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Hello, and welcome to the Avanza Bank Holding Interim Report, January to March 2022. [Operator Instructions] And today, I'm pleased to present Rikard Josefson, CEO. Please go ahead with your meeting.
Okay. Good morning, everybody. Thank you for listening in. Today, I will give the business overview and then Peter Strömberg, the CIO of Avanza, will give a short introduction, a little bit to some IT questions that we are highlighting today. and then I will turn over to Anna, CFO, to go through the numbers.
If you look at the first quarter, it's, of course, a difficult quarter in many ways. It's overshadowed by the horrible invasion from Russia to Ukraine, and I think that's affected all our sentiments. We have seen volatile markets, we have seen less activity. So the macro environment has not, in any way, been very favorable for Avanza. At the same time, looking at the performance for the first quarter, I still think we have proven the point that we have raised the bar for lowest level, given the result a bit over SEK 500 million for the first quarter 2022, that equals the result for the full year of 2019. And 2019 was by then the best quarter ever.
What we also have seen, of course, is that the inflation is at the highest level for 30 years in Sweden. We've seen price increases in fuel, in food, in everything you look at is becoming more expensive. And of course, you could guess and anticipate that this will, in the short-term, maybe affect the savings quote in the Swedish savings market due to the fact that households needs to save -- to pay their bills at the end of the month basically. But at the same time, the structural reason for saving is more obvious than ever in an environment where we might go into higher unemployment and so forth.
So hopefully, and I think the customers will be wise enough to even if they have to say less, they will still keep on saving, but that has to be said, so to speak. And if we look at our monthly savings, it's now up if you look at all account types to SEK 1.7 billion per month. And if we add the B2B pension business of about SEK 300 million, it means that recurring net inflow is at the level of SEK 2 billion a month at the moment, which is, of course, comforting.
Of course, the volatility affects the trading. And on this chart, you can see very much that the trading volumes or the trading pattern is quite interlinked with a fixed quarterly average index. But at the same time, when the index goes too much, we can see also tendency that the customers are a bit sitting on their hands and trying to figure out what to do. At the same time, during the quarter, we have increased number of pods and blocks to help and support our customers in this difficult environment. And we have also seen that things on a platform like analytical tools where you can see how your geographic exposure is dividing your portfolios, has been used quite frequently to our customers.
So all in all, volatility has been there. Trading has been there, but at the same time, volatility too high -- into high levels has made the customer be hesitant in how they act. And even though we have seen customers being a bit on their hands, we still had solid growth within the company. I think that we added 60,000 new clients, which is 7% to 8% higher than the 3-year average before the pandemic, so that's a quite a solid number. And I also think that we had almost SEK 17 billion in net inflows during the quarter, which give you the circumstances is a satisfactory number.
We have also the last 5 years increased number of mutual fund customers with 218%. So we have more than 1 million clients invested in mutual funds and 1 million client invested in equity. And just for thought is that in August 2019, we passed 500,000 clients invested in mutual funds, so the mutual fund business has been developing quite well, even though, of course, the values have gone down due to the downturn in the stock market. And we also saw during the quarter more shift to passive products than active products.
And the growth has taken us to a higher level. I think this chart shows a little bit turnover in broker generating securities per trading day. And if you look at '19, the yellow one, and then we had the 2020 good figures and then last year was exceptionally high. But even the first 3 months of this year, which is the live stream one for 2022, you can see that even the market environment has been quite difficult, we have, so to speak, delivered quite high numbers given the fact that the green lines are at the level that they are.
Looking at the market shares of the stock exchange, which is important for us when it comes to number of transactions, our market share has come down a little bit, but it's not that we've been losing market share to competitors in Sweden. It's the foreign institutional trading that has grown, and that has been the one who are taking the market share, we have still a solid #1 position, and we're not losing out to the competition, which is important to underline.
During the quarter, we launched our third actively managed mutual fund by our [ buy ] concept, and that's Avanza Real Estate by Norhammar. And of course, the timing of that launch could be discussed because I think the real estate market or the real estate stock market has been under pressure for the last couple of months. We also launched a Pension Chase, which has been very appreciated by our clients. It's a bit early days to see how this will affect the number of transfer to pension. And we also refunded our start offering in mutual funds. This is not cost for Avanza. It's a negative income, but it's also something that encourage young people to get going with the savings.
We improved our margin lending offer, which is very targeted to our private banking segment. That's also been very appreciated by our clients. And we also signed the letter of intent with Safello to see -- and that's work in progress, how we can create a true crypto-trading experience for our crypto interesting clients. And we have about 100,000 clients who today are invested in the crypto certificates. So we know that there is a demand for more crypto on the platform, but we will come back how we will do this together with Safello so that's still very much work in progress.
Employees, as always, the success factor for Avanza. The colleagues I have at the company is my reassurance for the success. But I'd also like to point out that we also during 2021 had a great year when it comes to corporate finance, both from a record income but also we were both best quality in billion companies, we were best quality for small companies, and we got acknowledgment from jury [indiscernible] industries IPO, we were the sole participant and we were recognized for the best IPO.
And also, I would like to end, and this is a good overfly to Peter because also during Easter changed our whole back office in Avanza, where we moved the whole back office from [indiscernible]. And I cannot enough underlie how the staff, the people have worked on this for a very long time, and we managed to move our trading, so to speak, on the back end from one system to another, and we had extremely few effects on our customer in a negative way.
So I'd like to take the opportunity to congratulate Peter and his team for a fantastic job. And then we will turn over to Peter, who will talk a little bit about technical strategy, the journey. Please go ahead, Peter.
Yes. Thank you. Peter Strömberg here, I'm the CEO of Avanza in 7.5 years. I'm just going to give you a teaser release since we -- what we've done in the background is that we have done a talk close to 40 minutes that we will put on the Investor Relations website when we're done here so you can enjoy that in the shape you want. We will probably chop it up also in smaller pieces. You can enjoy the pieces of it to, to listen and see it when you have time.
So if we go forward, we will talk about a couple of things in this talk, and I will just mention a few of them. We'll talk about scaling, we will talk about architectural journey and the cloud journey that we have done for quite some time, We start on the scaling part, we will have Peter Almqvist, the Head of IT Operations, give you an insight of that, talking about how we have scaled and learned and the limits and we have seen during the pandemic and the extreme circumstances that we've been in, in a positive way in most areas, but also understanding our -- the challenges that we need to learn from the past.
But some of you heard, I was talking about in the last call when we met and how we scale and think in terms of strategy where we do small improvements all the time. We will also talk a little bit about how we do cloud-based stress simulation. That's going to be extremely important going forward and it has been in the past. How you stress the system and architecture and IT operation in the best possible way to make sure we have always have the headroom no matter what happens in the markets that Rikard talked about.
And we will also talk about some of the investments we have done in the past. We are actually going back as far as 10 years to 5 years to 3 years and so forth. Why are we doing that? Because it's important to understand how we think with Avanza since we don't talk so much about we're going to invest x and do that in the next 5 years. We'd rather do what we do in a good way and then we deliver. And then our customers and our investors can enjoy that journey, but it's also important that we talk about it. That's why we made the talk.
And so we have created a lot of things during these years, and we will touch base on infrastructure as a code to improve efficiency and complexity and how we solve that in scaling. Our CEO Rikard Josefson will also talk about the next piece, which is architectural journey. Since we are doing for our customers, every -- all the customers we have, tens of thousands of deployments every year, to be able to do that. There is a lot of architectural elements that needs to be in place that was put in place 7 years ago, 5 years ago, 2 years ago and yesterday. And I think that's important to understand.
Then of course, we do architectural building blocks of the larger scale that we don't talk so much about, but here are some of them. I mean we changed the trading platform in 2008. We didn't talk so much about that because our customers don't really care about that until they see something surface in the customer experience, in the app or any of the channels we have. We built a new big data platform in 2019 that we have now enjoying in the development teams and are all across Avanza in many shapes and forms to be anything from reporting but also building business applications for our customers daily.
And as Rikard said, we have, for the past 2 years, spent a lot of time of changing a new back office systems that will give us opportunities going forward in terms of how we future proof the Avanza our journey and future success of Avanza and pouring in customers or the transactions [ other one ] needs to do on a daily basis. And that, of course, is about exploring, experimenting, evolve, refine and repeat and do that as we have done for the past years and maybe decades and we'll continue with that.
We will also take the opportunity and to talk about the cloud journey since, of course, that is also something that people talk about. Cloud native readiness, we've been there for a while. The Big Data platform, how that came into place and how our teams can consume that in the best possible way, future things that we are putting into place now that we'll enjoy going forward in terms of marketing and automation and how that is built.
So all in all, there's a lot of things, and you see some of them on this picture. And you will be able to -- I hope you find something that you will be very interested in because here, I just want to pitch the talk in almost 40 minutes for all 3 of us, Peter Almqvist, [indiscernible] and myself going through this. And I will also talk some about what's behind this is support innovation and who does innovation, people, not technology. It's the people who does that, and we will talk some about that as well and how we come to what you have in front of them here us now and what we will have in front of us technically in the future. Thank you.
Thank you, Peter. Now let's have a look into the financials. For the first time sitting here, I'm presenting a quarter where the comparison figures are stronger. But even though they are stronger, we still present a very strong quarter in a historical context. We are well above the pre-pandemic level and stronger than our quarterly results in 2020. The last 2 years strong growth has definitely taken off to a higher level. The net profit for the quarter decreased by 8%, in line with the decline in the savings capital. Still net profit ended up at SEK 443 million, which is in line with the full year net profit in 2019.
Revenues have, of course, as Rikard mentioned, been affected by the market environment, and I will come back to the separate income line on the next slide. When it comes to operating expenses, please note that we have the reversal of rental costs in Q1 last year, which positively affected expenses, were SEK 10 million. And adjusted for that effect, expenses rose by 17% compared to last year.
Return on equity was 36%, which is above the long-term target of at least 35%. As said, revenues have been affected by the uncertain market environment and the decline in savings capital. The broad Swedish index was down as much as 22% in the beginning of March and nearly 14% for the full quarter. We also saw a lower activity when it comes to brokerage generating transactions with 7% and brokerage-generating volumes being down nearly 5%.
As a result of lower activity, brokerage income decreased by 7%. Also, the share of income generated among private banking approved customers were higher, resulting in slightly lower income per turnover krona, which was down from 10.6 to 10.4 basis points. This quarter, the number of trading days was 1 less as well. Foreign brokerage-generating trading stood for 15% of brokerage-generating turnover, which is equivalent to the last quarter. Currency-related brokerage-generating volume decreased by nearly 3%, whereas currency-related volume in foreign fund trading was up 35%. This results in 1% lower currency-related income.
In this quarter, non-SEK denominated funds stood for about 10% of the turnover in foreign securities. Fund capital was negatively affected by the decline in stock market, and volumes were down 10% in the quarter. We also saw our net outflow of SEK 3 billion, due to market uncertainty and customers lower risk willingness, which, however, changed in March and turned into a small net inflow. We also saw an increased share of fund capital invested in index funds, which affected income per SEK of fund capital, which declined from 33 to 31 bps in the quarter.
Altogether, this resulted in a decline in fund commissions of 11%. Net interest income increased slightly compared to Q4. This was primarily a result of higher margin lending volumes. The return on surplus liquidity decreased mainly as a result of an increased volume deposited on accounts where returns were lower and due to higher negative interest rates over year-end. Lowering the rates on the private banking mortgages in November had a full effect first in this quarter and resulted in unchanged income despite higher volumes.
To return to Rikard's previous comments around high inflation numbers, the likelihood for a nearby interest rate hike is more and more obvious. And as you know, the Riksbank will publish its next interest rate vision later this week. Amount of surplus liquidity is invested in covered bonds of close to SEK 30 billion and with about SEK 8 billion in overnight deposits and Riksbank certificates. We also have a lending portfolio of SEK 21 billion. The mortgage portfolio is tied to the repo rate and the surplus liquidity to STIBOR, all with an interest rate duration of 3 months, meaning the sensitivity for a interest rate is high at about SEK 525 million if the rate would be raised 100 bps.
And note for the first 150 bps, we don't expect to pay interest to customers since we already have our savings account plus offering where customers can deposit money and get an interest as of today. Okay. last, other income decreased, mainly explained by lower income from corporate transactions where the market environment has led to a pause in transactions. Corporate finance revenues decreased from SEK 23 million to SEK 2 million compared to Q4.
Activity amongst markets continue to be high, and income increased from SEK 49 million to SEK 51 million. Cost for payment service commissions, which is also included in the other income line, decreased as a result of the lower customer activity. Going over to costs. The cost increase includes a 4% salary inflation and around 75 more colleagues compared to same quarter last year. New hires, primarily related to IT and development, but also customer support. As already said, during Easter, we launched our new back office system. Part of this investment has been capitalized and will be amortized during 5 years from May, around SEK 5.5 million per quarter split between amortization and prepaid expenses. Please note that we -- normally, when it comes to investments of this kind or all investments actually we have and will continue to take as much as possible through the P&L, even though we could have capitalized even more. We think it's better to take the cost upfront and not push them forward pricing in the most years.
As previously stated, the costs for the full year are estimated at between SEK 1,050 million and SEK 1,070 million. As mentioned over last quarter, our cost target could be affected by market value fluctuations in the savings capital, and this is exactly what we have seen now in this quarter. Therefore, this target needs to be seen over time. The cost to savings ratio as of Q1 was 13 bps, unchanged from one last year in Q4. Also remember that the target should be seen as a ceiling, not a floor.
Income to savings capital decreased with 3 bps to 40 bps in the light of less customer activity and lower fund capital. High cost efficiency as a competitive advantage makes us resilient in various market conditions. This is also proven in Q1 with an operating margin of 68% and a profit margin of 58%. The capital position is still strong and what spares our capital is the leverage ratio where we are at 4.5%. This is down from year-end due to customers' increased liquidity, a result of the market environment.
The leverage ratio requirement is 3%. But in the autumn, we will get our additional bank specific Pillar 2 guidance from the Swedish FSA. And considering the same level of the capital of sector colleague have gotten up 0.9%, the position is still strong. But of course, our internal target of 3.8% will need to be revised. As already communicated in January, we are planning to issue additional Tier 1 capital later this year with an order to bring the leverage ratio and to optimize the capital structure, and we will come back with more information back later on.
And with that, I would like to conclude with a few remarks on Avanza's position going forward. We cherish our low-risk balance sheet. Bear in mind that an eventual introduction of cryptocurrency trading to our platform will not impact our balance sheet. Customer focus and superior user experience is key for us. Our [ kick start ] and fixed strategy makes us well equipped to continue delivering on this and makes us prepared for future techniques and innovation. And despite uncertain times, we present solid Q1 results. Given the current market conditions and is savings capacity among households would decrease, high interest rates will contribute positively to our M&A in best environment. And that said, our strong cost focus and high efficiency gives us flexibility for the future. And with that, we can open up for questions.
Yes. let's open up for questions.
[Operator Instructions] Our first question comes from the line of Maths Liljedahl from SEB.
The first question, I guess, on costs. You mentioned 4% salary inflation and now we see inflation going even higher than that. And Q3 is -- I mean, Q3 is usually characterized by lower personnel costs. But how should we think going forward, the guidance SEK 1,050 million to SEK 1,070 million, and the investments, et cetera. You mentioned that it still stands, but how should we think about inflation, I would say, in the guidance going forward here?
I would say that looking at the inflation numbers, of course, there could be from the unions and in the market, the pressure upwards on salaries. But my opinion is that, that will come after summer and maybe have more full effect during 2023. But at the same time, I would say much that they do result on that we will see what happens. But of course, that's something could affect us in a negative way if we get a very high demand on wage increases, especially from certain groups. But we also have a guidance which is SEK 1,050 million to SEK 1,070 million. So we have some headroom in that to maneuver if that would happen. So your guess is as good as mine.
Okay. A follow-up. Now I haven't listened to this tech speech or tech presentation. But how do you see it regarding owning your own servers and becoming fully cloud-based? Is that the target for you going forward to sort of be more cloud-based and not have your own servers? Or you think that you still will maintain your own server or data rooms, et cetera?
I would say, I will give the word to my -- or Peter. But I would say that we will go over to cloud-based solution will make sense from a cost perspective and a development perspective. Would you want to add to that, Peter?
Yes. I mean many players don't really see the cost efficiency and that in a similar fashion as some are talking about. We will -- we can move, and you will see that in the talk [indiscernible] will talk about that. I mean we are -- we're ready to move more than 65% to 70% when we need, and we can do that quite quickly. We will more -- we will do it more from how we get a hold of the tools and the ecosystem in the cloud solutions rather than cost, quite frankly, because that is what creates the innovation going forward.
Okay. And then a short follow-up just on the AT1 issuance. Should I interpret it that you will await the Pillar 2 guidance before you issue any extra capital?
No. I think you should interpret that we will do it when the market conditions are more favorable than we are right now.
And the next question comes from the line of Jacob Hesslevik from SEB.
Compared to Maths questions, mine a bit more on the strategic side. So first, what are your plans regarding expanding your product offering? For example, some of your peers have a stock lending program set up, and you had SEK 8 million in income in the quarter from this which, to be fair, is not that much. So what is your view on developing this offering going forward. And you currently split the income from lending with customers. So how does the setup look like?
We give -- the setup that we have today on our endowment insurance accounts is that we give 60% of the income to our customers, and we keep 40%. We never talk about our plans going forward. But I would say this much, this is absolutely an area where we could expand and given more account types available for stock lending. But we also have had the back office transformation that has been holding us back a little bit in developing the stock lending offering, but that's absolutely something we'll jump to going forward.
Okay. Perfect. And then if we look at your monthly statistics, we can see the inflow and outflow for each month. And I was just wondering how large share of the inflow is from monthly saving being like directly invested in mutual funds versus being invested in stocks? Do you know the split? Or can you make a guesstimate on this?
Difficult to say. We have about SEK 1.7 billion in more or less automatically inflows, and I would say maybe SEK 1 billion give and take is invested in mutual funds.
All right. And my last question is basically on the progression with Safello. Maybe if you could explain to us how would your dream setup look like with them? And how do you believe Avanza's regulation will change if you begin to offer crypto investments, which, I guess, come with a much larger risk on KYC and AML, et cetera?
Absolutely. But I would say if you compare it to something, you should compare it to savings account plus what we want to do is to create a gateway to Safello so that you go through Avanza to Safello. But Safello will need to do the KYC and take the money loading risks and so forth. So that has to be a very clear distinction between what is Avanza and what is Safello.
And as Anna said, we want that distinction to not operate any cryptocurrency within Avanza's balance sheet or a risk spectrum or anything like that. But as I previously said, that's work in progress. So we have to come back to that, but we don't want to expose Avanza to recruit the risk, so to speak, and that's something I would like to underline.
Next question comes from the line of Nicolas Mcbeath from DNB.
So first, a follow-up question on the costs. And I mean, your target is to have cost of savings of 12 basis points and you emphasized that this should be seen as a ceiling. But given the market development this year, it seems like you're at the clear risk of overshooting this. And I understand you think of this as maybe a bit more of a long-term target.
But could you, I mean, elaborate what kind of patience will you have with the cost of savings capital being above 12%? I mean is it like 1 year, 2 years? Or what patience do you have here before taking action to trim down the cost base to within your targets?
I would say that I think this year, we definitely have patience for it even if we will do about 12%. But then as always, we will do our business planning for 2023. And of course, if the world looks terrible going into 2023, that could be something we would consider and to discuss and see what the wisest thing to do for Avanza. I cannot give you a clear answer than that. I think there's so much uncertainty in the market right now. So I think we have to see a few more quarters before we will address that question.
But what -- could you say something about what kind of cost flexibility you think that you have at the moment? What cost efficiency gains potential do you have if market conditions were to remain a bit more like at this point with a bit depressed stock markets?
Yes. I think the flexibility is in quite -- to pretty simple, if you look at, for example, a customer service with very young people, we have a staff turnover there where people come in were 2 years get promoted or leave the company. If activity goes down, we could easily stop rehiring people leaving if we can keep our service levels. And I would say also when it comes to IT, we have staff turnover that we could choose not to rehire for time to time. But that has to be balanced because, especially the IT developers that we have there are very, very big part of building the next phase for Avanza and the next customer journey. So we have to think that through quite a lot. But of course, we have, in that sense, in my opinion, flexibility when it comes to the cost base.
Okay. And then a question relating to Slide 4 in the presentation showing your customers in total and the customers that generate brokerage revenues. And it seems like the brokerage trading customers are, yes, since a few quarters now long longer growing. So do you think brokerage trading customers have peaked? And if so, what do you think that entails for your outlook to grow brokerage revenues in the future?
I think it just maybe peak for now during the quarter because I think there's a lot of people coming into the stock market trading stocks in '19, '20, '21, it was very easy to have a positive return. So I think that people are starting to understand how it's quite difficult to make a lot of money on stocks. But I would say that, that is offset by the mutual fund customers. But I think you can say that given the market conditions, there are not so many maybe new clients starting trading stock, that's my prediction.
But I would say that if we get upward in the stock market, I still think we can go absolutely number of customers generating brokerage, but maybe it's on a pause a bit at the moment.
But I would like to add to that. I mean, we are growing number of stockholding customers. These suggest the customers who's done a trade during this quarter.
Yes.
Yes, yes. And I mean, we're seeing a bit of a decline in customer activity now, I think, throughout the quarter. And could you say something about -- among which customer segments do you see the most pronounced activity declines? Is like the younger customers, the ones that open up accounts during the pandemic? Or is it more like broad-based across your entire customer base?
I would say it's quite broad-based. It's more the private banking customers and pro customers has been more active during the quarter.
Relatively speaking, when the market is like it has been in the Q1, the pro customers and private banking customer stands for a larger part of the turnover than, so to speak, that normal clients do. They are the ones who seems to be a bit more hesitant to trade at the moment.
Okay. And then a final question on the rate sensitivity. If you could just explain please in detail what kind of assumptions you made in your guidance of SEK [ 525 ] million additional NII from 1 percentage point higher interest rate or policy rate in Sweden? Have you assumed full pass-through on your mortgage loan book and the lending rates on your margin lending? Or what kind of assumptions have you made there?
Yes, on the mortgage portfolio, yes. And on the margin lending, it's not fully linked to the direct rate. So that's more of a management decision. So that's we've taken just half the increase, well, in the calculation on the margin lending.
And the next question comes from the line of Patrik Brattelius from ABG.
Yes, my question is then regarding other expenses, which is up 59% year-over-year during Q1. What is driving that cost increase because it seems like we have reached another level here?
It's basically because we've got some more consultancies related to the back office system, I would say.
Okay. Is any of that temporary?
Some of them I guess.
Okay. So then going forward, in order for you to come in within your cost target, we are expecting to see an increase in the personnel line on cost in the coming quarters, correct?
When we're hiring people and we have vacancies and if we manage to hire them, which I think is good news, then we will increase our stock costs. But we are quite comfortable at the SEK 1,050, SEK 1,070 million range is where we're going to end up this year.
Okay. Perfect. Thanks for clarifying. And then my second and last question is that you have, in the earlier quarters, talked about the importance of keeping the risk low on your balance sheet. But one can see on your home page that you have increased the loan amount significantly when it comes to the margin lending product. Is this a change in strategy when it comes to taking on risk on the balance sheet? Or how should we view that?
Absolutely not. I would say that if you look at the margin lending as a percentage to our savings capital, it actually hasn't changed over the years, and number of clients using margin lending as a percentage over the total customer base has not changed either. And we have not encountered any credit loss in our margin lending since 2011. And I would say that given the turmoil in the market, especially in March 2020, we came out 0 credit losses in the margin lending. And during this quarter, 0 losses in margin lending.
So I think the procedures, the -- how we work with margin lending in an ongoing market is proving us that we are managing this quite well. So it's not a reflection of any type of increased risk, even though the margin lending amount is increasing. And you should bear in mind that most customers using margin lending or leveraging their portfolios are quite conservative with the, so to speak, loan-to-value when it comes to the portfolios because a lot of clients maybe they borrow 20% of the portfolio to keep some leverage. Very, very few customers are aggressive when it comes to margin lending.
Next question comes from the line of Robin Rane from Kepler.
So I would like to start with digging a bit deeper into Avanza market. So if I look at the stats from NASDAQ and [indiscernible] the volumes traded in certificates by Morgan Stanley is up quite significantly in the first quarter, while your income from Avanza market is -- well, it's up, but not as much. So I mean, what's the income model here? Are you getting a margin on the turnover? Or is it more of a fixed fee that you charge from Morgan Stanley?
I think it's a good question. And it has to do that in Q4 last year, we had some income that was actually related to Q3, and that has to do with how we invoice Morgan Stanley. So that could be rolling over from Friday to a Monday that has to be the end of the quarter. So that has an effect, and that is the effect that you have seen during first quarter comparing to Q4.
Okay. So the income is actually a margin on the volume loss and not like a fixed charge.
Yes. We get paid per trade and plus the volume.
Yes. It's both per trade payment and volume payment that we get.
Okay Understood.
A little bit boosted from Q3.
All Right. Great. Can you say anything about the fund margin -- fund savings margin at the end of the quarter, I think you have mentioned that before.
It was the same as throughout the quarter, 31 bps.
All right. Great. And then finally, on the occupational pensions and the pension change. Any effect you've seen? Or have you seen customers using this pension change to try to move their savings to [ democratize ]?
Absolutely. I think it's very appreciative our clients and we see a lot of clients using it. But as I said during my presentation, I think it's a bit early days to conclude how much the volume will drive from that because the negative effect when it comes to pension is still the administration burden and then at the same time, just the market and if maybe people should be more active than ever in moving pensions, but people are a bit looking the other way at the moment. So we have to encourage them more, but it's absolutely been appreciated by our clients.
The next question comes from the line of from Danske Bank. .
So just coming back to the interest rate sensitivity, I think that's the interesting part of the case at the moment. I mean you're saying SEK [ 525 million ]. Could we just go through the different parts again? You said that your cover bond of SEK 30 billion that STIBOR sensitive, right? And STIBOR was, on average, I think, minus 1 basis points in Q1, and it's today 14. Should that mean that all things equal, we're already taking quite a bit increase where we're standing today.
On the same time, we have the lag since we have the 3 months.
3 months, sure. But if I assume that we stay here and we'll roll everything over in 3 months.
That would be correct.
Yes. And on the Central Bank, then you have SEK 8 billion with the Central Bank. You said that's STIBOR-connected. But are you placing some at a negative wind where you get actually a negative rate today?
Yes, we had, yes, from the overnight deposits.
Overnight deposits with the large banks, we get the negative rates.
Yes, exactly. So how big part of that SEK 8 billion are you today having a negative rate on?
Pardon?
Could you repeat that, Andreas?
You said you had SEK 8 billion of Central Bank deposits at the moment. And how big portion of that do you have a negative rate today? Is it half that you place that window and half.
Yes, we have around SEK 3 billion, which is loan to credit institutions.
Yes. And the remaining then you have a negative 10 bps on.
Yes.
Yes. Part of the Riksbank as well and some part is in certificates, which is 0 interest rate. Yes.
Yes, exactly. It's half, half. And then on your mortgages, I mean, your right is today what is it 69 bps and discrete on the 3 months, mortgage is at 142 bps and more likely going up than down. So is it -- would there be any reason why you wouldn't hike your private banking mortgages after Central Bank hike?
No. I mean, we linked our mortgages to private banking to the repo rate. So if the repo rate goes up 50 basis point, the interest rate goes up 50 basis points for our clients. So that is total follow through. But also, it's -- we have 89 basis points. For most of our private banking clients to get [ 6 to 9 ] basis points, you need more than SEK 10 million in assets on the platform. So there are 2 different type of interest rates on the private banking mortgage right now.
Sure. But you cut your rate in last year by 10 bps. So I guess when rates go up from the Central Bank, you could decide to be more competitive again. But given that you're so much cheaper, are there any reason why you would like to do that? You want more volumes coming in or any strategic reasons for that?
No. As what I know today, we will not change our pricing in our private banking loan because if the repo rate goes up, the interest rate will go up for the time and with the same amount that Riksbank will increase it. It's more difficult question when it comes to margin lending because it's a more management decision, how we will position ourselves due to competition and so forth.
So we have, I think, looked at half of the repo rate increase will be rolled over to the margin lending business, but that could be more or less. But that's how we had calculated the SEK 525 million.
Would you say that the margin lending is also more price sensitive? So if you hike that you're going to see less margin lending and then less trading revenues. So do you see that connection at all?
I don't be able to answer that question because I think it's -- as always, Andreas, some clients are extremely price sensitive and some clients are not. So it's hard to give an answer for the total customer base.
The next question comes from the line of Enrico Bolzoni from JPMorgan.
Just a few. So the first one on the fund business. I mean, clearly, margin dropped a bit. I just wanted to know, a, if you can tell us what proportion of currently is in passive strategies? And if you can just give us an idea of basically what is the different average margin you get on your passive funds compared to on your active? So that's the first one.
The second question was on Safello. Can you just give a bit more color, if you can, just in terms of how the pricing will work out? So what do you expect to yield out of this proposition? And just in terms of the time line, roughly, which quarter can we something to come out?
Another question then is on the cost. I appreciate now you're giving year-on-year specific cost ranges. But for 2023 and beyond, assuming, for example, a 4% inflation rate, which is what has been embedded in your estimate now, what should we expect? So what is the range? Historically, you had 9% to 12%, I think. Is it still applicable range? And then finally, I mean, we are basically nearly at the end of April. If there is anything you can say in terms of how clients behaved so far this month?
Okay. Let's start with the first question. A bit more than 30% of the total fund capital is invested in passive funds. And of course, our income on passive funds is quite much lower because if you look at external funds, we get 50 basis -- 50% of the management fee, and we get them actively funds also and a lot of passive products are priced around 20 basis points or we make 10%. And if you take an actively managed fund with 1%, we get 50 basis points. I don't have the exact number, but a bit more than 30% is invested in passive funds.
When it comes to Safello, I have no more information than I've given you. It's work in progress, how this will work out. It's not a promise, but I think we will have figured out this during, I would say, June, maybe. And then we will probably also as we always do start in a small scale and see how it works. But I don't want to give any guidance on that because it's very, very -- it's very much work in progress at the moment, but we will come back to that as soon as we know how it will work out, so to speak.
When it comes to the cost guidance, we have left the guidance of 9% to 12%, and we guide on 12 basis points on the savings capital over time as a ceiling. And of course, we were much like to see that going below. But at the same time, we, as most companies, I think, will -- during the fall when we plan for 2023, we may face a new normal when it comes to inflation and all these kind of macro environment.
So we have to come back to that. But I would say that the 12 basis points on the savings capital over time, it was steering how we work with our costs. And of course, once again, that's a ceiling, not the floor. So we like it to be a bit below that. But at the same time, as you've seen in this quarter, savings capital is down due to market conditions, so we're up at 13 basis points, but we monitor that closely.
Okay. And if you can say anything on the developments in April?
April, I would say, as Q1, I mean it's a difficult environment for our clients to understand what to do. So I wouldn't say it's just a Q1 continued into Q2, I would say.
The next question comes from the line of Jakob Kusefrom, Autonomous.
Just a couple of quick ones. Firstly on about some markets, you mentioned the increased compensation from Morgan Stanley in addition to volumes and capital invested. Is that an ongoing increased compensation? Or is this a sort of a Q1 impact that you're seeing?
And then just secondly, you mentioned on the cloud business that you were ready to move 65% to 70% to the cloud. Just what is it you're ready to move? Is that of development or systems or -- just?
I'll take the first question, and I think Peter gives the second question. When it comes to Morgan Stanley, we've got a better deal with them during last year, but the full effect of that improvement was in Q3 last year, I think. And then in Q4, we had invoices that was being paid in Q4 for Q3. So the Q4 numbers was a little bit boosted.
But for this year, the deal we have in Morgan Stanley is what it is, so to speak, and we have no price negotiations going on. At the moment in Morgan Stanley, we do from time to time, but not on a quarterly basis. So we will not improve our, so to speak, deal with Morgan Stanley as of today. We did that last year. So we will see that going forward. And on the second question, I hand it over to Peter.
Can you take the question again, sorry, I make sure I get it.
Sorry, you just said you were ready to move 65% to 70% of something to the cloud quite quickly when you felt it makes sense. I just wanted to understand what is that you're ready to move, is it clients or systems?
Yes, we will make a decision on a monthly basis. I mean, we've been ready for some time, and we will choose not to move some areas where we -- because it's not important in itself to move to the cloud. There needs to be a good customer experience decision. It could be an information security decision. It could be for many different reasons.
So the latest one was the market automation piece, but it's also related to the risk. We as a company want to take in relation to Schrems 2 and to GDPR and some of the other things that comes into play for many of the players in our market. So we need to be clever, but also do that in a good way. What I said was that we're ready to move when needed, and we will take it in the time we think is good for our customers and investors.
Yes. And just to be clear, the 65% to 70% is what? Is it data or systems?
It's more systems.
Okay. All right. And can I just finally just ask on the fund fees decline or the margin this quarter., Was that mostly the move from active to passive that drove that? Or was there something else? Because I guess your repricing of these auto funds wouldn't really make much of a impact?
Yes but that's a margin impact. I would say the absolute majority for going down to 35 basis points is, it's the move from active to passive.
The next question comes from the line of Maria Semikhatova from Citibank.
Just a very quick question. First, I just wanted to confirm your assumption on repricing of deposits following a repo hike? You mentioned that you won't be passing through just, I miss the rate.
Yes. What we said is that the first 150 basis points of increase in repo rates, we would not pass it on to our customers because our customers have savings account plus where they can get a positive yield on their cash, so to speak. Going beyond 150, my guess is that we would start paying some kind of interest rate to our customers for cash deposits.
Okay. This is very clear. And on cost, I understand we need to see what the macro environment is going to be in the fall. And just in your 12 basis point ceiling on the long-term outlook, what kind of wage inflation do you assume here?
When we have calculated for 2022 with 4% wage inflation, of course, we did that in the end of 2021, which was a different world that we are living in right now. But I wouldn't say that the wage inflation would affect us dramatically do in 2022, but then we will see in 2023.
And I think we will have a lot of debate about wages, unions, and that's going to be very -- it's going to be very difficult debate within Sweden about what -- all the unions will demand compensation for wage inflation and so forth. And that will, in my opinion, give more inflation, and then we are back to the wages.
And that would imply upside risk to your ceiling on the longer-term cost outlook?
Yes. I think it's so difficult now to understand what will happen with the unions and wages and the compensation. Everybody wants because inflation is so high. So I think it's still a big debate, I think, will be a big part of the election in Sweden in the fall.
So my guess is as good as yours actually. It's very, very difficult to predict what will happen in 2023.
Okay. I understand. And just a final thing. Have you heard anything to address the transfer rights on insurance policies before 2007. I think previously, the draft legislation was expected to be in place by 1st of July this year.
Yes, but it's not passed through the parliament yet. So.
So no update so far.
No, I don't have any update.
And we have one more question from the line of Ermin Keric from Carnegie.
We've been talking quite a bit on the interest rate sensitivity and the SEK 525 million you calculate if rates go up 100 basis points. But then you also mentioned some kind of dynamic effects with maybe negative effects on net inflows and so on. Could you give us any more flavor on what net impact you would expect from 100 basis points up?
I would say that that's my personal opinion. I think 100 basis points wouldn't affect the risk appetite because people don't stop investing in stocks and mutual fund just because they get 1% interest rate. So I think that will not have an effect. I think you have to see dramatically higher levels before it has an effect on the savings market.
I think the effect on the savings market is more the things you're seeing right now, sector rotation, take stocking question. You saw last week when Netflix was down, was it 50% and so forth. So it's more fundamental views on different investment opportunities than the ability to grow the businesses and make good profits. So I would say 1% will not affect the savings market in that perspective.
Then on to the cost side. Since we have Peter on as well, could you just talk about what are main IT projects that you have in the near-term? Do you have any more, as you call it, architectural building blocks that need to be changed? And generally, maybe with your cost guidance, what is it that's driving so much cost inflation in relation to 2021?
As you see it, have you increased the pace of product innovation? I know you talk about customer support as well. But I suppose in Q1 last year, you had a very active quarter and your customer support still held up quite well from my understanding.
Not from my understanding, because I was not happy in Q1 last year when it comes to the service level we kept for our clients from waiting times on the phone and so forth. So that's when we started to hire more people in customer service and in private banking to live up to the Avanza's standards. We fixed that problem during the fall. So now we are absolutely where we want to be. That was not planned, then that means that part of the cost increase for 2022 compared to 2021 was basically because we undervalued the growth of 2021.
At the same time, hiring engineers, we were -- it was a bit difficult to do that during the spring last year due to corona, people working from home. It became better in the fall and that means that we hired a few engineers during the fall. And that in combination with the people in customer support unit has an effect on the cost for 2022 and then you have an effect of the 4% wage increases that we have said.
And then we have taken the decision, which we do not think it's a wrong decision. It's absolutely the right decision, and that's to add around 50 people, especially engineers to enhance the development of the company, and that is what we are doing. And that adds up to the cost situation that we have for this year. And also, as Anna pointed out in our presentation, we could probably or I would say, for sure, put some of the cost increase in our balance sheet and say this is future development to create future income, but we have a strategy of not putting that kind of things on the balance sheet, and we want to have a clean balance sheet.
So we could have maneuvered the cost numbers to a lower level. But over time, we would have to pay for that. And when it comes to big projects, I will happily give it to Peter, and don't surprise me now, Peter.
We should say this, I mean, like we said, and you will hear more about in the talk, I mean, with the new trading platform of 2018, the new Big Data platform since 2019 and going forward and with the new back office system. There's a lot for us to capitalize on those investments. And we will continue the journey of doing thousands and thousands of updates with that as a good base.
Having said that, we will always look into whatever a new small increments or medium-sized increments and needs to be put in place and invest in. And that's what we're doing all the time. I think the story here and the story you will hear about is that we're not looking for those huge shifts. We try to think to keep up and build away and take out legacy every single sprint we put into production on a weekly basis. And we will continue to do that.
So we -- the bigger investments that we have done is, of course, important milestones, and they're also dependent on external help in some aspect because some of these systems, and we're not the best to create them themselves. We want to use -- continue to use open source. We want to continue to use the possibilities of larger system from an external perspective. But this type of size of project, hopefully, I don't want to do them in that way, so we will continue to do incremental changes as we've done.
And we just have one follow-up from Enrico Bolzoni from JPMorgan.
Just to clarify, can you -- so under which circumstances will you capitalize these type of costs or something that goes into technology versus just pass it through the P&L? Just if there is like a rule of thumb we can follow.
I would give you the easier answer. We only put things on our balance sheet when the auditor tells us to do it.
And as there are no further questions, I'll hand it back to the speakers.
Okay. Thank you all for listening in and also interesting questions, as always. I hope you will all have a great week, and I hope the world will be better in the future than it is today. Okay. Thank you very much.
This concludes the conference call. Thank you all for attending. You may now disconnect your lines.