 million or more commercial banking fees, I'm just wondering that this is the maximum, the EUR 20 million we should expect for the maneuver or cumulatively the impact in 2021 would be much larger.

[Alessandro Foti, executive]

So let me start from the margins in the first quarter. So there is no change because clearly, we -- recently, we started on giving the guidance after tax for -- because clearly, there is the continuously growing contribution by Fineco Asset Management. And so clearly -- and the margins, they remained practically stable. So we confirm -- so a 46 basis points after-tax margins on the asset under management solutions. And this is stable, and we expect it to remain this way unless we have an increase in the risk appetite by clients. So there is no change regarding that at this point.

Regarding the variable payments for -- so there is -- also, there is probably -- I'm not sure that I got perfectly what -- but you were referring to a guidance of a low single digit on investing, but our guidance is low double digit. And so there is no -- we don't expect any significant pressure on margins, and this guidance is absolutely the same we gave recently. So...

[Domenico Santoro, analyst]

All right. Sorry for the mistake in that.

[Alessandro Foti, executive]

Yes. Low double digits. Regarding the variable payments of financial planners clearly -- there has been clearly a higher-than-expected payments because clearly, we are experiencing a sharp acceleration in direction of asset under management products. And if we assume that this trend is going to continue, we can expect that more or less the variable payments for 2019 can be in the region of what we had -- in 2020 is in the region of what we had in 2019. So the decrease we had in the investing fees in the last quarter is just a technical decrease because it is embedding these higher payments for financial planners for the overachievement of their results. Clearly, as you can imagine, this is extremely -- bodes extremely well for the -- for 2020 because we are starting by -- in a definitely better position in terms of total financial assets, quality of the mix and so on. And clearly, something that is driving up the variable payments for financial planners is -- clearly is the acceleration in direction of guided products.

Let me make a comment. I would be extremely pleased to finish 2020 and bringing to you another additional increase in the variable payment for financial planners because this would mean that what we are putting in place is working even better respect than we are expecting. So the -- everything is perfectly under control. And it's the fact that we have paid to the financial planners higher variable compensation for year-end is a great news.

On Patent Box. Patent box, the -- so -- is clearly -- reasonably speaking, we can expect -- I'm using the wording reasonably speaking because every time that you have -- you are interacting with the Italian Fiscal Authority, you have to be always extremely cautious because -- but in case -- if there is anything absolutely unexpected happening, we can expect the recurring component for the following years staying in the region between EUR 3.5 million and EUR 4 million in terms of additional net profit. Consider that the intellectual property -- the more we have the revenues attached to the software platform, the more the revenues are growing, and the more this positive contribution is going to grow.

Repricing. Clearly, the guidance of between EUR 10 million and EUR 20 million is just for 2020. It's clear that another very important dividend growth by the -- by this change in pricing is that we are changing the angular coefficient of the profitability of our future new current accounts. So clearly, this 10 -- between EUR 10 million and EUR 20 million is just for 2020. But clearly, this number is going to keep on increasing according with the growth of the base of our clients.

[Operator]

Your next question is from Gian Luca Ferrari with Mediobanca.

[Gian Ferrari, analyst]

I have some questions as well. First of all, on the bonuses you paid to the network for the great inflows into asset management in Q4, I was wondering if you can quantify the euro million amount and if there is any specific incentive for the conversion you are currently making from current accounts into asset management, that add an extra incentive on top of the normal incentive scheme you give to FAs.

The second is on the repricing. I think in the latest calls, we were speaking about EUR 20 million to EUR 25 million. So the EUR 10 million to EUR 20 million indication you are giving is because you gave more there or gave more waivers because you have, I mean, clients with more value-added products than you originally expected or it is something driven by the network?

The third question is, when you are guiding on NII 2020, should I understand -- did I understand correctly that at current level of rates, NII will be flat in 2020 versus '19?

The last question is on the number of FAs. I know that it is not a very appealing topic, but this is the second year in a row with the total number of FAs declining year by year. So my question is, is the 60 to 70 new FAs you are currently recruiting sufficient enough or you might revisit your recruitment strategy and increasing that number in the future?

[Alessandro Foti, executive]

Regarding the variable payments made to the network in the first quarter, so for the full year, is EUR 18.9 million and EUR 8 million in the fourth quarter. And is -- there is no -- so we didn't change the incentive scheme for the financial planners. So we didn't introduce any additional incentive for moving from deposits to assets under management. Consider that financial planners, everything that is on deposit, they don't get nothing practically, so they have a structural increase in moving clients up to liquidity. So if your question is if the acceleration in asset under management is driven by a more aggressive incentive to the financial planner, this is not absolutely the case because the incentive scheme has remained absolutely unchanged and the drivers that are behind the sharp acceleration is the continuous improvement of the productivity of the network, thanks to -- they've put in place of the -- on the implementation of the IT platform that is making the fee to our financial planners much more efficient and the new generation of products.

On repricing, the reason why there is a range between EUR 10 million and EUR 20 million is because clearly, considering that this is as much repricing, that is not charging the clients in a linear way. So it depends on the clients' behaviors. So for example, if we have a higher-than-expected number of clients moving into -- using more intensively our services, clearly we are going to have more commissions on, for example, investing and brokerage, but -- and staying in the lower end of the repricing. On the opposite, if the behaviors of the clients is absolutely linear with respect what we have now, clearly we're going to stay in the upper end of the range.

In the -- on the net interest income, yes, we are confirming that considering the existing situation, the level of interest rates right now, we confirm the guidance of a net interest income staying flat or, in the worst case, just declining by a few millions of euros.

On recruiting, we -- during 2019, our activity has been a little bit slower than usual. But the reason is pretty simple because clearly, the reason we had a -- we have on the market some players that they are clearly massively overpaying financial planners, generating what we think is going to be a temporary overrating the market. We are not interested in playing this kind of game. We are quite confident that the situation in the market is going to return to a more normal level in the following month. And so we -- we're going to be able to return to a level of newly recruited financial planners closer to 100 financial planners per year. Then -- and so we -- so...

[Operator]

Your next question is from Federico Braga with UBS.

[Federico Braga, analyst]

Just few follow-ups from my side, please. Again, going back to the gross management fee margins that, also coming to my calculation, declined 1 basis point quarter-on-quarter to 64 basis points. I was wondering if, on a gross basis, there was some dilutive impact maybe also due to the strong inflows into the decumulation products, which start with the lower fee margins and then maybe we should expect a slight recovery over time as these products increase the allocation to more risky solutions.

And then as another follow-up on fee margins. I mean for the sum of the FAM Megatrends, I saw that the total expense ratio of these funds are like well above the 200 basis points, even close to 300 basis points. So I was wondering, would -- I mean, if this pricing can create, in your opinion, some issues longer term considering that Fineco has always placed its pricing below some of the -- some of that of some competitors.

And then just a clarification also on the NII guidance. If you assume an ECB rate cut this year or not in your NII guidance for 2020.

[Alessandro Foti, executive]

So regarding the gross management fees, the decline from 65 to 64 basis points pretax, this is correct. We have a change in the product mix. So clearly, there is a growing component represented by more conservative solutions. But this is exactly perfectly in line with our expectation because, on the other hand, as we -- because the guidance we are giving is that our after-tax margins are going to remain stable because in the meanwhile, there is a growing component represented by Fineco Asset Management. So the result -- the guidance we're giving to the market of flat margins and revenues growing in the region of low double digit is exactly the -- is the results of an expectation of a modestly declining gross margins before taxes driven by the mix of products. But at the same time, this -- offset by the higher contribution by Fineco Asset Management and the volume effect. And so putting this together, the result is these revenues growing low double digits with margins after tax remaining almost flat in the region of 46 basis points.

So Megatrend is -- clearly is a 100% fully equity product and so clearly is on the upper end of our offer. So it's not -- it's quite aligned with what you can expect to pay with such a kind of product. So it's -- clearly, it's a risky product. It's like for the -- it's the highest profile in terms of risk. And so the pricing is not overpriced. It's absolutely perfectly in line with the prevailing price for a product like this.

And on the net interest guidance, we are not assuming any further ECB cut, and this is current with what is emerging by the implied forward rate cut.

[Operator]

Your next question is a follow-up from Domenico Santoro with HSBC.

[Domenico Santoro, analyst]

Just to understand a little bit more the guidance on investing. So you're mentioning here that the low double digit is based on gross margin that you still expect declining during the year. So just wondering whether this is correct. And given that there is a tax component, given that there is migration to the FAM, apart from the EUR 4 million, if my understanding is correct, or a recurrent contribution from Patent Box going forward to the taxes, can you give us an indication how the tax rate, net or gross of this, it can evolve going forward?

And then just a follow-up on the deposit, the question that was asked before on the Smart repricing. I was just wondering if you expect -- given that in January we have seen also some outflows, the EUR 2 billion, EUR 2.5 billion gross inflows in deposits, if this is net of potential clients that might leave, of course, the bank.

[Alessandro Foti, executive]

So coming back to the investing guidance. When we are -- we expect the gross margins, let me say, that are just modestly declining, so it's closer to be -- they're going to be almost flat or just probably declining by, I don't know, 1 basis point, something like that, but nothing particularly relevant. And regarding the -- so the -- and we confirm that the net margins are going to be -- after tax are going to be flat. So 46 basis points.

The contribution of the Patent Box. So one second. So on the tax rate, so net without considering the contribution of Patent Box, so -- because we have -- on the Patent Box, there is this one-off 2019 and then we reasonably were expecting a continuation also in the following years because we are going to renew the Patent Box. But without considering this expected 3.5%, 4% -- so sorry, yes, because there is -- I'm not the biggest expert in this kind of stuff. So I'm receiving some input by the CFO.

So considering the recurring effect of the Patent Box and also the -- what you can expect by the contribution of Fineco Asset Management, we expect a declining cost/income ratio with a run rate...

[Unknown Executive]

Tax rate.

[Alessandro Foti, executive]

Tax rate in the region of 1% per year.

And coming to the deposits, the guidance of between EUR 2.5 billion, EUR 2.8 billion of deposits is considering the expected outflows generated by the clients that closing their accounts. Consider that the clients closing accounts are clients with a very, very low average assets. So they are below EUR 10,000. So assuming that we have -- we expect accounts closing in the region between 50,000 and 60,000 closure, so this means that there is between EUR 0.5 billion, EUR 600 million of outflows generated by this. But this is embedded in our estimates regarding the new inflows of liquidity.

[Operator]

The next question is from Alberto Villa with Intermonte.

[Alberto Villa, analyst]

Congratulations for the net sales figures that are really quite impressive. I was wondering if in the outflows from deposits, which is partly -- partially obviously switching into funds under management, is also playing a part to the aggressive commercial policies by some of your competitors and if this may also continue in the couple of -- next months.

[Alessandro Foti, executive]

Regarding the -- so regarding the aggressive offer on deposits, this is not a brand-new story because it's -- practically every year, there is someone that is using the leverage of overpaying deposits for taking onboard their clients and deposits. So every year, there is a brand-new banker joining the pack. And as I had the opportunity to discuss during meetings for it, we have a cluster of clients that is called internally the free riders of the banking accounts, there are between more or less 50,000 clients that are continuously moving in and out deposits in order to chase the highest offer. So the typical behaviors of these clients, they are clearly keeping with us the center of their transactional banking activities because the platforms are absolutely excellent.

And then when there is an offer, they move this money there and then they are bringing their money back again. So clearly, this is what is the largest part of this result. So clearly, the result is that the industry as a whole is giving to these clients a gift because they clearly are extremely -- are clients that are -- on which is practically impossible to have any significant impact in terms of cross-selling. And so they are just continuously making arbitrage among the different banks offering high deposits. But again, it's not a brand-new story. Every year, we are calculating that we are losing a bit more than EUR 0.5 billion of liquidity in favor of the banks that they are aggressively pricing deposits. But this is a story that started in 2012, so it's absolutely -- it's not a brand-new story. So there is nothing changed. The only thing that is changing is the name of the banks that they are paying deposits.

[Operator]

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

[Luigi De Bellis, analyst]

Two quick questions for me. The first one on the capital ratios. Where do you see the RWA evolution and CET1 at the end of 2020 considering the new production in terms of lending?

And the second question, what is the implied guidance in terms of net inflows of assets under management behind the low double-digit growth of investing?

[Alessandro Foti, executive]

Regarding the capital ratio, the capital ratio is we get -- we are expecting considering the growth in risk-weighted assets because the growth of risk-weighted assets is driven both by the growth in the lending business and also by the growth in operational risk. I want to remind that the operational risk is measured as a percentage of the revenues generated by the bank. So the more we -- the more you grow your top line, and the more you have a growth in the operational risk.

But considering all -- everything put together, we expect to stay comfortably above the floor of 17%. Honestly speaking, a 17% floor is a conservative one because clearly, it's a -- we are -- you are living in an extremely unpredictable environment, also by regulation point of view. But assuming that everything is remaining pretty much the same conditions that we have now, probably we are going to be more in the region of 18% than 17%.

And regarding the -- on the asset under management business, the guidance on the revenues, so growing by low double digits is current. Even total asset under management is in the region of EUR 3.5 billion under management. So that is -- clearly is not embedding it -- let me say it's an expectation, business as usual. So we expect if we keep on working in a linear way. But clearly, our -- what we are doing is we are pushing as much as we can in order to be above this kind of number. But in any case, for the guidance, we prefer to remain consistent with something that is more or less linear with what we have done recently.

[Operator]

Your next question is from Filippo Prini with Kepler.

[Filippo Prini, analyst]

Two questions, if I may. The first one is on the operating costs. How much of your plus 5% guidance for this year is due to your commercial effort in U.K.? And if you can please quantify it also in absolute terms.

And the second, a clarification on your guidance on brokerage, plus 15% year-on-year. Does it make reference to both brokerage fees and trading?

[Alessandro Foti, executive]

So the guidance operating cost is not considering U.K., is we raised the guidance of to up to the -- is on the upper end because usually, we are giving a guidance that is between 4% and 5% for -- just for a temporary reason because as we said, there is a temporary overlapping in cost between the -- what we are still paying to UniCredit for the sorts of services and the implementation of what we need for internalizing everything in the bank. So there is a temporary overlapping I've discussed, but clearly it's not going to last.

And second, clearly, we -- there is some other one-off like that we are going to have 2 general assembly instead of 1 because we just approved during the -- today, Board of Directors is changing our statutory rules. And so clearly, this is going to be approved by the -- in a dedicated general assembly, and this is driving cost.

And finally, there is an increase of the number of the Board of Directors, growing from 9 to 11. So putting those together, this is -- we are moving the guidance a little bit higher than usual.

And on U.K., we were going to give more visibility during the dedicated call in the -- within the first quarter.

On guidance on brokerage -- the guidance on brokerage is -- so it's plus 15% because clearly, the -- and this is a guidance we are giving assuming volatility staying not particularly high. So for example, the month of January that -- which the volatility has been higher than is usual, clearly then the generation of revenue had -- of the revenues has been that much higher than we were expecting. And -- but in the guidance, we are not making any kind of assumption of a particularly high volatility is current with this.

In terms of a split between net interest income, commission and trading profit, clearly there is a growing component. The fastest-growing component is for sure the trading profit just because clearly, there is a constant move -- shift of plans in direction of over-the-counter solutions. And also because the higher it's becoming our market share in volumes, and the higher is the opportunity for us for internalizing the clients or the -- and so clearly -- and so this is making the trading profit component growing faster than net interest income and commissions.

[Operator]

[Operator Instructions] The next question is from Fabrizio Bernardi with Fidentiis.

[Fabrizio Bernardi, analyst]

I have a question on fees. On Page 8, you write, no performance fees. So I was wondering, given the strong results that most of your peers booked in the fourth quarter of 2019, I was wondering whether we may see one day a Fineco with a wiser and fairer performance fees, maybe applying a fee scheme where a client can decide to choose recurring fees maybe lower plus performance fees or skip everything and pay just higher management fees.

[Alessandro Foti, executive]

We -- clearly, as usual, we are continuously monitoring everything that's going on in the market. So by definition, the topic represented by performance fees is many years that is under observation, considering that is the large component of the revenues generated by other peers of the industry.

And I jump directly to the conclusion, then I'm coming back in order to give you the rationale of our conclusions. Our conclusion's that we don't -- we are not interested in considering to introduce any kind of performance fees on our clients for a very simple reason, because performance fees, as you were correctly considering, can be -- you can have -- or can be also fair in respect to our clients if you are aligning perfectly the interest of your clients with the interest of the bank. And the only possible way of aligning perfectly the interest is to go to the client saying, I'm giving to you something that is much less expensive, and in exchange, if there is an overperformance, I can benefit from this.

And for us to be really -- and if we are observing what's going on in the market at the moment, there is nothing that can be considered in this line because everything that is charged in terms of performance fees is not aligning the interest of clients with the bank because in the most part of the case, we are talking about performance fees that they are just driven by the direction of the market. So if the market is going up, we are charging performance fees. If the market is going up, you're not charging performance fees. But this is not related to your capability to generate real value.

The demonstration that we have some of the players charging performance fees, that they have their own funds, that they are ranked among the third and the fourth quartile of the industry. So this means that they're delivering very poor quality to their clients, but nevertheless they are charging performance fees, thanks to the market. And this clearly is not -- and absolutely, this is not the right way.

But also, the fair way, at the end of the story, is going to bring volatility, uncertainty in what we are doing, is going to -- and so we think that it's much better to be extremely transparent, to keep on giving to our clients the best possible services in a very transparent way, position the bank as the best among the peers in terms of ratio between quality of services and pricing. And for this reason, we are not interested in introducing -- also in, for example, in U.S., Fidelity that at the beginning was extremely -- is seen as extremely interested in introducing the so-called fulcrum fees now is changing his mind and is returning, is coming back. So we think that is much more linear to keep on doing what we are doing and -- because our goal is to keep on delivering fully visible industrial results and not results that they are just driven by the -- what the market is doing.

[Operator]

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

[Alessandro Foti, executive]

Thank you very much.

[Operator]

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