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Earnings Call Analysis
Q2-2024 Analysis
Avanza Bank Holding AB
Avanza Bank has reported solid quarterly results alongside a robust first half of 2024. Despite facing specific challenges, including customer compensations and fines totalizing SEK 20.3 million, the company delivered a net profit increase of 9% year-over-year. The operating profit decreased by 4% after adjustments for these one-offs, but the strong trading income and net inflows paint a positive picture of the bank's trajectory.
One of the key highlights of the earnings call was the bank's substantial customer growth, with a net inflow of SEK 17 billion in the quarter and 34,000 new customers added. This marked an impressive 18% increase in inflows compared to the previous year, contributing to an anticipated milestone of reaching 2 million customers. Notably, Avanza's market share has increased to 7.5%, reflecting its competitive positioning within Sweden's financial services landscape.
The company's trading activities showed resilience, with a slight increase in brokerage-generating customers. Gross brokerage income per trade improved due to higher foreign market trading volumes, which constituted 21% of total trading turnover, the highest since Q1 2021. However, total net brokerage income slightly fell, attributed to three fewer trading days in the quarter. The management is pleased with the increase in net inflows into funds, reaching an all-time high, which enhances income diversification.
Avanza actively focused on enhancing its fund offerings in response to customer demand. The firm's fund inflows reached SEK 22 billion in the first half of the year, signifying a robust customer engagement trend. The bank also acknowledged a shift toward more index fund allocations, which decreased per-set income from fund capital, averaging 25.9 bps—stable since Q1—yet increased overall fund commission due to volume.
The bank's net interest income (NII) faced a 3% decline due to falling market interest rates. Looking ahead, the anticipated further rate cuts from the Riksbank may pose challenges; however, Avanza's proactive management strategies are designed to mitigate risks. The solid capital position and low-risk balance sheet support the bank's operational resilience amid fluctuating market conditions.
Management expectations for annual cost increase growth remain at 9.5%, but this includes the newly introduced guidance on administrative fines. Increased focus on internal efficiency is critical, with several operational areas such as automated processes being eyes for efficiency improvements. Interviews highlighted a balanced approach between investing in growth and optimizing current resources for better performance.
Significant technological advancements and customer-centric features were introduced, reflecting Avanza’s commitment to a sophisticated user experience. The firm rolled out new analytical tools for active traders, gearing towards better customer engagement and retention. As customer satisfaction continues to drive positive net inflow metrics, Avanza acknowledges that fostering customer trust is fundamental to sustained financial performance.
Overall guidance remains cautiously optimistic, with expectations for continued growth in net inflows and diversification of revenue sources. The potential for increasing market share beyond 10% by the end of 2025 remains a target, with management projecting this through strategic development and operational enhancements. The focus on cloud migration and addressing customer needs is indicative of long-term commitment to evolving their service offering.
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Good day, and thank you for standing by. Welcome to the Avanza Bank Interim Report January-June 2024 Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Gustaf Unger, CEO. Please go ahead.
Warm welcome to our Q2 presentation in the room here in Stockholm. We have Sofia Svavar, Head of Communications and IR; and Anna Casselblad, CFO; and myself, Gustaf Unger, the CEO of Avanza. My general view on the quarter is that we had a positive momentum in Q1 that continued in this quarter. I'm quite impressed by the level of innovation produced by the team when it comes to new features, especially for our trading active customers. And to the right, you see one of the innovations, which is the new analysis tab, where customers can get better support in fundamental analysis. We were ranked the #1 financial company in a reputation index, which I think is a good testimony. On the growth side, we saw a net flow of SEK 17 billion, which is pretty good. And together with the 34,000 new customers, I hope to welcome the customer number 2 million after the summer, which is something to celebrate for us.
Although not specifically related to this quarter, I want to underline our consistent focus on the user experience, which is one of our unique selling points. And combined with the data-driven approach, we engage closely with our customers to understand their needs and to prioritize and to fine-tune new features. And our customers are more than willing to engage and participate in our development. And especially for the non-suites who cannot easily become customers, we have updated the presentation on our IR site, giving you a tour of this user interface, which I recommend. And alongside our very engaged customers and world-class user experience, I think the strong Avanza brand is a key asset. And to the right, you can see that we are more well-known than financial services players massively larger than us. As a result of this, our customer acquisition costs are kept low and our customer acquisition is mainly driven by word of mouth.
And apart from customer satisfaction, I think that net inflow is the best leading indicator for future income. And I'm and happy to see another strong quarter, making the H1 inflows 18% higher than the same period last year. And as you can see, also customer acquisition was strong in the quarter. What I think is even more comforting is to see the monthly recurring inflow climbing towards pandemic levels. And if I just annualize this almost 2 billion per month that just automatically flow into our platform, that's SEK 24 billion a year, something that a lot of incumbent which is [ a dream of ].
One of the things that I'm mostly proud of in the quarter is our funds business. We have actively worked to make it more easy for our customers and broaden our offering in the farm business, and it's also important for us to diversify our income streams. The net inflow in the first half year of SEK 22 billion is all-time high, and so is our SEK 300 billion of fund capital on our platform, and this now represents 1/3 of our total savings capital. When it comes to market share, we don't have the Q2 market numbers. So we cannot compare the SEK 17 billion of inflow with a market inflow. But in Q1, we attracted SEK 22 billion, which then represented 21% of the quarterly inflow and 22% of the rolling 12 months inflow, giving us a 7.5% market share of the total savings capital in Sweden. And I think that last quarter, I made a back of the envelope calculation showing you that extrapolating the market share gains that we made in Q4 made our 2025 target of 10% of the savings market look like a stretch. If I do the same calculation today, we have 7.5% market share in Q1. That was an increase with 0.4 percentage points compared to year-end. After Q1, we have 7 quarters until we hit end of 2025 at 7x 0.4%, that 2.8 percentage points. And if I add that to the 7.5% that we had end of Q1, that would yield a 10.3% market share end of 2025. Just want to highlight that this is just pure extrapolation.
If we dig into the brokerage side, one of the important drivers of brokerage income is, of course, the number of trading customers. And there we saw, as you see on this slide, an increase also this quarter despite having an unfavorable low volatility. And worth to mention is also that the activity in the quarter was higher in the first half compared to the latter part.
Some of you have had questions around seasonality in our trading business, why I show this slide. And to me, it's a bit hard to see any clear patterns. If any, I could say that Q3 may be slightly weaker than the other quarters, but it's not a clear pattern. We also on this slide, see a strengthening over the last quarters. When it comes to market share in the on the trading side, still high, but slightly lower in the quarter when it comes to turnover due to increased share of institutional trading in Sweden. And in the beginning of the year, we did set out 5 prioritized areas. And if I walk them through one by one, starting with the improvements we wanted to make for our most active customers. I think we've made great progress. We have introduced new tools for fundamental analysis, for technical analysis. We have delivered new functionality to improve orders. And I think that's pretty much a tick in the box, even though we have more interesting things coming in the second half of the year.
When it comes to the second prioritized area, activating new customers, i.e., customers coming into Avanza, but not taking full advantage of our offerings. I think we have done some good things. We have made it more easy for customers with no fund exposure to make decisions and invest in funds, but I think we have much more to do there.
The third one, when it comes to improving our pension offering. I think we've made great progress, and we've been proud of one of the releases, which is the ability for customers in the edge of taking out money to keep single securities in their pension, which was not possible before you had to go over to funds only.
And the fourth one, internal efficiency, we have done a bit, but I think we have a lot still to do there. And on the stable platform, I mean, that's a hygiene factor. We have done a lot. We have now have 2 quarters behind us with very high availability, but that's something that we just need to keep high on the radar all the time.
And to summarize the quarter from my perspective, I'd say we have a positive momentum. We show continued strong growth. We're making good progress with our prioritized areas, but we have more to do on some of them, as I mentioned. I'm very proud of the pace of innovation in the organization, and I'm currently in a recruitment process to find a new CPO. And after that, our management team will be complete, which I much look forward to. And then we spent time on the strategic overview, which I talked about last quarter, but we're not finalized, so I will not be able to answer specific questions, but I want to underline that Avanza's main priority today is and tomorrow will be to foster and develop our strong savings offering here in Sweden. And with that, I hand over to you, Anna.
Okay. Thank you, Gustaf, and good morning, everyone. We are reporting strong quarterly results today and not the least strong first half year. However, we had 2 items affecting comparability in the quarter, both when it comes to income and expenses. Other income was negatively affected by customer compensations of SEK 5.3 million related to interest on the ISK account and other expenses increased due to a fine from the Swedish authority for privacy protection of SEK 15 million, as we have previously communicated. Consequently, operating profit for the quarter decreased by 9% compared to Q1 and adjusting for the one-offs, it was a decrease of 4%. Comparing the first half year, net profit in 2024 increased by 9% despite the negative effect this quarter.
We continued this quarter with solid trading income. We saw an uptick both when it comes to brokerage and turnover for trading dates, but total net brokerage income decreased slightly compared to last quarter as a result of our 3 fewer trading days in Q2. Gross brokerage income per brokerage generating turnover was positively affected by a higher share of trading in foreign markets and increased to 11.2 bps from 11% last quarter. Number of broker rich generating customers increased by 2%. High share of foreign trading is also positive for net currency-related income. Brokerage generating turnover in the foreign markets kept increasing and accounted for 21% of total brokerage generating turnover, which is the highest it's been since Q1 '21.
And as previously mentioned, other income was negatively affected by customer compensations of SEK 50.3 million related to interest on is accounts with unutilized credit and above the house during several years, paid too high interest rate ISK due to a mistake when the ISK law was changed in 2016 and that now will be corrected as of next year. And we cannot say how much more remains, but all customers should have received their final tax notices over a month ago, and we are seeing a slower rate of income in claims. The weaker other income was also impacted by decreased commission income from about the market and from external mortgages.
Taking a closer look at fund commissions. Strong net inflows and growing volumes compensated well the lower margin, and we have reached an all-time high in the quarter. Looking at the graph to the left, it's clear that income per set of fund capital has been decreasing as the share of index funds has increased and was just over 46% by end of Q2. However, in the past few quarters, the fund margin has been showing signs of stabilizing, clearly increasing at a slower pace. The average in Q2 was 25.9 bps, which was unchanged from quarter end Q1. And at the end of June, it was 25.8%. And as Gustaf said, we have had a fantastic half year when it comes to net inflow to funds. Fund flows are already in line with full year 2023 levels and higher than H1 record year 2021. And also important to mention is that Avanza has since the beginning work to reduce prices in the savings industry and to put focus on how freeze impact the savings capital. And although this puts pressure on the margins, this has been successful in building volume, which in the end is key. Growing our fund business also increases recurring income and mix of more resilience also in less active markets.
Moving over to NII. We saw a decrease of 3% compared to Q1 due to lower market interest rates. And with further rate cuts in the second half year, which the Riksbank forecast, we have seen the IIP for some time now. The policy rate cut of 25 bps in May affected surplus liquidity negatively by 2%. Circle of liquidity decreased to SEK 43.6 billion at the end of the quarter. However, average volumes during the quarter were more or less stable. Despite a growing lending portfolio, income from lending increased by just under 1% due to mortgage rate decrease in both April and May. Margin lending rates were less unchanged, and we saw volume grow by 9%, showing increased risk willingness among customers. Interest expenses on deposits peaked in April, but for the full quarter, expenses were in line with Q1.
We lowered all our deposit rates, except for the Pro customer segment with 25 bps in May, although the average interest rate on deposits increased slightly from 186% to 88%. And please note that these figures are calculated on the quarterly in and outgoing balances. And if you look at the balances on a weekly basis, average deposit interest rate decreased to 185% in the quarter. Going forward and when further policy rate caps will be seen, our intention is to continue to follow, but of course, taking customer behavior and competition into consideration.
The administrative sign of SEK 60 million from IMY, of course, had the largest negative impact in the quarter compared to Q1. Also, personnel costs were higher, negatively affected by management changes, but also more hourly employees. As mentioned in Q1, internal efficiency is one of our main focus areas for this year, and this will be increasingly important going forward to be able to free up time and operating units so that we are able to further strengthen development resources and focus on innovation. And our communicated estimated cost increase of 9.5% for the full year stands I think these numbers speak for themselves. We have a very strong capital position and low risk in the balance sheet. And as of end of June, both the total capital and the leverage ratio were well above the requirement. And just like Q1, the quarterly results have not been audited, meaning profit generated in the first half year has not been added to own funds.
To conclude, I am very proud of all we have achieved in the quarter and the improvements we have made on the platform. Customer satisfaction is our most important target, which in the end is what drives volume and revenues. Therefore, I once again want to emphasize the importance of the Avanza brand. The strong growth and the activity among our customers have resulted in another strong quarter. Increased fund savings gave all-time high fund commissions despite last year's increased allocation towards index funds. This and the customer activity bodes well for coming policy rate cuts, which will affect net interest income. However, it's unlikely that we will return to a negative or 0 policy rate environment in the foreseeable future while NII will still give a good contribution to results. We will intensify our work on internal efficiency to ensure resilience in different market conditions and towards increased competition, which we hear a lot about, but don't really see yet. And with that, I would like to open up for questions.
[Operator Instructions]. And now we're going to take our first question, and it comes from the line of Jacob Hesslevik from SEB.
My first question is on NII. During the quarter, the average annualized rate on deposit increased despite the rate cut from the Riksbank, you said something regarding this on the comp call, but was this purely due to the mix shift within deposit accounts. So could you help me understand this movement?
Yes, you are right to an extent since we have seen a little bit of growth when it comes to the savings account. So of course, that contributed. But as I said, the spend on deposits peaked in April and has then turned down. But the reason why it seems that it's going up is because we just take the average of the opening and closing balances. So we saw some drop by the end of the 2 weeks in the quarter as well.
Continuing on NII. You did cut your mortgage offering by 25 bps on 15th of May, but you see second with 25 bps first 2 weeks later at 27th of May. So why do you not protect your NII more? I mean it's not a very high multiple income line, but every set earned goes towards your dividend by the end of the year.
Yes, we would like to have lowered the rates on the savings account immediately, but we have an agreement with all our savings account partners that we have a little lag in when it comes to that. So that's the reason.
But is it due to competition why you couldn't match those 2 cups at the same date?
I don't fully get your question. So we lowered the rates on our own mortgage. That was driven by a sense in the organization that we were not competitive enough. And then your point was, why didn't we lower -- could you say that again?
Yes, the rate on the savings accounts. I mean savings account is an interest expense for you, while you actually earn interest income on mortgage offerings. So you cut your margins on the income line, but you keep the margins or keep the low margins on the savings accounts. I mean, you would have a higher NII if you did those 2 cuts on the same date.
True. I mean you're right. But I mean, on the savings account, we did lower in general deposit rates after the rate cut.
Because only the savings account that had a lag. And as Gustaf said, that is due to agreements with our partners on the external savings.
Okay. And then my final question is actually a repeat from last quarter. Gustav, you have now been slightly longer at Avanza. So could you help us today better understand your vision for Vance going forward? Is it those 5 areas you mentioned earlier on the call? Or what the developments could we expect going forward? And will you take a look at the current financial targets? Or are you content with the current ones?
We're in the middle of the strategic overview, which I think is natural when you come in as a new CEO, it's not done. And more importantly, it's not signed off with the Board and I mean, strategy is a board question. But let me say the following. The 5 prioritized areas, they are tactical they are for 2024. I mean they could continue, but that's something that we actively need to decide upon. When it comes to the vision for Avanza, I think that's very related to what path you want to take, namely the strategy. But we have a super fine business in the savings industry in Sweden and almost 2 million customers. So I mean whatever we decide to do adjustment wise or on top of that core business will be priority 1 to 3 also tomorrow. And I will get back as soon as we have something potentially new on the strategic side and if that would impact the financial targets that we have.
That's very clear. I wish you all a great summer and allocation.
Now we're going to take our next question. And the question comes from the line of Nicolas McBeath from DNB.
So first question on your comment in the CEO words, that your goal is now to move the development environment into the cloud. So could you elaborate a bit on this, please, about the scope and timing of this migration and any cost estimates that you could share? Would you expect this ambition to have a meaningful impact on 2025 costs?
Good question, good and relevant question, Nicolas. So today, we have our data platform in the cloud. We will move our workspace, so the whole environment that all employees in advance I work with through the cloud end of this year or early next year. I mean, both of these are things that we do with our existing resources. So nothing strange with that. And then I'll stick out my head and said, "I want to move the production environment also to the cloud. We have not decided in what pace. And so it's hard to answer that question here and now. We will not do that to lower our operating costs. We will do that to be part of the innovations that we think will happen in the cloud. We think that the actual cost in the cloud will be higher than the cost of having our servers on-prem.
But on the other hand, we think that we can be more efficient and save on other parts when going to the cloud. Now then the further question is, what does it cost to go from on-prem to the cloud? And I think that depends a lot on how swiftly you want to do it, and we haven't decided on that. I mean one strategy is that, I mean, first, we need to build a platform in the cloud. So all our developers can work there instead of on-prem servers that we have today, and that's one cost. But then the cost to move the code, one strategy is we only do that when we anyway want to rewrite the code and then the additional cost is essentially none. If you want to go faster, then you could argue that you have some cost of rewriting code that you wouldn't do if you stayed on-prem. I know it's not a hard number that you want, but that's the best I have right now, Nicolas.
And would you expect any such investments or costs to be taken to be activated or to be taken over the P&L?
We have been quite reluctant in this firm to take cost on the balance sheet. I think that's always a question on giving you and others investors the best view to make up your mind about the business. And if it's cost that you have that you are taking today that will give you a lot of benefits tomorrow, then you could argue it's better and more transparent to take them on the balance sheet. But I don't have a perspective on this particular potential cost item, I mean, migrating to the cloud.
And then a question related to pricing and your offering. So you announced in the second quarter that you are looking to introduce currency accounts to your pro and private banking clients in the second half of this year. So just wondering what is driving you to do this now? And what kind of revenue implications do you expect from this move?
I mean it's driven by a clear client demand. And you know that if you do a lot of trades in securities and foreign currency, it's quite frustrating to have to go back and forth to dollars, dollars to euros or euros to dollars all the time. So it's for the convenience for these customers, but also for avoiding FX costs for them. So the reason is a clear client demand. All else equal, of course, we will earn less on FX fees on these customers, but we firmly believe that this will be compensated by bigger volumes given that our offering improves.
But don't you see the similar kind of client demand from all your clients, or is it only related or mostly related to your private banking and pro clients? Or should we expect this to be rolled out eventually to your entire customer base?
That we have not decided to roll it out to the whole customer base. I mean the ones who benefit from that from these currency accounts is the one who are very active in trading foreign securities and that is mainly private banking and pro customers. So I think the true customer need for regular customer is much lower. There is a lot of convenience to not having to worry about FX, which is the case if you don't have currency accounts. So there is no plan today to roll it out broader.
And then reflecting more broadly on your commission rates. I mean you have your commission classes, which I think makes comparisons with other platforms, somewhat difficult. But I think the overall conclusion would be that you are in line or even somewhat above what most other platforms charge today for equity trading. So what is your reflection on your current pricing? And I mean this is something that you, as CEO has obviously not designed but rather inherited. Do you think an update is due anytime soon? Or are you content with the current pricing structure?
I think when it comes to the level, we have this guiding principle in Avanza that we want to be cheaper, better and simpler for our customers. And then the question is how to view cheaper? And I view it as we should be more price worthy because you cannot compare a Ferrari with the Skoda. So I've been with a different bank in the past where we tried to have much lower prices than Avanza on trading, but it didn't work because our offering in general was not good enough. So I think one has to compare price with quality. The other side of your question is simpler is our brokerage class is simple enough for the customers. And that's maybe a little bit question mark for me. But I don't have a strong opinion. We should aim to be simple.
But could you really claim that you are cheaper, I mean quality, of course, is also important. But I mean, I wouldn't expect anyone to think that Ferrari, as you mentioned, as an example, is cheaper than this quarter. It might be better value. But I mean this type of I mean, when most people think about cheap or expensive. I think it's the price someone would pay for a particular service that is what comes to mind. is this actually aligned with your customer promise to have more expensive or in line or more expensive brokerage rates?
No, but I agree with you, and that's what I try to argue that I think it's important to compare price with quality, and that ratio should be superior at Avanza. And I think it is superior today. Then the question is, is it simple enough for customers to understand?
Now we're going to take our next question. And the question comes from line of Ermin Keric from Carnegie.
Maybe first a follow-up on Nicolas' question. Just like-for-like, how much do you expect to forego in income from this change introducing currency accounts? I mean, disregarding that you might get more volumes.
It's marginal. I'm not worried about the top line effect. I think it will be swiftly compensated by activity and volume.
Make sense. Then, I mean, you've talked a bit about these internal efficiency focus you have. Could you talk a bit about the major levers you see that you could further improve to further enhance operational efficiency?
I mean, I wouldn't need to go on for hours then, to be honest. I mean is our corporate actions process automated enough? No, if our settlement process automated enough for foreign securities? No. Is our credit process automated enough? No. is our patching process automated enough? No. I mean we need to chew through all this. And I think we have -- my personal view is that Avanza has focused its development resources for good reasons on pushing out great customer experiences. But I think we need to balance that with using our development resources to make sure that we are as digital in-house as we are to the outer world. So for me, it's more which of these areas to prioritize where are the lowest timing for olds and then chew through them.
That's very fair. But maybe just could you elaborate a bit more on how you see the pace of this? I mean given how much opportunities you see for improvements, could it be worth to actually increase investments in the short term, increase cost to just really enhance the internal efficiency and then you can benefit from it for many years to come.
It could be. Or no, the clear answer is yes. But it's even better if it's possible to get more out of the machine and be able to do both, and that's at least what I'm trying to do here and now. You have to judge me in a few quarters if that's the right strategy or not.
That sounds good. And then the last question would just be on the cross-border trading. Could you say anything about how broad-based that's been? Or is it very concentrated to a few single stocks and also maybe on the customer side, how broad-based it is?
I mean for the interest of foreign security is actually quite broad. It's not like it's just the upper segment. The interest seems to be across all customer segments. When it comes to turnover, you see well-known names on the top of the list, like Tesla, like Novo Nordisk. And I think NVIDIA was not highest up on the turnover, but it was the single most bought share in June, for example. So it's well-known names up there and it's the interest for foreign securities is broad.
Next question. And the next question comes from the line of Martin [indiscernible] acted from [ SEB ].
So first one to you, Gustaf, you mentioned at Q1, there was a comment around taking potentially a step back from the technological ends, I think you said. Have these discussions evolve anything internally now that you've sunk your teeth into the business a little bit more? Or is this an ongoing discussion were also, for example, the CTO being recruited should weigh in where we could expect you to come back to us later on.
I will listen a lot to Frederic when he joins, started talking to him already, but to give him a little bit more time to make up his mind. But in general, I think we should be in the forefront, but we should not necessarily be first with new technology. And I think we actually discussed that at some point. Of course, it's a balance because my colleagues, they want to work with the newest and shiniest and so on, but it's also then less proven technology. So we need to find a good balance there. And I stand with my statement that we should be careful to be the very first in new technologies.
So then I had a question on index funds and index as the share of total funds. Is this slowly approaching 50%. Do you see this trend naturally plateauing somewhere or potentially tapering off or standing at a natural equilibrium? Or is this something that will just keep going basically. If you look at it historically, if I go back maybe 2 years, it looks like it's evenly paced by a percentage point or just below per quarter basically that the share of index stands as a percent of total funds come down.
I think customer will be cost conscious also going forward that speaks for index funds. On the other hand, the more conviction a customer has, the more likely that he or she would take more bets and that speaks against index funds. It's a hard one to estimate. But I think the share will increase going forward, but I think the pace will be lower. I know it's basically saying nothing, but it's hard to project.
And then just a final one for me. Did you have an updated cost guidance for the full year for us, also including the SEK 50 million one-off now and any other information that you might have encountered during first half of the year.
No. We said that excluding the SEK 50 million from the IMY, we are keeping the 9.5% excluding that.
Okay. Because if I look at that and I think if you add the SEK 5 million, you get to 10.8%, I would say, incorrect. But even if I strip out the SEK 15 million, it looks ambitious with 9.5%, but you stick to it yes.
Yes, we do. Well, we have some additional costs with the changes in the management group. As you know, that is a little bit costly in Sweden. And we had the fine that you talked about and then Q1 costs were too low and that hits us a bit in Q2 now.
Now we're going to take our next question. And the question comes from line of Ian White from Autonomous Research.
Just want to follow up, please, on this ISK interest remediation point that you flagged. Can you just explain that issue in a bit more detail. My read of your description of it in the statement is that it's not something that necessarily just related to the last tax year. And so is there perhaps a risk of further claims arising from customers who maybe become aware of this issue and start looking at their tax notices from prior years? And is there a figure that you'd be prepared to commit to as a maximum amount there that you think you absolutely wouldn't exceed. It sounds like the SEK 15.3 million is not all of it, but you think it's most of it. But is there an upper limit there that you'd give us, please?
Yes. So our firm understanding is that all customers affected by a higher tax rate has gotten that information from the tax authority in Sweden. We have paid out SEK 15 million in Q2. We see a much lower pace of customers coming to us. But I don't dare to say it will max be XY said. It's not an item that worry me a lot going forward, but I don't dare to put a hard number to it because I simply don't know.
And when you say that everyone has now had the information, they all received that information of June this year or they could reasonably have known about it from previous sort of tax information maybe for prior year tax notices for example?
All these customers got the information in May and June for the last year and years previously.
It could be [indiscernible] and onwards.
Now we're going to take our next question. And the next question comes from the line of Rickard Strand from Nordea.
Starting off with a question on the private banking, where we that the net flow turned negative in the quarter. And you previously talked about the initiatives you're taking or about to take there in terms of improving your mortgage offering and also the currency accounts, starting off, what is the reason for the negative flow here? Is it due to increased competition or something else?
I never like when we have outflows, and we actually had that in this segment in the quarter. I'm though not worried about it. There was a few one-offs, and it I don't think it's from competition. When we lose customers in that segment, it's typically because we have a lower risk appetite for credits compared to some competitors. In this quarter, the flows were related to customers wanting to get exposures in assets that we do not provide. I see it more as a one-off in this quarter. I mean, the longer term is positive.
Yes. And regarding the improved customer offering that you talked about in the banking segment, would you say that these 2 new sort of improved product offerings. Is that it? Or do you expect to launch more news here for the Private Banking segment?
No, it's definitely not it. There are 2 important ones, but very much more in the backlog and some of them are being worked on right now. So this customer segment can expect future improvement.
Then turning to the trading activity, which you commented that it slowed down during the second half of Q2. Could you comment if there's any discrepancy in what segments that are -- where you're seeing this slowdown? Is it broad-based? Or is it in some particular customer segment that's taking down their activity?
I don't have that number for the weeks of June. It was just a reflection that we saw that. And it coincided pretty much with the development on the equity markets with not favorable volatility and side going or even slightly declining equity market in June. I think it's more related to that.
Yes. And then a final one on the strategic update that you're working on, how do you expect that to be presented would it be in, say, of the Capital Markets Day? Or is it more smaller that you'll just bake it into one of the interim reports?
I think it depends on what we decide upon. If it's no changes at all or minor changes, I think it makes more sense to just talk about it, that if you report -- if it's something bigger, then I think it makes sense to make a bigger fuss about it, so to speak.
And the question comes the line of Michael Macnaughton from UBS.
Just one question on the strategy, obviously, and the management changes you've had new CTO joined, and then you also made comments about the Chief Business Development Officer joining as well about how you will have an eye on potential future deals. Am I reading into that too much? Or is there any specific ideas that you have or areas that you want to build on? Or is this an inclination of potential geographical expansion?
I think it's more the typical role description in such a role. That's what I expect of such a person to keep his or her eyes open for potential to develop the business, hence, head of business development. I don't think you should read in more to that. I worked with Eric both at SEB and Nordea, and we have a very good and tight working relationship and we complement each other. And that's why I'm very happy to have him on board.
Fair enough. And then on the follow-up on one of the last questions as well. You mentioned how activity is slowing. And on the margins and the trade, do you see any differences in the different months of what the net brokerage margins were looking like? Was it slowing down as trading activity slowed down in June? Just trying to get an idea of what the run rate looks like into Q3?
I'm looking at Sofia, and I don't have that number increments.
No, I would say it was a little bit lower in the beginning of the quarter and growth during May and June.
And then another one just on the pricing as well. You made some comments that looking to simplify the pricing model would be a potential priority. Some of your competitors have a model where you automatically changed the brokerage class depending on the size of the trade. Do you have any idea of -- would that be something that you would look at? And if so, what impact that would have on commission income? I imagine that if it's more automatic, you potentially lose out on some sort of inertia from the customers in changing classes? Any kind of color on that?
No, not more than I mentioned that I think we have a fair price to quality offering when it comes to trading, but I have a question mark around the simplicity. So if we could do something to make it even simpler for customers, I think that's good. The thing that you mentioned, I need to look into.
Now we're going to take our next question. Just a moment. And the next question comes from the line of Enrico Bolzoni from JPMorgan.
So one question. Going back again to what you said in terms of the need to potentially improve efficiencies and also with respect to the migration to the cloud. I would say it's too early to quantify that, and it depends on how quickly you want to do it, as you mentioned. But I was just trying to understand what is the line we should expect. Will a decision be made by the end of the year and before we will see in the cost growth guidance for 2025 already the planned investment to complete the migration to the cloud and all these other initiatives? Or potentially, we're going to hear something sooner maybe in 2024, later this year? So that's my first question.
The second question, again, going back to the dropping the FX charge, introducing the multicurrency account for the private banking customers. Can you give us an idea of what proportion of the total cross-border volumes come from this court of clients? And then related to that, I wanted to ask you, you say that this came directly from the clients. So the request came from them, through what vehicle. So how did you collect the feedback that eventually led you to the decision to introduce this functionality? And would nonprivate banking clients have the same channel to voice their maybe desire for a similar offering?
Thank you, Enrico. I'll start with the last question, so I don't forget that one. But -- so we have several ways for customers to engage with us and our customers, in general, extremely engaged. And if we do something that they don't like, I can tell you, they let us know and they let me know and they swap with e-mails and phone calls and vice versa. But we, for example, have something called the feedback body. We actually get so much feedback that we use Generative AI to see patterns in what do most customers want us to do, that is general irrespective of which client segments you belong to. But in the private banking segment, they have an even closer relationship with our private banking specialists on our side. But apart from that, the feedback system and engagement from customers is the same irrespective of which client segment you're in. Your second question was around how big proportion of the foreign exchange business does this segment that will now have the possibility to get this currency account? How much is that I'm looking at, honestly, I don't have that number in my head.
But again, it's we have done some simulation. Of course, we do that before we launch stuff, and it's not something that I'm worried about. I think the increased activity and volume will more than cater for the lost FX income on these trades. Your first question was on cloud. So when do we expect the decision? I think it would be great to have a decision on this side of the year, but I know that it is a big decision. It is a very regulated decision. It is a board decision. We need to go through all the risks. But my ambition is to take a decision this year, but it is a very formalized process. As you know, it's a very significant outsourcing in the eyes of the regulator. So with that caveat, I cannot promise, but we want to take a decision swiftly. So I would say on this side of the year.
Going to our next question. And the question comes from the line of Markus Sandgren from Kepler Cheuvreux.
I was just if I can follow up on costs as well. If you look back, you've had a very steady development of your costs. Is that driven by that's what your capacity is to take on new projects every year? Or is it more that you try to maintain your return on equity or what you're steering on? So that's my first question.
To help you there Markus again, could you rephrase the question, see if I can answer?
Yes. I mean you have a very steady development of costs from year-to-year. And I was thinking, is that driven by that, that is what your operating capacity is to invest? I mean, you don't have more people than you have. So that's what you can do basically in a year to develop? Or is it more that you say that, okay, this is what we can afford to invest this year?
If I start to answer who do not have the history and then I can hand over to Anna and see if she has a different view. But I think first of all, it's my reflection from the outside is why does Avanza before I start need to increase costs in this space being fully digital. And I know that many of you on this call have that question mark as well. When I look at the cost increases that we project for this year, we had staff inflation pressure given the inflation that we had up until recently. That's part of the answer. The other one is the weaker dollars and the suppliers on the tech side, I think, who have done a good job to try to increase their prices, not just towards us, but to others. Can we be better on procurement and negotiating and making sure that we have alternatives to push down prices? Yes, I think so. I think we can do a better job there. But I don't know, at least from my point of view, we should not have higher costs that than we think is needed to produce what we want to produce. But I don't know the history of this.
I would say that if you would ask our development teams, they would like to have even more resources because they have so much ideas and interesting things in the backlog. So they want to do a lot of things in order to make sure that our customers are having the best offering. So it's a balance, but could we run Avanza with lower costs, yes, I'm convinced. But I think it's a balance and we want to invest in future growth, and that has also been important for us looking back history-wise.
And then secondly, in your other income, I saw except from the one-offs, it was also down quite a lot. And you mentioned Stabelo and Avanza Markets I saw readers took down their value of Stabelo quite a bit this quarter. Can you give us a bit more on what's happening with the other income, except from the exceptionals?
It wasn't the biggest driver apart from the customer compensation, the [ Upsilon ], the stock lending program, where the demand for our shares in the market in Q2 was lower than previously and hence, the income from that program was down.
Yes. And we didn't say it was a low -- it was into that conclusion. But it's driven by lower volumes when it comes to the mortgage partners.
And now we're going to take our next question. Just give us a moment. And the question comes from line of Andrew Lowe from Citi.
I have 2. First question is just on the flows in the quarter. My understanding is that customers get their annual rebates from tax deductible loan interest, which is paid in April and May, typically. And you would think that they'd be quite significantly higher year-on-year given the higher interest rate environment. So the question is, to what extent do you think that affected the flows in April and May? And then the second question is just on your deposit balances. So if I look at your nonsavings deposit balances, they're now 3.7% of your total savings capital, which is far below your other D2C peers across Europe and compares similar to the professionally managed assets. As an example, Al's adviser platform is between 3% and 4% cash. So how much lower can this realistically go given the need for liquidity and trading inflows and outflows, et cetera? And do you expect this to normalize at a higher level?
So Andre, if I take your second question, I think it is around how much cash do our customers have as a percentage of their AUM or savings capital. And that was down to 6.9%, if I recall my numbers correctly, in end of the quarter, and that is low in a historical comparison. And I think it is a little bit a result of risk on. So they have less dry powder. So I mean, if you believe in some kind of in reversion in how you manage your portfolio, I think that percentage will likely go up in the future. Your first question, I wasn't fully clear. So the flows affected by tax?
Repayment. And that is, I think, normally, historically, when you're looking at our inflow, it's always lower in Q2 due to the fact that people are getting the market share, getting refunds from the tax authorities. And you cannot get them directly from the tax authorities to our platform. So it always goes to one of the incumbent banks where you have your salary accounts. And it's hard to say whether or not that is one of the reasons why the flows were lower this quarter.
I guess my question is, how long does that typically take to make its way on to your platform? If I'm a customer and I've got a significant rebate, and I like your platform, then presumably, I might think that I want to put those savings capital to work on your platform. So does that just take a while to happen?
Andrew, I would love to have that answer. But the theoretical answer, it takes way too long because there's so much capital sitting where it shouldn't sit and we're every day working to get that capital to us. But I think with your last question, Andrew, I think time is up. And I would like to thank everyone for this Q2 report and have a good day.
That concludes our conference for today. Thank you for your participation. You may now all disconnect. Have a nice day.