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

Good day, and thank you for standing by. Welcome to Avanza Bank Interim Report January-September 2022 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Rikard Josefson. Please go ahead.

Okay. Good morning, everybody, and thank you for listening in. And I will sum up the business update on the Q3 for Avanza. And I would say it's as this year has been, it's been a difficult quarter. We have a bear stock market. We have rising interest rates. We have energy crisis, we have inflation. So the households have a very difficult market to maneuver within, but also I think that the importance of saving or having a buffering of your personal finances is more evident than ever. I also note some interesting things during the quarter is that we now have increased number of customers owning equities and number of customers owning mutual funds, and also if you compare to 1st of January, we have more customers invested in equities and in mutual funds. And for me, that's a clear sign that the interest for savings is still solid among the population even though the ability to say could be at a lower level just due to the cost inflation in the households. We can also see that the monthly saving of around SEK 1.6 billion is still a quite strong and has not decreased the way you could have thought it would decrease just due to the higher cost for the households, and our premiums in the pension company is, of course, not affected as much of the macro environment is on a solid SEK 326 million each month. And actually, it's growing, which, of course, is good for the net inflows, but at the same time, I'm worried about the savings quote in Societe Generale, especially when we're reaching the winter times when energy prices will most definitely hit the households even harder. Looking at the market, even though activity was down during Q3 if I still think it was from a brokerage and activity perspective, quite okay. We gained market share on the stock exchange. And we could also see that, as I said, the brokerage-generating customers were a little less this quarter than the end of Q2, but that's not surprisingly given the very difficult circumstances that we are operating under. Looking at the net inflows, it's around SEK 31 billion, and that's close to the figure for the full year before the pandemic 2019. Of course, we have lower net inflows this year than last year just due to the fact that the market is boring, and we are in a bear market and at the same time, ability to save is decreasing during the year. We can see that the net inflow as always in a difficult market is around 70% from new clients and 30% from existing clients. And it's usually the opposite when the market is in a bull mood, so to speak. In September, we had net outflows for the first time. I think it was in November 2017, but we are not losing clients because we speak to our clients and what's happening right now is in the positive interest rate environment that we're in for the first time since like 7 years. We can see that especially corporate customers who are on the platform to invest in equities and mutual funds and not managing the liquidity or, so to speak, taking out money to get higher interest rates on other places, but when we speak to them, they just say to us that we'll be taking out the money. But when we will invest it in the stock market again, we will absolutely put it back on the platform. So from that perspective, we're not losing clients even though clients are, so to speak, parking the liquidity in other places to gain higher interest rates. The corporate customers cannot -- not use savings account plus, but we have launched just 1 week or 2 weeks ago, a savings account for corporate customers where we paid 90 basis points and we will see what effect that will have. For our private customers, they can use savings account plus. And there we, at the moment, have partners paying SEK 1.05 million. We can also see that the churn in the customer base from the end of last year was 1.9%, is down to 1.4%, which, of course, is also good news. We also looked in [ Avast ] survey where we analyzed our customer base where we did some insights. One is that our clients compared to other clients in the same age group have a higher education, higher average salaries, they have higher savings, above average private possessions, and the greatest interest in their financials, which is, of course, not surprisingly because you are a client, because you care about your money, basically speaking. But our clients also live in larger cities. We have known that for a long time, and a majority own their house or their apartment, which, of course, means that they're impacted by interest rates on mortgages and energy prices, especially if they live in houses. Our younger clients live more in condominiums than in houses. So, all-in-all, I think this is good news for us because that means a low churn and also customer base, which is 10 years younger than the average population in Sweden with higher education, higher income will, of course, make it very good for the future because these are the type of clients who we care about their personal finance risk going forward and will save as much as their ability will allow them to save. Looking at product launches and so forth, I think that Stabelo did a good thing during the quarter when they expanded their loans to new loans and bridge loans and not just refinancing older loans, which were their strategy up till now, basically. We can also see that we're still missing an 85% LTV loan on the platform, but we're working and having discussions because, as I said before, we want to be a platform for mortgage loans and they go to a place when you want to look for good interest rates. And you can also see my prediction that the churn in the mortgage market in Sweden will increase because suddenly, people are very aware of what they're paying in interest rates compared to the last couple of years, where customer played SEK 125 million or SEK 150 million, that they didn't really care about. But now you have 3%, 4% in mortgage rates. And of course, that will make a lot of people to be more actively choosing the mortgage partner. And my absolute prediction is price, price and convenience that will be the determinating factor how the customer will act. We can also see that we have a good story in our own mutual-fund company. We have 18 mutual funds in our fund company. We're focusing on low fees. We want to add something new when we launch our own funds. We both have actively managed funds and index funds. And of course, we have Avanza Auto as a marketing tool with 0 fees. We have it since 2019 in January, being the fastest-growing company by far in the mutual fund industry. And we have grown the AUM from SEK 25 billion to SEK 70 billion. And we also now amount to about 32% of the total mutual fund capital is in our own mutual-fund company, and we have grown 40% since January 2021. So I think the mutual fund company and the staff in that company is doing a fantastic job in developing us, in having our own funds, which are very competitive, both in terms of returns and in price, which is, of course, a very important factor when you're looking at your sales. Going forward, of course, it's a lot about supporting our customers in this difficult environment. And we do that a lot about blogs, posts, tips, how to maneuver in this market. We also want to grow with existing clients. We can see even though we add a lot of new clients and a lot of inflows from new clients, we also know that we have more to do, especially with our private banking clients who usually have 1 or 2 other partners at Avanza, so we could increase the share of wallet. We're also focusing a lot on our more actively trading customers to improve the offering to them. But then, of course, we are consolidating, making sure that we uses our resource as well. We and the management took the decision that we will not expand our people plan for 2023. What that means that we will do the recruitments we had done, planned for 2022, some of them could spill over in the beginning of 2023. But basically, to put it simple, we took a copy of the people plan for '22 and says that this will be in place for '23. And of course, we always look at our cost. We always look at our efficiency, but this will also make us even more focused on getting more teams to work even closer together to get even more efficiency out for the next year. And we're comfortable that we do a people plan we have, and we have expanded number of employees in the last couple of years since we doubled the size of the company, we will be able to do great things for our customers going forward. And with those words, I will leave over to Anna, who will go through the figures.

Okay. Thank you, Rikard, and good morning, everyone. Market conditions haven't changed much since Q2, and this further to a negative note when it comes to sentiment. However, the interest rate sensitivity is starting to show results, and we report the second highest Q3 results ever. Operating income increased compared to last quarter, mainly explained by higher NII. Operating expenses, which are seasonally lower in Q3 due to lower personnel costs decreased. For the 9 months period, expenses increased by 24%. Credit losses are at 0 despite a severe downturn during the year and an increased number of margin calls. We still consider the risk of higher credit losses to be very low and see no tendency of decline in repayment capacity. Net profit for the quarter was 47% higher than in Q2 and 10% lower than Q3 last year, ending up at SEK 433 million, which is even higher than any individual quarter in 2020. Looking at the 9 months profit, it has only been exceeded once before, and that was last year. The operating margin is continually strong at 64% for the 9 months period. As said, our NII sensitivity is starting to show results. It was not that many years ago that our extra liquidity yielded negative. And now in Q3, it's the largest revenue line. The expand cash raised the policy rate twice this quarter with the first rate hike of 50 bps, mainly affecting Q3. The last hike of 100 bps was effective 1st and 21st of September, and I will come back to the interest rate sensitivity within short. The uncertain market sentiment has continued and index continuing to fall, making customers continuously hesitant to trade, and this affects both brokerage and currency-related income. Slightly lower average fund capital and a small decrease to income per SEK of fund capital due to a somewhat higher share index funds affected fund commissions negatively. Net inflows to funds in the quarter was over SEK 3 billion, which is a good sign, and meaning Avanza's share of net savings was 24%, given our single-digit market share in funds, including occupational pension. Other income increased mainly explained by higher income from Avanza markets, and also higher revenues from stock lending within the pension company. The stock lending limit has been raised from SEK 5 billion to SEK 10 billion during the quarter, and the number of stocks included in the program has been expanded as well. And looking at stock lending, we've got SEK 10 million this quarter versus SEK 5 million in Q2. And looking at the 9 months figure, the amount is SEK 25 million compared to SEK 12 million last year. As already stated, our interest rate sensitivity is high, and I will go through the different parts. And this shows the part of the balance sheet affecting the NII sensitivity as per Q3. Avanza is funded by customer deposits, where we until the end of September, haven't paid any interest to customers. As Rikard said, from early October, we paid 0.9% on savings accounts where today, we only have a very small part of the deposits, slightly above SEK 1 billion. Looking at the asset side of the balance sheet, the surplus liquidity is mainly invested in covered bonds, around SEK 32 billion, which are tied to STIBOR 3 months and with an average duration of 1.8 months at the end of September. We also deposit liquidity within systemically important Nordic banks where the deal is most dependent on counterparties terms and conditions. And 1 portion invested in Riksbank certificates and that deposits with Riksbank, which are tied to the policy rates. Our internally funded lending is comprised of mortgages and margin lending. Mortgage rates are directly tied to the policy rates, while the interest on margin lending is the management decision based on demand and the competition. In our interest rate sensitivity calculation, we have only estimated an effect of 50% in the margin lending, but so far, 75% of the hikes have come through. Pricing on both deposits and lending becomes increasingly dependent on customer behavior and the competitive landscape as rates increase. And of course, we follow this closely. Our savings account is mainly designed for our corporate customers that cannot take part of the external savings accounts, where our private customers today gets better rates. Corporate deposit volumes outside tax wrappers only stands for around 10%. And so far, only a small part of this sits on savings accounts. And also note that corporate customers choose Avanza for investments and not for our savings accounts. And this means that liquidity is money on the sideline waited to be invested. And at this point, we're not planning to pay interest on tax wrappers or equity in fund accounts, but given competition and customer behavior, we will not rule it out. All else equal, without accounting for changes in customer behavior, competitive landscape and the duration of our [ FRM ] bonds, a 1 percentage point change in the policy rate would affect full year net interest income by over SEK 550 million based on volumes, end of Q3. Costs decreased by 13% in the quarter, and as I said, mainly due to seasonally lower personnel costs and summer vacations. Other expenses decreased compared to Q2, mainly explained by some additional expenses in Q2 related to the change of the back office system. Due to decline in stock markets, savings capital decreased by 2% in the quarter to SEK 640 billion. This resulted in a stable cost of savings capital at 14 bps for the 9 months period. Our target is a cost of savings capital ratio of maximum 12 bps, and as mentioned before, this target should be seen over time. Our philosophy is to keep on investing for the future. And that we can set the recruitment plan set for 2020 stands. But with that said, and after the strong growth of recent years and not the least, given the severe macro environment, we will be more restrictive in our hiring going forward. We will not increase number of employees during 2023. But of course, we have already increased our cost control and our monitoring and questioning our expenses on a daily basis. After the last year's tremendous growth, we need to consolidate our resources and make sure we use them wisely and in the very best way to keep the #1 position when it comes to customer satisfaction and user experience. High cost efficiency is the high priority for us, and we will get back with the cost guidance for next year in connection with the year-end report in January. But for this year, our cost guidance of SEK 1,050 million to SEK 1,070 million. When it comes to income to savings capital ratio, it has been negatively affected by lower trading activity and fund capital during the year, although it has increased with 10 bps to 40 bps compared to Q2. By the end of Q3, we got the Pillar 2 guidance from the SFSA of an additional 0.9% to the leverage ratio requirement of 3%. This was fully in line with what we expected as well as previously announced expectations. We also got the Pillar 2 requirement explaining the increased risk-based capital requirement. And in addition, the countercyclical buffer increased to 1% this quarter. As said before, it is the leverage ratio that bears our capitalization. And from our perspective, we are overcapitalized given our low-risk business model. And our capital position is strong with a leverage ratio of 4.6%. The ratio is highly sensitive to increased deposits. And just to give you a flavor, this means that deposits can increase by SEK 13 billion without falling short to the 3.9% requirement and with SEK 37 billion without trespassing the 3% requirement. And as you can see, the margin to the leverage ratio requirement is above the target. And for the time being, we see no need to issue additional Tier 1 capital. To conclude, Avanza is very well positioned for the future. Our low-risk balance sheet place us well in this macro environment, and we see no actual credit losses in our margin lending portfolio. Also, the mortgage lending is of high quality. And as just said, capitalization is strong. And although activity have slowed down, we see strong resilience in our P&L, operating on a higher level than pre-pandemic and with NII compensating for the lower activity. Return on equity is strong, 42% for the quarter and 9 months at our target on 35%. Cost cautiousness is and has always been important for us. And given the macro environment, we will consolidate our resources to make sure we use them wisely, and as already said, we will not expand number of employees in 2023. And with that, I would like to open up for questions.

Yes.

[Operator Instructions] The first question comes from the line of Maths Liljedahl from SEB.

Yes. A couple of questions from my side. First, NII sensitivity, obviously, very interesting here, and you keep it at the same level. How do you see the stickiness here when rates continue to move? I mean do you see -- do you have some external offerings, obviously, but then you need to move the capital out of the ISK, and how does it work if you offer interest rate on -- in the ISKs and how will that affect the NII sensitivity? Because obviously, the higher rates climb here, we could assume that the interest rate sensitivity goes down. Where should we see the limit in terms of rates, so to say? Second, on costs. They were really low this quarter, I think, significantly lower than we were expected for a normal Q3 and you stick to the -- or you do no changes to the cost guidance here. But how should we think about this going forward? I mean will you hold some investments? Or will cost be more important to you, the cost guidance than the other financial targets? Or how should we see that going forward? I'll stop there.

Okay. We'll start with ISK. I would say if the next interest rate increase will come, I think, of course, where we one way or the other have to share that with our customers. But as we said before, it's very difficult to conclude exactly what we are going to do because we follow this closely looking at the pattern of customer behaviors, but I would make a note that most customers, when you speak to them, having liquidity on ISK is usually money on the sideline weighted to be invested. And I think also my prediction would be also that money market funds and interest rates funds could come back in fashion and also take some of that liquidity, but that's too early days to say. So it's a very blurry answer Maths, but it's just work in progress. We will see what the next rate increase will be. But the only thing I think is that if you get 75 more basis points or 50 more basis points on the policy rates, we will pay something one way or another to our customers. And would come to the cost, I will say that we don't have large projects in the sense of hiring consultancies. We run an in-house business where we do everything in-house. So around 70% of our cost is staff-related. So when we're saying we're not going to increase number of people in our people plan for 2023, of course, that we lowered the way the costs have increased the last couple of years. That's absolutely a target and ambition for the company. Then, of course, we have a macro environment with high inflation and so forth. We will see whether the unions will put the mark when it comes to salary increases and so forth. But we will come back with a clear answer on that when we release the Q4 results. And then we -- as we did this year, we'll guide you on the total number of costs. But of course, given the macro environment, we're always very cost focused. But of course, now we look 2x or 3x on invoices and question them and see it's the right thing. And so -- and I think that most companies do that, when you have the kind of environment we are in right now.

Yes. And a follow-up is just the IT infrastructure or investment. How far are you on that upgrading of the platform or becoming fully cloud-based, et cetera? Is that -- I mean, have you taken the bulk of that already? Or how should we see that?

When it comes to the upgrade on the back office system, that is done, so that is already launched and so forth. We do some things in the cloud. We don't do production in the cloud because we don't see the benefits coming from a cost perspective to do that, but we are very cloud ready when the business case, so to speak, tells us to do that. And then, of course, you have friends to GDP and a lot of things when it comes to regulation that different banks to different interpretation of what the requirements really are. But we think that we have a very cost effectively and very, very secure way of doing our production. But of course, we are in the cloud when it comes to test environment and so forth.

Okay. If I have one final, margin cost, do you have any amount or I mean, percentage of how large that increase has been in the quarter?

I don't have a number on that, but it has been an increase during the quarter, and we have no credit losses. But I would say, to understand margin calls, I think it's important to understand that most clients when they reach in a limit, they make margin costs themselves, so to speak. So we don't have to do it for them. . And also with larger clients, we have a discussion with them saying that you are very close to the limit right now, it could be a good thing to lower your risk, and then the customer do that. So it's not that much that we go in above the head of our customers to speak and sell assets. But of course, we do that, and it has increased and we have not record any credit losses.

The next question comes from the line of Jacob Hesslevik from SEB.

Just to be crystal clear, if you were to give a deposit rate on ISK accounts, is accounting similar to when you receive dividends i.e., it is exempted from the income tax? Or is the interest regarded as a normal cash deposits, so the government calculate your ISK tax for the full year?

No, no. The interest rate you get is not taxed because it's taxed on the referred tax that we have. Is that your question?

Yes. So if you were to introduce it, it's not going to be taxed for the individual?

No. The interest rate will not be taxed. But I will add the AUM in your ISK when it's paid out, and that means you get the higher ISK tax.

Okay. Yes, that's true. And do you think if you were to offer it, will you offer it on the ISK similar to what Carnegie and Pareto is doing? Or will you more opt for a similar solution that Nordnet is doing, where you have to actually move the cash into a savings account on your platform, but outside of the ISK wrapper?

I think that's what we are a bit blurry on because we have not taken those decisions and we could go either way. Of course, to offer a very attractive savings account outside the tax wrapper could be productive from a customer perspective because the customer will move in and out money of the ISK and that's not beneficial for the customer comes from a tax perspective. So if you're going to keep cash for a long time, I think what you will see, and this is my prediction, you will see more money market funds and interest rate funds and tax wrappers going forward than we have seen historically or at least the last 7 years. But at the same time, I'm sorry for not being crystal clear, but we're following this very closely. How we will act is not a decision taken yet, we took the first step paying 90 basis points on our corporate clients to savings account. But I think the next interest rates hike from the Riksbank when they increase the policy rates even more, part of that will go back to the customer one way or another.

All right. And just one final question for me. In the September data you released, we saw net outflows for the first time of SEK 220 million, but deposit it's actually increased by SEK 500 million. So was that due to customers investing or having less inflows? Or was it due to the amount of shares being sold off increased more substantially?

We think that September was the first month that we have more sales than buy when it comes to equities.

Okay. And that was driven the deposit base, I guess, and then some took it out, but not everyone, I guess.

Absolutely not everyone.

All right. Perfect.

And the next question comes from the line of Nicolas McBeath from DNB.

So first, a couple of follow-ups on costs. So you stated that you're not planning to increase FTEs in 2023, but could you give some indication around what level, where you would expect the number of FTEs to peak? And then related to that, do you see potential to reduce FTEs in 2023, by, for instance, not replacing all employees that will leave Avanza that year due to natural churn?

Well, the first question is that would you have -- a number of employees that will vary quarter-on-quarter because we have a natural staff turnover. We're not planning to reduce the number of FTEs. But of course, we are every time somebody leaves the company, we question will we need to recruit somebody in that position or could we move that position for somewhere else to increase our productivity. But the message today is just that the FTE plan for 2023 is equal to the one for 2022.

Right. But -- so you had 649 employees now in Q3. Do you still expect a significant uptick in that during the fourth quarter or around what level do you would expect that FTE to take?

It's hard to predict because we have a turnover, but I would say that I think that 649 is probably a ballpark figure that we will maneuver around.

All right. And then you've also previously provided some useful breakdown of your cost drivers by salary inflation and investments into new product development. So could you please remind us of those -- of that breakdown and how it looks like today? And perhaps, yes, what is the kind of -- maybe some insight also what you see for salary increases in 2023, if possible at this point?

I think that in 2023, the cost driver will be, one is, see, we're going to fulfill our recruitment plan that will spill over in 2023. The other one is, of course, salary increases. And that's we're following the unions and see what the Swedish mark will be. This year, we budgeted, so to speak, for 4% salary increases. I don't know what will be next year. And of course, inflation-related cost increases from suppliers and so forth, it's very difficult to anticipate that. And we will break that down on a better and more understandable way where we have done our budget and we'll come back when we release the Q4 figures in January.

Okay. And then final on cost. So cost of savings capital. Do you think that your increased focus on cost control and plans to stabilize FTAs, I mean, will that be enough to bring down your cost of savings capital below 12 basis points in the foreseeable future?

No. I think that will be tough to do. And I think that we will need a bull market or better market that will increase the asset value of our customers hold AUM. So that given the market, if it continues like this, that will be a tough challenge because, of course, we have calculated in the long term that we'll have a positive AUM increase just due to the fact that the holdings for our customer will increase value. And I also think to make a comment on that is that we have still a target of a 10% market share up to 2025 with the Swedish savings market. But if we don't get positive asset prices before the end of 2025, I think it will be very difficult to reach that target or more or less impossible. So as long as the market is like this, that will be very tough.

Okay. And then also some questions on commissions, please. So what explains the increase in average commission rates in relation to the turnover in the quarter. I think normally when activity declines like we saw in Q3, if you look at, for instance, the number of trades per day, a higher share of trading is done by pro traders, which pay lower fees on average, but that was not the outcome in Q3. So if you could please comment on the slight uptick in commission rates in the quarter?

Yes. But it was, as we already said, it was customer is in lower generating brokerage classes, like start and in this year in the start segment.

Do you have any insight in why those accounted for a larger shattering? Was it like concentrated to a particular month? Or do you see these segments liquidating their positions to a high extent or what do you think drove that increase in activity in the third quarter given that the general trend was towards a lower activity?

I think this is a valid question. We have not made that analysis yet for the quarter, but it usually varies from quarter-to-quarter. We got more equity owning clients during the quarter than we did in previous quarters. So -- and at the same time, we know that our large clients are still active, but are also a little bit lower activity levels. So I cannot give you a clear answer. I'm sorry, Nicolas.

Okay. And then final question on outflows, if you could give any further color on the inflow versus outflow dynamics. So could you say anything about the gross inflows in the quarter? You mentioned that the net outflows were in September were explained by some corporate customers taking up money, but could you say anything on what the kind of gross inflow trend looks like among your customers? And also if you could share any insight or comments on what inflow trends have looked so far into October, please?

I cannot comment on October. I would say like this. The steady inflow that we have every month is around SEK 2 billion. It's SEK 1.6 billion in monthly savings and a bit over SEK 300 million in our pension company. So when the month starts, so to speak, around SEK 2 billion are always coming in as net inflows, then it's often very market-related if customers decide to put in extra money on the platform to invest in equities or mutual funds. But that is, of course, very linked to the performance of the market, and very hard to anticipate. So my only answer I can give you, a little below SEK 2 billion is automatically generated as inflow every month.

But have you seen a decline in those extra money being put into the platform as well? Was that decline accelerated further in September and also partly explain the net outflows. So how should we look at that?

I don't think it's explained for the net outflows, because that was mostly liquidity that people wanted the interest rate. But as I said during the presentation, during the quarter, 70% of the net inflows was from new clients and 30% from existing clients. And what we can see in a bear market is that existing clients have a lot of assets on the sideline with other banks. And new clients are enthusiastically entering the platform and making the first investments on the Avanza platform. And this is the pattern we have seen in bull and bear markets over time. We have a very strong bull market, we always see that existing clients amount for much more than 50% of the net inflows.

Okay. And then a follow-up on that as well, please. I mean, I think earlier you commented on that you track the reasons for why customers take out money. And I think usually it's been residential investments or consumption. So have you seen any change in the behavioral risk and behind outflows in Q3?

And I will say the new add -- what I can add when it comes to outflows is that you're totally right, it's usually helping kids real estate investments and so forth. Now we have people taking out money just saying that I get 1.65 in interest rates, and I will not invest this money for the next couple of weeks. And with the digitalization, so easy to move in and out money, people just, okay, I put this 100,000, for example, get 1.65. And then when I want to buy equities, I will put it back on the platform. That's the reason for the customer taking out. And in the dialogue with those customers, they say, I'm not leaving Avanza. I just want higher interest rates, and then I will put the money back to get exposed to the equity market.

So is that also household customers or mainly corporate customers?

Mainly corporate customer, but of course, you have certain customers who will do anything for 1 basis point in interest rates, and of course, there are household customers who take out money to get higher interest rates on some of the consumer lending platforms.

And the next question comes from the line of Maria Semikhatova from Citi.

A couple of questions. First, just to follow-up on corporate deposits. I appreciate your disclosure that around 10% are in corporate deposits outside of tax wrappers, but how much are in total from -- of deposit base is from corporate clients?

We don't disclose that. We just indicated that, as we said, 10% are corporate outside tax wrappers.

Okay. Understood. Then maybe we can talk about your outlook on net savings. You mentioned that savings rate is likely to fall. Maybe we can discuss some of the drivers, given the strong contribution from new customers that we've seen in the third quarter and it's understandable is because of the market dynamics. But do you expect a slowdown in customer acquisition in the coming quarters, also taking into consideration your focus on existing customer base? And second, with regards to your existing clients. Thank you so much for the comments from your survey, but maybe you could share a bit more details. Have you -- do you know what percent of income your customers are currently saving? And what pressure do you see given the increase in interest rates and energy costs on this allocation to savings for your customer base?

Very difficult. We don't have the data on exactly how that will affect our customer base. We just know they make more money, they save more money. But of course, I think it's so difficult to give a general answer because that's from household-to-household. I think some household will have a terrible situation where the savings will go to 0. I think some households will keep their savings because they have such a great margins in the household finances. So very difficult to predict. . We are still focusing a lot on our existing clients, but of course, we are marketing ourselves to gain new clients, and we've got more new clients in Q3 than in Q2. So the inflow clients is on a steady pace. And I will anticipate that we will still grow a number of clients because the paradox is a little bit that -- the reason for savings has never been more obvious. And then at the same time, the ability to save has never been more hurt than it is in the current environment. So I think that people will prioritize their savings, but maybe on a lower level than they did before to keep that monthly savings going to build that buffer for the energy bill in January, whatever it could be. So it's -- we never predict the future because then, of course, if inflation came down, if the war in Ukraine in some miraculous way resolved itself, I think we could have a very strong market after that. And then, of course, people will start to invest again, and then we will have another story. It's -- your guess is as good as mine.

I appreciate that. I understand it's difficult to predict. But with regards to, let's say, inflows of these new clients that you acquired in the third quarter, what these inflows were directed to?

As always, the new clients are moving their assets from other banks starting at new savings, because a lot of times, new customer is not like the new to the savings market, they can have equities and mutual funds with another bank, and they think our offering is better, so they just transfer the assets over to the Avanza platform for many different reasons, of course, and then they keep on saving in our platform instead of somebody else.

But if you look at the inflow from new customers, I would say the average inflow is very steady over the year, even a little bit higher. And then maybe if you can share your thoughts on the activity levels because if we look at September trading activity, it's now close to pre-pandemic. You mentioned that there are some pockets of clients where activity is still high. At the same time, private clients are not as active. Just let's say, blended, are you seeing this as a new normal? Or there is, let's say, downside risk to current levels?

You're asking all these questions that were hard to predict. But I would say that the day traded, they have a lot of activities and some of them are making a lot of money. I think this is the best thing that ever happened. Our private banking customers, you could say -- put it like this. You can see that a lot of them are buying quite open, but in smaller portion because they don't know where the bottom is, so to speak. So they are building up the position over longer periods of time in different equities. And also, I think they are more in diversifying the portfolios. So that means they will still be active. And if you look at pre-pandemic figures, I still think we are in a quite higher level in the worst market that we have seen for almost 90 years or something like that. So I think that the performance on activity, given the circumstances, is quite strong actually in Q3. And the activity will not go to 0 because I think that you will always have people interested in reallocating and investing. So if this has been the new normal or the new low, I don't know, but we will see. We never predict on that or we never guide on that because it's too difficult.

Last question, I promise, and probably easier just on historically how much of the, let's say, policy rates you passed into your depositors on your favors, let's say, if we look back when rates in Sweden was around 2%?

I don't have that figure in.

I think also, it's quite hard to compare with historical figures because we were quite different kind of company at that time, with more trading active customers and not the broad customer base as that we have today. So I think it's hard.

Understood.

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

Two questions. First one, on the NII sensitivity, everyone keeps asking you about rate sensitivity on your deposits. But the deposit base, it's quite small for each individual. So if you pay a rate or not, doesn't have a huge impact for most people. But when we look at the mortgages, I mean, you offer your private banking mortgages now with prices of 240, 250, 260 bps. Well, of course, your funding cost is 0, so you have an exceptionally high margin and exceptionally high return on equity on that. And these are to your most valuable clients, isn't it a bigger risk that at some stage actually start to -- have to start to stop hiking those rates? That's my first question.

I think it's a very valid question, a good question. We have that discussion within the company, but we still see, even though the interest rates are exactly where you said they are, we still see high demand for the loan, because if you get the 3 months rate from most banks, it's over 3% now. So we have not seen a movement in the customer base where they are dissatisfied with that interest rate. So that's my answer right now. But then you never know what we will do in the future.

And then on your external mortgages. When I look at -- I'm just looking at average prices in September, it just appeared it was 2.85, what average for the banks at 2.76. So now when rates are going up, the funding cost is moving up in wholesale fund and mortgage banks. Aren't you actually going to start to struggle to offer a competitive price on your external mortgages compared to the average of what the banks are really charging you think?

I think the simple answer on that one is that Stabelo sets the rate and not Avanza. And of course, we want them to have them as low as possible. So that is -- but that's a Stabelo decision basically. And I think that during the quarter, Landshypotek was during the quarter quite attractive and quite very well priced in the quarter or at least the first part of the quarter, maybe not at the last couple of weeks. So I think that's my answer, Andreas, it's very difficult for us to mention Stabelo's pricing.

Yes. Sure. And could you give us any sensitivity because you have some SEK 20-odd billion there. What type of profitability, what type of margins do you see on those volumes?

We don't disclose that because we keep that close to ourselves because we are also trying to attract more partners on the mortgage platform, and we want to keep that as a business secret.

Okay. And then finally, something on outflows and inflows, people are asking about outflows, but can we talk about inflows. Have you seen any trends that people have stopped their monthly savings in order to keep more money on deposits for consumption or whatever you're going to use it for?

I think that's a very valid question. We have, of course, seen some clients who have not had the ability to save and maybe stop saving in the market to accumulate cash. And you saw that total in the market in Q2, people are buffering up cash for handling the winter, and of course, we have customers who are lowering their savings and stop savings. But as said in the presentation, we still have SEK 1.6 billion in monthly savings. And what we are trying to do, as an example, is it makes it very easy to pause your savings this month, and then start saving next month again or just lower the amount to make that very with low friction, changing the amount or pausing the savings to be where our clients are. And of course, we see those trends. But on the whole, it has not affected the total amount that much. But of course, we have customers who are doing that right now. And my prediction is that we'll be might increase those type of behaviors when we come to November, December, January, when the energy bills really will hit -- will hit the households. But then we will see what the new government will do who is promised to bail us out of that one of these.

Yes. Now when you talk about the government, I just have to do a follow-up. The proposal of a tax exempt SEK 300,000 on the ISKs, do you think that would have any marginal impact on you? Is it just nice to have for the households?

Nice to have on the household. I don't think that will have a marginal effect on the saving in our bank, but I think it's a good signal for the household.

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

Yes. Thank you for taking the questions. So the other income line has now increased over a sequence of quarters is -- do you have any visibility on -- I mean, you mentioned there was stock lending and some other drivers here, but do you have any visibility on this line? Or are you surprised by this increase? And -- or do you think this -- the trend will continue or that the current level is sustainable?

It's, of course, very hard to predict. But as you know, the interest for short selling have been quite high this year. So -- and of course, ask increasing the limit, that is one explanation.

That's one. And then I think another explanation would be that I think a lot of people are the more trading intense, customer trading a lot of index products at the moment, betting on the index. And of course, that drives our business within Avanza markets. And that's always that weigh in an uncertain volatile market. So if the uncertain volatile market will stick, then of course, there will be a lot of activity in those type of products. But it's always all the things we are discussing is always connected to the general development of the asset prices.

All right. And the margin that you get from external savings accounts, is that showing up in the other income line as well? And if so, does that -- have that have had an impact yet?

It's included in the other income line, but we don't disclose what we get. And you can see the increase, but it's not -- we have told you already the most important increase is that expense increase.

All right. And then I know if you mentioned this, but you used to mention how many log-ins on the mobile app you have per day. Where is that now? And -- how is that comparing to?

I think we peaked at around 550,000 at the end of last year. And I think we are around 400,000.

It was almost 360,000 in Q3, so slightly down from Q2.

Okay. All right. And then lastly, on the occupational pensions. So there have been some time now since the most recent changes in the legislation. How has this -- how do you think this has developed? I mean -- of course, we're in a different market environment now, so that might blur the picture, but how do you -- the net inflows on the occupational pension -- pension side has developed since still changing the legislation. And now you're happy with that? Or can you be more that?

I think we have been absolutely taking advantage of those changes, and we see positive results. Am I happy with those results? No. I think we can do better. But as you self mentioned, pension is part of the long-term savings and people right now who are not logging look it the other way. And the contradiction in that is that it's actually now that you should pay even more attention on fees and these kind of things and new pension savings, especially if you are a bit older closer to retirement, but as we have been talking about for 20 years, how do you get the interest up for your pension situation. And usually, people start getting that around 55%. So it's -- step-by-step I think is going in the right direction. But if old people were rationale, when they're young thinking about the pension, I think there will be a lot of churn in the pension market, which we don't see.

And the next question comes from the line of Patrik Brattelius from ABG Sundal Collier.

A lot of good questions. So I will -- I only have basically one. So is it possible to give any more flavor of how much of the last rate hike, which occurred very late in the quarter of 100 bps in Sweden. How much that impacted NII?

It was just a couple of days. So...

Marginal.

Marginal.

And the next question comes from the line of Alexander Medhurst from Barclays.

I've actually had a good few but answered already, so just a couple of clarifications, please. And firstly, can you clarify what proportion of that SEK 60 billion on balanced deposits balance fits in tax wrappers? And also just a clarification, would you pay interest on deposits that are both inside and outside of wrappers if we get the rate rises we're expecting coming through in the next a couple of months? And then the second question, are you still seeing basically no difference in behavior between recent new customer cohorts or behavior of customers, cohorts still behaving in a similar way regardless of when they're added?

The first tax deposits within tax wrappers are the majority of the deposits. We haven't said and has given an exact number, but it's the majority. And I didn't really catch your second question, please?

Second part of that question was, would you pay interest on deposits that are both inside of wrappers and outside the wrappers?

That's something we said that we are not -- it's work in progress. We're following the market. So I'm not saying that we will, and I'm not saying that we don't. We will see how the market will develop. What we know is that the next rate increase will -- with very high certainty being shared with the customer one way or the other.

And a follow-up was, are you seeing any difference between new and old customer cohorts?

I think, it's a valid question that we look going into and will also get. But the new cost customers usually looks like the old customers, not any big difference.

The next question comes from the line of Panayiotis Ellinas from Morgan Stanley.

Just to confirm on the sensitivity to NII. Does this assume no interest on deposits? And does it also assume solid pricing on margin lending?

In the sensitivity, we haven't calculated with interest rates just as the picture chose issues we just have a cost of around -- a little bit above SEK 1 billion that is on savings accounts for the moment. And when it comes to margin lending, we just have accounted for 50% of the increase.

50% on the volume right?

If the policy rate goes up with 1%, the margin lending will go up with 50 basis points.

And then my next question is on the external deposits. I mean given the rate trajectory and then growth in the volume of external deposits, can we expect maybe a better monetization on this? I mean, are you in discussions with your partners to try and get more compensation on this?

Not more compensation. I think we want them to increase the interest rates so our customers will have a better return on the liquidity, because we have long-term agreements with our partners that has not just changed because the interest rates are going up.

Okay. And maybe on the -- maybe my next one is on the cost. So overall, Q3 -- sorry, this quarter costs were lower than expectations, but you reiterated the full year guidance. So shall we expect cost for the full year to be closer to the lower end of the guidance given you have enough room now for Q4?

No. We said we're going to be between the SEK 150 million, SEK 170 million. That's the guidance we have given, and that's the guidance we gave in January, and we stick to that.

Okay. And then for next year, the cost, I mean you mentioned the fleeting hiring for next year. I mean does your business plan assume next year activity to remain to similar levels as this year? So if activity picks up, I mean, would you reassess the hiring plans?

But I would put it like this, we are planning for a boring 2023 when it comes to the market development. If I'm totally wrong, we get a fantastic bull market during the year, of course, that can change a lot of things, but we are not planning for that. We are -- my personal opinion is that '23 will be a quite boring year. And hopefully, we will get asset prices back in '24. And of course, the stock market hopefully will turn up at the end of '23. But I have a quite negative outlook on the macro environment.

Okay. That's very clear. Maybe on the salary adjustment plan for next year. So does it capture the entire employee base? Or does it depend also on the timing of when the employees joined Avanza, I mean if you accelerate hiring in Q4?

No, some hiring that we have planned for 2022 will spill over to the beginning of 2023 because we are, for example, looking at some very special competencies within the IT that we would love to hire immediately if we find them, and we might find them in December, and then they will be hired in December and then they will be starting maybe in end of Q1, beginning of Q2 next year. So the message is just that the FTE plan or people plan we have for 2022 will be the same for 2023. Then you will see during 2023 from quarter-to-quarter, that number of employees will differ, and that is because we have a turnover in the staff, and that means that it's not like we have the same people 1st of January like we have the last of December next year because that will vary from quarter-to-quarter. We are not increasing the ceiling on how many people we can be. That is what we have said that, that will not be changed during 2023 compared to 2022.

Okay. And then discussions on the salary adjustments for next year, does it capture employment who are in the company up until now? Or how does it work if someone joined, let's say, later in the year, does this still get the salary adjustment for next year?

That's a fair. I get your question. Usually, when you hire people late in the year, you put the salary in the 2023 years salary year, so to speak. That's usually what happens from now until the end of December when you hire people late in the year. But I think it's a good question because I think wage inflation will be a big debate going forward. And I think that the unions in Sweden, they usually negotiate, but we are not dependent on that. But usually, they usually have what we call the mark. And that is, so to speak, driving total negotiations with employees. And this year, we had a 4% increase. But on top of that, you could say that, of course, given the tougher times, and especially in the tech scene, we are quite optimistic that we will be able to hire the right talent at the right cost because a lot of people in Sweden right now value job security, working for a profitable company and not working a full company who they think will do layoffs, because then you don't want to be the last person employed. So I think from an employee branding perspective, the negative market could actually be to our benefit.

And the question comes from the line of Ermin Keric from Carnegie.

Just two quick ones. You said that almost with certainty, you will share potential coming rate hike with your customers, do you expect that to be one to one, I mean, regardless if it's going to go on the tax report just a specific savings account, but do you expect to high tax rates by the same amount that the Riksbank is taking?

No, I'm just saying that I anticipate us to do that when net rates increase. But as we said during the call and in the presentation, we are closely following flows when it comes to liquidity and deposits see what the market is going, what competitors doing, what demand from customers are. So I'm sorry, but I will not give a clear answer on that. We will follow it closely and we do something, we'll tell you. I'm sorry, I cannot give you a clear answer on that.

That's very fine. And then just the final question on the cost side, given that you are now saying that you want net higher next year, will that have any impact on your product launching plan for the next year?

No. I think that we have a great team of people in Avanza. We have a lot of resources that we build up during the good year, so to speak. So we are more saying that we focus on efficiency, consolidation and I'm absolutely comfortable that we have a lot of great talent to do a lot of great things for our customers during next year.

There are no further questions, and I would like to hand the conference over to our speaker, to Rikard Josefson, for closing remarks. Please go ahead.

Okay. Thank you very much, and have a great Tuesday.

That does conclude our conference for today. Thank you. Nice day.