Avanza Bank Holding AB (publ) (AZA) Earnings Call Transcript & Summary

Welcome to the Avanza Bank Holding Full Year Report 2021. [Operator Instructions] Today, I am pleased to present Rikard Josefson, CEO; and Anna Casselblad, CFO. Please begin your meeting.

Okay. Good morning, everybody. Thank you for listening in on today's presentation. I would like to start with the first slide, looking, it's, of course, satisfactory that we can conclude that 2021 was a record year for Avanza. The most important thing during the year for us is, of course, that we, for the 12th time in a row, managed to have the most satisfied clients within the savings market in Sweden. But also, we had a phenomenal growth within the company. Our net inflow was almost SEK 90 billion, and that was SEK 76 million in 2020. And just for remembering in 2019, it was the first time we had net inflows over SEK 30 billion. So both '20 and '21 has shown a tremendous growth. When it comes to number of clients, we almost added another 380,000 new clients on the platform. And 1 question we get a lot is, is the new clients different from the old clients, and the simple answer to that is no. We can see that we're still gaining clients in the younger segments. The average age of new clients is actually 35 and the number of clients coming into the platform is in between 19 and 45 is the majority of the clients. And the average age of our clients right now is about 40. And just to give a mark on that, it's -- the average age of the Swedish population is around 48. So we have a younger client base and the market, as a whole, but we see that as positive, because when the wealth transformation takes place, we are very well-positioned for the future. Also, another highlight for us, of course, was that the end of December, for the first time, we reached more than SEK 800 billion, almost SEK 810 billion in AUM, which is on a record level. And for recollection, I think we ended 2019 with around SEK 400 billion, so we have more or less doubled the company within '20 and '21. One thing that we talked a lot about in '21 is our long-term financial targets. We released our financial targets for 2025 in January 2020, just before the COVID pandemic hit the world, and we thought we were very ambitious and -- but we can conclude now, that at the end of 2021, we have more or less reached those targets. I will not go through the targets that we had previously, but I would say that important for me, of course, as the CEO, is the ambassadorship with our employees that is at 67, when I think the average for the financial industry in Sweden is around 7. So the strong employee engagement is very well in place, which is, of course, we're very happy about. A small note also, which I will come back to, is that 41% of our new clients during 2021 was female, and that was 39% in 2020. So we're going in the right direction by attracting more female investors to the platform. Then we come to the updated long-term financial targets that we released this morning. Customer satisfaction and employee engagement will remain unchanged, that means that we want to have the most satisfied clients and employee engagement that's over 50, which is a very high goal even though we are at 67 at the moment. We're aiming to have 10% of the Swedish savings market at the end of 2025. That means that 1 out of 10 savings will be on the Avanza platform in the end of 2025, and Avanza will be a substantially larger company than it is today. I will come back to the cost and say that the return on equity that previously was between 25% and 30%, we have raised the target to at least 35% return on equity, and that we will pay out dividend at 70% of the net profit. We are for the year of 2021 paying out this 70%, which is SEK 9.20 per share. The only thing about the dividend policy, of course, that we will do that as long as we can live up to the regulatory requirements for the leverage ratio, but we are planning to do so and we hopefully can deliver on that target. Coming to the cost issue or cost guidance, we have said that we want to have 12 basis points on the savings capital as a target. But viewing that target, you should view it more as a roof than a floor. So that means that this could be a bit volatile because the savings capital can change just because of market conditions, stock markets going up and down, but we believe that keeping it over time with 12 basis points is an ambitious target. But of course, it's not a ceiling. So that means that if we have good days, good growth, we will be able to deliver at a lower number than 12 basis points. And given the cost that we also guided for the nominal cost increase within the company for 2022, it's important to bear in mind that during 2021, as we have talked about previously, we had a growth that was above our expectations. So we did add people in customer support units, back office units to be able to handle our answering times, our processes, making everything work. That will have to some extent, the full year effect of 2022. From my perspective, it would have been easy for me to run Avanza at a lower cost increase for 2022 and then the one we have communicated, but we have exciting plans for the future. We want to increase the pace of innovation. We want to do more for our clients, and that means that we're adding more people. We don't run Avanza with a development budget because we do everything internally. So when we raise the ambitions, it's about investing for the long term and the future, that means that we're adding more talent into the company. And over 70% of our cost is staff-related. So you should view the cost increase as investment for the future, because even though we have the #1 position in customer satisfaction, my absolute conviction is that we have a superior user experience, we still believe that everything we do on the platform can be improved. We can do every process, every product, every customer interaction in a better way than we are doing it today. And that's why we are increasing costs to be able to head up the speed when it comes to innovation, time to market and making sure that our competitors are moving forward, we will keep the distance by improving ourselves for the long term, and that's the way we view the cost. Looking at the sustainability targets, it's, of course, sustainable investments. It's about creating a lot of tools and insights, codes and locks to our customer, to make sure that they are well equipped to in a sensible way, allocated their investment in sustainable investments. But of course, they are free of choice to invest in whatever they like. I think today, we have more than 70,000 investment opportunities to the platform. But of course, more and more customers demand information and inspiration about making sure the money is working in a sustainable way. When it comes to educate and challenge, a very important part for us, which I touched a bit on before is, of course, getting more women and to invest in the platform. Because we can see from data, that women with the same wage as men, they save less, they start saving later in life than men do. And of course, this creates a social problem in many different perspectives. And we want to be in the forefront to make sure that young women, older women and all women can take charge of their own personal finances, and we want to be an inspiration for that. Then, of course, sustainable organization is about we will apply for the SBT, science-based target, where we do that during the year, and then we will communicate back with target that we will get, so to speak, from that application that we will file for. The Q4, a little bit, ended strongly. It was up 71,800 new customers, SEK 18 billion in net inflows. We did reduce the fees in our auto funds by 40%. And the take on that is, of course, that in lowering the fees is, of course, short term, not beneficial for income, but we are absolutely convinced that in the long term, we will make that money back on the AUM growth within the auto family of funds. We also launched, right now, in the mobile apps, which make us more relevant for the customer, because you immediately get the information that is connected to your personal investments. We did Your 2021, which is always appreciated by the clients, where you can compare yourselves, which was your best days, your worst days in investing for 2021. And we also launched a sneak launch of what we call pension chase, where we actually developed a tool that will make our clients able to log into other insurance company on a very easy way and see what life insurance do I have that is transferable and if I click on that, then the transfer will immediately take place. We think this is a very, very good tool for increasing pension transfers. We have launched it in a sneak way right now. But during January, February, we will roll it out for all our clients. And it's also, in my way, looking at the team that's developed this from scratch. They started with this in -- I think it was in the summer, and it's a very large project undertaking. And in a very quick way, that able to develop this for our clients. I think it will be very, very much appreciated. We also now have monthly savings in mutual funds automatically, which is close to SEK 1 billion. And also, we have over 200 -- I think it's around SEK 290 million in automatically pension premiums being paid in. And that has been a focus for us to set up more automatically savings tools for our clients. So when you get your salary, you immediately start saving. Having said that, we can see that we have a lot of clients in Avanza who, when they get the salary, they put money on the platform, and they do monthly investments in different products, even though they don't have it in an automatic way. But the amount of net inflows each month is a lot higher. But when you track it to who's doing it automatically, it's around SEK 1 billion. Looking at the growth it's, of course, taking us to a higher level. In Q4, the turnover was up 11.5%, and the number of commissioning generating notes was up 4.6%. Looking at the full year, the volumes was up 29% and 44% in commission-generating notes. And number of commission or brokerage-generating customers year-on-year has grown by 32%. And also, that is comforting for us, meaning that even though we will have a more troublesome market going forward, we have, once again, proven that we have raised the bar for our lowest performance, going forward into 2022 and further on. We also look at a number of transactions on the stock exchange. We are, by far, the leader and we are also the leader when it comes to turnover. We have been that for a long time, and that is also very important for us because, of course, being very large on the stock exchange secures very good prices when it comes to trading, which, of course, is beneficial for our customers. And the last slide I will talk about is, of course, our long-term target and I will never, never, so to speak, be not clear about that, is customer satisfaction. All we do is about creating value for our clients, engagement for our clients, and looking at the 1.6 million or more than 1.6 million clients, more than 0.5 million of those clients interact with us with a daily basis. And then also coming to innovation, we have to also, on a daily basis, be relevant to our clients. So customer satisfaction will always be the long-term #1 target for us. Customer proposition is, of course, superior user experience. My opinion is that prices and products are extremely relevant for the client, but the way you consume digital platforms, the way the experiences, how you're finding the tonality that we give, is absolutely #1 priority when it comes to innovation and developing the platform. We also think that the growth potential within Sweden is still very, very high. We have different things that works in our way, in my opinion. We have, for example, we have a society, if it's to be, it's more up to me. You need to save money to fulfill your dreams to buy your first apartment, to fulfill other goals in lives. So that is -- personal savings is more relevant than ever, especially the young generation, have noticed that. And also, we will see the next 10 years of wealth transformation from one generation to next generation. And of course, part of the new generation that will benefit from that wealth transformation is on the Avanza platform. And of course, the business model has proven in the last 2 years is, with a very, very high scalability, and we will keep it that way. We will keep tight control on our cost and we will also do everything we can to make Avanza even more efficient, internally, which we do every day. With those words, I would like to give the word to Anna, who will talk about the quarter and the year when it comes to the financial figures.

Okay. Thank you, Rikard, and good morning, everyone. Once again, I'm happy to present the strong results and another record year for Avanza. Compared to last year, all income lines improved. We're looking at Q4 versus Q3, all lines, except NII improved. Quarterly operating expenses increased compared to Q3, which is seasonally lower. For the full year, costs grew by 13%. When including one-offs, costs increased by 16.7%. This means that we exceeded this year's cost guidance with around SEK 10 million. Altogether, we recorded an increased operating profit by 55% year-on-year. Compared to last quarter, operating profit was flat. The net profit for the full year was the best ever for Avanza. Return on equity was 50% for the full year, to be compared with a target of 25% to 30%, which today, has been raised to at least 35%. This ensures the continued focus on profitability and the low risk balance sheet. Earnings per share for the year were just over SEK 13, and as Rikard mentioned, the Board proposed to AGM a dividend of SEK 9.20 for 2021. Over to revenues. This is yet another second best quarter. Brokerage income increased as a result of higher activity on the platform, with higher brokerage generating turnover in transaction, as well as more customers. This was despite 2.5 trading days fewer than in Q3. Brokerage income per SEK of turnover decreased from 11.1 to 10.6 bps, as the larger share of the trades were generated within the Private Banking and Pro customer segments. Foreign trading stood for 15% of turnover as in Q3. So the overall volume increase and consequently, the currency-related income rose by 18%. Fund commissions increased slightly due to higher volumes and despite the lower income per cycle fund capital, which was 1 basis point lower at 33 bps. This is mainly due to a higher share of index funds. In November, we also lowered the management fee for our auto funds, with 40% to 20 bps, which affected fund commissions negatively with SEK 2 million. Income per SEK fund capital at year-end was 32 bps. Net fund inflow in the quarter amounted to nearly SEK 6 billion. Net interest income was the only income line decreasing compared to Q3. This was mainly a result of increased deposit guarantee fees due to higher volumes, but also, as a result of us lowering the rate for our internally financed private banking mortgage, with 10 bps to improve the offering. Higher volumes in margin lending contributed positively, although the average rate decreased slightly. Other income increased, mainly explained by higher income due to increased stock lending in endowment insurance. Income from Avanza Markets and Corporate Finance continued to increase. Year-over-year revenues increased by 41%. All income lines were higher. Last year, Q4, we reported a capital gain of SEK 63 million in connection with the reduced holding in Stabelo. Excluding this one-off, revenues increased by 44%. The strong increase in brokerage-generating customers have shown resilience in brokerage income, as a number of transactions and brokerage-generating turnover per customer have declined somewhat. Fund commissions increased by 58% due to higher average fund capital. This is in line with our strategy to grow recurring income. Uncertainty in the market is high, with high inflation numbers interest rate hikes and speculations to increase rates further. In Sweden, the Riksbanken is indicating a zero repo rate until the end of 2024. However, if rates would be raised, 100 bps repo rate hike would make over SEK 450 million on the NII. For the first 150 bps, we don't expect to pay interest to customers. Here, we already have an attractive savings account offering, together with our partners, where customers can deposit money and gets an interest. Turning to costs. Staff costs are seasonally low in Q3. Costs, excluding one-off items, increased by 22% in the quarter. During this quarter, a so-called agenda decision from the IFRS Interpretation Committee affected our accounting principles and resulted in an extra SEK 18 million in other expenses. This means that a smaller share of the development costs related to configuration and customization of Software as a Service in connection with the development of the new back office system was expensed directly through the P&L instead of capitalized. This is just an accounting effect and doesn't mean higher overall cost for the back office system. This is also in line with how we often handle development costs, meaning taking as little as possible over the balance sheet. Staff cost has increased in line with increased number of employees. The main increase is within IT and development, which is very positive. Cost growth compared to 2020 ended up at 16.7%, which, as said, is less than SEK 10 million higher costs than our communicated guidance. There is no specific costs to-go, but just a number of different staff-related costs being slightly higher than anticipated. From a management perspective, these are good costs and well spent for our development going forward. For 2022, we expect total cost to be within the range of into SEK 1.05 billion to SEK 1.07 billion. This replaces the guidance given in the Q3 report of a cost growth of around 20%. We prefer to indicate a range in nominal terms instead of percentage point guidance, with only small deviations from the guidance given large effect. As Rikard has already mentioned, one of our new financial targets is the cost to savings capital ratio of 12 bps, implying that we will also leave our long-term guidance of cost growth of 9% to 12% annually. The measure could be affected by market situation, so the impact on the savings capital may differ in certain years. But obviously, the aim, is to stay, at 12 basis points or lower. The target highlights are focused on efficiency and cost, but gives us room to develop and capture growth opportunities. High cost efficiency mix events are resilient in various market conditions. At the same time, it provides an important competitive advantage. Looking at income to savings capital ratio, this decreased by 4 bps from last year's to 47 bps. This resulted in an operating margin of 74% for the full year and a profit margin of 62%. Avanza has a strong capital position and what fears our capital is the leverage ratio, where we are at 4.8%. During this year, we will get our additional bank specific Pillar 2 guidance from the Swedish FSA. Considering the same level as our sector colleague got at 0.9%, the position is still strong. Today, we have an internal target of 3.8%, which, of course, must be updated accordingly. To strengthen the leverage ratio and to optimize the capital structure, we are planning to issue additional Tier 1 capital during 2022, and we will come back with more information about that. In the quarter, the EGM booked before the proposed additional dividend of SEK 2.95 per share of 2020 year's profit, which only had a limited effect on capitalization for the consolidated situation, since the largest part of the capital was distributed from the pension company. And as I said, for the financial year 2021, the Board of Directors proposes a dividend of SEK 9.20 per share, which is in line with the dividend policy to distribute 70% of the net profit. And with that, I would like to conclude with a few remarks on Avanza's position going forward. Customer focus maintain our most important long-term targets, and it is crucial to continue to grow savings capital and revenues. In the last 2 years, we have reported a return on equity well above target. We cherish our low-risk balance sheet, and our updated return on equity target shows the continued focus on profitability in effective management of the balance sheet. Together with strong cost focus and high efficiency, this gives us flexibility for the future and makes Avanza resilient in various market conditions. Cost effectiveness is an important part of our strategy. And with that, I would like to hand back to you, Rikard.

Okay. Thank you, Anna. And I think with those remarks, we will open up for questions.

[Operator Instructions] Our first question comes from the line of Nicolas Mcbeath of DNB.

I have some questions on costs. So first question, you're guiding now for -- or targeting cost of savings capital at around 12 basis points, which is more or less where you are at the moment, looking at the cost of savings capital for 2021. So this implies that your guidance, you're not really targeting to grow assets on the platform faster than cost. Does this mean that you're no longer seeing more scale benefits? Or why don't you target the further improvement in the cost of savings capital ratio? That's my first question, please.

I think I have answered that, because I'd say that the 12 basis points is to view as a ceiling and not the floor. We are ambitious, absolutely, to have a lower number to 12 basis points. But we said that given the fluctuation in the savings capital, we want to communicate the highest level that we could accept over time, but we wanted to become a lower number.

Okay. So what kind of level are you targeting then?

Well, we are just -- since it's a volatile measurement, we targeted at not about 12. Then, of course, if the stock markets go up tremendously, it could be, in some cases, a lot lower, but we have not communicated a target below 12. But I would say, we have targeted that, we will not accept above 12 all the time.

Okay. I mean, I guess, just reading how you communicated the target, you're saying you're targeting 12 basis points. So I think, it's just a bit confusing if you, at the same time, also targeting it to be below 12 basis points, but yes, I guess I have to accept that. But then, following on the cost topic, I mean, implicitly, you're guiding now for underlying cost increases quite well above 20% for 2022. And that's the highest cost growth for Avanza, I think, yes, for many years, except for the years shortly after the company was founded. So -- and looking then, at your customer growth now, in Q4, for instance, it was some below 20%, looking at the annual pace. So I mean, how do you see this kind of dynamic cost growth relative to customer growth? Why do you think you need to grow costs so much faster than what you're currently expanding your customer base?

I think we can expand our customer way further. I will not take the long-term conclusion from 1 quarter. And I think, the second part to the answer is that, as I said, we have experienced during 2021 a higher growth than we expected. So we have additional staff in customer support units. At the same time, looking at our development agenda, our innovation agenda, we have raised our ambition. So we need more people if we're going to materialize our ambitions in development when it comes to IT programmers, engineers and so forth. So as I said, I think we are raising the cost and it should be viewed as investing for the future.

Okay. And then, it seems like you also removed your earlier long-term cost growth guidance of 9% to 12%. So should we read this that you expect to grow costs faster than 12% in the future?

No. I would say you could read it that we have also communicated the nominal terms of the cost we expect for 2022. And I would absolutely think that going into 2023, we will do the same thing. But we're living in a changing world, we don't know what opportunities knock on the door or if they don't knock on the door. So we just like to have a shorter planning horizon when it comes to how we grow cost. And of course, also, we take into account the development of the income side of that. So that's the reason we took away the 9% to 12%. But you could expect that we would state the nominal cost growth for 2023 when we sit here a year from now.

Okay. Yes. I'm guess I'm just curious, really, to understand the drivers of the cost growth acceleration. I mean, you're doing good things with improving the app and your product offering. But from the outside, it's not clear that the innovation has really significantly accelerated. And historically, you've been able to innovate and all that, at lower cost increases. So just -- I mean, is there anything you could explain to make us understand what has changed? Has it got anything to do with your customer satisfaction gap versus peers narrowing in 2021 or recent reports about technical problems? Or is there anything you could add to fill out the blanks here for us?

No, I wouldn't say it has anything to do with the technical problem we had 3 times during the quarter. That's not applicable to this question. I would say that as I -- I would say that we did have -- we hired more people in customer service or customer support units to put it at that -- than we expected to do in 2021, since we grow the company more than expected. That will, to some extent, have a cost effect during 2022. We also -- we are competing for the talent out there, so we're expecting a wage increase for around 4% for the full year. That has an effect. Adding that up and looking at my different development teams and the resources they want to be able to create new innovations, improvement on the platform and so forth, that means that we will hire more people during this year when it comes to innovation and also some people in IT for maintenance, of course, but it's a lot of different things. But I would say that you should view the cost increase of 4%, and you have some cost increase due to full year effect of the customer support units. And then, it's about innovation, making sure that we would be relevant for our customers in the future. And we have a development agenda for 2022 that in my opinion, is very exciting.

Okay. And then, my final question. So you have no formal target of operating margin, but I know, previously, you've been talking about 50% operating margin target. That's something you'd like to have over time, which, I mean, to not make you too profitable, so to speak, relative to your customer promise. So how do you think about the operating margin going forward? Do you still find it unsustainable with an operating margin well above 50%? Or has anything changed here that makes you think it's okay to strive for that in the future?

I don't think that the customer promise is actually jeopardized because of our operating margin. I think that our business model has become more -- I mean, given the last 2 years, our scalability has gone skyrocket, and that has made the profit margin going very, very high. And I said, as I said to you before, Nicolas, I think that we lowered the prices and the auto funds now by 40%. We gave the -- all the money back if you have below 50% in mutual funds. So I think that we have room for maneuver when it comes to using price as a mechanism for enhancing growth. At the same time, when it comes to more to you less to the bank, I think it's also about the customer experience. That feeling that the fees that are paid to Avanza is one thing, but what I get back has a higher value, for me, as a customer. And at the same time, 2020 and 2021 has been exceptional years when it comes to profit margins. And I think it creates flexibility for management using pricing as a tool. But as I always say, when we use pricing as a tool, as we did in the auto funds, we use it to lower prices, short term, to be able to gain it back in the long term. So that's my answer to that.

So what's the answer, really? Do you think it's okay to have a profit margin well above that? Or will you continue to use price reductions to drive down the operating margin?

Not to drive down. We could use price reduction. What I'm saying is to run down the operating margin, to some extent, in the short term. But in the long term, if we are as scalable as we have proven, I think that we will, so to speak, accept the profit margin above 50%.

Our next question comes from the line of Robin Rane of Kepler Cheuvreux.

Yes. So looking at the ROE target of at least 35%. You mentioned that you want to optimize the capital structure. Does this, at least, 35% target include some kind of payout -- extra payout of equity and so on to be able to reach -- or not reach, because you're already there, but to sustain a high level of return on equity?

No, I would say that our target is to pay out 70% of the profit at return on equity, but then, the capitalization within the company is steered very much by the leverage ratio. So that's the disclaimer, so to speak, basically, that if we would have challenges with the leverage ratio, that could affect the payout ratio, but that is not something we're planning for, then something externally would have happened, that mean that we would have a lot of liquidity within the company. And as Anna said, we're also planning to make Tier 1 capital. So that's how we view it. And 70% of the profit last year has amounted to the Board proposing SEK 9.20 to the annual meeting. And that's my answer to that question.

Yes. But I mean, since you are pretty well capitalized already now on the leverage ratio and plan to issue Tier 1 capital, isn't that implying that you'll make some kind of extra dividend or distribution of that equity going forward?

I think we have to come back to that question. We get the Pillar 2 guidance from FSA, and we expect to get that during the fall of 2022, because that guidance will very much steer how we will handle the leverage ratio. And before we have that information or that decision by the FSA, we will stick to paying out 70% of our profit as dividends.

All right then. But you're not assuming in your financial planning that you will do so, that would come on top of this given the target of...

If you look at the sector colleagues and the demands that they got from the FSA, if we get the same devolve, we need some headroom over that to have flexibility to speak, to not jeopardize breaking that demand from the FSA. And that will still be capitalization. But then it comes, theoretically, if we were way above that, but of course, we have historically paid many years, more than 70% of the profits. But looking at the leverage ratio, the uncertainty that we don't have the decision from the FSA, we will have to come back to that question when we know what the demands from the FSA will be on the leverage ratio, which is the most important factor, steering our capitalization.

Okay. Great. In the beginning of 2020, when you launched the previous target of 7% profit share in '25, you said that this would imply a doubling of the savings capital. What -- and looking at where we stand now, with the 10% market share target, what's your assumption into the growth of savings capital into 2025?

I will say that it's -- maybe, the start of this year has also implied the volatility when it comes to savings capital. So I'm not going to say that exactly how much larger we will be. Because the important thing is to get to 10% market share. And I know I said that implies a bit doubling the company, and we did that in 2 years, actually. So I will not guess how large we will be, having 10% market share in 2025. The only thing guidance I can give you is that we will be a substantially larger company than we are today.

All right. And then lastly, coming back to the Nicolas' questions on the costs and the cost growth, which, yes, you say, will be driven by the development. Can we get any sneak peek from the development agenda for the year or for the coming years?

My comment is, as always, I always talk about what we have done. What we are going to do is a well-kept secret down here in Scotland and in our offices. Because it's also part of taking our customers by surprise by launching things that they are not expecting and get that wow factor. So we are a bit boring, in that sense, that we don't talk about what we are going to do in the future. But I think that people in the room that I'm sitting can see a smile on my face when I'm looking about the agenda that we'll have, going forward.

Our next question comes from the line of Maria Semikhatova of Citibank.

I have 3 questions. First of all, we've seen quite strong performance of Avanza market in this quarter as well. Could you just flesh out if there were any extraordinary items? Or you think this is kind of a good base level for upcoming quarters?

I would say that's very difficult, because these kind of products are often invested in by our clients very much related to the environment, so to speak, or the asset price is going up and down. So it's very, very hard to predict going forward. But also, as we communicate in Q3, we did get a better deal with Morgan Stanley. That was full effect in Q3, so that is, of course, positively. That is one of those income lines that I'm -- very, very difficult to predict because it has a lot to do with market conditions.

Okay. I understand. Then a question on pension savings. How much of the savings have been transferred to Avanza last year, following the regulatory change? And given the launch of pension case, what are your aspirations for 2022?

Very difficult to have a market view on how much we've got. We know that we have gained a much more pension transfer since April going forward, than we did previous regulation. I have not seen any market statistics for the full year. So we're satisfied with the development for it. We think that the pension chase, I don't dare to put in nominal terms, what our expectations are, but we think that we have launched something that we will be very appreciated by our clients and will be used by our clients, and that will have a positive effect. But it's very, very difficult to have a prediction that -- what you should take on it is more that we have shown that we are developing things targeted for this marketing that is opening up a bit. And at the same time, that I always say is that the administration around this, where 4 million employees have to sign and so forth and other pension companies basically try to hinder customers who transfer their pension, those obstacles are still there even though we try to mitigate them the best we can. So my prediction is that the net inflow in the pension company will be better than last year, but how much better, I don't know. But my expectations are high, but there's also other factors that in the industry that affects this. So I'm actually quite disappointed that the e-pension industry in Sweden, not can get their act together to build processes that will be customer-friendly when it comes to this and making sure the customer will make the decision and not the pension company.

And just to clarify, what is the addressable market for you today? And how it will change the policies older than from 2007 and also, applicable within your easy transfers?

I think the addressable market for our pension offering, given what we do is, I think it's around SEK 890 billion. So we still have a lot of market to gain, given that, so to speak, limitation, of what you like to call it. So we are not afraid that we will reach the potential within the company during 2022. I think we have room for a lot of growth for the next couple of years in our pension company.

Understood. And just finally, before we look at the December trading update that you provided, the number of commission-generating notes per customer declined. I don't know if there's anything in your view, any reasons that you could flag that drove a little lower client activity for that specific month?

I would just say, if you compare November to December, November was a much more active month than December, which came into a bit of, how do I say, hesitant mood when it comes to investors and the turnover to stock exchange was not the highest also, in November. So it's always very difficult to take long-term trends from November that was very, very strong. And I think, December was okay. But as always, we are affected by the environment and the risk appetite and volatility in the market, and those things affect the trading patterns a lot. And I think, that a lot of clients became a bit more hesitant during December.

Our next question comes from the line of Maths Liljedahl of SEB.

Yes. Thank you, and good morning. A few follow-ups. First, we can start with pensions. On the transfer, you announced this new -- that it should be fully digital to transfer your pension. Has that changed the time it takes to move a pension? Or is that still the same? Because it takes up to 3, 4 months to move your pensions. So that doesn't -- hasn't changed from this new...

No, I think that the way it works, sadly enough, is that if you use our new application that we launched, which caused the pension hunt or in Swedish [Foreign Language], what happens is that, when you have -- put it in that you want to transfer this pension, sadly enough, you get a paper in your mailbox home that you have to sign and send it back to us because we need to send that to the pension company that you're leaving. So on the back of it, the digitalization of moving pension has not moved forward. What we think is that we have created something that will make it at least as digital as it's possible given the -- this functionality in the pension industry. So it will not be increasing the pace of transferring pensions, sadly enough, I have to underline.

But it will be much easier to find the transferable pensions that you have by using bank ID to find out what you can move. So that part is much easier and more digitalized.

And that's a very important point that Sofia says, because now, you can sit with your mobile phone. And if you have pensions in, let's say, 4 other pension companies, you can very easily understand which are the pensions they have, which can I transfer? If I click transfer, you get the mail from us in your mailbox or actually, a physical mailbox. You sign it, you return it and then the pension transfer is on its way. So we do all we can to making sure that we do for our customers. So they have to do as little as possible more than ordering the transfer. But on the backside of this, it's still a dysfunctional industry, in my opinion.

Okay. A follow-up on costs. If I just play with the numbers and say that you should have 10% of the savings market in 2025, and I base that on your current amount of savings capital and then we say that there's no growth at all in the stock market. And then I take 12 basis points on that in terms of costs, I end up close to SEK 1.4 billion annualized, close to 14% annual cost growth? Is that how we should read this, that the old 9 to 12 will -- it's abandoned in a nice way, but in fact, it's actually a higher cost guidance, going forward?

I don't think you should view it as this. As we said, we think the 12 basis points should be viewed as the ceiling, so to speak, of the costs in relation to savings capital. And one of the things we also mentioned is that we plan everything year-for-year given our agenda. So that means that we will, in January 23, guide you on how much cost do we anticipate that Avanza will carry for 2023. And I have not an answer to that right now and because we need that flexibility, given -- so it's more that we will take 12% as a ceiling. We want to be lower. And then we will look at our plans, innovation initiatives that we want to do, which we do always in October, November, December, and then we will figure out what we think the resources are necessary for that year. So we will be -- that's the way we will communicate it and do it.

And our next question comes from the line of Andreas Hakansson of Danske Bank.

Thanks, and good morning, everyone. Few follow-up and some new angles. Just if we start with above 35% ROE target, could you tell us, are you assuming anything in terms of higher interest rates in '24 or '25? And how big impact that would have?

No, we have not anticipated that in our return on equity target.

Yes?

Yes. If you -- theoretically, the Riksbanken can tomorrow increases the interest rate to 1%, then we, on a rolling 12-month base, make SEK 450 million. But we still stick to that the Riksbanken is not increasing interest rates, I think it's in the end of '24. So we are not counting on that. That will be an extra icing on the cake, so to speak.

Without costs attached, I guess, we fall straight down to bottom line. Then on your -- on the cost, you have to go back to cost just a little bit. And being Avanza client, I noticed the downtimes you talked -- you mentioned 3 times, it felt like it was more, maybe. But am I correct to say that those days happened when it was very high activity levels? And is it a fact that you have actually reached some sort of capacity ceiling in your platform and higher costs are also driven by those type of investments, not only new staff? Or is that wrong?

That's wrong, because those hiccups that we had during Q4 had nothing to do with volumes or loading within the system. There were network issues that occurred when 2 applications couldn't really speak to each other and want 3 different things. So that was something that I'm very sad for and very, very troublesome for us. But at the same time, if you look at -- I would say, from March 2020 when the market exploded and we implemented a lot of new hardware and so forth, our downtime has been for adventing more or less zero until beginning of November when we had 3 hiccups. We learned a lot from this. So it's not a capacity problem. It's unlikely circumstances that occurred 3 times, and we have, of course, taken every measurement so that this cannot occur again. But then, I always humble. We have a lot of applications running out the platform. And we have -- if you look at a longer-time perspective, extremely low downtime on the platform, but sadly enough, we had 3 hiccups during the Q4 and we learned a lot from them. So those things will not happen again. So that's my answer to that.

Yes. Okay. Fine. And last one, it's been a very volatile beginning of this year. Could you tell us just an indicator of how activity levels looked and how are clients acting in this environment?

I would say that our clients are net buyers of equities. I think everybody is trying to buy the dip a little bit. And then, I would say, looking at the statistic, I will not go into the details, it's one day is not as the next day. So I think, that we have daily -- I would say, normally, you can say weeks, you can talk about trends during a week. Now, we talk trends for a day. So it's very, very volatile when it comes to activity from day to day, which is, of course, a reflection of the volatility and the uncertainty in the market.

Okay. Then, we have to wait for the general data, I guess.

And our next question comes from the line of Jens Hallén of Carnegie.

Perfect. No cost questions from me, I think we've covered them already. I have 2 growth questions. I think, in one of the slides, Slide 7, you talked, price growth has taken up to a higher level. I have to understand what you were saying. Are you referring there to the -- as normal, the great number of customers should be generating a higher rate of volumes all at equal? Or do you now also believe that the higher number of customers and savings capital has increased, but also that the number of trades per customer has increased, i.e., activity levels that increased during the last 2 years, that's here to stay. That's it. Do I interpret you correctly?

No, I would say that the growth with a number of customers, the 36% year-on-year more generating brokerage income. We have now more than 1 million customers invested in mutual fund. That was 500,000 customers in August 2019, not long ago. So what I'm saying is that, given the size of number of customers, AUM, we are more resilient in a bear market, so to speak, even though we will have trouble some days than we were pre the pandemic, just because we have doubled the size of the company. So that's what I'm saying. So we -- and I usually use the words that we have absolutely increased the lowest bar for us. And I have said, many times during the year that, a bad day, now, is not as bad as it was, pre-corona.

No, exactly. So no comment there on what you think about activity levels per person or per customers?

It's also -- I think that the activity levels are so interlinked with the market volatility and the turnover in the market. So -- and that's nothing that we, in Avanza, can affect or want to affect because as I always say, we communicate 2 things to our customers in a 1,000 ways, that diversify your investment, have a long-term view on the market. And I think that Nicklas Andersson also has his time in the market is equally [ as important ] as time in the market. So if we go into a market where our customers are not that actively, of course, short term, that could affect our income in a short-term perspective. But if that's the best for our customers given the circumstances, I'm very happy if that happens, because at the long term, it's always back to the customer satisfaction. So it's very hard to predict. But -- and once again, a number of customers have mutual-fund, number of customers generating brokerage income is at record levels, and that is a sure bet that a bad day in the future will not be as bad as it was pre-pandemic.

Okay. I understand. But then, a final question then on your ROE target and the -- we have -- we talk about costs for a long time. What do you then assume? Do you assume that the activity levels and markets will stay as they've been? Do you extrapolate that? Or do you include that you think that we will have a, maybe, a tougher market going forward than we've had in the last year? How do you do that when you do your modeling and come up with your target or ambitions?

Of course, when we look at our targets and ambitions, we try to project the future. And the only thing we know when we do that is that we know that we're wrong. But hopefully, we're right in the long-term view, because if you look at the market, the growth, it's not going to be a straight line. It's going to be a line that goes up and down sometimes above our expectations and sometimes below our expectations. Because -- and also, looking at, absolutely, in the market that we -- right day, my opinion could change after launch than the opinion had before launch, because it's so difficult to predict the market and so many uncertainties out there. So what we can control is develop the platform, taking care of our clients, making sure that we can release new good things that will be appreciated by our clients and make them good investors, then it will -- what will happen will happen, so to speak.

Our next question comes from the line of Jacob Cruz at Autonomous.

Just 2 follow-ups, I guess. Firstly, on the capital side. So your leverage ratio was 4.8%. I think, you talked about 0.9 as the Nordnet comparison for the Pillar 2G. And you already concluded that you want to raise additional Tier 1 capital to shore up the leverage ratio. I'm just not quite clear. You talked about some uncertainties around what the FSA is saying, but it sounds like you've already made a lot of the decisions. So are you looking at a higher additional buffer than you used to have for the leverage ratio? Or is it that you see scope to optimize the capital structure once you have raised that AT1 capital? And then secondly, could I just ask, could you give some kind of guidance on the cost side, a, in terms of what your IT scalability is at the moment? So what the kind of loads you're running, relative to capacity? And secondly, if you could say anything around your staffing, the split of staff, what percentage are in customer support, say, trade administration, and what percentage are in IT development and maintenance?

Okay. I'll start with the last question. I think that IT development depends on account. We are around 600 people in Avanza and we say, half of the companies IT, give and take, without doing the numbers. But that's a fair assumption. So you could say, about 300 is in the IT development after 600. The rest is, of course, compliance, legal, accounting customer. I think, we are giving customer support units, private banking, I think we are around 80 people or something like that. So to give you a flavor of that. When it comes to the capitalization of the company, of course, the problem with the leverage ratio is that it goes down when customers sell off and seek them a lot of liquidity. And that's why we need to look when we get the guidance from the FSA, if it will be 3.9, we have to figure out a bit, which, of course, is work in progress. What is our target going to be? So that makes us in a very bull market, so to speak, when people do a lot of selloffs, we are not jeopardizing the 3.9. And then, of course, any excess capital that we have above that will be paid out in the 70% dividends, of course. Theoretically, if we will go way above that for some reason, I don't know, then, of course, we would -- we will be prepared to pay out more than 70% in dividends, but that's a very theoretical scenario. But if it happens, of course, we will be optimizing our capital structuring, given the leverage ratio. And if we are way above that, that gives us room to maneuver, so to speak.

Yes, it's not that theoretical given that you're already saying you will raise AT1, and you already know what your closest player had as the Pillar 2G buffer. So shortly, you must have a view on what you do if you raised, let's say, SEK 600 million of AT1 that adds 100 basis points, is that then too much if the minimum is about 4%?

We have not said how much AT1 capital that we will raise. So that will be communicated in due time. So okay, it's not theoretical. But if we are way above of leverage ratios, targets and we have very good profits, I would expect that me and Anna, as the CFO, will propose to the board to pay out more than 70% of the profit.

Okay. No, that's just the SEK 600 million at net rate, just keeping everything on the same -- since that was the Pillar 2G comparison. Okay. I know that.

And then, when it comes to scalability, I said that we have learned a lot during the pandemic. So number of trades and the scalability in our platform is not something that is hindering us. The scalability, absolutely there. And we have taken a lot of measures since the COVID started, to improve our scalability. And today, I'm very comfortable that we can handle a lot more volumes, a lot more clients on the platform and operating that in a smooth fashion, going forward.

And just on that, if that's the case, why would your cost guidance not be an improvement from current cost levels if you have a portion of the cost base that is already very scalable?

Basically because we're hiring once -- as I said, one is that we did, in 2021, underestimated our growth. So we did hire people in customer service, back office private banking, to handle the massive volumes that we got, that has a full year effect on 2022. We also have a wage increase of 4%, and that is also a fight for talent, especially when it comes to IT. Then, we are adding more people in our development teams to be able to innovate more, make good things for our customers. And that is, as I said, very much, you should view it at the cost increase next year is to, an extent, investing in a better Avanza for its clients, going forward, in the future. And this is basically, if you go back to '17, '18, '16, we grow our costs more than our income and we got a lot of questions about that. But we said that we're investing for the future. And I think in '20 and '21 have shown that we took wise decision in investing in the company, and we will never look at our costs from a short-term perspective. And then, as I said, in a volatile world, a digital world, we will also add to the cost guidance that we have given, that we will, every year, state what we believe the neighborhood of cost will be for next year. And I don't know the plans for '23 yet. Of course, I have idea we want to move the company, but what resources it will take to make that move, I don't have the grip on that. So that's why we have an increase of the cost this year, as we have some legacy from last year, new initiatives, and that adds up to the cost increase that we have communicated. And I will also always say, there are good costs and bad costs. And I'm absolutely convinced that the cost of Avanza is beneficial for our customers, in the long term, and then, also, our shareholders in the long term.

The next question comes from the line of Patrik Brattelius of ABG.

Yes. A lot of questions of mine have already been asked. So I just have one left, and I thought we could talk about mortgages. And I saw that you lowered your mortgage rate here in Q4 in the private banking channel, while other banks, they raised their list prices on mortgages. How should we interpret this? What was your thinking there?

That we are improving our offering for our clients. Basically, if you look at the rate increase from other banks, it has been on, especially, the longer part of the yield curve, the 5-year to 2 year, I saw some bank increased the rates. Our private banking loan is connected to the repo rate. And we used to have 99 basis points above the repo rate. Now, it's 89. And that has to do with improving the offering, taking care of our private banking clients. It's an important thing to grow, the private banking, with volumes. So you should view it as that, basically because it's on the short term of the yield curve that the competition is when it comes to private banking.

Okay. Do you have any further ambition here in 2022 to ramp this up, and gain more private banking customers and ramp up the mortgage lending ambition?

No. I mean, as you know, the private banking loan is connected to our liquidity, and we don't lend more than maximum 25% of our liquidity. So our liquidity has to grow to increase that loan, that's one part of it. The second part, of course, is that we expect our partner, Stabelo, to be able to improve their offering, especially when it comes to higher LTVs and being in the by market, so to speak. We see promising results from our partnership with Landshypotek. And as I said before, I would love Avanza to have even more partners on the mortgage platform. And that's something that we would like to do, but it takes so two to tango. So slow, step-by-step, we're increasing our footprint in the mortgage market. It's not going dramatically fast, but it's going in the right direction, step by step, and I expect that to continue for the next couple of years.

Okay. Yes. Because the mortgage lending, it didn't increase that much quarter-over-quarter, while the savings capital was up by 10% quarter-over-quarter. You don't think you have -- you can do more within that channel?

We did the private banking, I think we are doing more, and that's a bit seasonal also because it's -- We try to use that very effectively since we have a limit on how much we can lend to our private banking clients. And then, we have increased that limit, but we're always very -- we want to use it for the right clients that also gives the effect that the clients will move a lot of savings capital over to Avanza.

Thank you. [Operator Instructions] It seems there are no further questions coming through at this time. So I'll hand back to on our speakers for the closing comments.

Okay. Thank you very much. Always interesting questions, and I wish you all a great day and stay safe and take care of yourself. Thank you very much.

Thank you.