flatexDEGIRO SE (FTK) Earnings Call Transcript & Summary

Thanks for dialing in. Thanks for attending this call. After Saturday's press release, we think that it makes lot of sense to have this clarification call with the market participants and to also allow market participants to ask questions and to give you a little bit of inside guidance on what we have published on Saturday. Three key topics that were published on Saturday in our press release. One is with respect to the year-end, so 2022 financial guidance. I think that is a topic that I'm happy to answer, to discuss at the end of this call or at the end of my part before jumping into the Q&A. The more important focus is on the topic of the audit that has been conducted by the BaFin and has been brought to the end and some sentences with respect to changes in the governance structure, what was behind the rationale, what is the rationale of these governance changes. Let me start with the BaFin audit. As we have informed you in the press release, there has been in 2022 a BaFin audit -- or there had been a BaFin audit that came to the end. It's obviously always a very challenging and important process that we had to go through. But it's also important to inform you and to inform the markets with respect to that audit that it is a very well-known process by the regulator, that this process happens with a number of banks across Germany. To give you [ a ear ] before I start to go into some details, some numbers, some figures to benchmark this audit process. The number of announcements by the regulator, by the German regulator in 2022 with respect to procedures and audits was higher than the announcements over the last 5 years before that gives, I think, also an indication of the intensity of the audits that are going on, which are absolutely needed and necessary given the past history and that also shows that the whole industry is currently under focus and the regulators here trying to bring back also a lot of trust, obviously, into the general German markets. So we've been one of these audit's reason, background, rationale for these audits. A couple of points that I would like to highlight before we go into the findings and results. We had some findings in the regulatory reporting and communication of KPIs. We had a change in our holding status to 2F KWG and the KWG which says, since the beginning of this year, the new law that says that holdings of financial institutions and financial services providers have to be regulated much higher than in the past and are directly also regulated by BaFin. So change in status. Third, our status as a small and non-complex institute has been changed, so to speak, we are not any more a small and non-complex institute. The reason for that is obviously after the transaction, after the acquisition of DEGIRO, we have grown in clients by 3x from 800,000 to more than 2.4 million. We have tripled revenues. We have tripled trading activity if you compare 2019 to '21. So much more complexity, much more setups, much more processes, much more procedures that resulted in this decision and resolution by BaFin. Out of these reasons, we have had, as I indicated, an audit process that was conducted by the BaFin throughout 2022. And with certain findings, with certain shortages that BaFin has identified and has communicated to us, which we take obviously very, very serious, but are also very, very positive and keen to solve them. Let me try to give you some insights into what the regulator has done and where the findings were, mainly in 3, 4 areas, touching the regulatory reporting structure, touching internal control systems and organizational structures, things where we have to improve our processes, to adapt certain processes, areas where we have to improve and adapt certain procedures and last but not least, to improve significantly the documentation of processes and procedures. As you know, we are a very tech-led business model. We had the same audit on the IT side in 2000 -- so 2.5, 3 years ago as well with also back then certain findings that were communicated to us by the BaFin, where we were in very close discussion with the BaFin and working -- are working these issues very well out. So we are a bit, so to speak, already known to this process and to the communication strategy, how to solve and mitigate these findings. As I said, different departments, mainly in the middle and back-office structures. I think important here to highlight is that these findings did not go in specific way against the financial performance of the business. There were no discussions or findings about our financial audits. I think that's very important to highlight, especially given the fact that very often these audits that are publicly visible are touching very often the accounting standards and principles of companies. We are here absolutely not discussing the accounting principles of our group or external figures or numbers that we deliver. Actually we had last year an audit by the DPR, which is, so to speak, the institution that audits the audited reports again with no significant findings with respect to P&L or cash flow statement or credit topics. Obviously, there are also things that you can always improve, but by far, nothing that touches the financial stability, robustness or performance of the company. So we're talking about the audit that checked the procedures, processes of various middle office and back-office structures. The result of this audit is that there's some work to do on our end, especially with respect to the implementation of procedures and processes. As I said, we are IT -- an IT-led company. So we have here 2 ends that we need to work on, first to implement and improve certain APIs between our datasets, between our systems to increase the level of automatization, reduce the level of manual work. That's a very, very important point. Second, the introduction of internal control systems holistically in the group to mitigate issues, errors that might happen out of manual work out of inconsistencies, out of missing integrity of data. So high level of internal control systems. And last but not least, also to continue to work on the governance structures in the group. Just also here to make you aware of that fact, we have started the project already. So it's not like we were waiting and waiting and waiting and doing nothing. We started already with the implementation and the workout of the BaFin findings. It's very important here to show not only to -- internally to the employees or to the capital market, but especially to the regulator that we appreciate the findings, we understood the findings and we will do our very best to work these findings out. The result out of these findings is mainly that we had with the SREP, as communicated, we believe that our -- including the management buffer, we have expected our CET1 request, so to speak, at 17%. This has also not changed in any way. The only thing that changed as a second part is that in the past, we used here and there in the processes and procedures, so-called risk-weighted asset mitigation measures. Those are processes that are allowed under the CRR to be applied if you fulfill certain requirements to mitigate risk weightings on various assets, whether it's credit risk or on the operational risk side. Those are processes that we applied to reduce the risk-weighted assets. And here we had the decision by the BaFin that we need to adjust actually in a way that we cannot apply for certain areas anymore this risk-weighted mitigation strategies unless we improve the procedures and processes and documentation of these areas. The result in 2023 is going forward now, not only 2023, but from now on is that we have increased risk-weighted assets that we did not have in that case in the past. Plus the growth itself obviously provides also higher operational risk. As I told you, we apply the standard approach for operational risk calculation which I'm trying to make it now as easy as possible, which indicates as a proxy, you can use the last 3 years -- the average of the last 3 years' net revenue, so to speak, to apply for the operational risk. Obviously, there are some regulatory adjustments to that and processes. But what I want to tell you is that with an increasing net revenue that we are actually delivering since 2020, in the same time, our operational risk will increase. So an increasing risk-weighted asset base, both out of organic operational risk as well as the resolution by the BaFin to disallow us temporarily unless we get -- until we get the process and the procedures clean under the CRR to not allow us to disallow us to use this risk-mitigation strategies. We are very keen and very clear that we can solve these topics during 2023, especially those topics that are related to the disallowance of the application of risk-mitigation strategies. We are full-fledged working on these projects to provide here this standard that not only BaFin requires, but the CRR requires. We know that we were here a bit maybe too pragmatic and that we have to adjust this process. But as I said, we are very, very keen to fulfill our requirements by the -- latest by the year-end. Another result of these findings and I think that is important to be explained was the capital pushdown of EUR 50 million from the holding into our bank. I think it makes sense to highlight here for 2, 3 minutes, again, our organizational structure. As you know, we have the flatexDEGIRO AG, which is the listed company. We'll come to that in a second as well with respect to the appointment of new Board members because it is about Board members in the flatexDEGIRO AG, the listed company. And that company that listed holding holds 100% of the bank in which we have, by the way, and have had over the recent years, 5 Board members. Now with these new 2F status that we were given as a holding company now we have to fulfill capital requirements on both ends, on the group level as well as on the bank level. And on the bank level, since we are not allowed to apply any more fully the risk-weighted mitigation measures, our risk-weighted assets have increased and to tackle that increase in risk-weighted assets, we have pushed down the EUR 50 million out of own funds that were free untapped funds and the holding down into the bank. So the bank is absolutely fine. It's fully capitalized. And as of the 31st December 2022, we expect here, especially with the audited figures 2022, no shortages in any of the capital requirements and are, as I said, going to work very hard and very diligent on the process to make sure that we can hopefully very soon apply again our risk-weighting mitigation measures to free up the capital in any sense and continue to use it for our growth. Also important to highlight, there has been no growth restriction measures. No growth caps on the business. We received a couple of questions with respect to that point since in former announcements by the BaFin, by the regulators in general, they put caps on certain peers, financial service businesses. We received no restriction here at all on our commercial business. So we don't expect to have any impact on our top line. Of course, with respect to the cost side, we have understood the clear message by the regulator to invest more into the middle and back-office structures. And obviously, it is an outcome of the very strong growth that we had over the last 3 years. I think this is something we appreciated. We understood the last 3 years, we're very, very successful for us as a holistic business and the acquisition of DEGIRO. Obviously, 2022 were a bit -- was a bit difficult, but if we would now just forget for a moment about the current market situation and environment as a group, we grew very, very well and have now to follow-up to develop and continue to develop a regulatory framework that is not only sufficient, but that also meets the same level of diligence and the same level of regulatory commitment as much as our commercial growth did the last 3 years. This is a little bit a statement about the audit process. As I said, there is no findings with respect to the financial P&L or P&L status. The audit is concluded. It's done and dusted. If we see the discussion material with the BaFin, we have, I always say, now the handbook, the manual, to know what we have to do, not only to make regulators happy, but also to provide a regulatory framework and fundament that supports our future growth that we all believe in and that we all expect over the next years. Out of that discussion, I'd like to go over to the point governance and the appointment of 2 new Board members in the flatexDEGIRO AG in the listed company. I'm speaking for Frank and myself. We are happy to welcome now Dr. Benon Janos as the new CFO of the flatexDEGIRO AG and Stephan Simmang as the new CTO. Both have been with us now for 6, 7 years, and know the company very well. Benon has been over the last 1.5 years also the CFO of the bank. So he oversees actually the financial part of the whole group in -- for 90% of the case in most of the business in the bank. He took also over the regulatory reporting after the findings and the audit started and developed with the team, a very, very great setup there and is ongoingly developing that setup. So we welcome him. And as I said, Stephan Simmang, a very long experience -- long-term experience. Both have -- did their services for Goldman Sachs for decades. So very, very trained, very well experienced bankers and Stephan Simmang now on the IT side as well. That process, that step, has nothing directly to do with the findings of the BaFin, I have very clearly to state. We started this project, this strategy already this year in spring when we appointed Aygul Ozkan into our Supervisory Board as the fourth person. And most of you know this discussion that we had or that I had with you about the extension of our Board. This is now the logical consequence. The reason why it now fits together very well is that we need obviously the clearance by the BaFin for these people. And thankfully, and thanks to the BaFin, they agreed to appoint Stephan Simmang and Benon Janos as of the 1st of January 2023 into the Board of the flatexDEGIRO AG. Last but not least, we are keen also to appoint Christiane Strubel into our Board to the management Board of flatexDEGIRO AG responsible for all HR topics. This will happen also after clearance by the BaFin, which, yes, we will expect for 2023 or end of 2023. So here, again, the strategy has not been fulfilled yet. So we grew now from 2 to 4 Board members in the group holding. We will continue to work also on the independent Board side, on the supervisory Board side and extend there also the number of Board members to reflect here again, as much as we will do with the regulatory framework, we have to do it with the governance framework to reflect as much as we can our commercial growth. I, myself, will move to the COO role and will continue to be responsible for the international business and for operational tactics and obviously, to develop the strategy together with Frank for the future years. And on top of that, because we received also questions on that, I will continue to be responsible for the Investor Relations. That is with respect to changes in the Board structure and future outlook with respect to the Board structure. I think it's now the right time to extend this governance structures. And as an SDAX company also to have the right number of people in the independent and in the management boards. Last but not least, a couple of words with respect to our now cleaned out guidance for full year. We were at the beginning of the quarter, expecting the second best quarter in the year as we always do when it comes to Q4. But we have to admit after 2/3 of the quarter, that transaction activity is still, given the environmental setup, not at that level where we expected it to be. And we think that we had here to do this adjustment to the revenue guidance from EUR 400 million now down to EUR 380 million, which has an impact on the EBITDA margin, obviously. But again, it's unfortunately the operational leverage that goes both ways and we are now looking forward to closing that year and to start into this New Year. I don't want to repeat too much of what we told in Q3 about the measures, pricing measures, product measures that we have in place that will allow us next year to generate higher profits and higher margins. The focus is now not -- or has been led on the commercial success, and the measures have been started. Now the clear focus is to develop and continue to develop our regulatory framework to ensure that this commercial growth can continue. So with that respect, a little update on the adjustments and financial adjustments to the guidance. And I'm very keen to close the year with a solid result despite, as I said, the heaviest environment we have experienced over the last decade with respect to trading activity. And also we received some questions again whether this is only with us or whether it's industry-wide. [Indiscernible] published this morning the numbers and we can confirm that our trade numbers are very much in line with the development of our peers. Our customer growth number, as always, is a bit more solid than what the peers provide so that we are very well-prepared to start the next year. But hopefully, a better environment, a more calm environment, a more peaceful environment. Yes, that is for now my update on the recent press release. One last point that I'm seeing here, sorry, when we were talking about the governance structure, I think it's also important to highlight that in the bank where the audit was conducted and where the findings were given to us, we have also an adjustment to the Management Board. We have a new CRO, Chief Risk Officer, that oversees now the key audit fields and departments, including risk management, including compliance, including the operational risk management as well as I said, the internal control system department that was set up now to also mitigate the findings with the CEO reporting to the CEO. We have put a lot of focus on these departments. So a new CRO, and we're going to welcome also a new Head of Risk in the New Year to also have here the intellectual power and the quantitative power to ensure that in the future, we will not have these type of findings again, hopefully, and to ensure our commercial growth for the next years. That's it from my side. I'd like to open it up for Q&A and to give the chance to raise questions. Thank you.

[Operator Instructions] The first question comes from Ian White.

Three from my side, please. Can you, first of all, just talk us through what are the ongoing cost implications arising from the special audit? Maybe you could provide some details around the total increase in head count that you expect to address the issues you mentioned there versus what you might have been expecting early this year? Are any consultants being commissioned to have a further look at the group's systems and processes, for example as well it would be interesting to hear. Secondly, just what ongoing regulatory arrangements exist as part of the audit? Are you going to be subject now to an on-site supervisory monitor or more regular compliance testing, for example, is there a sort of a forward-looking aspect to this as well? And just finally on the financial performance, your updated guidance, I think, looks to me to imply maybe somewhere close to 15 million trades during 4Q '22. I guess can you just help me a bit more to understand maybe your confidence that what we're seeing is mostly cyclical? How is the breadth of client activity developed over 4Q, you're seeing a big reduction there or anything like that? It didn't just seem surprising to me the trends within 4Q have actually gotten worse, when your markets have been doing better, had a bit of a risk on rallies. So any extra thoughts around that would be welcome too, please.

Thank you, Ian. Happy to do so. First, let's talk with the cost implications of the regulatory audit. Obviously, it had a cost implication this year to run such an audit, which is an -- a significant amount that comes together. It's in the -- yes, the lower 7-digit amount. So we're speaking all in all, with including all costs on the regulatory side as well as on our side of roughly EUR 2 million. Going forward, which is, by the way, in one-off, so we will have not this type of cost going on, but you absolutely touched the right point, increase in head count. We expected per se to grow in head count given our base growth, our organic base growth of roughly 30 to 50 people. But we are also very clear now that we need to expand, as I said, in the middle and back-office, the quantitative number as well of people. So we assume a net growth for next year of, let's say, roughly 100 to 120 people. That has an impact, obviously, on the P&L, but in a sense that we expect personnel expenses to be up year-on-year, reflecting capitalized expenses, but being up year-on-year somewhere in the high single-digit million amount, which is okay because we -- first, we can afford it. Second, it will be netted out by further revenue measures. So we are fine with that fact. External consultants are obviously also included during also the process. We had a lot of support to mitigate now also the issues of PwC that are supporting us here on the [ processual ] and procedural side. With respect to your question around regulatory arrangements going forward, obviously, we'll work very, very close with the BaFin. As I said, we are now trained giving the IT audit we had 2.5 years ago, which is a close and very friendly setup with the regulator where we inform them every quarter about the updated measures, about the updated -- implemented structures, procedures where we are obviously also in discussion about topics how to reduce our risk -- how to -- sorry, how to increase again our risk-weighted mitigation measures so we can reduce our risk-weighted assets. So there will be a continuous discussion and a continuous development of the topics with the regulator over the future. And let's continue here with a very solid, with a very diligent process. This is what we want now to do and to get, as I said, as soon as possible, rid of the additional capital requirements, whether implicitly via the RWAs or explicitly via the SREP. The SREP is an annual process, so we need here to perform. We need here to provide sufficient and diligent results to the regulator so that hopefully, we can work on our SREP to get also the capital requirements explicitly down. With respect to the guidance, yes, you're absolutely right. I mean, Q4, as I said, is usually seasonally historically the second best quarter. You're right, the markets are up. But as we have seen in the last years, market performance and trading activity is not really correlated. The point here is that I say in the past 2 years, people were driving markets. In the last 11 months, the markets were rather driving people. The attractiveness per se or the -- not the interest, but the attractiveness for trade is much less than last year. We discussed it a couple of times. Despite, I would say, felt subjectively a little bit easier markets, better markets, more comfortable markets. However, let's stay there where we are, the geopolitical issues still going on, especially for the European markets. We still have a supply chain issue. We still have macroeconomic difficulties, especially with respect to forecasts. [Indiscernible] indicated less fast and quick interest growth in 2023, but we still don't know how the ECB will react, plus there might be some consequences rising also through this interest increase as we know, for Southern European political and macroeconomic situation. So I hope that what we currently experience is the floor. The trading activities, as I said, very much in line with what we see across the industry. So it's nothing that is business-specific. The trade activity came down across a number of clients and the activity per se came down. This is what we also indicated in Q3 that we said the client activity this year will be most probably roughly around 50%. Last year, it was about 60%. So if you have 10% less client rates, which is 10% of our client base is 250,000. If you see all of these that like -- or just these, the 20% -- 20 trades, that's 5 million trades that you missed just by clients that have become inactive versus last year. And then obviously, those that stayed active also reduced their trading activity. So there is a significant impact on trade -- on trades. And obviously, we have a very simple business model, trades times revenue per trade equals revenues. If the trades go down, we tried and worked very hard to have some price measures that countermeasure that point your result, nevertheless, in lower revenues. So I'm excited. As we said, we will not forecast any trade activity anymore going forward because it is really uncertain how the markets develop. And I just mentioned it this morning internally, we have weeks where we have an average 280,000 trades per day. And we have weeks where you have only 180,000 and 100,000 trades per day is on an annual base, 25 million transactions of [indiscernible] volatility and activity and that makes a big difference obviously.

The next question would be then from the line of Marius Fuhrberg.

So a question from my side would be, could you quantify by how much the mitigation reduced your risk-weighted assets? The second one is there are different -- to my knowledge, there are different persons who can initiate such a special audit. Could you confirm that, in this case, the BaFin themselves initiated the audit? And the third one would be on the current customers' cash position that might be subject to the deposit facility by the ECB. Could you quantify on how large that number currently is?

Yes. So with respect to your first question, how much were the risk-mitigated RWAs, we're talking here about a figure that is roughly around EUR 300 million to EUR 400 million, all in all, including obviously also the operational risk side. With respect to the audit by BaFin, I didn't get your question. I just understood you wanted to get confirmed that the audit was initiated and conducted through BaFin. This is absolutely the case. So there was no third party that, so to speak, initiated that audit. It came directly from BaFin during our calls and discussions, as I said, with respect to 2F status and small and non-complex and all the other topics. And your last question was with respect to the deposits. You just wanted to know how big the deposits are, just a number. It's roughly EUR 3.5 billion. It's still very flat, the deposits, to what we have seen over the recent weeks and months.

The next question comes from the line of Mengxian Sun.

So also 3 questions from my side. So thank you very much for quantifying the ongoing cost for order implementation. Can you also give us a time line or time frame when do you expect that you will -- for few order requirements that's raised by the -- or change the shortcomings that's raised by the BaFin? So this is the first question. And the second one is, do you think there is any change in the internal control or the corporate governance side will impact your core brokerage business or lending or deposits? Would there be any implementation on that? And the third question is on your dividend policies. Apparently, you're going to retain all -- 100% of your profit this year. But you also mentioned in the third quarter conference call that you are going -- you are thinking about distributing a part of the capital to the shareholders. Can you give us an update on that?

Thank you. And happy to answer. The first question with respect to time line. As I indicated, it's not the process that you get done in 2, 3 months. With respect to the topics that are risk-weighted related so that those topics -- those findings by the auditor that cost us now capital, as I said, we assume by the year-end of 2023 to have everything mitigated and have delivered sufficient and diligent processes, procedures and documentation to the regulator to hopefully then be allowed again to apply the risk-weighted asset mitigation strategies. Some other topics will take a bit longer time, usually out working such audits take between 12 and 24 months and this is also what we expect here. But as I said, with the crucial topics with respect to capital employment, this is where priority number one, aside internal control systems, aside the improvement of the compliance and governance structures, it's something that we can work relatively fine out because it's technologically-driven and the process has been designed over the recent weeks and months, the new process and has now to be implemented, has then to be checked, tested and hopefully then to be accepted also by the regulators. Does the changes in internal control systems or governance have an impact to our core business? I would say yes and mainly positive, to be honest. As I said, in the end, our biggest duty as management is to ensure that we have a regulatory framework and that we have technological framework and these -- both these frameworks are there to allow us to grow this company commercially. And we had a significant commercial growth, I would say, also successful. But this is something we should have spent more time on. And this is now the learning out of this audit. Again, I'm very thankful, by the way, that the regulator did not impose any commercial restrictions, but they said, hey, guys, you have to look also into your regulatory framework and technological framework. And you have to deliver the same passion and the same focus on these topics as much as you do it on the commercial side. So we will do this, but I don't expect any negative impact on our business. Obviously, with the increased risk-weighted asset base, we might rethink some product measures in the short-term. But in the midterm, so everything starting next summer, end of the year onwards should not be impacted. Absolutely. I consider it as much as Frank and the team does, it's a pit stop in a long race. And this pit stop is now there to get the engineering right, to get the framework of our car right and to be back on the racetrack and to continue the growth. And then in the future to keep an eye on the -- on these 2 frameworks as well as much as we do on the commercial framework. Last question with respect to the dividend policy. You're absolutely right. This is what we indicated in Q3 that we have to think through capital allocation strategies, especially with respect to our access cash. But given the fact that we had this audit and given the fact that we consider together as much as the BaFin does, that given the current processes, we need to provide more capital. It means that this capital allocation strategy has to be, so to speak, postponed. Is this going to be postponed by years? I doubt it. I don't see it. I rather think that in the short-term, we will first get the things right. It's the absolutely most important point. Second, that we deliver towards the regulators and the stakeholders, our clients, the markets that the regulatory framework is up and running and is solid and is robust. And then I don't see any reasons why the BaFin should not release any of the additional capital requirements. And if they do so we will have at least the condition to think about such a strategy and such a policy like dividends. But again, here, we are in these discussions also with respect to capital allocation and close exchange with the BaFin as we said earlier, if you think about share buybacks, we need very explicit approval. So this is something that I still or we still believe in, but we also understand the fact that for now we need to employ our capital to ensure further growth, organic growth and continue to provide products as much as we want to do it. And as soon as we solve our challenges on the regulatory framework side, we will free up capital and then we can discuss what to do with the capital. So short-term postponed, but I don't see it like to be postponed for years.

Next question is coming from Christoph Greulich.

As regarding the BaFin audit to what extent, yes, have you been caught by surprise by the negative findings or the findings of the shortcomings? And to what extent you have been aware that the process are not fully up to the regulatory standard? The second one is on the revenue guidance. Just quickly to clarify. I assume that includes the provision releases that you announced for the first 3 quarters. So is it correct to say that without the provision releases, the guidance implies around EUR 360 million in revenues? And then the last one, just generally on the performance in Q4 and, yes, is it entirely the trading activity that has been weaker than previously expected. Or has there have been any other, let's say, factors such as the revenue per trade or other source of income, which also have been contributing less than the previously anticipated?

Thanks, Chris. With respect to your first question, how much were we surprised? Of course, it's in the end, it's never a happy feeling when some external stakeholders come in and tell you what you're doing wrong. And obviously, we were not to that level aware of the topics or the shortcomings, although we had for years, very, very good audit reports, although we have always put focus on the regulatory framework. But I think-- and this is why I said this is now the pit stop. We have to understand as well as a whole community, as a whole company, the employees, the management, everyone, every stakeholder that we have grown and we have grown commercially. And when you grow and you play in higher leagues and higher levels, you have a different focus, which, again, I really understand and appreciate that the regulator takes this perspective. And given also after the transaction of DEGIRO, as you remember, we were also given with a number of findings that we have to mitigate, which we did very well, by the way, with the Dutch regulator. Here again, it's the first time in 7, 8 years that we get such an audit. And I would have been surprised if the regulator didn't find anything. So it's not like that we fell out of like all kind of feelings. No, absolutely not. As I said, it's the manual that was given to us, the handbook that we have to work out now and to work through now. And it doesn't matter whether it was a surprise or not. It's not like that we knew about the fact, and we just said, hey, let's leave them as they are, even if they are not sufficient, absolutely not. It was to the best knowledge of the people, of our teams, what they were doing. But it is an outside in perspective by the biggest or most interested stakeholder, the regulator and financial services that gives us now an indication where we have to go with our framework and this is what we are going to do. With respect to your questions, to the guidance, revenues 2022, absolutely, it's including any annual release of provisions. There is no adjusted revenue that we report. Revenue is revenue and includes all revenue line items like in the last quarters as well. Performance Q4, no, the performance in Q4 is absolutely, absolutely and ultimately, almost 100% traceable and attributable to the trading activity. The revenues per trade are very solid. The product mix is very solid. The positive measures that happened to us through the ECB increase and interest or through the increased handling fee are absolutely solid. It's a pure function of trading activity.

Next question comes from the line of Klaus Umek.

[Audio Gap] EUR 50 million, EUR 300 million of risk that is mitigated. What is it? I understood that you're mostly a margin lending activity. So remind me of the split between very technically sharp margin lending, where there's basically no risk for you and other things and what are those other things? And the second was the question of the colleague who wanted to understand how capital deployment works because, obviously, you're an Internet broker and also a bank. And that means that everything now has 2 hurdles, share price under pressure, you couldn't buy back stock, right? Because everything you do, you have to ask BaFin. Is that correct?

Thanks, Klaus, for your questions. Let me answer your first question also first. RWA margin loans. You're absolutely right. The key point here is with risk mitigation strategies is margin loans can be considered with very, very low risk-weighting, 0%, slightly maybe above 0%, 5%. This is what we did in the past. To do so to apply this function of risk mitigation, you have to ensure a fully CRR conform procedure and process. So the CRR tells you what procedures, what process you need to have that allows you to apply this, so to speak, it's an extra rule on the loan business with margin loans because they are fully collateralized and how the process looks like with respect to collateral management. Now one point was that here we have in the process and in the documentation of the process, shortages, so that we have received by the regulator an additional requirement to say, hey, it's not 0% or 5%, but you have to put now a risk-weighting to these margin loans that adds up to somewhere around EUR 300 million to EUR 400 million additional risk-weighted assets. This is the reason, by the way, also for the EUR 50 million pushdown to mitigate this additional temporary capital need because as soon as we get the CRR process right, by procedure, by process as well as by documentation, we should then be allowed, obviously, to apply again the risk-weighted mitigation strategies, the risk-weighted asset mitigation strategies and to release or actually to reduce the RWAs on these margin loans down to the 0% or 5% or 8%, 10% instead of the higher risk-weighting that we have to apply. Number 2, I don't know whether I got your question right. You were asking the capital employment. We are a bank and we are an online broker. We are free cash flow-generating, absolutely right. We need, however, some of the cash to be employed for organic growth, absolutely right. The point is that out of today's perspective, the status quo, we are having additional capital requirements. And our strategy is very clear. It's on the one hand side to continue to be commercially successful as much as we were in the past. Second, to, as I said, to adapt and implement and develop and monitor a stronger regulatory framework structures. We discussed the implications of that to free up this additional requirements, and then we would sit again on more untapped cash that would be available for capital allocation discussions. But again, this is something, as you have indicated, very right, things that you have to discuss with the BaFin to get clearance and approval by the BaFin. But I don't see a reason why the BaFin should say, no, if we get our things right, that's, I think, the most important point. So focus now get the things right, get the framework right and get the situation back to a level where all stakeholders are happy. And then I think we will have these discussions obviously with BaFin and see what they think about these procedures. But usually, the BaFin is not just allowing all the banks to distribute capital. But I understand fully the position to say, hey, get first your frameworks right, then you're free to spend the money for other things than for your framework.

Next question comes from Christoph Blieffert.

And the first question is, can you give us some indication when did you know that BaFin considers you no longer as a small and non-complex organization?

Is that the only question?

No, there's -- I have a couple of follow-up questions on capital, but maybe let's start with this one.

Yes, okay. Otherwise, please give me all the questions. So...

Okay. Then I give you give you the entire list. On the capital side, you mentioned the EUR 300 million to EUR 400 million additional risk-weighted assets coming from the restriction of several mitigators. If I put, let's say, 12% CET1 ratio requirement for those risk-weighted assets and I'm coming to a capital requirement of some EUR 50 million. If my understanding is correct, you had to inject some EUR 50 million out of the holding into the bank, plus the 2022 net income, which has to be retained. I'm struggling to understand where you need -- for what you need the net -- the retained 2022 net income within the bank because it cannot only be the restrictions on the risk mitigator. As a third question, please, can you walk me through the 17% CET1 capital? What is really required by the regulator? Has there been any changes? And what is your management buffer within this 17%? That's it from my side.

Thank you, Christoph. Indications, small and non-complex. If I'm not mistaken, it's the clear decision was given. I'm happy also to look it up, but if I'm not mistaken, like 6 to 8 weeks ago that we received that information. So actually, not the information, but the actual resolution. With respect to the question on the RWAs, you were wondering why we need the 2022 profits. Keep in mind, just here to avoid misunderstanding, the profits of the first half 2022 has already been reflected in our regulatory capital. So the only delta we are talking about is the second half that will come on top to what we have today. That's an important point. So that the additional buffer that we will create in the second half will obviously reflect the growth also in operational risk. As soon as we audit our 2022 figures, we will have a jump in operational risk because 2022 is a much better year than 2019. The 3 years' average, so to speak, 2019 will drop out, 2022 will come in. So we'll have organic growth in risk-weighted assets on the operational risk side. And thus, we need to fund obviously that operational risk as well. With respect to the 17% CET1 on group level, and that's very important also to understand, we have a group level and we have a bank level. On group level, the capital requirement is currently at 15.5%, plus we applied a 1.5% management buffer.

The next question comes from [ Martin ].

A few questions from my side. First of all, how long do you think it would take you to get the CRR processes right? And you announced in Q3 that you were going -- you were looking to extend your margin lending business. Are you still going to look to expand on that considering the changes on how you will weight those assets on your books? And then the final question is with regards to your forecast and Q4. So it looks in your forecast that you expect trading activity to actually shrink in Q4. However, it seems that your adjusted EBITDA is actually going to increase. So just if you could kind of walk me through those numbers there?

Happy to do so. First question, how long, as I said, I indicated earlier after Mengxian's question, so we expect to get the topics with respect to RWA mitigation strategies and findings done by the end of 2023. And the other order process is an ongoing process where we will hopefully also get most of the topics right over the next 18 -- latest to 24 months and to conclude then the whole project. So this is absolutely the focus, but it's not like a stage process. So it's not like we work first on this thing and then on that thing. We start all processes in parallel and that is where we have to put the focus on. But some things are quicker to implement than others with the risk mitigation strategies, it's a processual step. So this is something where we have a bit of IT development, where we have to get the processes right, testing right, data right and then documentation right. Whereas when we speak about internal control systems, it's more a philosophical cultural topic as well that we have to put out across the whole employee base. Margin loan expansion, you're absolutely right. This is what I meant with that we need maybe to postpone some product procedures and product measures. One is the extension of the margin loans, given the fact that we are still in the point that we have a situation where we get now the risk mitigation right and then extend the product base. Forecast Q4, yes, we expect lower trading activity in Q4, shrinking Q4 activity also compared to Q3. Obviously, the margin might go up because of the interest rate that is kicking in and obviously providing us 100% profit on the revenue, whereas with shrinking trade activity, we lose 70% to 80% of the EBITDA. So the interest is obviously has a much higher leverage, which is 1:1 to our EBITDA versus the trading activity. That's the reason why despite lower revenues we still expect solid EBITDA for that quarter.

The next question comes from [ Martin ].

Just confirm how much of your lending book is non-margin lending and what the nature of this is? And in your annual report, you also mentioned that you have some associated parties' holding accounts. Can you quantify the total amount of lending to these parties? And then can you just confirm the number of additional people you have to hire to comply with BaFin requirements?

Yes. As I said, I mean, the margin -- the key product -- the key credit product that we have, our margin down. So at year-end, I assume that 90% of our loan book is margin loans. There's a little bit of other loans that we have special asset financing shortly rated out of the former -- or out of the real estate financing that we do, which we have also brought down. We have brought down fully the football financing down to almost 0. We have sold and have divested all factoring investments. So the loan book will be in the end more or less 90% plus in the future margin balance. This is, I think, also an important message that we also, when we discussed it with BaFin, BaFin appreciated that we keep the focus on our core product, brokerage and margin and don't have left and right. Second, I have to keep also everyone to keep in mind that 3, 4, 5 years ago with negative interest rates, everyone was looking for treasury alternatives. Now with the positive yield with ECB, there is no need anymore to go for treasury alternatives to generate 4% or 5%. We are not a merchant bank, we are not a corporate bank. We are a broker. So the full focus will continue to be on the margin loans. The lending, as I said, it's -- if I'm not totally wrong, our credit book currently, which is not marginal -- sorry, not margin loan-driven is less than EUR 150 million. How many additional do we need? I indicated this earlier, happy to repeat. We assume, as I said, we expect to have like 30 to 40 people organically that we have to employ just by organic growth with this procedure, with the audit. I assume that this number might increase to slightly above 100. So we expect, as I said, like-for-like base, something in the higher single million digit amount of more personnel expenses to ensure going forward also the right regulatory framework.

There's a follow-up question from [ Martin ].

So just to make sure I got the question because I also asked about the associated parties' holding accounts, if you could quantify the total amount of lending to these parties? And then another question is...

What do you mean with associated parties?

Because in your annual report, you say that associated parties hold accounts. It's on Page 139 of the annual report.

Honestly speaking, I don't have the annual report in front of me, but let us follow-up on that. We are happy to answer you by a mail on that point.

We're coming to the last few questions of the call. The first one for, again, Christoph Blieffert.

2 follow-up questions, please. I would like to better understand what has driven the increase in the regulatory requirement for your CET1 ratio from 11.6% as of the latest [indiscernible] to the 15.5% you have mentioned?

Absolutely. That is the outcome of the -- of one of the in-between decisions by BaFin, the SREP that has happened over annual processes or that happens annually, this SREP evaluation and that SREP evaluation has increased also the CET1 requirements as indicated in the previous presentations and the CET1 ratio. So this is the annual process that happens every year and between the [indiscernible] which was obviously for the beginning of the year. And during the year, where this evaluation happens, we had this top-up also as a consequence, obviously, of the ongoing audit. So this is why I said there are 2 things that we have to work on. On the one hand side, the implicit increasing capital requirement through the RWAs as well as on the explicit side for the CET1 requirements. Plus, it's also -- I have to also add this up, it's also the consequence of the -- of both not only the current audit, but also the past audit with the IT. And the SREP evaluation, by the way, happens always in y-minus 1. So they get the numbers, the imposed CET requirement -- sorry, SREP implications in 2022 are based on 2020 findings -- or 2020 evaluation -- not findings, the evaluation. So this is, so to speak, the result of the audit process on the IT side as well as on the increased operational risk side as well as on the conducted audit now.

Last question comes from Marius Fuhrberg.

Basically, 2 follow-up from my side. The first one, do you limit your margin activity to certain kind of until the mitigation is possible again? And the second one is, I mean, your -- you knew quite a long time now that the special audit is ongoing. Why didn't you basically tell the markets earlier that there is a special audit, which, I mean, is kind of regular maybe? The surprise would have been, I guess, much less severe than it is right now.

To answer your first question, no, we did not restrict any of the running processes. As I said, BaFin did also not ask for any restrictions on the commercial side. Second, why didn't we inform earlier? To be honest with you, to go out to a market, inform about something to which we don't have the results, doesn't make, from our perspective, a lot of sense because that would have left the whole market in a black box, knowing there is an audit, but not knowing what the outcome is. So what we literally did is to wait for the result of this audit to reflect these audits, not only internally, but also with the BaFin to get the resolutions by the BaFin, the decisions by the BaFin and communicate [ consolidatedly ] to the market. This is what we did. Everything else would have been, so to speak, step-by-step tactics of which we are absolutely no friends because again, the outcome, the results, the resolutions were not known to us when the audit was started and to wait until you have full clean picture of what has been found, what should be mitigated, what is the strategy going forward, also in close contact and very, very diligent discussions with the BaFin is for me prudential management. And now we know what the outcome is and are happy to share this outcome with the capital markets.

With this, we conclude today's call. I want to thank everyone for participation. Thanks, Mu, for answering very diligently all the questions that have been raised. If you have any further questions, please feel free to contact us via e-mail or give us a call. Thank you very much. Have a good day.

Thanks again to everyone. Have a great day. Speak to you soon. Bye-bye.