Aktia Pankki Oyj (TAALA) Earnings Call Transcript & Summary

A very good morning, ladies and gentlemen, and welcome to this Aktia Bank's Analyst Meeting. I'm going to walk you through the transaction that we completed this morning. And after that, our CFO, Outi Henriksson, will walk you into the financials of the transaction. You are most welcome to post in questions via the chat board or via the Teams link provided for this event. Like, as you may know, at this point, Aktia has acquired the asset management operations of Taaleri, and entering a strategic cooperation partnership with Taaleri going forward. So the entity that we have purchased from Taaleri includes 4 separate companies: Taaleri Asset management, Taaleri Fund company, Taaleri Tax Services and Evervest Limited. However, what is, of course, important to note is that the acquired entity is not exactly of what is reported as the asset management segment in Taaleri's annual reporting. This transaction will bring about 5,600 new customers to Aktia. We will get about 100 new colleagues to join us. And we will add to our assets under management EUR 7.1 billion, which equals EUR 4.4 billion according to Aktia's reporting principles. Hence, the amount of assets under management in Aktia will increase to close to EUR 15 billion. The net commission income from this purchased entity was last year EUR 31 million, and it created an EBIT of EUR 10.1 million. As part of this transaction, Aktia and Taaleri have entered an agreement on strategic cooperation going forward regarding the sales and development of alternative investment products. I will come back to that later. And also, as part of this transaction, about 5 people will transfer from Aktia to Taaleri. Our infrastructure fund and our real estate fund management will transfer over to Taaleri. This transaction is in the very core of our strategy, and hence, we are very excited about completing this transaction. It is going to speed up our way forward towards our vision of being the good bank and an excellent asset manager. We will receive a platform that helps us to build the best asset manager in Finland, Finland's best private bank and all related around that. We will get capability and competence in products and areas that we do not have today or where Aktia's existing capabilities and competence is limited. For example, those of ESG products, passive investment products, digital platforms for asset management services and asset management sales, and last but certainly not least, access to alternative investment products that Taaleri is very capable and competent in creating and maintaining. We will become a much broader and much deeper in the ability to serve our existing customers. And on the other hand, we will become much more interesting as a counterpart to Taaleri's existing customers. The cooperation agreement that I referred to earlier builds around a couple of important points. Firstly, product development. Taaleri and Aktia will jointly and together engage into product development regarding new strategies and new alternative investment products that can be then sold to Aktia's existing customers, and of course, Taaleri's existing customers, i.e., to be Aktia's customers going forward. Aktia will become the main distribution channel for Taaleri in Finland. Hence, the reach for Taaleri's excellent products will be much broader than what it has been up until so far. And as a result of the arrangement, both parties are able to focus on their relative competitive edge, Taaleri in its very high competence and deep knowledge of certain alternative investment strategies and Aktia in the holistic service of private banking customers, wealth management, customers, asset management customers, together with the other business areas that we have in Aktia, that is banking and life insurance. So going to the customer perspective of this transaction, we are -- we see we can create value to customers in a number of ways. If I think of the existing Aktia customer base, like I said, this will open a much broader and a much deeper reach to products, segments, strategies, that have not been either part of our offering so far or where we have been relatively weaker than what Taaleri is and has been. If I look at Taaleri's existing customer base, the fact that we are able to offer them a broad range of banking services, in addition to the award-winning Aktia asset management products, opens a completely new level of dialogue with these customers and opens a completely new level of relevance for us as a partner to these customers. For example, financing and leveraging investments will become very simple going forward. For example, entrepreneurs will be able to both have excellent asset management and private banking services, while also having our corporate banking services and products available to them. This is a combination that I see that no competitor in our segment is able to provide its customers. We will become clearly the leader in our size of this market. Now as part of the transaction -- or one important aspect of the transaction is that the overlap between Taaleri and Aktia is such that these 2 actors very well complement each others in the market. Out of the 5,600 customers who are transferring to us, we have identified only limited overlap. Hence, more or less, all of these customers will be new customers to Aktia and the products that Aktia jointly with the acquisition is able to offer these customers. Similarly, on the production side and products side, there is certainly some overlap, but it is to a limited degree, and hence, these 2 parties are very well complementing each others. Going into transaction synergies, I would like to hand over to my CFO, Outi Henriksson. And we will, of course, be available to answer any questions you may have after our presentation. Outi, please.

Thank you, Mikko. Good morning on my behalf as well. We have acquired an entity, a company with approximately EUR 10 million of operating profit, great growth potential, great team, and combined with Aktia's existing operations, generate a fantastic opportunity to grow. In addition to the opportunities that both companies offer separately as separate companies, we see also significant synergies that we can get from this transaction, materializing fully latest 2023. We estimate that the synergies will be approximately EUR 8 million per year when fully materialized, and they do come mainly from cost side. And as we complete the transaction, get through the closing and can take a further look at what we have on the table, we do expect to be able to find synergies in the area of operating structure organization, take the most out of what we do, infrastructure, IT systems, and obviously, efficiency of operations. We also see revenue synergies, as pointed out by Mikko, through the cross-selling to Aktia's existing customers, Taaleri's product and the other way around, on top of the growth potential that the companies represent anyway. We expect the transaction to be completed in May 2021, so in approximately 2 months time. The purchase price of the entity of the company was EUR 120 million. Aktia's liquidity is at a very good level. We have very good access to the market to get the financing at favorable terms. As we communicated in the stock exchange release, we can finance up to EUR 10 million of the purchase price in Aktia shares to Taaleri. In addition, we have been preparing in the progress of issuing additional Tier 1, AT1 emission during the first half of the year. We may also strengthen the balance sheet, equity capital in other ways, and we'll get back to that when the time and if the time is right. We will ensure that the capitalization of the company will stay at a solid level also going forward. However, we need to bear in mind that the completion is subject to relevant authority approvals, including Finnish Competition and Consumer Authority as well as Financial Supervisory Authority. Thank you very much. And we are open for questions.

Yes. 2 questions from Antti Saari to begin with. First of all, could you tell anything about the inflow development of the emerging market bond funds after part of the EM team left? Has there been significant outflows?

The development of our funds can be observed in the public fund report. And we will continue the very transparent publishing of our assets under management and the composition of assets under management in our quarterly reports. In what I observe of activity in an outflow in our funds as up till so far, there is nothing that creates any particular concern among us. The question was related to our emerging markets funds. And as we know, some individuals chose to leave Aktia who have been taking care of those strategies. It is clear that in situations like that, investors are evaluating the capacity and capability to continue with those strategies. And all the discussions that I have had with investors and with my Head of Asset Management make me very comfortable that investors understand that we stay very, very committed to our emerging market strategies and that what we have and what we are building upon is of very high quality. So to answer the question, there is nothing that raises any particular concern.

Antti Saari continues. Are there any lock-up contracts with Taaleri's major portfolio managers that will be part of Aktia team in the future?

We are to receive 100 very highly professional colleagues to join Aktia. And it is, of course, extremely important that we have the people on Board also going forward and building the new Aktia, the new offering, the new strategy -- sorry, not new strategy, but executing the existing strategy that we have going forward. So it is clear that we will take any measures needed to keep professional people on Board on our way forward.

And Antti Saari was from OP. Following question from Leo Laikola at Bloomberg News. You said EUR 4.4 billion of assets under management will be transferred to Aktia according to its own reporting practice, which corresponds to EUR 7.1 billion according to Taaleri's reporting practice. Why is there such a huge difference between these 2 valuations?

Thank you. It's a good important question. In Taaleri's EUR 7.1 billion of reported assets under management, for example, that number includes, for example, almost EUR 2 billion of assets that are part of the asset reporting services that is provided by Taaleri. And according to our Aktia's existing reporting principles, such assets that are part of an asset reporting service would not qualify for us to be included in our comparable assets under management number. So that is the main contributor to the difference of assets under management. And hence, for the sake of transparency, we have also reported this EUR 7.1 billion in what it would result in Aktia's reporting principles -- existing reporting principles.

And some questions from Andreas Hakansson at Danske Bank. You have a CET1 target buffer of 1.5% to 3%. How low would you however be willing to go short-term given that you build capital continuously?

It is still valid. The target that we have published is still valid, and we make sure that we follow what we have as a target. As said, we will make sure that the capital position of Aktia stays strong also after the transaction.

If I may continue. Just stating that this transaction does not affect the ambitions that we have in our banking business. Hence, the growth ambitions and targets that we have set for ourselves in our banking business remain unchanged. And like Outi said, we want to secure that we have got a solid capital base to build upon the targets and ambitions that we have.

Hakansson continues. Do you know how many of the new clients are banking clients of you?

The client overlap, if that is the term to be used, is very small. So essentially, out of the roughly 5,600 customers who are to join Aktia, a very large part are completely new customers to Aktia, which makes the transaction so interesting from our point of view.

And do you see revenue synergy potential here?

Absolutely. Absolutely. I think we are able to serve and offer these customers. From their asset manager -- or their existing asset manager, now we'll be able to offer them services that cater a much broader range of needs. For example, entrepreneurs can draw upon our corporate banking services. It is very easy to fund and leverage investments going forward. Hence, I see this year as a very, very exciting opportunity for us.

Antti Saari at OP, any estimates on integration costs of the deal?

Obviously, to materialize or achieve those synergies that we just communicated, we need to do some restructuring, which will have a price tag. And that will, to some extent, offset the positive impact that is coming from the acquisition this year. If you think about the operating profit. However, I do believe that we can materialize most of the synergies already in 2022 as they are cost synergies. And the cost that we need to pay to materialize to get through those synergies, we will be booking this year.

Matias Arola at Inderes. You said that the transaction will offer EUR 8 million synergies. Are these synergies based solely on cost savings? Or have you calculated any cross-selling synergies to this amount?

I would say that 3 -- or 70%, 75% will come from the costs side, overlapping systems, licenses, platforms and so forth, streamlining the organization and operations and so on. But there will be cross-selling synergies as well, as said, maybe 25% of what we indicated. But we need to bear in mind that both companies as a separate entities will grow. This is just an additional synergy from the revenue side that we estimated.

I would -- if I may add. I would say that we have been more cautious in our calculations on the revenue synergies than what we have been on cost synergies. We are very comfortable that we will execute on those cost synergies that we have calculated in. On the revenue synergies, like said, it is not as easy to factor them in, and we have rather taken a more conservative approach in evaluating the revenue synergies than an overly excessively aggressive approach.

No more questions.

Thank you.