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

Good day and thank you for standing by. Welcome to the Avanza Bank Interim Report January-September 2023 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.

Good morning, everybody. It's time for the Q3 results and I will start with the business update. Of course the third quarter as previous quarters has been in a tough macro environment, a challenging time for the households. And at the same time, we see good net interest to the platform and we can see that our customers are net buyers of funds and equities. So there's still a majority of our customers on the buy side. And also as we're showing here is that the share of liquidity is very, very stable and that we have been quite successful with our savings account and we still see that the liquidity is not going up. So the customers are more or less invested in the same level as they were previously. Of course, as I always say, net inflows builds Avanza over time and we had almost SEK 55 billion in net inflows so far this year. We had a great quarter in Q3 when it came to net inflows and we also added a lot of new customers on the platform. And the net inflows accumulates now to twice as much for the full year of 2022 and this is a figure that I'm very proud of because I think it shows that our customers are really trying to take care of their savings and we can also see that the customers that are saving is a lot of customers. So these are not oneoffs because it's a lot of customers saving a little bit that builds these net inflows so far for 2023. Looking at the net inflows is also quite steady. It means that month-by-month or quarter-by-quarter, we can see figures that are quite satisfying. If you had asked me in the beginning of the year, I would have thought that the household has struggled a bit more. But I think the paradox is that given the tough times in the economy, I think people are prioritizing savings to try to build buffer in their balance sheet, so to speak, to be able to handle energy prices or whatever will come along in the next couple of months. We can also see that the monthly savings of SEK 1.5 billion is very steady and has not gone down during the year, which is of course given the circumstances good news. And we can also see that the premiums being paid in to the pension company is around SEK 350 million a month, which is also healthy figures. Of course there are some tech companies that are laying off people, that has a negative effect. But on the total, we are gaining market share and growing our pension company in quite a nice way. The customer intake is also quite steady. We have gathered now 95,600 (sic) [ 96,500 ] new clients for the year. And we always know that when the market is a bit depressing, number of new clients is a bit lower; when the markets are good, it's a bit higher. But we can also see that the churn in the customer base is down to 0.8%. So that means that the customers are not leaving us, they like what we do and they're putting in money, which of course is good news for the future. Market sentiment is of course affecting the trading volumes and the trading volumes are at quite low levels. And of course lot of customers are hesitant in what to invest in, when to invest. And we can also see a trend that for example our private banking clients, they are not buying 10,000 shares in a company. They're building up their position over longer period of time if they like a company and want to be invested in it. So people are a bit more careful when they're making their investment now than they were when the stock market is very positive. A very important thing for us is of course that we cannot affect the turnover of the stock exchange, but we can affect that we keep our market shares. And looking at the market share of NASDAQ and First North, we are actually gaining market shares when it comes to trading number of transactions and the last quarter, we also gained when it came to turnover. Turnover is of course affected a lot by institutional trading, which we are not in. So the most important thing in these 2 slides are number of transaction and we're actually step-by-step gaining market share. And I think this is important to bear in mind because that means that when the market will go up, when turnover will go up, we are very well positioned to take advantage of that and that will of course have a positive impact on our trading related income. Taking a glance at the Swedish fund market and talking about mutual funds. About 35% of the total fund capital is now allocated to our own fund company and that shows that we've been very successful in launching more own funds under the Avanza brand and that has been a great success the last couple of years. But also looking at the quarterly inflows to the fund market, we are gaining a lot of market share when it comes to funds. And in the third quarter, 45.4% of all new net inflows in the mutual fund market ended up on Avanza platform, which is a great sign of strength in my opinion. Looking at the highlights from the quarter. We have broadened our mortgage offering to agriculture property, which is a piece in the puzzle for especially our private banking clients, which often have several homes. We added a lot of graphs and pension insurance is now approved for digital signings. We increased the interest rate in our savings account to 3.5% and I think we have over SEK 20 billion on that. And at the same time, our partners of Savings Account+ have increased to around 3.7%. So I think that now that cash is, so to speak, an asset class and people want to allocate money, we can see clearly that they're going into the savings account. Also looking at when we're talking about cash and liquidity for our customers, the money market funds are still on a very low level to my surprise. I think I predicted in beginning of the year that the money market funds will be much larger part of the growing mutual funds just because of the interest rate environment, but it seems like most clients are happy to just put it on savings account when they can get 3.5% up to 3.7% on the platform. Always for us is employee engagement. We also did a survey for our eNPS score. So we have the full year result, which means that we ended up at 58%. Our goal is to have 50% and I think the average in the financial industry is 7%. So we have very motivated engaged employees on the platform. And as always, we also know that customer satisfaction is absolutely the #1 priority because that will over time create great shareholder value. And I'm also comfortable leaving the company because this is my 23rd and last quarter result. We still have a pipeline of strong innovation, a lot of opportunities to develop Avanza in the way further. And I'm absolutely convinced that the Board, with assigning Knut Frangsmyr as the new CEO, has made a very great choice and he will be able to take Avanza to the next level when I'm leaving the company in a few weeks. With those words, I would like to turn over to Anna, who will go through the financials.

Okay. But first before beginning the financials, I would like to take the opportunity to thank you, Rikard, for the excellent work you've done and the great teamwork and all interesting discussions we have had during the years. But above all, I would say that the profound expertise in the field of finance is very important for us and it has been a privilege working with you and I wish you all the best. Okay. Although we have been seeing slow trading activity and a subdued stock market during Q3, we are still reporting our second strongest quarter and 9 months result ever. This shows the importance of having several income streams and the resilience of our business model. Operating income increased both quarter-on-quarter and for the 9-month period and together with seasonally low personnel cost, this resulted in an operating profit of SEK 588 million for the quarter and for the 9-month period, the increase was 25% compared to last year. Return on equity was 41% in the quarter and 39% for the 9-month period, well above our long-term financial target. And we saw strong earnings result with an earnings per share of SEK 3.25 for the quarter and close to SEK 9.5 for the 9-month period. Operating income increased by 2% compared to Q2 despite slow trading activity and lower brokerage income. All other major income streams increased. The overall subdued market conditions affected brokerage income that decreased during the quarter. However, gross brokerage income per brokerage-generating turnover increased slightly and, as Rikard mentioned, we are still gaining market share in both turnover and transactions. Net currency related income, however, increased due to higher turnover in foreign securities, which increased to 18% compared to 16% in Q2 of the total brokerage generating turnover. Net fund commissions also increased driven by higher average fund capital and despite the higher share of capital invested in index funds with lower margins. Net inflows to funds amounted to SEK 6 billion in the quarter and that's corresponding to a market share of 45% of the net inflow to the Swedish fund market in Q3, which can be compared with the overall market share of 5%. And trading activity in Avanza markets increased and was the main contributor to higher other income compared to Q2 and also the income from stock lending increased. We report a healthy NII in the current interest rate environment increasing by 4% compared to Q2 and that is despite substantially higher interest expenses. The average interest rates on deposit in the quarter was 1.44% and where the deposit rate in our savings account are 3.5% since mid-September. We haven't made any changes to deposit rates in other account types apart from our savings account during the quarter. And I think that Avanza has a competitive offering, including our external savings accounts, and this has served us well and contributed to strong net inflows in the last quarters. The main part of the flows to our savings accounts come from external banks and to a lesser extent from other internal accounts in the quarter. And the return on surplus liquidity increased by SEK 73 million due to higher volumes as well as higher market interest rates. And the average interest rate on internally financed lending increased to 4.22% and volumes were slightly higher, which also contributed positively to NII. For the mortgages, a 50 basis point hike linked to the latest policy rate have been postponed to November and another 25 bps to February next year. And all changes in interest rates, both when it comes to lending and deposits, are always a consideration of current competition and expected customer behavior. And NII development going forward is of course also a result of volume changes, which are difficult to predict. Operating expenses decreased mainly as a result of seasonally lower personnel cost whereas marketing costs were seasonally higher. The number of employees increased by 2%, which is in line with the people plan for 2022 that has remained unchanged for this year. Cost of savings capital ratio for the 9-month period is 4 basis points above our long-term target of 12 bps and this is of course to some extent the result of the stock market downturn and the lower savings capital. And market sentiment is impossible to do anything about, but as said, we have continued to show strong net inflows, which is a sign of strength in this challenging market condition. And we don't have any cash cutting plans, but we are working on operational efficiency to keep our cost down. And Avanza has always had a strong cost focus and I am convinced that everything we do, we can do better and more efficiently. Our capitalization is strong with very good margins to the requirement and we continue to value our low risk business model. At the end of September, the SFSA announced the results from its 2023 metric for Avanza and the Pillar 2 guidance on the leverage ratio was reduced to 0.5%, which is very positive. On the other hand, the risk-based Pillar 2 requirement was raised to 5.7% and this means that our total requirement now amounts to 18.2%. And the LR requirement, including Pillar 2 guidance, is down to 3.5%. And the decision means that we have a surplus of around SEK 1.3 billion based on the LR requirement. And going forward, the risk-based capital requirement could determine the capitalization depending on allocation in the balance sheet although the leverage ratio is a more sensitive measure depending on deposit fluctuations. Avanza is showing strong resilience in a challenging macro environment and we are reporting our second best quarterly results ever. Increased cost of living are putting pressure on the households. But despite of this, we are continuing to prioritize savings, which we can see in the strong net inflows. Even though we see low trading activity due to subdued markets and low volatility, we are taking market shares from the Stockholm Stock Exchange and this will make us well positioned once the market optimism returns. Our ROE target also ensures a continued focus on profitability as well as demonstrates our focus on keeping our capital efficient and low-risk balance sheet. Cost guidance for this year stands and costs are not expected to exceed SEK 1,160 million. And regarding next year, we are currently in the middle of our business plan process and we'll come back with the cost estimate for 2024 in connection with the Q4 report. And of course our incoming CEO, Knut Frangsmyr, is of course an important part of that custom and I'm excited to have a new CEO on board and I'm sure he will bring fresh perspectives and opportunities to Avanza. And with that, I would like to open up for questions.

[Operator Instructions] The first question comes from the line of Jacob Hesslevik from SEB.

Inflows continue to be very impressive as you commented on, but I was wondering which cohort is driving it. Do you see any differences between customers joining prior to the pandemic to customers joining during the last year?

No. I think net inflows is from all type of customer groups and very many customers contributing, which is in my opinion very good news for the future because that means that the business risk in the net inflow is a bit lower than you had during the pandemic where some customers could put in a lot of money at one time. So just people every month trying to put aside part of their salary and put it on the platform. So I would say we don't see any major differences since the pandemic.

So you see that the automatic savings have been quite stable at SEK 1.5 billion, but you're adding more customers. So the new customers must adopt the automatic savings or have the overall customer reduced the amount that they have on the automatic?

No. If you look at the SEK 1.5 billion, which is quite steady, of course there are some customers lowering their monthly savings and new customers are doing it and new customers are also adding monthly savings. So beneath that number, of course there are customers coming in, so to speak, and going out. But you can also see that the automatically monthly savings is one thing, but we have a lot of customers who don't have automatically savings, but they're putting money on the platform every time they get their salary and allocate that money to different type of investment opportunities. So I would say that the number of, so to speak, monthly savings is actually in reality a bit higher than SEK 1.5 billion because a lot of people do it by themselves so to speak.

All right. That's very clear. And I'm just wondering on repricing your lending, you still have not repriced the mortgage portfolio at the same extent as Riksbank have hiked its policy rate. I mean all other bank in Sweden hiked the rate, but Avanza has been a bit slower in that regard. How come?

Since our mortgage loans is directly linked to the [ searing ] rates, we could increase it automatically when the searing rate is going up. But if you look at the mortgage market, they are always a bit slower increasing the rates from the large competitors, which means that if we automatically did it when the searing rate went up, our offering in the short-term perspective wouldn't look that good. And that means that we have taken decision to be a bit slower increasing the interest rate to make sure that our interest rate is competitive in comparison to other banks. That's the reason why.

Do you expect NII to continue to grow in future quarters, right?

Yes, we still have more increases to be done when it comes to our private banking clients going forward and of course that will have a positive effect on the NII.

Also on the tech issues during the last month, in your report you write that you had 100% availability when there were at least 2 incidents during the quarter. So is it still third-party add-ins and suppliers that are the issue or have there been many problems on your side?

No. I would say Q3 was very good with 100% availability on the platform. What happened was on Monday this week, we had like 18 minutes downtime and that has not done with any technical thing. It was a human error when we were configurating a test environment that affected production environment, which we were not aware of, and that was a mistake and it won't happen again because those kind of changes are not to be done during the time when the stock market is open and that was human error doing that.

All right. That's very clear. And thank you, Rikard, for these years. I will miss seeing you in the birthday videos from Avanza. And I wish you all the best and good luck with your future endeavors.

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

A few questions from my side. You got updated requirements from the Swedish FSA so now you have more regulatory clarity. And you have a significant buffer to your leverage ratio and also a significant capital buffer to your regulatory total capital requirement of almost 11%. Some of your peers in the Swedish savings market have a target of 1% to 3%. Given that this substantial overcapitalization is negative for your profitability, how should shareholders think about the potential for an extra dividend or increasing the payout ratio looking ahead?

I think that's for the Board to propose to the annual meeting what kind of dividends Avanza should pay for 2023. But I could say this much that of course the outlook for paying out more than 70% I would say is from my perspective positive because of course we can transfer equity, so to speak, or over equity that we have to our customers with buying share backs, which we have not done since 2011, or paying higher dividends. And my prediction is that it will go the dividend way when we close the books for the full year of 2024.

And a follow-up on that. How much of a capital buffer would you want to operate given that you also have a profitability target in your financial targets?

I would say that work in progress and we will come back to exactly what kind of capital buffer we need. We just can conclude that we're way over whatever that buffer target will be and that's work in progress that Anna and the team and Knut will probably come back to when they release the Q4 results. But you're totally correct on your observation.

And continuing on that, in an interview with the Chairman of the Board, it was highlighted that product offering like payroll account and credit cards are missing on the Avanza platform. Are these strategic priorities going forward in order to grow your market share in Sweden?

On my time as a CEO, we have always discussed these kind of things as salary accounts and payments and cards, but it's not in the immediate plan or the near future to be doing that. I think that was more an expression. Of course to be a universal full bank, we need to have payments and cards. But we still believe that focus on investment savings is for the near term or midterm the focus that Avanza will have.

Because one would assume that focusing on payroll accounts that would open you up to more AML personnel and AML relevant cost and that would impact the cost base. Do you agree with that assumption?

Absolutely. If you go that way, you will have much more AML risks, which you need to mitigate with more staff, more things. You need to invest a lot of money. You need to attach yourself to the Swedish payment system. You would also monthly get very much liquidity that could affect the leverage ratio negatively. So I think there are a lot of question marks around that you need to work around if you're going to go that way. But I will leave that in good hands to Knut and the management team since I'm leaving the company. But it has not been up as a serious discussion to start a project, so to speak, to do salary accounts and cards. I think it's more in the context that of course we are missing that, but I think that we are proving that we are doing quite okay without that. And of course you are totally correct that the cost surrounding that kind of offering and the focus for the company would be substantial.

Great. I agree. And my last question is your market share in Sweden stood at 6.5% in mid-2021. In this last report, I can see it stands at 6.6%. You have a target of 10% by the end of 2025. Do you view this target as realistic and what needs to happen for Avanza in order to grab market share more rapidly the coming 2 years?

I would say if we have market conditions like we have right now, we will not reach a target of 10% market share. If you would get a lot of tailwind in the equity market, let's say, second half of '24 and full year of '25; I think it's reachable, but challenging.

No follow-up for me. Good luck with your future endeavors, Rikard.

The next question comes from the line of Ermin Keric from Carnegie.

Maybe if we start with on the headcount, it increased somewhat during Q3 and it's now higher than it was during last year as well. Is this just something temporary or are you actually starting to add people for any specific reason currently?

No, we're not adding people -- we are adding people, but we're not adding our people plan because we have a people plan, which is the same for '23 as it was for '22. But when we came in in '23, we had vacancies that we are filling and quarter-to-quarter some people leave, some people come. So the target number of full-time employees is still the same for '23 and '22. Then if we are happy, we can fill some more vacancies for example on developers and that means that headcount goes up even though our people plan stays the same.

That's very clear. Then on the lending side, I believe you postponed some of the mortgage rate hike that was supposed to be done during Q3. Do you still expect that that will be possible to push through fully when you look at the current market dynamics in the coming quarters?

I think it's possible and I think that will happen, but of course with the disclaimer that if competitors' interest rates will be more attractive if we do that, we might postpone it further. So that's my answer to that.

Great. And then one last question just on the capital. You've previously talked about some plans to issue AT1 capital at some point. Now when you had your SREC, has anything changed to that plan?

No. I think that that is still a tool that we have in the toolbox, but we have put it away, so to speak, for the time being because the market condition and the pricing is not where we want it to be to do that. So I think that Anna and the team will come back and might do that and take that up again when you see a much more healthier market condition for AT1 capital. So that's the way we view it.

Excellent. That's all for me. And as previous speakers have said, good luck with future endeavors and thanks for your time. It's been highly appreciated.

Our next question comes from Nicolas McBeath from DNB.

So I think I tried this question last quarter, but I'll try this time around again. So I was wondering what, if any, is your plan to get within your cost target of being below 12 basis points?

My answer to that is that I'm very disturbed that we are over 12 basis points. We are right now betting or we are seeing the great net inflows so that will sort itself out when the AUM increases hopefully in the future. If it would stay for a long period of time at these levels, I think measures has to be done, but I will hand that over to Knut and Anna since I'm leaving the company. But that's my answer to it, Nicolas.

Right. So perhaps then Anna could help answer this question. How do you think about more substantial cost efficiency measures like organizational restructuring. So I mean I know this has not been the Avanza way of managing cost in the past. But given your cost position now and rather high cost growth of several years, could this be something worth exploring?

Of course we are looking at how we can improve every day and as we have mentioned since we're not increasing the people plan, we are for example moving. When somebody is leaving the company, we can change that person to another department of the company so to speak. But I think it's too early days and of course we are interested in investing in future growth. So we think that it's important to have the balance. But of course, as Rikard said, it's not good that we are not on the 12 bps target, but we have also said it's over time. So we have to come back with that and we are in the middle of the business plan process. So hopefully, we can give you some more flavor when we will release the Q4 report.

Okay. So I guess we'll have to wait for more clarity then to the Q4 report. But until then, could you please maybe elaborate around the kind of cost drivers you're currently facing; I guess wage inflation, currency effect, hiring plans, IT development, et cetera?

Of course we are as everyone else exposed to higher inflation and all our partners are trying to increase prices. So it's hard discussions with them and we have some invoices both in euros and U.S. dollars and that of course we are affected by the lower or the weaker Swedish krona. But since 70% of the cost base is consisting of personnel costs, that is of course the most important part of it.

All right. And then a follow-up question on inflows. So I noted that your net inflows into occupational pensions have been declining for a couple of quarters now and in Q3 were also down somewhat year-on-year. So is there any explanation behind this decline? And also if you could comment on how you see the outlook for pension inflows from here? I mean this has been a huge potential for some time, but inflows into this segment has not really taken up. So is it just about hoping for more regulation to free up more capital or do you see any potential for you to take a more comprehensive or to make a more compressive push for new premiums through changing the way you work with employers or pension brokers?

I can start with the first question when it comes to premium inflows. Last September was on a Saturday so that's why the Q3 figures were affected negatively this quarter. We had stronger inflows in the beginning of October, which relates to September.

That's a calendar effect so to speak. On the second part of your question, I think we're growing the pension. Because when it comes to regulation, I think it was a very sad news when the Swedish finance section said that they didn't feel that there was a need for easing up the regulation that your former employer has to sign the release form for your pension. That was sad news for the Swedish consumers. Working with brokers, that has been up to discussion, but we have decided not to do that because we want to grow the company and want to own the end customer relationship, which is quite important for us for cross-selling purposes also over time.

All right. And then a question on customer activity. So it would be interesting to hear you reflect on the current customer activity levels. So if I look at Slide 6 in the presentation material, it seems like brokerage generating trades per brokerage generating customer is more or less at the level where it were for several years before the pandemic. Do you think we're below normalized levels and if so, why do you think that?

I don't know. I think it's a very difficult question. But at the same time, I think that the stock market goes up and it goes down and I think that we are at very low levels. And I think that the levels will increase when the optimism is back in the equity market and then we are a substantially larger company, which will be benefiting from that when that happens. And I believe that will happen when you will see confidence that the interest rate has peaked, inflation is under [ ordering ], maybe the Swedish krona is a bit better and my prediction is that will end second half of '24.

Okay. And then my final question. Which of your major revenue lines, brokerage funds and NII, are you most excited about growing over the next couple of years and why? And what do you see as the main revenue growth driver in the medium term for Avanza from here?

I would say that where we are gaining a lot is in mutual funds because I love mutual funds for 2 reasons. It's a good allocation for our customers and it's also reoccurring revenues for Avanza and 80% of the Swedish population is one where you're now invested in mutual funds. And I think that was also during the quarter a very positive sign that 45% of net inflows in the Swedish fund market came to the Avanza platform and also a positive sign that we've been quite successful with our own fund company, which is growing most in the industry I would say relatively sized, and we've been very successful with the launching of our mutual funds by concept also. So that's what I would say in the long term will be an income line that will be more and more important for Avanza. But then of course, Nicolas, we love trading income because we love the stock market, but it is a volatile income.

And now we'll proceed to our next question and it comes from Panayiotis Ellinas from Morgan Stanley.

I have a few questions. Firstly on NII, can you remind us what repricing you will be doing on the lending book in Q4 compared to Q3, please?

Excuse me, I didn't hear the question. Could you take it again?

Can you remind us what repricing you'll be doing on the lending book in Q4 versus Q3?

How will we change? You take that, Anna.

In November we have 50 bps increase. Half of it comes from the main risk, but the [indiscernible] risk was increased by 50 bps and then we have 25 bps from July so total of 50 bps going forward when it comes to November.

On the private banking mortgage loan, we will increase it 50 basis points on 1st of November.

So mortgage on the margin?

On the margin lending, it's very much about -- we haven't decided yet. It's about competitiveness and customer behavior and so on.

And I think that will be debated -- that is the wrong word, that will be decided when you get the interest rate increase on 23rd of November. If we get the interest rate increase, which is my prediction, that will increase it 25 basis points. And then I think management will take a decision how we will deal with the margin lending. It's a little bit of -- just to elaborate a bit on that. It's a quite tricky situation because you could increase the interest rates on margin lending, but the risk is that the customers start feeling it so expensive so they reduce the margin lending less. So that means that your margins could go up, but your NII income from the product goes down and that's what you have to balance in pricing margin lending.

But you should also be aware that we increased the rate on the margin lending in the end of September. So that will of course have an effect dependent on volume development going forward.

Okay. That's clear. And then my next one is on the customer trends. It's positive that the customer base is growing. However, if I look at the active users, that's declining, right, the lowest level ever is like 18% now. I think the average was around 25%. So can you give us maybe more color there what's happening.

I think it's a very good question. And I think that usually when the stock markets are good and people are making money, they log in every day. When the stock market is bad and people are losing money, they say it's long term; I don't want to see red figures, I will not log in today. So it's very, very related to daily active users of the market sentiment. And now people are long term, they don't want to see it. They just want to go on with their lives.

Yes. But I mean is this more from the previous cohorts turning inactive basically?

This is customer behavior in the savings market. I speak to colleagues of other banks and they say the same things that people are paying their bills, putting the monthly savings and then they don't want to look at their savings because it's going down and that's the human nature of people. And when you can see the stock markets are going up like we had in '21, people are going 4 times a day to just see how much richer you are after lunch than before lunch. So it's a very, very common behavior that we've seen over time in this industry for years.

Just if I look at Q3 only, right, quarter-on-quarter new customers are up 31,000 and the active users quarter-on-quarter down 24,000. So that's why I'm trying to understand if it's...

That is the daily active users we are discussing, the people who are logging in every day. So if you used to log in once a day, you can maybe log in once a week, then the active users goes down.

Okay. And the new customers you have been acquiring I presume is mostly the standard customers, right, rather than private or pro.

We have quite a substantial number of private banking clients and then there are movements of course. But I would say this is a good question that we always get. I think the new clients look like the old clients. We cannot see any difference. And of course we're always tilted to the younger segment when it comes to attracting new clients.

Okay. And my next one is on the flows into the savings accounts obviously has been very strong in Q3. What are the trends there? Shall we expect further growth? Because if I look at the remaining cash outside savings capital and third-party or external cash, it's actually declining. So I'm just wondering well, it seems like there is less if you want hard cash to be invested in the investment accounts. So I'm just wondering how do we think about this mix in the cash within the platform?

I think if you look total on the platform, the liquidity or the number of cash is very steady around 15% of total AUM and that has not been changing. Of course people still have money in tax wrappers because you don't want to take it out for negative tax effect. But of course we have grown our savings account quite a bit during the year and I would say that mostly existing clients allocating their cash to our platform because we have a good offering. And we cannot see that we get a lot of customers coming in just for using us as a savings account bank. It's more money on the sideline or allocated since we today have interest rates that people find quite attractive. And this is also related to the stock market because if you would get an optimism in stock market, I'm convinced that the share of cash will go down and the AUM will be allocated to equities and mutual funds. But at the same time, people are holding cash at the moment both for because they don't know what they want to do and the second reason I think is that people who would like to have a cash buffer when energy prices might hit the roof again during the winter or something like that. So it's very hard to predict the movement in the cash.

I guess that's a sign of low appetite, right, and high coverage as you said. Okay. And then the last one on costs in Q4, shall we expect in year-on-year like different developments from what you have seen in the 9 months so far like so far quarter up 11%.

No, I think Anna was quite clear on that. You should expect that the cost will be maximum SEK 1,160 million. That's the cost target we gave when we released the Q4 numbers in January and we're convinced that we will be able to deliver maximum SEK 1.160 billion in costs for the full year of 2023.

Got it. Thank you, Rikard, and good luck in your new adventures.

Now we're going to take our next question from Jacob Kruse from Autonomous.

So I guess I just had 2 questions. First, on the debate around introducing payments and salary accounts. The change to the new CEO, his background with Klarna, which I guess looks like a payment company with more of a credit risk management profile. Should we read anything into that with respect to these discussions? Is this in any way sort of signaling adding some capabilities in that space? And then my second question was just on the investment savings accounts. I think the tax rate goes up from something like 0.9% to 1.2% next year. Does that impact how you think about your savings product offering and does it impact how you think about your deposit pricing for clients?

Okay. We start with the first question. I think you have to ask that question to Knut when he comes on board here on the 6th of November. But for the time being at least, I think the strategy for Avanza to grow the company within Sweden and the core business of savings and investments, I think that stands at least for the short to midterm. And then I think that what influences Knut can give to the company, I think that he has to start an answer to that question. But I think that his experience as a person and as a professional will absolutely add perspective to the company that will be vitalizing for Avanza once I'm gone. On the second question, I think it's a very good question because I think that you might see that customers who are buy to hold on equities or mutual funds might want to take them outside the tax wrapper because if you own a stock for a long, long period of time, it's actually more cost efficient to have it outside the tax wrapper if it's up to 1.2%. What will happen in my opinion is though that the easiness of using tax wrapper when it comes to doing your taxes and how you declare your income from capital gains and so forth, the convenience of using tax wrapper is still there. So I don't think you should expect a lot of customers moving from tax wrappers to outside tax wrappers might be very rich clients with a buy-to-hold perspective. So even though it's 1.2%, I don't expect any dramatic changes due to that.

And just your savings accounts are mostly sitting within the ISKs I think. Are those money subject to the...

No. They're savings account in outside tax wrappers so the interest you make on a savings account on Avanza or a Savings Account+ partner is taxed with 30%.

Right. Okay. Well, thank you very much and thank you very much for these years. Best of luck.

Now we're going to take our next question and it comes from Rickard Strand from Nordea.

Start off with a question to Anna. You mentioned that the vast majority of the flows into savings accounts come from external banks. Would you still say that they sort of come to clients that already have other engagements on your platforms or have you seen some trend shift there that there is new clients coming in that just opened a savings account?

No, we haven't seen any shift in that. So it's clients who open other kind of account types as well, very few.

Okay. So same as the previous quarter, I think you mentioned that comment there as well. And then on the mortgages for private banking customers, do you have any expectations of what margin over STIBOR you expect sort of your rate to be when rates stabilize and there is sort of a fully implemented repricing of your back book?

Difficult question. I think that you have to look at the competition at the same time. So as we said before, we have a delay factor in increasing interest rate which I explained before and we will be able to increase interest rates. If you get a 25 point rate hike in November and we have saved 25 points, we could over time increase it by 50 basis points. And I think the intention is to do that, but with the disclaimer that if competition is fierce, we still want the interest rate number to be attractive for our private banking clients. So that's impossible to give a straightforward answer unfortunately because it has to do with competitors. But if everything is good, I would love to be able to increase the interest rate by 50 basis points and take the full effect of the interest rate increases. But at the same time, you have to be humble for the competition.

But did you have a figure in mind there when you say that it needs to be attractive? Is it how many basis points below sort of the incumbent bank you need to be?

I would say we need to be -- difficult to say. Let's put it this way. Our private banking client needs to feel that I'm getting a better offer from Avanza. For some clients that's 10 basis points, for some clients it's 25 basis points and I think that will be work in progress for Anna and the team in the beginning of next year when we reach 1st of February where we can do these increases. So I can't give you a more clear answer than that.

Yes. Then on the discussion about your capital buffer and ambition to issue AT1 and the potential for extra dividend or capital repatriation in any form and we know that it's a Board decision, et cetera. But do you think that it would be necessary for you to issue AT1 before a potential extra payment could come or could that happen before you issue AT1?

I think that we will be in a capacity to pay more than 70% of our profit for the full year of '23 in dividends just regarding our capitalization. So that's not linked to the AT1 discussion. If we issue AT1, that will be just giving you even more maneuver room, so to speak, for dividends. But that's up to the Board and when we have the full year results. But I said it before, I think the outlook for good dividends for the full year of '24 is quite positive for Avanza shareholders.

All right. That's all for me. Thanks a lot, Rikard, for a well-done job and also good luck to your future endeavors.

[Operator Instructions] Now we'll proceed to our next question and it comes from Enrico Bolzoni from JPMorgan.

Just 2 questions, please. One was on the brokerage yield that basically came up marginally despite the brokerage volumes coming down so. suggesting that I think, as you mentioned, there was a bit less activity from private banking clients and pro accounts. I found that to be somewhat surprising considering the market context. Can you just give any color in terms of what sort of behavior would you expect from the various cohort of clients with respect to brokerage? And the second question is related to cost. For next year if markets remain tough as they are now, should we expect again that the full-time employee number to remain broadly flat year-on-year?

On the first question, I think it's a very difficult question when it comes to clients. Anna?

But like to say that it could be that a lot of clients within the different brokerage classes, they pay for example the minimum brokerage. That's why that could be one explanation. But also since we have seen higher turnover when it comes to the foreign trading so that could be one explanation.

Yes. And then I think if you look at private banking clients that usually trade even in bad market condition, I will come back to the pro clients, they are a bit hesitant and I think I've said this before. When the markets are good, they buy 10,000 shares in one company. Now they buy 1,000 shares over 10 months' time. So I think there's a slower behavior, so to speak, from that kind of client. And I actually met day traders who also gave up because then they cannot handle the volatility and the negative sentiment, but I still think that there are a lot of trading within the pro clients. But even the pro clients are affected by difficult market conditions because you have to have a strategy and if that strategy isn't working, you go back home and try to find a new strategy. And you can see some pro clients still trade, but even pro clients trade a bit less than they normally do. That is my broad answer to the question with Anna's comments also. When it comes to the cost, I would say that Anna and the team will communicate the cost target for 2024. That's a business plan decision for the Board and Anna and the team that they will take, I will say, before the Q4 results. My only comment on it is that of course you have to be careful with cost given that the outlook for 2024 is very challenging in my opinion. So that is my word on that that I think Anna will come back to it.

Thank you and the best of luck for your future life and career.

Okay. Then I just would thank you all for interesting questions, challenging question, a very good relationship over the past 6 years. And I wish you a great weekend and all the best in the future.

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.