FINECOBANK S.P.A. Consolidated first half financial report as at
June 30, 2020
FinecoBank S.p.A.
Consolidated First Half
Financial Reports
as at 30 June 2020
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 1
Contents
Main risks and uncertainties........................................................................................................................................................................................ | 44 |
Related-Party Transactions.......................................................................................................................................................................................... | |
Part B - Consolidated Balance Sheet ....................................................................................................................................................................... | 109 |
Part C - Consolidated Income Statement................................................................................................................................................................. | 140 |
Part E - Information on Risks and relating hedging policies ................................................................................................................................. | 159 |
Part F - Consolidated shareholders' equity ............................................................................................................................................................. | 191 |
Part H - Related-Party Transactions ......................................................................................................................................................................... | 203 |
Part L - Segment reporting ........................................................................................................................................................................................ | 205 |
Part M - Leasing .......................................................................................................................................................................................................... | 206 |
Annexes ....................................................................................................................................................................................................................... | 211 |
Certification of the Consolidated interim financial statements pursuant to Article 81-ter of Consob Regulation no. 11971 of May 14, 1999 and | |
subsequent amendments........................................................................................................................................................................................... | 215 |
Report of the External Auditors................................................................................................................................................................................. | 218 |
Glossary ....................................................................................................................................................................................................................... | 221 |
Public disclosure requirements for exposures subject to measures applied in light of the crisis Covid-19 ................................................... | 232 |
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 3 |
Board of Directors, Board of Statutory Auditors and | External | |
Auditors | ||
Board of Directors, Board of Statutory Auditors and External Auditors | Board of Directors | |
Marco Mangiagalli | Chairman | |
Francesco Saita | Vice Chairman | |
Alessandro Foti | Chief Executive Officer | |
and General Manager | ||
Andrea Zappia | Directors | |
Elena Biffi | ||
Giancarla Branda | ||
Gianmarco Montanari | ||
Maria Alessandra Zunino De Pignier | ||
Marin Gueorguiev | ||
Paola Giannotti De Ponti | ||
Patrizia Albano | ||
Board of Statutory Auditors | ||
Elena Spagnol | Chairman | |
Chiara Orlandini | Standing Auditors | |
Massimo Gatto | ||
Giacomo Ramenghi | Alternate Auditors | |
Luisa Marina Pasotti | ||
Deloitte & Touche S.p.A. | External Auditors | |
Lorena Pelliciari | Nominated Official in charge of drawing up | |
Company Accounts |
The Ordinary Shareholders' Meeting of FinecoBank of April 28, 2020 appointed the members of the new Board of Directors and the of members of the Board of Statutory Auditors, which will remain in office until the approval of the financial statements for the year ended December 31, 2022.
Registered office
Piazza Durante 11, 20131 Milan, Italy
"FinecoBank Banca Fineco S.p.A."
in abbreviated form "FinecoBank S.p.A.", or "Banca Fineco S.p.A." or "Fineco Banca S.p.A.".
Bank enrolled in the Register of Banks and Parent Company of the FinecoBank Banking Group - enrolled in the Register of Banking Groups at No. 3015, Member of the National Guarantee Fund and National Interbank Deposit Guarantee Fund.
Tax Code and Milan Companies Register no. 01392970404 - R.E.A. (Economic and Administrative Index) no. 1598155, VAT No. 12962340159
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 5
Introduction to the Consolidated First Half Financial Report
Introduction to the Consolidated First Half Financial Report
This Consolidated first half financial report as at June 30, 2020 of FinecoBank Group (hereinafter Group) has been prepared in accordance with Article 154-ter, paragraph 2 of Legislative Decree No.58 of February 24, 1998.
In implementation of Legislative Decree no. 38 of February 28, 2005, this Consolidated Interim Financial Statements, which have been prepared in accordance with the IAS/IFRS issued by the International Accounting Standards Board (IASB), including the SIC and IFRIC interpretation documents, as endorsed by the European Commission, pursuant to EU Regulation 1606/2002 of July 19, 2002, implemented in Italy by Legislative Decree 28 February 2005 n. 38, and applicable to financial reports for the periods starting on January 1, 2020; in particular, it complies with the international accounting standard applicable for interim financial reporting (IAS 34). Based on paragraph 10 of this standard, FinecoBank Banca Fineco S.p.A. (hereinafter FinecoBank or Fineco or Banca or Parent Company) availed itself of the option to draw up the half-year consolidated financial statements in the abbreviated version. It includes:
-
the Consolidated Accounts of the Condensed Interim Financial Statements comprise the Consolidated Balance Sheet, the Consolidated Income Statement, the Statement of Consolidated Comprehensive Income, the Statement of Changes in Consolidated
Shareholders' Equity, the Consolidated Cash Flow Statement, presented with a comparison to the corresponding financial statements of 2019. As envisaged by IAS 34, the balance sheet figures have been compared with those as at December 31, 2019, while the income statement, statement of comprehensive income, statement of changes in shareholders' equity and cash flow statement have been compared with the corresponding figures for the first half of the previous year reported in the Consolidated first half financial report as at June 30, 2019; - the Notes to the accounts, which in addition to the detailed information required by IAS 34, reported using the same tables as in the annual financial statements, the additional information required by Consob, ESMA public statements and those that are deemed useful to provide a true representation of the company situation;
and is accompanied by:
- the Consolidated Interim Report on Operations, which includes the condensed accounts, the main results of the various business areas, and comments on the results for the half-year and on significant events, as well as the additional information required by Consob;
- the Certification of the Consolidated condensed half-year financial statements pursuant to Article 81-ter of Consob Regulation no. 11971 of May 14, 1999 and subsequent amendments.
Any lack of correspondence between the figures shown in the Consolidated Interim Report on Operations and the Consolidated InterimFinancial Statements is solely due to roundings.
It should be noted that the Consolidated Accounts of the Condensed Interim Financial Statements as at June 30, 2020 were prepared by referring to the instructions on the financial statements of the banks pursuant to Circular 262 of 22, December 2005 "Banking financial statements: schedules and rules compilation" and subsequent updates of the Bank of Italy.
It should be noted that, starting from December 31, 2019 a change was made in the condensed accounts shown in the Consolidated Report on Operations. In particular dividends and other income on equity investments and equity securities mandatorily at fair value shown in the balance sheet item "Dividend income and similar revenue", previously included in the condensed accounts item "Dividends and other income from equity investments", were included in the item "Net trading, hedging and fair value income" in the condensed accounts. For homogeneity, the comparative data included into this Consolidated First Half Financial Report as at June 30, 2020 and relating to the condensed income statement of June 2019 have been reclassified. For additional information, reference is made to "Reconciliation of condensed consolidated accounts to mandatory reporting schedule" and to "Reconciliation of condensed consolidated accounts to mandatory reporting schedule" of the Annexes.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 7
Consolidated interim report on operations
Summary data
Consolidated interim report on operations
Summary data
FinecoBank is a multi-channel direct bank and one of the most important FinTech banks in Europe. It has one of the largest networks of personal financial advisors in Italy and is the leader in Italy for equity trades. FinecoBank offers an integrated business model combining direct banking and financial advice. With a single account including a full range of banking, credit, trading and investment services, which are also available through applications for smartphone and tablet.
FinecoBank is listed on the Milan Stock Market and has been on Borsa Italiana's FTSE Mib index since April 1st, 2016. On March 20th, 2017, the stock became part of the STOXX Europe 600 Index. On April 29th, 2020 S&P Global Ratings confirmed a long-term rating 'BBB' and a short-term rating 'A-2' to the Bank, both with negative outlook. The negative outlook reflects that of Italy as a whole.
FinecoBank S.p.A. is on the Standard Ethics Italian Banks Index© and the Standard Ethics Italian Index (comprising the largest 40 companies listed on the Borsa Italiana FTSE-MIB), one of the leading performance indexes and a benchmark for environmental, social and governance concerns. In July 2020, Standard Ethics raised the Bank's rating from EE to EE+ ("very strong"), which is the highest grade it assigns to banks. In explaining its decision, Standard Ethics cited the speed with which FinecoBank S.p.A. fortified its long-term sustainability strategy as soon as it became a public company.
The recent health emergency caused by the spread of the COVID-19 pandemic and the uncertainty regarding its duration have had serious repercussions on the banking and financial system, whose outlook for the near future is difficult to foreseen. Even under these circumstances, FinecoBank's business model is diversified and well-balanced: the Group's diverse sources of revenue allow it to face complex stressors like this crisis. The FinecoBank Group's revenues are based on three main components (banking, brokerage, and investing) whose performance tends to be uncorrelated during periods of crisis.
At June 30th, 2020, total financial assets (direct and indirect) from customers amounted to € 82,646 million, up 1.5% on € 81,419 million at the end of 2019. "Guided products & services" made up 72.31% of assets under management, showing an increase compared to 71.07% at December 31st, 2019.
Net sales came to € 4,750 million in first half 2020 (42.4% y/y), an increase compared with the first half of 2019; net sales of assets under management came to € 1,605 million, assets under custody came to € 2,576 million and direct deposits to € 569 million. Net sales of "Guided Products & Services" amounted to € 1,699 million (+6.1% y/y).
In first half 2020, net sales through the network of Personal Financial Advisors totalled € 4,103 million (+4.1% y/y). Total financial assets (direct and indirect) at June 30th, 2020 amounted to € 71,687 million (+1.4 compared with the endf of 2019).
The total financial assets (TFA) of private banking clients, i.e. with assets above € 500,000, totalled € 33,024 million or 40% of total Group total financial assets (direct and indirect).
The total number of customers at June 30th, 2020 was 1,359,260. Customers continue to reward Fineco's transparent approach, high quality and comprehensive range of financial services as represented through the "one-stop solution" concept.
In first half 2020 € 78 million in personal loans and € 552 million in mortgages were granted, and € 429 million in current account overdrafts were arranged, with an increase in exposures in current account of € 130 million compared to December 31st, 2019; this resulted in an overall 15.4%1 aggregate increase in loans to ordinary customers compared to December 31st, 2019. Credit quality remains high, with a cost of risk at 14 bp, sustained by a policy of offering credit exclusively to existing customers and making use of specialist tools to analyse the Bank's vast information base. The cost of risk is structurally contained thanks also to the effect of new loans, which are mainly secured and low-risk. The ratio between impaired loans and total loans to ordinary customers at June 30th, 2020 was 0.12% (0.11% at December 31st, 2019).
To support customers' needs in relation to the COVID-19 emergency, in addition to the moratorium on mortgage payments through use of the CONSAP Fund (in accordance with the Government's Cura Italia Decree), the Bank has taken the following measures:
- participation in the Italian Banking Association (ABI) moratorium for household loans: principal payments are suspended, for personal loans and mortgages other than those covered by the CONSAP fund, for up to 12 months, while interest continues to fall due;
- introduction of a new unsecured credit line that gives eligible customers an advance on ordinary or extraordinary unemployment benefits while awaiting payment from the appropriate entities.
The net profit for the period amounted to € 180.2 million, an increase of 34.3% on the same period of the previous year. The cost/income ratio amounted to 32.6%, an improvement compared with December 31st, 2019 (38.1%), confirming the Group's operating efficiency and the widespread company culture of limiting costs. The first half 2020 results reflect the Group's sustainability and the strength of its business model, capable of generating profits in all market conditions.
1Loans refer solely to loans granted to customers (current account overdrafts, credit cards, personal loans, mortgages and unsecured loans).
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 9
Consolidated interim report on operations
Summary data
The net profit after non-recurring items recognised in the first half of 20202 would be € 181 million, up 30.1% compared to the first half 2019 net profit after non-recurring items as at June 30, 20193.
The Group's offering is split into three integrated areas of activity: (i) banking, including current account and deposit services, payment services, and issuing debit, credit and prepaid cards, mortgages, overdrafts and personal loans; (ii) brokerage, providing order execution services on behalf of customers, with direct access to major global equity markets and the ability to trade CFDs (on currencies, indices, shares, bonds and commodities), futures, options, bonds, ETFs and certificates; (iii) investing, including the asset management activity carried out by the subsidiary Fineco AM, by virtue of the vertically integrated business model, placement and distribution services of more than 6,300 products, including mutual funds and SICAV sub-funds managed by 71 leading Italian and international investment firms, insurance and pension products, as well as investment advisory services through a network, as at June 30, 2020, of 2,569 personal financial advisors.
Relevant events of the period
First half of 2020 has been impacted by the health emergency caused by the spread of the COVID-19 pandemic, whose outlook for the near future is difficult to forecast.
In particular, the first half of 2020 the indirect effects of the health emergency at first caused a decrease in customer assets under management, which was partially reabsorbed as early as the second quarter 2020. In any case, compared with the Bank's competitors that trend is sharply mitigated as performance commissions are not foreseen, which are structurally variable and penalize institutions at times of market crisis. Conversely, as evidence of the decorrelation of revenue sources of the Group, during periods of high volatility as experienced in the first half of the year - especially when the pandemic was spreading most rapidly - there is a notable increase in brokerage revenues.
Regarding the Group's financial investments, mostly comprising government bonds, the direct impact of the emergency was an immediate reduction in their fair value which has already been partly recovered at June 30th, 2020. In addition, most of the Bank's government bonds are held as long- term investments and are recognized in the Held to Collect portfolio, therefore the changes in the fair value of the financial instruments, considering a volatile market context, did not, overall, have significant impacts on the Consolidated Interim Financial Statements at 30 June 2020.
As for the calculation of the expected losses, the measurement of credit exposure in the form of both loans and securities takes account of forward- looking information and, consequently, has affected by the macroeconomic scenarios used to calculate adjustments in value. During the current crisis, updating the scenarios underlying forward-looking data is an especially complex exercise. The extent of the macroeconomic repercussions of the suspension of economic and social activity during the spread of COVID-19 is still being widely debated, including in light of the extraordinary relief measures for families and businesses that various European countries have taken to help mitigate the impact of the crisis.
By virtue of the uncertainty generated by the COVID-19 pandemic and to these means of government support, the main European and international regulators (IASB, EBA, ESMA, European Commission, etc.) have provided clarity as to the regulatory and accounting treatment of credit exposures to banks and financial entities. Though they have stressed the need to incorporate the worsening macroeconomic scenario caused by the crisis, in line with the spirit of IFRS 9, they have also determined that the current state of uncertainty justifies using the flexibility that standard affords. The regulators therefore encourage institutions to take margins of flexibility beyond the mechanical application of standard models to provisions, estimating losses by giving adequate weight to long-term macroeconomic forecasts.
These Authorities have also clarified that relief measures to households and enterprises in the form of legislative or sector moratoriums do not in themselves constitute forbearance, as they are preventive and generic in nature rather than formulated ad hoc for the customer. Nor does the use of these measures entail an automatic classify a debtor as unlikely to pay. From an accounting standpoint, it has been clarified that the moratoriums do not in themselves significantly raise credit risk.
In valuing its performing loans at June 30, 2020, the Group has therefore considered a macroeconomic landscape updated to take account of the effects of the COVID-19 crisis. Appropriate adjustments have been made to account for the mitigating effects of the support measures granted to customers.
Within FinecoBank's retail clientele, to date there has been a limited impact on loans in terms of new disbursements and credit quality exposures. Any damage to portfolio quality is amply mitigated by the type of product offered (loans are secured where possible by financial guarantees and real estate) and by the Bank's prudent lending policies. For mortgage loans the average loan-to-value ratio is approximately 50% and credit facilities are backed by guarantees with conservative margins. This approach is further validated considering the Group's target retail clientele. The updated macroeconomic scenarios have led to € 0.3 million in write-downs as of June 2020. Loans that benefit from the moratoriums have been maintained
- Change in fair value of the exposure in equity securities versus the Voluntary Scheme established by the Interbank Fund for the Protection of Deposits for an amount of -€1.2 million (-€0.8 million net of the tax effect).
- Change in fair value of the exposure in equity securities versus the Voluntary Scheme established by the Interbank Fund for the Protection of Deposits fo r an amount of -€4.8 million (-€3.2 million net of the tax effect) and Patent box effect for an amount of €1.8 million).
10 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Summary data
at Stage 1 of the staging allocation, consistently with the Regulators' guidance, unless additional and specific factors were existing or have occurred that have led to a significant increase in credit risk.
As for the remaining counterparties, including bond issuers, the greatest impact of the pandemic effect has concerned Sovereign exposures. In this case, the updated macroeconomic scenarios have led to write-downs of € 3.6 million for bond issuers and approximately € 0.8 million for the other counterparties other than ordinary customers, calculated according to IFRS 9 impairment models and their post-model overlay and adjustment rules.
As regards the considerations on the assessments conducted at 30 June 2020 in relation to the impairment test of (i) intangible assets with finite life and indefinite life, specifically goodwill, Fineco brands and domains, and (ii) "property, plant and equipment" with finite life, specifically owned property, there are no indicators that could make adjustments to the related book values. For further details on the analysis carried out, please refer to the relevant paragraphs in these Notes to the accounts.
The pandemic and consequent economic and financial crisis have not harmed the Group's overall liquidity, which remains solid and stable. During the first half of the year, even during the most acute phase of the pandemic, all key ratios and cash adequacy measurements highlighted wide safety margins with respect to regulatory and internal limits. In the first quarter of 2020, two factors strengthened the Group's liquidity position: the sale of assets by customers due to turbulence in the financial markets, and an especially significant increase in cash and cash equivalents, which further boosted the rising trend for high quality liquid assets (HQLA) that began in 2019. In the second quarter, there was a gradual decrease in cash and cash equivalents due mainly to an uptick in customer investing, though they did not fall below standard pre-pandemic levels, representative of an extremely solid liquidity position. FinecoBank has experienced no difficulty or worsening of conditions in accessing the markets and executing transactions there (repos, securities trading) in terms of volumes or prices.
From a structural point of view, in the near future there will likely be an acceleration toward solutions leading to a more modern, digitalized world: customers will increasingly do their banking on digital platforms, favouring the Group's founding business model.
Because it does not base its business model on a network of physical branches, FinecoBank has been less exposed to the risk of pandemics: customers can perform transactions online or with the guidance of personal financial advisors via web collaboration procedures, without experiencing any loss of service. The Group is also set up to ensure operational continuity and remote working arrangements for nearly all its employees, guaranteeing full maintenance of service levels and of the framework of controls without interruption. In particular, FinecoBank, in line with the ministerial indications, has adopted direct measures for employees, gradually extending remote work to all, thanks to technological interventions that have allowed full company operations (e.g. complete call center decentralization which represents an essential channel interaction with customers) and the protection of employees, customers and other stakeholders, including the network of personal financial advisors qualified for off-site offering, which has already been using fully dematerialized internal processes for a long time.
With regard to Fineco AM, it should be noted that its management continuously monitors the situation created by the COVID-19 pandemic and its potential impacts, due also to restrictions issued by various local governments, and believes unchanged its capability to continue its normal operations in full. Fineco AM's management remains confident in the make-up of the portfolio and continues to assess opportunities to diversify the strategy of the funds under management, although the long-term impact of COVID-19 on financial markets and the general economy remains uncertain. At the beginning of the year, Fineco AM's net assets under management (AUM) amounted to € 13.8 billion and reached € 14.6 billion at February 21st, 2020. When the pandemic hit Europe and the rest of the world, the global economy slowed, which had a negative impact on Fineco AM's assets under management. At March 31st, 2020, as a result of this slowdown and the restrictions imposed by various governments, AUM fell to € 12.4 billion. The reduction in assets under management consequently affected management fees, with March showing lower revenues than January and February. Since the second quarter of 2020, AUM have increased in line with the recovery of the market and the economy, amounting to € 14.2 billion at June 30th, 2020, thanks in part to net inflows for the period of € 1 billion.
Looking forward, then, the Group does not expect to see a substantial impact on its strategic orientation, its objectives, or its business model, which in fact will come out stronger; nor does it estimate an overall relevant impact on performance thanks to its diversified sources of revenues.
It should also be noted that on March 27, 2020 the ECB and the Bank of Italy recommended that banks not pay dividends until at least October 2020. In order to increase the capacity to absorb losses, and to support credit to households, small businesses and corporate companies, the aforementioned Authorities invited the banks not to pay dividends for the years 2019 and 2020, at least until 1 October 2020, and to refrain from the repurchase of own shares aimed at the remuneration of the shareholders. In this regard, please note that the ordinary Shareholders' Meeting called for April 28, 2020 approved the proposal of the Board of Directors on April 6, 2020 to allocate the entire 2019 profit to the reserve.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 11
Consolidated interim report on operations
Summary data
On 28 July 2020 both Authorities renewed the recommendation not to proceed with the payment of dividends for the financial years 2019 and 2020 (including the distribution of reserves), not to make any irrevocable commitment for the payment of dividends for the same financial years and to not proceed with the repurchase of shares aimed at remunerating shareholders until January 1, 2021.
Lastly, it should be noted that since March 2020 FinecoBank has launched, for the first time, a project that envisages specific marketing investments aimed at customers residing in England, with the aim of increasing its presence and its brand on the territory.
12 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Summary data
Condensed Accounts
Consolidated balance sheet
(Amounts in € thousand)
Amounts as at | Changes | ||||||||
ASSETS | 06/30/2020 | 12/31/2019 | Amounts | % | |||||
Cash and cash balances | 909,802 | 754,386 | 155,416 | 20.6% | |||||
Financial assets held for trading | 14,591 | 7,933 | 6,658 | 83.9% | |||||
Loans and receivables with banks | 723,189 | 566,033 | 157,156 | 27.8% | |||||
Loans and receivables with customers | 4,204,291 | 3,679,829 | 524,462 | 14.3% | |||||
Financial investments | 22,946,524 | 22,304,892 | 641,632 | 2.9% | |||||
Hedging instruments | 75,577 | 64,939 | 10,638 | 16.4% | |||||
Property, plant and equipment | 153,685 | 152,048 | 1,637 | 1.1% | |||||
Goodwill | 89,602 | 89,602 | - | - | |||||
Other intangible assets | 36,592 | 37,492 | (900) | -2.4% | |||||
Tax assets | 4,186 | 23,444 | (19,258) | -82.1% | |||||
Other assets | 254,169 | 342,309 | (88,140) | -25.7% | |||||
Total assets | 29,412,208 | 28,022,907 | 1,389,301 | 5.0% | |||||
(Amounts in € thousand) | |||||||||
Amounts as at | Changes | ||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | 06/30/2020 | 12/31/2019 | Amounts | % | |||||
Deposits from banks | 113,137 | 154,653 | (41,516) | -26.8% | |||||
Deposits from customers | 27,021,199 | 25,919,858 | 1,101,341 | 4.2% | |||||
Financial liabilities held for trading | 8,209 | 3,777 | 4,432 | 117.3% | |||||
Hedging instruments | 207,116 | 94,950 | 112,166 | 118.1% | |||||
Tax liabilities | 62,928 | 11,437 | 51,491 | 450.2% | |||||
Other liabilities | 443,965 | 455,748 | (11,783) | -2.6% | |||||
Shareholders' equity | 1,555,654 | 1,382,484 | 173,170 | 12.5% | |||||
- capital and reserves | 1,373,995 | 1,093,117 | 280,878 | 25.7% | |||||
- revaluation reserves | 1,485 | 1,002 | 483 | 48.2% | |||||
- net profit | 180,174 | 288,365 | (108,191) | -37.5% | |||||
Total liabilities and Shareholders' equity | 29,412,208 | 28,022,907 | 1,389,301 | 5.0% |
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 13
Consolidated interim report on operations
Summary data
Consolidated balance sheet - Quarterly data
(Amounts in € thousand) | |||||||
Amounts as at | |||||||
ASSETS | 06/30/2020 | 03/31/2020 | 12/31/2019 | 09/30/2019 | 06/30/2019 | ||
Cash and cash balances | 909,802 | 1,177,380 | 754,386 | 1,208,686 | 1,230,599 | ||
Financial assets held for trading | 14,591 | 12,888 | 7,933 | 10,592 | 7,475 | ||
Loans and receivables with banks | 723,189 | 625,247 | 566,033 | 824,635 | 710,347 | ||
Loans and receivables with customers | 4,204,291 | 3,741,000 | 3,679,829 | 3,567,804 | 3,408,661 | ||
Financial investments | 22,946,524 | 23,400,694 | 22,304,892 | 21,521,272 | 19,912,177 | ||
Hedging instruments | 75,577 | 76,454 | 64,939 | 71,941 | 49,365 | ||
Property, plant and equipment | 153,685 | 152,973 | 152,048 | 148,644 | 143,801 | ||
Goodwill | 89,602 | 89,602 | 89,602 | 89,602 | 89,602 | ||
Other intangible assets | 36,592 | 37,053 | 37,492 | 8,760 | 8,760 | ||
Tax assets | 4,186 | 3,300 | 23,444 | 7,688 | 3,498 | ||
Other assets | 254,169 | 202,426 | 342,309 | 300,341 | 270,368 | ||
Total assets | 29,412,208 | 29,519,017 | 28,022,907 | 27,759,965 | 25,834,653 | ||
(Amounts in € thousand) | |||||||
Amounts as at | |||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | 06/30/2020 | 03/31/2020 | 12/31/2019 | 09/30/2019 | 06/30/2019 | ||
Deposits from banks | 113,137 | 330,927 | 154,653 | 188,171 | 206,643 | ||
Deposits from customers | 27,021,199 | 27,202,155 | 25,919,858 | 25,428,742 | 24,139,699 | ||
Financial liabilities held for trading | 8,209 | 11,039 | 3,777 | 4,734 | 2,413 | ||
Hedging instruments | 207,116 | 143,500 | 94,950 | 156,435 | 84,086 | ||
Tax liabilities | 62,928 | 32,254 | 11,437 | 50,929 | 64,779 | ||
Other liabilities | 443,965 | 322,068 | 455,748 | 642,227 | 409,356 | ||
Shareholders' equity | 1,555,654 | 1,477,074 | 1,382,484 | 1,288,727 | 927,677 | ||
- capital and reserves | 1,373,995 | 1,382,491 | 1,093,117 | 1,100,134 | 800,766 | ||
- revaluation reserves | 1,485 | 3,152 | 1,002 | (6,566) | (7,203) | ||
- net profit | 180,174 | 91,431 | 288,365 | 195,159 | 134,114 | ||
Total liabilities and Shareholders' equity | 29,412,208 | 29,519,017 | 28,022,907 | 27,759,965 | 25,834,653 |
14 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Summary data
Consolidated Income Statement
(Amounts in € thousand)
1st Half | Changes | |||||
2020 | 2019 | Amounts | % | |||
Net interest | 138,229 | 141,767 | (3,538) | -2.5% | ||
Net fee and commission income | 209,739 | 158,643 | 51,096 | 32.2% | ||
Net trading, hedging and fair value income | 56,482 | 17,837 | 38,645 | 216.7% | ||
Net other expenses/income | 1,392 | 537 | 855 | 159.2% | ||
OPERATING INCOME | 405,842 | 318,784 | 87,058 | 27.3% | ||
Staff expenses | (48,893) | (44,097) | (4,796) | 10.9% | ||
Other administrative expenses | (123,338) | (123,742) | 404 | -0.3% | ||
Recovery of expenses | 52,263 | 50,817 | 1,446 | 2.8% | ||
Impairment/write-backs on intangible and tangible assets | (12,268) | (10,510) | (1,758) | 16.7% | ||
Operating costs | (132,236) | (127,532) | (4,704) | 3.7% | ||
OPERATING PROFIT (LOSS) | 273,606 | 191,252 | 82,354 | 43.1% | ||
Net impairment losses on loans and provisions for guarantees and commitments | (3,670) | (146) | (3,524) | n.c. | ||
NET OPERATING PROFIT (LOSS) | 269,936 | 191,106 | 78,830 | 41.2% | ||
Other charges and provisions | (7,636) | (3,836) | (3,800) | 99.1% | ||
Net income from investments | (3,818) | 5,805 | (9,623) | -165.8% | ||
PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS | 258,482 | 193,075 | 65,407 | 33.9% | ||
Income tax for the period | (78,308) | (58,961) | (19,347) | 32.8% | ||
NET PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS | 180,174 | 134,114 | 46,060 | 34.3% | ||
PROFIT (LOSS) FOR THE PERIOD | 180,174 | 134,114 | 46,060 | 34.3% | ||
NET PROFIT (LOSS) ATTRIBUTABLE TO THE GROUP | 180,174 | 134,114 | 46,060 | 34.3% |
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 15
Consolidated interim report on operations
Summary data
Consolidated income statement - Quarterly data
(Amounts in € thousand) | ||||
2020 | ||||
1st Quarter | 2nd Quarter | |||
Net interest | 68,164 | 70,065 | ||
Net fee and commission income | 104,954 | 104,785 | ||
Net trading, hedging and fair value income | 26,394 | 30,088 | ||
Net other expenses/income | 570 | 822 | ||
OPERATING INCOME | 200,082 | 205,760 | ||
Staff expenses | (24,007) | (24,886) | ||
Other administrative expenses | (60,257) | (63,081) | ||
Recovery of expenses | 23,807 | 28,456 | ||
Impairment/write-backs on intangible and tangible assets | (6,058) | (6,210) | ||
Operating costs | (66,515) | (65,721) | ||
OPERATING PROFIT (LOSS) | 133,567 | 140,039 | ||
Net impairment losses on loans and provisions for guarantees and commitments | (963) | (2,707) | ||
NET OPERATING PROFIT (LOSS) | 132,604 | 137,332 | ||
Other charges and provisions | (1,124) | (6,512) | ||
Net income from investments | (89) | (3,729) | ||
PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS | 131,391 | 127,091 | ||
Income tax for the period | (39,960) | (38,348) | ||
NET PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS | 91,431 | 88,743 | ||
PROFIT (LOSS) FOR THE PERIOD | 91,431 | 88,743 | ||
NET PROFIT (LOSS) ATTRIBUTABLE TO THE GROUP | 91,431 | 88,743 |
Starting from 30 June 2020, the revenues from the securities lending activity carried out by the Parent Company Treasury department have been included in the "Net interest" item of the condensed income statement, previously accounted for into the "Net fee and commission income" item. The business, which began in 2020, generated revenues of € 74 thousand in the first quarter of 2020, therefore they were restated in the reclassified income statement scheme shown above.
16 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Summary data
(Amounts in € thousand) | ||||
2019 | ||||
4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter | |
Net interest | 69,704 | 69,806 | 71,401 | 70,366 |
Net fee and commission income | 82,275 | 84,253 | 81,282 | 77,361 |
Net trading, hedging and fair value income | 15,323 | 11,601 | 8,026 | 9,811 |
Net other expenses/income | 2,924 | 147 | 341 | 196 |
OPERATING INCOME | 170,226 | 165,807 | 161,050 | 157,734 |
Staff expenses | (23,558) | (22,497) | (22,444) | (21,653) |
Other administrative expenses | (60,877) | (56,019) | (58,669) | (65,073) |
Recovery of expenses | 26,582 | 26,669 | 24,227 | 26,590 |
Impairment/write-backs on intangible and tangible assets | (6,571) | (5,783) | (5,366) | (5,144) |
Operating costs | (64,424) | (57,630) | (62,252) | (65,280) |
OPERATING PROFIT (LOSS) | 105,802 | 108,177 | 98,798 | 92,454 |
Net impairment losses on loans and provisions for guarantees and | ||||
commitments | (597) | (1,227) | 1,124 | (1,270) |
NET OPERATING PROFIT (LOSS) | 105,205 | 106,950 | 99,922 | 91,184 |
Other charges and provisions | (3,536) | (19,780) | (2,856) | (980) |
Integration costs | - | - | 2 | (2) |
Net income from investments | 1,122 | 450 | 6,463 | (658) |
PROFIT (LOSS) BEFORE TAX FROM CONTINUING | ||||
OPERATIONS | 102,791 | 87,620 | 103,531 | 89,544 |
Income tax for the period | (9,585) | (26,575) | (31,689) | (27,272) |
NET PROFIT (LOSS) AFTER TAX FROM CONTINUING | ||||
OPERATIONS | 93,206 | 61,045 | 71,842 | 62,272 |
PROFIT (LOSS) FOR THE PERIOD | 93,206 | 61,045 | 71,842 | 62,272 |
NET PROFIT (LOSS) ATTRIBUTABLE TO THE GROUP | 93,206 | 61,045 | 71,842 | 62,272 |
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 17
Consolidated interim report on operations
Summary data
Main balance sheet figures
(Amounts in € thousand)
Amounts | Changes | |||||
06/30/2020 | 12/31/2019 | Amounts | % | |||
Loans receivable with ordinary customers ⁽¹⁾ | 3,765,567 | 3,263,940 | 501,627 | 15.4% | ||
Total assets | 29,412,208 | 28,022,907 | 1,389,301 | 5.0% | ||
Direct deposits ² | 26,077,316 | 25,589,652 | 487,664 | 1.9% | ||
Assets under administration ³ | 56,569,091 | 55,829,163 | 739,928 | 1.3% | ||
Total customers sales (direct and indirect) | 82,646,407 | 81,418,815 | 1,227,592 | 1.5% | ||
Shareholders' equity | 1,555,654 | 1,382,484 | 173,170 | 12.5% | ||
- Loans receivables with ordinary customers refer solely to loans granted to customers (current account overdrafts, credit cards, personal loans, mortgages and unsecured loans).
- Direct deposits include overdrawn current accounts and the Cash Park deposit account.
- Assets under administration consist of products placed online or through FinecoBank personal financial advisors.
Operating structure
Data as at | |||
06/30/2020 | 12/31/2019 | 06/30/2019 | |
No. Employees | 1,244 | 1,225 | 1,176 |
No. Personal financial advisors | 2,569 | 2,541 | 2,566 |
No. Financial shops ¹ | 399 | 396 | 394 |
(1) Number of operating financial shops: financial shops managed by the Bank and financial shops managed by personal financial advisors (so called Fineco Centers).
18 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Summary data
Profitability, productivity and efficiency ratios
(Amounts in € thousand) | |||
Data as at | |||
06/30/2020 | 12/31/2019 | 06/30/2019 | |
Net interest/Operating income | 34.06% | 42.96% | 44.47% |
Income from brokerage and other income/Operating income | 65.94% | 57.04% | 55.53% |
Income from brokerage and other income/Operating costs | 202.38% | 149.66% | 138.80% |
Cost/income ratio | 32.58% | 38.12% | 40.01% |
Operating costs/TFA | 0.32% | 0.33% | 0.35% |
Cost of risk | 14 bp | 12 bp | 14 bp |
CoR (incentive system) | 13 bp | 12 bp | 13 bp |
ROE | 29.90% | 29.02% | 32.81% |
Return on assets | 1.23% | 1.03% | 1.04% |
EVA (calculated on economic capital) | 157,913 | 229,915 | 109,196 |
EVA (calculated on accounting capital) | 113,742 | 198,436 | 93,734 |
RARORAC (calculated on economic capital) | 63.98% | 31.90% | 35.54% |
RARORAC (calculated on accounting capital) | 15.44% | 17.90% | 18.83% |
ROAC (calculated on economic capital) | 72.99% | 40.01% | 43.65% |
ROAC (calculated on accounting capital) | 24.46% | 26.01% | 26.94% |
Total sales to customers/Average employees | 66,947 | 67,990 | 64,699 |
Total customer sales/(Average employees + average PFAs) | 21,553 | 21,671 | 20,265 |
Key
Income from brokerage and other income: Net fee and commission income, Net trading, hedging and fair value income and Net other expenses/income.
Cost/income ratio: Operating Costs divided by Operating Income.
Operating costs/TFA: ratio of operating costs to Total Financial Assets. The TFA used for the ratio is the average for the year, calculated as the average between the balance as at June 30, 2020 and the balance as at the previous December 31.
Cost of risk: is the ratio of Net impairment losses of loans with customers in the last 12 months to loans and receivables with customers (average of the averages of the last four quarters, calculated as the average balance at the end of the quarter and the balance at the end of the previous quarter). The scope only includes loans to ordinary customers.
CoR (incentive system): is the ratio of Net impairment losses of loans with customers in the last 12 months to loans and receivables with customers (average of the balance as at December 31, 2019 and the balance at December 31 of the previous year). The scope of the exposures excludes positions deriving from bonds and advances to personal financial advisors.
ROE: ratio between the net profit and the average book shareholders' equity (excluding dividends and any donations expected t o be distributed and the revaluation reserves) for the period (average between the amount of the end of period and the amount of the shareholders' equity as at December 31 of previous year). The result for the period as of June 30, 2020 and June 30, 2019 has been annualized. It should be noted that the amount of dividends approved by the Board of Directors on 11 February 2020, subsequently revoked by the Board of Directors on 6 April 2020, equal to € 195.1 million, was also excluded from the book shareholders' equity.
Return on assets: ratio of net profit after tax to total assets. The result for the period as of June 30, 2020 and June 30, 2019 has been annualized.
EVA (Economic Value Added): shows the firm's ability to create value; calculated as the difference between net profit, exclud ing extraordinary charges/income and related tax effects (integration costs and net profits from extraordinary investments), and the figurative cost of the allocated capital; the latter was calculated using either the greater of the regulatory capital and the economic capital absorbed either using the book value of shareholders' equity (average of single end quarters).
RARORAC (Risk adjusted Return on Risk adjusted Capital): the ratio between EVA (as described above) and the average of the qu arters of the year of the allocated capital (calculated with the same methods envisaged for the calculation of the EVA) and expresses in percentage terms the capacity to create value per unit of risk taken.
ROAC (Return on Allocated Capital): the ratio of net operating profit to the average of the quarters of the year of the allocated capital (calculated with the same methods envisaged for the calculation of the EVA).
It should be noted that with regard to the "Income from brokerage and other income/Operating income" indicator, the figure as at June 30, 2019 was recalculated, for homogeneity, following the reclassification made in the condensed accounts as described into the "Introduction to the Consolidated First Half Financial Report".
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 19
Consolidated interim report on operations
Summary data
Balance Sheet indicators
Data as at | |||
06/30/2020 | 12/31/2019 | ||
Loans receivable with ordinary customers/Total assets | 12.80% | 11.65% | |
Loans and receivables with banks/Total assets | 2.46% | 2.02% | |
Financial assets/Total assets | 78.02% | 79.60% | |
Direct sales/Total liabilities and Shareholders' equity | 88.66% | 91.32% | |
Shareholders' equity (including profit)/Total liabilities and Shareholders' equity | 5.29% | 4.93% | |
Ordinary customer loans/Direct deposits | 14.44% | 12.75% | |
Credit quality | Data as at | ||
06/30/2020 | 12/31/2019 | ||
Non-performing loans/Loans receivable with ordinary customers | 0.12% | 0.11% | |
Bad loans/Loans receivable with ordinary customers | 0.05% | 0.05% | |
Coverage ¹ - Bad loans | 90.90% | 91.39% | |
Coverage ¹ - Unlikely to pay | 67.94% | 68.01% | |
Coverage ¹ - Impaired past-due exposures | 49.41% | 65.45% | |
Coverage ¹ - Total Non-performing loans | 82.80% | 85.92% | |
- Calculated as the ratio between the amount of impairment losses and gross exposure.
Own funds and capital ratios
Data as at | |||
06/30/2020 | 12/31/2019 | ||
Common Equity Tier 1 Capital (€ thousand) | 816,955 | 583,031 | |
Total Own Funds (€ thousand) | 1,316,955 | 1,083,031 | |
Totale risk-weighted assets (€ thousand) | 3,387,496 | 3,216,788 | |
Ratio - Common Equity Tier 1 Capital | 24.12% | 18.12% | |
Ratio - Tier 1 Capital | 38.88% | 33.67% | |
Ratio - Total Own Funds | 38.88% | 33.67% | |
) | |||
Data as at | |||
06/30/2020 | 12/31/2019 | ||
Tier 1 Capital (€ thousand) | 1,316,955 | 1,083,031 | |
Exposure for leverage (€ thousand) | 29,868,321 | 28,152,030 | |
Transitional leverage ratio | 4.41% | 3.85% |
The prudential requirements of the Bank at 30 June 2020 were determined on the basis of the harmonized regulation for banks and investment firms contained in Directive 2013/36/EU (CRD IV) and in Regulation (EU) 575/2013 (CRR) of June 26, 2013 and subsequent Directives/Regulations that modify the content, which transpose the standards defined by the Basel Committee for banking supervision (so-called Basel 3 regulatory framework), collected and implemented by the Bank of Italy through the Circular no. 285 of 17 December 2013 "Supervisory provisions for banks" and subsequent updates.
On 26 June 2020, Regulation 2020/873 of the EU Parliament and of the Council amending the CRR was published, making a number of adjustments to the prudential framework in the light of the health emergency Covid-19. For further details on the contents of the Regulation, see Part F - Consolidated shareholders' equity - Section 2 - Own funds and bank supervisory ratios of the Notes to the accounts.
20 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Summary data
Own funds as at June, 30 2020 are equal to € 1,317 million, including part of the profit of the first half 2020, allocated to increase the value of the reserves, for an amount of € 45 million, assuming the conditions set out in art. 26, paragraph 2, of EU Regulation 575/2013 (CRR), and the whole amount of 2019 profits equal to € 288.4 million.
It should be noted that on 6 April 2020 the Board of Directors of FinecoBank S.p.A, taking into account the Recommendations of the European Central Bank and the Bank of Italy issued on 27 March 2020 on dividend policy in the context of the COVID-19, in full compliance with the relevant regulations and the best consolidated practice, resolved to revoke the proposal to distribute the dividend on 2019 profits, for a total amount of 195,052,000 euros, made by the Board of Directors on 11 February 2020, and therefore resolved to propose to the Shareholders' Meeting to allocate the all 2019 result to reserves. This proposal was approved by the FinecoBank Shareholders' Meeting held on 28 April 2020.
The increase in risk-weighted assets during the first half 2020 is mainly due to credit risk due to the growth of the business, in particular to the growthof lending activity to customers and investments in covered bonds and counterparty risk due to unsecured lending.
With reference to the capital requirements applicable to FinecoBank, it should be noted that the Supervisory Review and Evaluation Process (SREP), conducted by the Bank of Italy, is currently ongoing; at the end of this process a Pillar 2 Requirement (P2R) and a Pillar 2 Guidance (P2G) applicable to the Group will be required.
As the procedure for the requirement of additional capital to be held by the FinecoBank group on top of the regulatory minimum has not been completed, the "Total SREP Capital Requirement" (TSCR) corresponds to the minimum requirement of Pillar 1 as at 30 June 2020.
The following is a summary of the transitional capital requirements and reserves for FinecoBank required as of June 2020.
Requisiti | CET1 | T1 | TOTAL CAPITAL |
A) Requisiti di Pillar 1 | 4.50% | 6.00% | 8.00% |
B) Requisiti di Pillar 2 | 0.00% | 0.00% | 0.00% |
C) TSCR (A+B) | 4.50% | 6.00% | 8.00% |
D) Requisito combinato di riserva di capitale, di cui: | 2.503% | 2.503% | 2.503% |
1. riserva di conservazione del capitale (CCB) | 2.500% | 2.500% | 2.500% |
2. riserva di capitale anticiclica specifica per FinecoBank (CCyB) | 0.003% | 0.003% | 0.003% |
E) Overall Capital Requirement (C+D) | 7.003% | 8.503% | 10.503% |
As at 30 June 2020, the Group ratios are compliant with all the above requirements.
For further details, please refer to Part F - Information on consolidated shareholders' equity - Section 2 - Own funds and capital ratios of these Notes to the accounts.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 21
Consolidated interim report on operations
Business performance
Business performance
Performance of total financial assets
Direct deposits showed growth of 1.9% compared to the end of the previous year, to reach € 26,077 million and confirming the high level of appreciation of the quality of the services offered by the Group among customers. Indeed, the majority of direct deposits were "transactional", supporting customers' overall operations. The increase in this component of sales confirms the high and increasing degree of customer loyalty, which in turn contributes to improving the stability of direct sales.
Assets under administration (Assets under Management-AUM plus Assets under Custody-AUC) came to € 56,569 million increased by 1.3% compared to December 31, 2019, thanks to net sales of € 4,750 million recorded in the first half 2020, partially offset by a negative market effect of -€ 3,522 million.
Total financial assets (direct and indirect) thus reached € 82,646 million, up 1.5% compared to the end of 2019. The quality of sales was also confirmed, which shows a percentage impact of "Guided products & services"4 on TFA of 35.1%, up from the 35.4% recorded at 31 December 2019, and on Assets under Management of 72.3%, an improvement compared to 71.1% recorded at the end of 2019, thanks to the continuous refinement of the offer.
AUC = Asset Under Custody
AUM = Asset Under Management
TFA = Total Financial Asset
4 Respectively, the Bank's products and/or services developed by investing in UCITs selected from among those distributed for each asse t class taking into account customers' different risk profiles and offered to the Bank's customers under the guided open architecture model. At the date of this report, the guided products category included the "Core Series" umbrella fund of funds, "Core Funds", the Individual Savings Plans ("Piani Individuali di Risparmio" or "PIR") and the "Core Unit", "Advice Unit", "Core Multiramo", "Advice Top Valor", "Old Mutual", "Best in class", "FAM Evolution", "FAM Target", "FAM Series", "Core Pension", "Private Client Insurance" e "GP Private value" unit-linked policies, while the "Fineco Advice", "Fineco Stars" and "Fineco Plus" advanced advisory services (for investment) fall under the guided service category.
22 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Business performance
Total financial assets
(Amounts in € thousand)
Amounts as at | Amounts as at | Changes | ||||||
06/30/2020 | Comp% | 12/31/2019 | Comp% | Absolute | % | |||
Current accounts and demand deposits | 26,076,606 | 31.6% | 25,588,332 | 31.4% | 488,274 | 1.9% | ||
Time deposits and reverse repos | 710 | 0.0% | 1,320 | 0.0% | (610) | -46.2% | ||
DIRECT DEPOSITS | 26,077,316 | 31.6% | 25,589,652 | 31.4% | 487,664 | 1.9% | ||
Segregated accounts | 169,394 | 0.2% | 92,529 | 0.1% | 76,865 | 83.1% | ||
UCITS and other investment funds | 27,657,395 | 33.5% | 28,785,791 | 35.4% | (1,128,396) | -3.9% | ||
Insurance products | 10,675,738 | 12.9% | 10,115,054 | 12.4% | 560,684 | 5.5% | ||
Asset under custody and Direct deposits under advisory | 1,580,440 | 1.9% | 1,512,000 | 1.9% | 68,440 | 4.5% | ||
ASSETS UNDER MANAGEMENT BALANCE | 40,082,967 | 48.5% | 40,505,374 | 49.7% | (422,407) | -1.0% | ||
Government securities, bonds and stocks | 16,486,124 | 19.9% | 15,323,789 | 18.8% | 1,162,335 | 7.6% | ||
ASSETS UNDER CUSTODY | 16,486,124 | 19.9% | 15,323,789 | 18.8% | 1,162,335 | 7.6% | ||
TOTAL FINANCIAL ASSETS | 82,646,407 | 100.0% | 81,418,815 | 100.0% | 1,227,592 | 1.5% | ||
of which Guided products & services | 28,983,587 | 35.1% | 28,787,803 | 35.4% | 195,784 | 0.7% |
The table above shows the figures for the balance of direct and indirect deposits of the Bank's customers, including both those linked to a personal financial advisor and those operating exclusively through the online channel. Total financial assets (direct and indirect) amounting to € 82,646 million, up 1.5% compared to the end of 2019, thanks to net sales of € 4,750 million recorded in the first half 2020, partially offset by a negative market effect.
Total financial assets - Personal Financial Advisors Network
(Amounts in € thousand)
Amounts as at | Amounts as at | Changes | |||||||
06/30/2020 | Comp % | 12/31/2019 | Comp % | Absolute | % | ||||
Current accounts and demand deposits | 19,744,032 | 27.5% | 19,206,453 | 27.2% | 537,579 | 2.8% | |||
Time deposits and reverse repos | 648 | 0.0% | 1,219 | 0.0% | (571) | -46.8% | |||
DIRECT DEPOSITS | 19,744,680 | 27.5% | 19,207,672 | 27.2% | 537,008 | 2.8% | |||
Segregated accounts | 169,394 | 0.2% | 92,529 | 0.1% | 76,865 | 83.1% | |||
UCITS and other investment funds | 27,293,568 | 38.1% | 28,374,546 | 40.1% | (1,080,978) | -3.8% | |||
Insurance products | 10,600,812 | 14.8% | 10,033,227 | 14.2% | 567,585 | 5.7% | |||
Asset under custody and Direct deposits under advisory | 1,580,425 | 2.2% | 1,511,983 | 2.1% | 68,442 | 4.5% | |||
ASSETS UNDER MANAGEMENT BALANCE | 39,644,199 | 55.3% | 40,012,285 | 56.6% | (368,086) | -0.9% | |||
Government securities, bonds and stocks | 12,298,258 | 17.2% | 11,467,385 | 16.2% | 830,873 | 7.2% | |||
ASSETS UNDER CUSTODY | 12,298,258 | 17.2% | 11,467,385 | 16.2% | 830,873 | 7.2% | |||
TOTAL FINANCIAL ASSETS PERSONAL FINANCIAL | 71,687,137 | 100.0% | 70,687,342 | 100.0% | 999,795 | 1.4% | |||
ADVISORS NETWORK | |||||||||
of which Guided products & services | 28,947,306 | 40.4% | 28,754,383 | 40.7% | 192,923 | 0.7% | |||
The table above shows the figures for direct and indirect deposits solely for the personal financial advisors network' customers. Total financial assets, amounting to € 71,687 million, increased by 1.4% compared to December 31, 2019, thanks to net sales of € 4,103, partially offset by a negative market effect.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 23
Consolidated interim report on operations
Business performance
Net sales
(Amounts in € thousand)
1st Half | Comp | 1st Half | Comp | Changes | ||||||||||||||
2020 | % | 2019 | % | Absolute | % | |||||||||||||
Current accounts and demand deposits | 569,587 | 12.0% | 1,776,359 | 53.3% | (1,206,772) | -67.9% | ||||||||||||
Time deposits and reverse repos | (624) | 0.0% | (998) | 0.0% | 374 | -37.5% | ||||||||||||
DIRECT DEPOSITS | 568,963 | 12.0% | 1,775,361 | 53.2% | (1,206,398) | -68.0% | ||||||||||||
Segregated accounts | 82,037 | 1.7% | 24,700 | 0.7% | 57,337 | 232.1% | ||||||||||||
UCITS and other investment funds | 611,529 | 12.9% | 27,069 | 0.8% | 584,460 | 2159.1% | ||||||||||||
Insurance products | 757,031 | 15.9% | 1,091,919 | 32.7% | (334,888) | -30.7% | ||||||||||||
Asset under custody and Direct deposits under advisory | 154,381 | 3.3% | 274,959 | 8.2% | (120,578) | -43.9% | ||||||||||||
ASSETS UNDER MANAGEMENT BALANCE | 1,604,978 | 33.8% | 1,418,647 | 42.5% | 186,331 | 13.1% | ||||||||||||
Government securities, bonds and stocks | 2,575,975 | 54.2% | 140,483 | 4.2% | 2,435,492 | 1733.7% | ||||||||||||
ASSETS UNDER CUSTODY | 2,575,975 | 54.2% | 140,483 | 4.2% | 2,435,492 | 1733.7% | ||||||||||||
TOTAL FINANCIAL ASSETS PERSONAL FINANCIAL ADVISORS | 4,749,916 | 100.0% | 3,334,491 | 100.0% | 1,415,425 | 42.4% | ||||||||||||
NETWORK | ||||||||||||||||||
of which Guided products & services | 1,699,451 | 35.8% | 1,602,100 | 48.0% | 97,351 | 6.1% | ||||||||||||
The table above shows the figures for net direct sales, assets under management and assets under administration during first half 2020 compared with the same period of the previous year, for both customers linked to a personal financial advisor and online-only customers. Net sales came to € 4,750 million, increased by 42.4% compared with first half 2019.
Net sales - Personal Financial Advisors Network
(Amounts in € thousand)
1st Half | Comp | 1st Half | Comp | Changes | |||||||||||||
2020 | % | 2019 | % | Absolute | % | ||||||||||||
Current accounts and demand deposits | 618,893 | 15.1% | 1,375,074 | 47.3% | (756,181) | -55.0% | |||||||||||
Time deposits and reverse repos | (585) | 0.0% | (914) | 0.0% | 329 | -36.0% | |||||||||||
DIRECT DEPOSITS | 618,308 | 15.1% | 1,374,160 | 47.2% | (755,852) | -55.0% | |||||||||||
Segregated accounts | 82,037 | 2.0% | 24,700 | 0.8% | 57,337 | 232.1% | |||||||||||
UCITS and other investment funds | 622,502 | 15.2% | 34,007 | 1.2% | 588,495 | 1730.5% | |||||||||||
Insurance products | 757,988 | 18.5% | 1,090,256 | 37.5% | (332,268) | -30.5% | |||||||||||
Asset under custody and Direct deposits under advisory | 154,403 | 3.8% | 274,959 | 9.5% | (120,556) | -43.8% | |||||||||||
ASSETS UNDER MANAGEMENT BALANCE | 1,616,930 | 39.4% | 1,423,922 | 48.9% | 193,008 | 13.6% | |||||||||||
Government securities, bonds and stocks | 1,867,416 | 45.5% | 111,622 | 3.8% | 1,755,794 | 1573.0% | |||||||||||
ASSETS UNDER CUSTODY | 1,867,416 | 45.5% | 111,622 | 3.8% | 1,755,794 | 1573.0% | |||||||||||
TOTAL FINANCIAL ASSETS PERSONAL FINANCIAL ADVISORS | 4,102,654 | 100.0% | 2,909,704 | 100.0% | 1,192,950 | 41.0% | |||||||||||
NETWORK | |||||||||||||||||
of which Guided products & services | 1,694,089 | 41.3% | 1,605,111 | 55.2% | 88,978 | 5.5% | |||||||||||
The table above shows the figures for net direct sales ,assets under management and assets under administration solely for the personal financial advisors network' customers during first half 2020 compared to the previous year. Net sales came to € 4,103 million, increased by 41% compared with first half 2019.
24 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Business performance
Performance of main income statement aggregates
Operating income came to € 405.8 million, up 27.3% compared to € 318.8 million in the same period of 2019.
Net fee and commission income and Net trading, hedging and fair value income contributed to the increase in the operating income as they rose, respectively, by 32.2% and 216.7%, while Net interest fell slightly by 2.5%.
Net interest decreased by € 3.5 million compared to the first half of the previous year due mainly to the fall in market interest rates, partially offset by the positive contribution of the increase in volumes, the growth in lending, and more dynamic treasury management. In this regard it should be noted that the structure of the investments carried out by the Group contributed to maintaining a significant level of interest income, with the average gross margin on interest-earning assets at 1.06% (1.20% at June 30, 2019).
Net fee and commission income increased by € 51.1 million compared to the first half of the previous year, mainly due to the commissions generated by the Brokerage segment (+€ 36.6 million), driven by a highly volatile market, an increase in the proportion of the Bank's customers active in the Brokerage segment and the review of the offer, as well as the commissions generated by the Banking segment (+€ 9.1 million), driven in particular by the change in the monthly cost of keeping euro-denominated current accounts, which took effect from February 2020. It should be noted that this item includes the account maintenance fees that - whose introduction is subject of the proceedings brought against the Bank in December 2019 by the Italian Antitrust Authority (AGCM). Taking into account the outcome of the hearings and discussions with the abovementioned Authority, the Bank
- while maintaining that it acted properly - decided to pay back customers affected by this commercial practice, for an estimated amount of € 4 million as at June 30th, 2020 (already recognised under the item Provisions for risks and charges, to which readers should refer). Despite the tough market environment, commissions generated by the Investing segment also increased (+€ 6.1 million), thanks to the continuous improvement of the offer and the quality of sales. In the first half of 2020, the subsidiary Fineco AM generated net commissions of € 32.4 million.
Net trading, hedging and fair value income was mainly generated by profits realised by the Brokerage segment, which includes internalisation of securities and regulated/OTC derivatives, financial instruments used for operational hedging of securities and internalised derivatives and the exchange differences on assets and liabilities denominated in currency; it was up € 31.2 million compared to the first half of the previous year, driven by financial-market volatility in the first half of 2020, which resulted in an increase of over 180% in internalised volumes. This result also includes the income components from financial instruments recognised under "Other financial assets that must be designated at fair value", which include the Visa INC class "C" preferred shares and the equity exposure accounted for the contributions paid to the Voluntary Scheme established by the National Interbank Deposit Guarantee Fund, whose fair-value measurements respectively generated, in the first half of 2020, a gain of € 0.06 million (+€ 1.9 million in the first half of 2019) and a loss of € 1.2 million (-€ 4.8 million in the first half of 2019). Finally, there are the net profits generated by the sale of government bonds recognised under "financial assets at fair value through other comprehensive income", amounting to € 1.8 million (€ 0.7 million in the first half of 2019), and recognised under "Financial assets at amortised cost", amounting to € 7 million (€ 2.1 million in the first half of 2019, including securities issued by UniCredit).
Operating costs remained under control with an increase of € 4.7 million compared to the same period of the previous year (+€ 4.8 million for "Staff expenses", -€ 1.9 million for "Other administrative expenses net of Recovery of expenses" and +€ 1.8 million for "Impairment/write-backs on intangible and tangible assets"). The 3.7% increase is, in any case, well contained when compared to the growth in activities, AUM, customers, structure and staff, confirming the Group's strong operating leverage and widespread corporate culture of cost management, proven by a cost/income ratio at 32.6% (40% as at June 30th, 2019).
Loan loss provisions in the first half of 2020 stood at € -3.7 million (-0.1 million in the first half of 2019) and were mainly affected by the change in the macroeconomic scenarios used in the calculation of LLPs for Expected Credit Losses at June 30th, 2020. As described above in "Significant events during the period", when assessing performing credit exposures at June 30th, 2020, the Group considered an updated macroeconomic scenario to take into account the effects of the crisis arising from the COVID-19 pandemic. The updated macroeconomic scenarios led to an € 0.3 million in LLPs. As regards other counterparties other than securities issuers, the updated macroeconomic scenarios led to LLPs of € 0.8 million, recognised using IFRS 9 impairment models and their post-model overlay and adjustment. It should also be noted that at June 30th, 2019, the Group had recorded writebacks of approximately € 2.3 million with respect to the counterparty UniCredit S.p.A., thanks to both a reduction in exposures and an improvement in the counterparty's risk profile, as a result of the financial guarantee received under the Pledge Agreement entered into following the exit of FinecoBank from the UniCredit Banking Group.
Provisions for risks and charges amounted to -€ 7.6 million, increasing on the -€ 3.8 million recorded in the first half of 2019. During the first half of 2020 the ordinary annual contribution required for the 2020 financial year under Directive 2014/59/EU (Single Resolution Fund) was recognised in the amount of € 0.7 million (no contribution had been requested for the 2019 financial year). In June 2020, the Bank of Italy called in additional contributions to the National Resolution Fund pursuant to Art. 1, paragraph 848 of Law 208/2015. The contribution payable by the Bank was € 0.2 million. At June 30, 2020, the Provisions for risks and charges also include a provision made by the Bank in relation to the proceedings initiated against itself in December 2019 by the Italian Antitrust Authority (AGCM). In this regard, it should be noted that on December 20th, 2019, the Bank received notice from the AGCM that it had initiated proceedings to assess the compliance with the Consumer Code (Legislative Decree 206/2005) of a commercial practice that the Bank had previously used to encourage people to open current accounts. During the first half of 2020, FinecoBank - on the advice of its lawyers - provided the AGCM with all the information required for the purposes of the assessment within the prescribed time limits, explaining the reasons why it believes it has operated correctly. Taking into account the outcome of the hearings and discussions with the AGCM, the Bank - while maintaining that it acted properly - decided to pay back customers affected by this commercial practice (the monthly account maintenance fees) charged in 2020 and to not apply these fees until December 31, 2020.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 25
Consolidated interim report on operations
Business performance
Pending the AGCM's decisions on the proposals made by the Bank, this substantial commitment taken by the Bank at the reporting date has been covered by a specific allocation to the Provision for risks and charges as at June 30th, 2020 in the amount of € 4 million. If the above proposal is accepted, this amount will be paid to the customers concerned during the second half of 2020 by promptly repaying the fees charged to them from February 1st, 2020.
Profit from investments showed a loss of 3.8 million, down 9.6 million on the first half of 2019. As described above, when assessing performing credit exposures at June 30th, 2020, the Group considered an updated macroeconomic scenario to take into account the effects of the crisis arising from the COVID-19 pandemic. Regarding exposures to bond issuers, where the greatest impact was on sovereign exposures, the updated macroeconomic scenarios led to provisions of € 3.6 million, recognised using IFRS 9 impairment models and their post-model overlay and adjustment. It should also be noted that at June 30th, 2019, the Group had recorded writebacks of approximately € 6.5 million with respect to the issuer UniCredit S.p.A., thanks to both a reduction in exposures in debt securities and an improvement in the issuer's risk profile, as a result of the financial guarantee received under the Pledge Agreement entered into following the exit of FinecoBank from the UniCredit Banking Group.
Profit (loss) before tax from continuing operations amounted to a profit of € 258.5 million, increasing by 33.9% on the first half of the prior year, owing in particular to the increase in Net commissions and Net trading, hedging and fair value income. Excluding non-recurring items in the first half of 2020 as previously described5, profit before tax from continuing operations would have been € 259.7 million, up 31.3% compared to the first half of 2019 (also net of non-recurring items6).
Profit for the period came to € 180.2 million, up 34.3% compared to € 134.1 million for the first half of the previous year. Excluding non-recurring items in the first half of 2020 as previously described7, profit for the period would have been € 181 million, up 30.1% compared to the first half of 2019 (also net of non-recurring items8).
Performance of main balance sheet aggregates
Cash and cash balances, amounting to € 909.8 million, consisted mainly of the liquidity deposited in the HAM (Home Accounting Model) account with the Bank of Italy, used to manage short-term liquidity.
Loans to banks came to € 723.2 million, an increase of 27.8% compared to December 31, 2019, driven mainly by higher variation margins paid for derivative dealing. This item also includes cash and cash equivalents with credit institutions held mainly for the settlement of payment transactions and transactions involving own and customers' financial instruments.
Loans to customers came to € 4,204.3 million, up 14.3% compared to December 31, 2019, thanks to the increase in lending activities. In the first half of 2020, € 78 million in personal loans and € 552 million in mortgages were granted, and € 429 million in current account overdrafts were arranged, with an increase in exposures in current account of € 130 million; this resulted in an overall 15.4% aggregate increase in loans to ordinary customers compared to December 31, 2019. Non-performing loans net of impairment losses totalled € 4.7 million (€ 3.6 million as at December 31, 2019), with a coverage ratio of 82.8%. The ratio between the amount of non-performing loans and total loans to ordinary customers came to 0.12% (0.11% as at December 31, 2019).
Other financial assets came to € 22,946.5 million, up 2.9% compared to December 31st, 2019. The book value of debt securities issued by UniCredit S.p.A. amounted to € 6,505.8 million, down compared to € 7,501.4 million at December 31st, 2019 due to the redemption of securities maturing during the first half of 2020. Purchases made by the Group during the first half of 2020 mainly involved bonds issued by governments, supranational entities and covered bonds.
Deposits from banks amounted to € 113.1 million, down 26.8% compared to December 31st, 2019, mainly due to a reduction in liabilities represented by current accounts with credit institutions and securities lending transactions secured by sums of money that are fully available to the lender. This item also includes "Lease liabilities" payable to banks, amounting to € 4.9 million, which represent the financial liability corresponding to the present value of the payments due under lease agreements with credit institutions not paid on the reporting date, as required by IFRS 16.
Deposits from customers amounted to € 27,021.2 million, up 4.2% over December 31st, 2019, due to growth in direct deposits from customers and repurchase agreements on the MTS market. The item also includes "Lease liabilities" payable to customers of € 66.4 million, including € 0.8 million relating to the subsidiary Fineco AM, which represents the present value of payments due under lease agreements entered into with parties other than credit institutions that were not paid at the reporting date, as required by IFRS 16.
- Change in the fair value of the equity exposure to the Voluntary Scheme set up by the Interbank Deposit Guarantee Fund totalling -€1.2 million (including tax effect).
- Change in the fair value of the equity exposure to the Voluntary Scheme set up by the Interbank Deposit Guarantee Fund totalling -€4.8 million (including tax effect).
- Change in the fair value of the equity exposure to the Voluntary Scheme set up by the Interbank Deposit Guarantee Fund totalling -€0.8 million (including tax effect).
- Change in the fair value of the equity exposure to the Voluntary Scheme set up by the Interbank Deposit Guarantee Fund totalling -€3.2 million (including tax effect) and the tax benefit from the so-called Patent Box regime amounting to €1.8 million.
26 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Business performance
Equity came to € 1,555.6 million, up € 173.2 million compared to December 31st, 2019, attributable mainly to the profit earned in the first half of 2020. During the first half of 2020, coupons were paid on the AT1 instruments issued by FinecoBank, which, net of taxes, resulted in a reduction in equity of
- 9.9 million.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 27
Consolidated interim report on operations
Business performance
Communications and external relations
The first half of 2020 opened with the launch of the "NOI SIAMO FINECO" communication campaign.
The campaign is based on diligent research into the real reasons investors are dissatisfied with their banks and offers a solution for each of them. FinecoBank continues to be "the bank that simplifies banking" and is now positioning itself as Italians' best investment partner and the alternative people are seeking: a smart, digital, transparent bank with a network of personal advisors able to meet the increasingly specific needs of their customers, who are always placed front and centre.
In late February and mid-April, two important communication flights were planned to support the new campaign mostly via TV, press, and digital media; from March through late June, a digital campaign was planned for the trading segment; and in April a member-get-member program was launched in support of personal financial advisors.
Regarding the Reputation Management programme, by which the Reputation Institute9 conducts monthly surveys of banks' reputations among a representative sample of the general public, in the first quarter of 2020 FinecoBank achieved the second-highest score with a reputation index of 66.8/100.
Events and training initiatives for customers and advisors in the first half of 2020 were severely limited by the COVID-19 emergency which, as a result of the lockdown, required entirely new methods making it possible to attend remotely. More than 700 virtual events were therefore organized and attended by approximately 40,000 existing and prospective customers.
Many other initiatives put the Bank in national media headlines as it found ways to investigate the social and economic implications of the pandemic. In April it partnered with Il Corriere della Sera to launch the initiative "L'Italia che investe: dopo la crisis una nuova normalità", in which three prominent experts - including Fineco's Chief Executive Officer and General Manager, Alessandro Foti - explained the particularities of the health and economic crisis to the general public via the newspaper's TV channel.
In the first half of the year FinecoBank decided to support the research activities of Fondazione Feltrinelli. More specifically, "Cinque lezioni di complessità" was a socio-philosophical project involving five open-audience seminars with M. Benassyag, who analysed the many factors contributing to the complexity of the society we live in and the influences to which every individual is exposed. As the main sponsor, FinecoBank in fact argues for the value of simplicity as something different and opposed to the simplistic.
The Group also confirmed and strengthened its important partnership with Fondo Ambiente Italiano (FAI). For several years, FinecoBank has been a "corporate golden donor" and from this year main sponsor of all 2020 initiatives organized by FAI throughout the country, dedicated to the theme of reopening with a focus on cultural and environmental themes. FinecoBank and FAI share a vocation for protecting assets: whether financial assets as in Fineco's case or artistic treasures and landscapes as in FAI's, both are centred on the life plans of individual people. The first major events were the open house days (Giornate FAI) in June, to be followed by more Giornate FAI in the autumn.
Once again this year, FinecoBank upheld its commitment to supporting a number of solidarity programs. In March, with the explosion of the COVID- 19 pandemic, it set up a donation page at FinecoBank.com in support of two of Italy's most important and hardest-hit healthcare institutions: ASST Fatebenefratelli Sacco in Milan and the Lazzaro Spallanzani Institute for Infectious Diseases in Rome. In addition to FinecoBank's direct donation, customers responded very generously to the appeal. In response to the COVID-19 emergency, FinecoBank funded the purchase of an ambulance for the Croce Rosaceleste of Milan and contributed to the non-profit CAF Onlus to help youths who are victims of violence to recover psychologically after the long lockdown. It also made a donation to the Anvolt association, which supports cancer patients and their families by organizing transportation from the patient's home to the hospital for treatments. FinecoBank's contribution went toward the purchase of personal protective equipment and toward sanitizing spaces, ensuring social distancing, and protecting patients.
Once again in 2020, FinecoBank is a "Top Employer Italy" for its attention to employees' wellbeing and professional development and for fostering a positive, stimulating working environment.
As for Fineco's marketing and communication activities in the UK, in April it launched the new "Trade without compromise" campaign, which aims to acquire new customers in the trading segment.
Fineco Asset Management ("FAM") continued to growth its assets under management and to expand its range of investment solutions, responding quickly and effectively to the needs of end customers and personal financial advisors. In the first half of 2020 this trend was paralleled by strategic communications designed to support FAM's positioning as a major asset management player. The launch of two new investment solutions, FAM Target Boost and FAM Global Defence 2023, were backed by two ad hoc advertising campaigns focused on off-line and on-line publications, both national and industry-specific. Both products were at the centre of media relations activities, including interviews and features with FAM's CEO, aimed at presenting the new instruments by positioning them strategically within the unusual market and banking context of the first half of the year, in light of the strong financial market volatility caused by the COVID-19 crisis. In this vein, the principles of behavioural finance, automated for the first time in FAM Target Boost, were among the focus topics of media relations activities, demonstrating FAM's vocation for financial education.
9 The Reputation Institute ("RI") is the world's leading reputation advisory firm. RI enables many of the world's leading compa nies to make more confident business decisions that build and protect reputation capital, analyse risk and sustainability topics, and drive competitive advantage. RI's most prominent management tool is the RepTrak® model for analysing the reputations of c ompanies and institutions - best known via the Global RepTrak® 100, the world's largest and most comprehensive study of corporate reputations.
28 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Business performance
Toward the end of the half year, FAM shone the spotlight of the asset management industry on the topic of "sustainability beyond the product". In a virtual press conference, it explained why investing according to ESG criteria is not sufficient to call one's business "sustainable". For FAM, sustainability means having a fair approach to customers, advisors, and shareholders: only with an efficient fee structure that excludes performance commissions can an asset management firm truly call itself sustainable.
To encourage this switch and draw greater attention to such an important topic for customers, advisors, and investors, FAM has rolled out an "evolved sustainability" label - "No Performance Fees" - that it encourages the asset management community to adopt.
Incentive plans
The Board of Directors' meeting of FinecoBank held on January 15th, 2020 - in consideration of the favourable opinion of the Remuneration Committee which met on January 13, 2020 - approved the following incentive systems subsequently approved by the Shareholders' Meeting of April 28, 2020:
- 2020 Incentive System for employees categorised as "Key Personnel";
- 2020 Incentive System for Personal Financial Advisors identified as "Key Personnel".
On February 11, 2020, given the confirmation of the minimum entry conditions at Group level and the individual requisites (compliant conduct and continued employment) and the favourable opinion provided by the Remuneration Committee in its meeting of February 7, 2020, the Board of Directors of FinecoBank approved:
-
for the 2014, 2015, 2016, and 2017 Incentive Systems (Bonus Pools): o the execution of the plans;
o the allocation of the fourth share tranche of the 2014 plan, awarded in 2015, corresponding to 70,708 free ordinary shares, in line with the maximum amount approved by the Board of Directors on May 15th, 2014;
o the allocation of the third share tranche of the 2015 plan, awarded in 2016, corresponding to 42,057 free ordinary shares, in line with the maximum amount approved by the Board of Directors on January 22th, 2015;
o the allocation of the second share tranche of the 2016 plan, awarded in 2017, corresponding to 30,406 free ordinary shares, in line with the maximum amount approved by the Board of Directors on January 12th, 2016;
o the allocation of the first share tranche of the 2017 plan, awarded in 2018, corresponding to 57,950 free ordinary shares, in line with the maximum amount approved by the Board of Directors on January 9th, 2017;
o a free capital increase for a total amount of € 66,369.93 corresponding to a total of 201,121 FinecoBank ordinary shares with a nominal value of € 0.33 each (with the same characteristics as those in circulation and with regular dividend entitlement), in partial exercise of the authority granted to the Board of Directors by the Extraordinary Shareholders' Meeting of April 23rd, 2015, April 12th, 2016, April 11th, 2017 and April 10th, 2019 pursuant to Article 2443 of the Italian Civil Code. The dilution effect resulting from the above free capital increase has been quantified as 0.03% of the fully diluted capital.
o for the 2014-2017 Top Management Multi-Year Plan: - the execution of the plan;
o the allocation of 422,779 free ordinary shares to the beneficiaries of the fourth share tranche of the plan, awarded in 2017, in line with the maximum amount approved by the Board of Directors on February 7th, 2017;
o a free capital increase, for a total amount of € 139,517.07 corresponding to a total of 422,779 FinecoBank ordinary shares with a nominal value of € 0.33 each (with the same characteristics as those in circulation and with regular dividend entitlement), in partial exercise of the authority granted to the Board of Directors by the Extraordinary Shareholders' Meeting of June 5th, 2014, pursuant to Article 2443 of the Italian Civil Code. The dilution effect resulting from the above free capital increase has been quantified as 0.07% of the fully diluted capital. - for the 2019 Incentive System (Bonus Pool): o the FinecoBank 2019 Bonus Pool;
o the proposals for the determination of the 2019 bonus for the Chief Executive Officer and General Manager, other Key Management Personnel, and other Key Personnel;
o the allocation of 163,658 FinecoBank ordinary shares, to be given free of charge to the above-mentioned personnel in accordance with the bonus pool regulations. - for the Incentive System 2018: o the execution of the plan;
o the allocation of the second tranche in cash of the plan awarded in 2019. o for the 2019 PFA Incentive System plan:
o the proposed determination of the 2019 Bonus Pool for personal financial advisors;
o the proposed determination of the 2019 bonus and prior-year deferrals for personal financial advisors classified as Key Personnel; o the allocation of FinecoBank shares with a total value of € 397,287.26 (maximum 179,534 ordinary shares), to be given free of charge
to the above-mentioned personal financial advisors in accordance with the plan regulations;
o the purchase of treasury shares, having obtained the authorisation from the Supervisory Authority, pursuant to Articles 77-78 EU 575/2013 of June 26th, 2013 (CRR), in accordance with the shareholder meeting resolutions.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 29
Consolidated interim report on operations
Business performance
-
for the 2018 PFA Incentive System plan: o the execution of the plan;
o the allocation of the second tranche in cash to the personal financial advisors classified as "Identified Staff", in accordance with the plan regulations.
o for the 2017 PFA Incentive System plan: o the execution of the plan;
o the allocation of the first share tranche of the plan, corresponding to 16,590 FinecoBank shares. - for the 2016 PFA Incentive System plan: o the execution of the plan;
o the allocation of the second tranche of the plan, corresponding to 11,548 FinecoBank shares, and the allocation of the third tranche in cash of the plan, to be granted to the personal financial advisors classified as "Identified Staff" in accordance with the plan regulations.
o for the 2015 PFA Incentive System plan: o the execution of the plan;
o the allocation of the third tranche of the plan, corresponding to 7,737 phantom shares.
The Board of Directors of Fineco Asset Management, which met on April 21st, 2020, approved its own 2020 Incentive System for Key Personnel.
30 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
FinecoBank shares
FinecoBank shares
Share information
As of June 30 2020, the price of the share was equal to € 12.02, increasing by +14% compared to the last trading day of 2019, despite the market correction following the Covid-19 outbreak. The result is in contrast with both the FTSE MIB index and the Euro Stoxx Banks index, which since the beginning of the year recorded a contraction of 18% and 35% respectively. The average value recorded by the share in the first half of 2020 was equal to € 10.12 and its value reached its all-time high at € 12.42 in June 2020.
The company's market capitalisation equaled to € 7,324 million as of June 30, 2020.
Year 2014 | Year 2015 | Year 2016 | Year 2017 | Year 2018 | 1st half 2019 | Year 2019 | 1st half 2020 | |
Official price of ordinary shares (€ ) | ||||||||
- maximum | 4,750 | 7,805 | 7,400 | 8,735 | 11,890 | 12,385 | 12,385 | 12,415 |
- minimum | 3,808 | 4,438 | 4,622 | 5,345 | 7,956 | 8,646 | 8,514 | 6,918 |
- average | 4,173 | 6,479 | 5,980 | 6,914 | 9,823 | 10,498 | 10,234 | 10,124 |
- period-end | 4,668 | 7,625 | 5,330 | 8,535 | 8,778 | 9,810 | 10,690 | 12,015 |
Number of shares (million) | ||||||||
- outstanding at period end | 606,3 | 606,5 | 606,8 | 607,7 | 608,4 | 608,4 | 608,9 | 609,6 |
a
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 31
Consolidated interim report on operations
Results achieved in the main areas of activity
Results achieved in the main areas of activity
The following pages contain the main indicators and results of the main business segments: Banking, Brokerage and Investing, including the asset management business of the subsidiary Fineco AM.
Given the Bank's specific business model that entails strong vertical integration among its different activities, these three business segments are interdependent. Indeed, the Group offers its banking and investment services through a network of personal financial advisors and online and mobile channels that operate in a coordinated, integrated manner. The completeness of the services offered makes it a one-stop solution for customers' banking operations and investment needs. This strategy, which is strongly anchored to the customer, means that revenues and margins relative to various products/services (investing, banking and brokerage) are therefore highly interdependent on each other.
All activities are performed with the aim of obtaining economic results from the "industrial" management of the businesses, to minimise their financial risk. The Bank's financial management approach is to manage risks with a view to protecting the industrial returns of its various businesses while not assuming risk positions on its own account.
Banking
Banking and Payment cards
In first half 2020 the Banking area continued to optimize digitalisation processes and expand its offering of products and services, efforts that were also useful in dealing with the COVID-19 emergency. With the pandemic underway, in fact, new processes were implemented so that Fineco's personal financial advisors could continue to acquire customers remotely. One such process allowed advisors to open current accounts on their own, directly from the public area of www.finecobank.com, on their customers' behalf.
Regarding new products and services:
- the Multicurrency10 service was expanded to include the following new currencies: Norwegian krone, Polish zloty, New Zealand dollar, Danish krone, Singapore dollar, Hong Kong dollar, Czech koruna and Hungarian forint. All customers signed up for the Multicurrency service can now operate in these currencies as well as those already offered. This expanded service was offered both in Italy and the United Kingdom;
- All customers now have free access to Moneymap, Fineco's account-integrated household budget tool that automatically categorizes incoming and outgoing movements and helps customers save money by using the "budget" function. This service has been further expanded with a feature that compares yearly expenditures and income;
- simplified F24 tax payment forms can now be paid directly from the Fineco app.
Improvements to existing products and services include:
- an increase to € 15 thousand of the limit on instant outgoing bank transfers (SCT INST). Account holders can also customize these limits from their personal area of the website;
- the real-time delivery of activation codes and user IDs for first-time access to the online personal area. The credentials are sent to the customer by e-mail and SMS (using certified contact details) as soon as the new account contract is digitally signed. Using the codes received by e-mail and SMS, customers can access the site, view their IBANs and navigate through account services. This feature is only available for account applications submitted at finecobank.com;
- a new Account and Cards landing page within the online personal area. For the first time, in addition to their current account movements, customers now have real-time access to all transactions made with payment cards even if they have not yet been debited to their accounts. Visa and MasterCard payments that have not yet been debited are now also visible in the "My Cards" section, along with other movements. The feature is also available in the app;
- a new process to regenerate credentials (activation code and password) via SMS. This feature is free of charge to customers with a certified cell phone number;
- a new "change password" feature using the app.
Since February 2020 there has also been a change in the monthly fee for current accounts in euros and the monthly fee for Multicurrency CHF subaccounts opened before November 26th, 2016. Customers were notified of the change in November 2019 with a unilateral modification proposal pursuant to Art. 18 of the Consolidated Banking Act, with effect from February 1, 2020.
10 Multicurrency is a free service integrated with Fineco accounts that allows account holders to diversify liquidity and investments and operate directly in the world's main currencies without exchange fees (paying only a spread), and directly in the reference currency.
32 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Results achieved in the main areas of activity
Marketing and word-of-mouth ("member gets member") campaigns addressed to FinecoBank customers continued to be developed and managed during the period.
The table below shows a decrease in credit card spending compared with the first half 2019, mainly attributable to the contraction in consumption caused by the pandemic from COVID-19.
(Amounts in € thousand) | ||||||||||||||||||||||||||
Spending | Carrying | Spending | Carrying | |||||||||||||||||||||||
Credit products | amount | amount | Changes | |||||||||||||||||||||||
First Half | First Half | Spending | Carrying amount | |||||||||||||||||||||||
Amount | % | Amount | % | |||||||||||||||||||||||
2020 | 06/30/2020 | 2019 | 12/31/2019 | |||||||||||||||||||||||
Revolving credit cards | 19,409 | 38,427 | 23,817 | 43,486 | (4,408) | -18.5% | (5,059) | -11.6% | ||||||||||||||||||
Credit cards full payment of | ||||||||||||||||||||||||||
balance | 1,189,198 | 234,232 | 1,438,072 | 311,672 | (248,874) | -17.3% | (77,440) | -24.8% | ||||||||||||||||||
Total | 1,208,607 | 272,659 | 1,461,889 | 355,158 | (253,282) | -17.3% | (82,499) | -23.2% |
Mortgages, credit facilities and personal loans
In the lending business, the Bank continued to optimize its current loan portfolio while handling the new needs arising from the COVID-19 health emergency.
Regarding the optimisation of the current loan portfolio:
- fixed-interestmortgage loans are now offered with a "locked-in rate" depending on the characteristics of the loan (rather than the previous sum of benchmark IRS plus spread), guaranteeing the rate applicable on the date of the loan's definitive approval for the following 30 days. This aims to make loan conditions even clearer and more transparent, expanding the customer's right of withdrawal;
- an online revolving feature has been developed for ordinary securities guaranteeing Lombard loans. This feature makes it possible for customers using an ordinary portfolio to secure Lombard loans to order purchases, sales and switches within the portfolio directly from their online personal area, without assistance from their financial advisor.
To support customers' needs in relation to the COVID-19 emergency, in addition to the moratorium on mortgage payments through use of the CONSAP Fund (in accordance with the government's Cura Italia Decree), the Bank has taken the following measures:
- participation in the Italian Banking Association (ABI) moratorium for household loans: principal payments are suspended for personal loans and mortgages other than those covered by the CONSAP fund) for up to 12 months, while interest continues to fall due;
- introduction of a new unsecured credit line that gives eligible customers an advance on ordinary or extraordinary unemployment benefits while awaiting payment from the appropriate entities.
The following table shows the disbursements and balances of personal and unsecured loans, mortgages, and current account credit facilities compared, respectively, with the disbursements of the first half of 2019 and with the balance at the end of 2019.
(Amounts in € thousand) | |||||||||||||||||||||||||
Disbursements | Carrying | Disbursements | Carrying | ||||||||||||||||||||||
Credit products | amount | amount | Changes | ||||||||||||||||||||||
First Half | First Half | Disbursements | Carrying amount | ||||||||||||||||||||||
2020 | 06/30/2020 | 2019 | 12/31/2019 | Amount | % | Amount | % | ||||||||||||||||||
Personal loans and unsecured | |||||||||||||||||||||||||
loans | 78,046 | 436,788 | 109,404 | 457,577 | (31,358) | -28.7% | (20,789) | -4,5% | |||||||||||||||||
Current account credit | |||||||||||||||||||||||||
facilities* | 428,908 | 1,422,227 | 451,100 | 1,292,172 | (22,192) | -4.9% | 130,055 | 10.1% | |||||||||||||||||
Mortgages | 551,914 | 1,631,511 | 170,711 | 1,156,353 | 381,203 | 223.3% | 475,158 | 41.1% | |||||||||||||||||
Total | 1,058,868 | 3,490,526 | 731,215 | 2,906,102 | 327,653 | 44.8% | 584,424 | 20.1% |
* With regard to Current account credit lines the column Disbursements shows the amounts granted.
Credit facilities guaranteed by securities granted in the first half of 2020 totalled € 422 million (€ 413 million in Lombard loans, € 6 million in credit facilities secured by pledge and € 2 million in credit facilities with mandate to sell), amounting to 98% of all credit lines granted.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 33
Consolidated interim report on operations
Results achieved in the main areas of activity
Brokerage
In the first half of 2020 the rapid spread of the pandemic, as well as the timing of the lockdown policies, led to a significant economic contraction on all continents which in turn led to strong volatility in the financial markets. In addition, the crisis exponentially increased the world's interest in digital and customised services.
The strength of a diversified business model with a complete, integrated platform has allowed the Group to achieve excellent results, even in this complex market phase.
Thanks to the sustainability of Fineco's business model, the Brokerage business generated a profit of € 127.9 million in first half 2020 and distinguished itself in the market through a range of products that owes its success to three characteristics: ease of use, quality, and excellent price/quality ratio.
The Group continued to optimize the current product portfolio during the first half of the year. Specifically, it revised the fee structure on futures (now even more advantageous with reduced fees on IDM, Eurex and CME futures) and extended automatic (stop loss and take profit) orders on FX CFD to overnight trading. This makes it possible to add, modify and cancel customized stop loss/take profit orders on a position or on individual orders 24 hours a day, 7 days a week, except Saturdays and Sundays between 4:00 a.m. and 6:15 a.m. The feature is available in all order entry channels: website, PowerDesk and app.
The following table shows the number of orders on financial instruments recorded in the first half of 2020 compared with the same period in the previous year.
(Amounts in € thousand)
Amounts as at | Changes | |||||
06/30/2020 | 06/30/2019 | Absolute | % | |||
Orders - Equity Italy (including internalised orders) | 6,237,651 | 3,511,183 | 2,726,468 | 77.7% | ||
Orders - Equity USA (including internalised orders) | 1,752,969 | 699,139 | 1,053,830 | 150.7% | ||
Orders - Equity other markets (including internalised orders) | 648,330 | 279,799 | 368,531 | 131.7% | ||
Total Equity orders | 8,638,950 | 4,490,121 | 4,148,829 | 92.4% | ||
Orders - Bonds | 315,141 | 275,167 | 39,974 | 14.5% | ||
Orders - Derivatives | 5,316,469 | 1,443,485 | 3,872,984 | 268.3% | ||
Orders - Forex | 539,991 | 231,997 | 307,994 | 132.8% | ||
Orders - CFDs | 1,388,571 | 597,657 | 790,914 | 132.3% | ||
Orders - Funds | 1,849,364 | 1,314,353 | 535,011 | 40.7% | ||
Total orders | 18,048,486 | 8,352,780 | 9,695,706 | 116.1% | ||
The table below shows the volume of trades carried out as direct counterparty in orders placed by customers, resulting from the insourcing of orders received on shares, derivatives, CFDs and Logos, recorded in the first half of 2020 compared with the same period last year.
(Amounts in € thousand)
Amounts as at | Changes | ||||||
06/30/2020 | 06/30/2019 | Absolute | % | ||||
Equity (internationalization) | 58,416,884 | 37,195,774 | 21,221,110 | 57.1% | |||
Derivatives (of which internalized) | 100,798,767 | 17,257,246 | 83,541,521 | 484.1% | |||
Forex | 29,253,935 | 11,255,095 | 17,998,840 | 159.9% | |||
CFD and Logos | 48,961,051 | 18,038,960 | 30,922,091 | 171.4% | |||
Total "internalized" volumes | 237,430,637 | 83,747,075 | 153,683,562 | 183.5% | |||
The item "Derivatives (of which: insourced)" refers to the insourcing of orders received on options and futures which began, respectively, in July 2019 and in March 2019.
34 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Results achieved in the main areas of activity
Investing
The Group uses a guided open architecture business model to offer customers an extremely wide range of asset management products - comprising collective asset management products, such as units of UCITS and SICAV shares - from carefully selected Italian and international investment firms, as well as pension and insurance products and investment advisory services.
In first half 2020, the range of collective asset management products was further enhanced with the addition to the platform of 61 new ISINs available to customers, including Fineco Asset Management funds. FAM's offerings have further expanded with new versions of FAM Target funds (part of the FAM Evolution family), which arose from the demand for a simple, customized asset allocation service and offer the double advantage of gradual entry to the market and maintenance of the purchasing power of liquidity. These new versions include Fam Target Boost, launched in April 2020, whose destocking mechanism takes advantage of market corrections to increase scheduled investments. Meanwhile, two new FAM Series strategies differ from their predecessors because they are not delegated but protected funds, with the opportunity to profit from excess liquidity.
Still with reference to collective asset management products, funds have been sold in the UK market since September 2019. As of the date of this document there are five investment houses; 154 ISINs have been launched on our platform.
In the segregated accounts business, despite a significant COVID-19 effect on the performance of existing portfolios, the growth trend continued in the first half of 2020 with a net inflow of € XX million since the start of the year. As regards pension products, customers are increasingly interested in the open Core Pension fund, sold exclusively through the FinecoBank network. With a view to improving the technology of this important instrument and to going increasingly paperless, since May 5, 2020 it has been possible to sign up customers for Core Pension not only in the traditional, off-line manner but also digitally through the web collaboration platform.
In the insurance advisory business, in the first half of the year the Group continued to market Multiramo Extra, launched in late December 2019 and and Multiramo Target also continued to bring in funds. The real novelty of 2020 is the launch of Multiramo Protetta Aviva with Lifin Segregated Funds NAV protection (underwriter SG).
Primary market placements (IPOs) continued with the sale of investment certificates. The prevalent structural types are autocallable, "conditionally protected" instruments with protection barriers of up to 60%, with or without fixed coupons.
As regards advisory services, in first half 2020 the Group continued to develop solutions designed to improve the services provided to customers and personal financial advisors. It introduced new guided solutions (model portfolios) to meet the needs of all target customers characterising the Bank's model of service.
Specifically, the Group created:
- four "Mini Allocation" portfolios for "Smart Investor" customers seeking diversified risk-return profiles, using guided funds of funds solutions;
- six "Easy Allocation" portfolios for "Premium Investor" customers seeking diversified risk-return profiles with rising VaR, mostly comprising FoF solutions along with the choice of individual SICAVs to cover specific asset classes, plus a version consisting entirely of ETFs for those preferring passive strategies;
- a multiasset "destocking" portfolio built with products from various third-party SICAVs, FAM funds and ETFs, for customers wishing to gradually increase their risk exposure over time thanks to the use of FAM Target funds, which start with a prudent portfolio and eventually arrive at a balanced one;
- nine private ETF model portfolios for Affluent/Private customers, to be used mainly within the Advice program, featuring incremental risk- return profiles and a selection of high-quality,high-liquidity ETFs. These are in addition to the other private model portfolios: multiasset (SICAVs, ETFs and bonds), SICAV only, and Income;
- theme portfolios (ESG, Low Volatility, Dividends, etc.) for Private customers, where investment decisions are matched to the customer's specific needs;
- personalized portfolios for high-worth customers with complex needs that go beyond standard solutions (variable ESG weight, dividend yield, duration, exposure to currencies, costs, etc.).
All of the above portfolios are the subject of monthly X-net reports available to Fineco's personal financial advisors.
In addition, during the COVID-19 phase, the frequency of reporting on model portfolios and market trends has been increased and specific analyses of the financial crisis have been produced, including through dedicated meetings with the investment houses.
New investment certificates focusing on the ESG range have been added, thus expanding the solutions available to the Group's advisory services.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 35
Consolidated interim report on operations
Results achieved in the main areas of activity
The following table breaks down assets under management by type of product at June 30th, 2020, showing a slight reduction with respect to the end of 2019 due to a negative market effect booked during the first half 2020.
(Amounts in € thousand)
Amounts as at | Amounts as at | Changes | |||||||
06/30/2020 | Comp % | 12/31/2019 | Comp % | Absolute | % | ||||
UCITS and other investment funds | 27,657,395 | 69.0% | 28,785,791 | 71.1% | (1,128,396) | -3.9% | |||
Insurance products | 10,675,738 | 26.6% | 10,115,054 | 25.0% | 560,684 | 5.5% | |||
Segregated accounts | 169,394 | 0.4% | 92,529 | 0.2% | 76,865 | 83.1% | |||
Asset under custody and Direct deposits under advisory | 1,580,440 | 3.9% | 1,512,000 | 3.7% | 68,440 | 4.5% | |||
Total assets under management | 40,082,967 | 100.0% | 40,505,374 | 100.0% | (422,407) | -1.0% |
36 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
The network of personal financial advisors
The network of personal financial advisors
The year 2020 began in the wake of small investors' renewed confidence in the various forms of investment, particularly asset management, which had begun to growth in the second half of 2019 thanks in part to the solid, steady performance of the markets. The spread of the COVID-19 pandemic, however, arrested the initial enthusiasm and the markets reacted very poorly. The entire industry had to face an unprecedented situation, with investors afraid for their health, the economy and their savings.
The efforts of FinecoBank's personal financial advisors to remind customers of basic investing principles based on diversification and time horizons were fundamental to assisting, advising, and supporting customers as they confirmed or adjusted their objectives and needs in the face of a scenario that had changed so suddenly.
Once again, Fineco proved to have a winning business model: personal financial advisors who build one-on-one relationships based on trust, supported by increasingly advanced, efficient and reliable technology that provides planning and risk monitoring tools while ensuring continuity. By organizing work in teams and providing remote communication technologies (web and mobile collaboration, digital signatures), the Group never missed a beat with customers and financial advisors. As confirmation of this, the first half of 2020 saw double-digit growth compared with the same period in 2019, with total net sales of € 4,103 million (+41%). Net assets under management came to € 1,617 million (+13.6%) and net assets in Guided Products amounted to € 1,694 million (+5.5%).
Even more significant in terms of value was the quality of sales made through Guided Products, confirming that the proper detection of needs, the planning of objectives over the appropriate horizon, and the monitoring of risks allow customers to avoid impulsive, emotional decisions and in fact to take advantage of the moment to build their investments.
The Group continued to acquire new customers at a steady pace, thanks also to word of mouth from customers satisfied with the constant presence and continuity the Group was able to provide at such a complex time. In the first half of the year FinecoBank opened nearly 47,226 new accounts.
The Private segment also demonstrated its appreciation for the Fineco model, with value-for-money up by 10.2% compared with the first half of 2019 (from € 30 million to € 33 million) despite undergoing a slight contraction of -1.2% in the last six months (from € 33.4 million to € 33.0 million); at 30 June 2020 the customers referable to this target referable to the network of personal financial advisors amounted to approximately 32,270 (out of the total private customers equal to approximately 35,765), chiefly in the € 1-5 million range.
As in previous years, growth in the first six months of 2020 was "healthy", without distortions from aggressive marketing initiatives or particular acquisition and recruitment programmes. Despite the steep decline in market values, the existing network maintained its average per capita portfolio at the same levels as end-2019, with Guided Products making up 73% of total assets under management. In this respect the Group was quick to finalize defensive instruments and develop new ones, thanks to the valuable contribution of FAM, so that it could also meet the needs of customers with a more cautious profile and lighten (and further diversify) existing portfolios. Solutions were arranged allowing customers with different time horizons and risk profiles to gradually increase their equity exposure; these programmes prevent market timing errors while ensuring suitable diversification and timely rebalancing.
FinecoBank moved forward with its financial education initiatives, facing the emergency and answering customers' questions during this period of deep concern for the ramifications of the pandemic. Always a stand-out on this topic, and even more so in these unprecedented times, FinecoBank offered many additional web-based events for customers and substantially increased the number of participants: in first half 2020 it organized 1.032 events (882 of them online), with a combined attendance of about 41,000 existing and prospective customers. Various subjects were addressed, from scenario analysis to the macroeconomic context, from retirement funds to behavioural finance, arriving at the solutions specific instruments can provide for given needs. On some occasions FinecoBank hosted influential speakers, including asset managers, economists, strategists, researchers and university professors.
Recruitment activities proceeded without pause, continuing to complete and complement the expansion and qualitative growth of our Network. The Group confirmed its interest in high-potential recruits who share FinecoBank's vision and customer-centric strategy, who continued to be interviewed and selected by stepping up the use of remote communication platforms. In the first half of the year, 30 new senior financial advisors were hired, 11 of them between March and June 2020.
Millennials are also of interest; the Bank continued to hire recent graduates, again using remote communication systems. The number of young recruits did decline, however, due to the cancellation of OCF exam sessions. In the first half of 2020 the Bank hired 24 advisors under the "progetto giovani" programme, including 16 from March through June.
During the COVID-19 emergency, Fineco Centers (numbering 399 throughout Italy at June 30th, 2020) have been organized to ensure the maximum safety of customers and financial advisors.
Additional investments were also made in local sales facilities, with 10 new openings that will further enhance the Bank's image and expand its presence throughout the country.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 37
Consolidated interim report on operations
The network of personal financial advisors
Net sales - Personal Financial Advisors Network
(Amounts in € thousand)
1st Half | Comp | 1st Half | Comp | Changes | ||||||||||||||
2020 | % | 2019 | % | Absolute | % | |||||||||||||
Current accounts and demand deposits | 618,893 | 15.1% | 1,375,074 | 47.3% | (756,181) | -55.0% | ||||||||||||
Time deposits and reverse repos | (585) | 0.0% | (914) | 0.0% | 329 | -36.0% | ||||||||||||
DIRECT DEPOSITS | 618,308 | 15.1% | 1,374,160 | 47.2% | (755,852) | -55.0% | ||||||||||||
Segregated accounts | 82,037 | 2.0% | 24,700 | 0.8% | 57,337 | 232.1% | ||||||||||||
UCITS and other investment funds | 622,502 | 15.2% | 34,007 | 1.2% | 588,495 | 1730.5% | ||||||||||||
Insurance products | 757,988 | 18.5% | 1,090,256 | 37.5% | (332,268) | -30.5% | ||||||||||||
Asset under custody and Direct deposits under advisory | 154,403 | 3.8% | 274,959 | 9.5% | (120,556) | -43.8% | ||||||||||||
ASSETS UNDER MANAGEMENT BALANCE | 1,616,930 | 39.4% | 1,423,922 | 48.9% | 193,008 | 13.6% | ||||||||||||
Government securities, bonds and stocks | 1,867,416 | 45.5% | 111,622 | 3.8% | 1,755,794 | 1573.0% | ||||||||||||
ASSETS UNDER CUSTODY | 1,867,416 | 45.5% | 111,622 | 3.8% | 1,755,794 | 1573.0% | ||||||||||||
TOTAL FINANCIAL ASSETS PERSONAL FINANCIAL ADVISORS | 4,102,654 | 100.0% | 2,909,704 | 100.0% | 1,192,950 | 41.0% | ||||||||||||
NETWORK | ||||||||||||||||||
of which Guided products & services | 1,694,089 | 41.3% | 1,605,111 | 55.2% | 88,978 | 5.5% | ||||||||||||
The table above breaks down net direct sales, assets under management and assets under administration attributable to the network of personal financial advisors in the first half of 2020 compared to the same period last year.
Total financial assets - Personal Financial Advisors Network
(Amounts in € thousand)
Amounts as at | Amounts as at | Changes | |||||||||||||||||||
06/30/2020 | Comp | 12/31/2019 | Comp | Absolute | % | ||||||||||||||||
% | % | ||||||||||||||||||||
Current accounts and demand deposits | 19,744,032 | 27.5% | 19,206,453 | 27.2% | 537,579 | 2.8% | |||||||||||||||
Time deposits and reverse repos | 648 | 0.0% | 1,219 | 0.0% | (571) | -46.8% | |||||||||||||||
DIRECT DEPOSITS | 19,744,680 | 27.5% | 19,207,672 | 27.2% | 537,008 | 2.8% | |||||||||||||||
Segregated accounts | 169,394 | 0.2% | 92,529 | 0.1% | 76,865 | 83.1% | |||||||||||||||
UCITS and other investment funds | 27,293,568 | 38.1% | 28,374,546 | 40.1% | (1,080,978) | -3.8% | |||||||||||||||
Insurance products | 10,600,812 | 14.8% | 10,033,227 | 14.2% | 567,585 | 5.7% | |||||||||||||||
Asset under custody and Direct deposits under advisory | 1,580,425 | 2.2% | 1,511,983 | 2.1% | 68,442 | 4.5% | |||||||||||||||
ASSETS UNDER MANAGEMENT BALANCE | 39,644,199 | 55.3% | 40,012,285 | 56.6% | (368,086) | -0.9% | |||||||||||||||
Government securities, bonds and stocks | 12,298,258 | 17.2% | 11,467,385 | 16.2% | 830,873 | 7.2% | |||||||||||||||
ASSETS UNDER CUSTODY | 12,298,258 | 17.2% | 11,467,385 | 16.2% | 830,873 | 7.2% | |||||||||||||||
TOTAL FINANCIAL ASSETS PERSONAL FINANCIAL ADVISORS | 71,687,137 | 100.0% | 70,687,342 | 100.0% | 999,795 | 1.4% | |||||||||||||||
NETWORK | |||||||||||||||||||||
of which Guided products & services | 28,947,306 | 40.4% | 28,754,383 | 40.7% | 192,923 | 0.7% | |||||||||||||||
The table below breaks down total financial assets attributable to the PFA network at June 30th, 2020. Direct funding, assets under management and assets under administration totalled € 71,687 million, an increase of 1.4% since December 31st, 2019, thanks to the positive contribution of € 4,102 million in the first half of the year, partially offset by the negative market effect.
38 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Human resources
Human resources
The parent: FinecoBank S.p.A.
At June 30th, 2020 the Bank had 1,214 employees, up from 1,201 at December 31st, 2019. The breakdown was as follows:
In the first half of 2020, despite the COVID-19 emergency, operations were uninterrupted. Nearly all employees (96%) were able to work remotely. Also remotely, selection activities continued with a view to strengthening and optimising the units devoted to business development, organisational and technological support, and risk control and management. This led to the hiring of 30 workers.
Of the 30 new recruits, many were assigned to the Customer Relationship Management area, confirming the strong and ongoing focus on young graduates. Customer Relationship Management is the starting point of a pathway of professional development that can lead to different roles within the company. Following FinecoBank's exit from the UniCredit Group, the Bank continued to insource processes previously managed by UniCredit. For this reason it was necessary to expand some units by assigning 11 workers among the total resources hired.
In continuity with previous years, the Group put effort into attracting new talent with a particular focus on Millennials, thanks in part to employer branding initiatives aimed at meeting and recruiting new graduates or undergraduates and better understanding the behavioural patterns of the new generations. In light of the COVID-19 emergency, FinecoBank took part in Digital Career Days and continued to use alternative selection methods, such as video and online interviews. Onboarding was carried out very rapidly, immediately equipping new recruits with all the tools needed to work remotely.
During the year, a total of 17 employees left the bank, including:
- 11 resignations;
- 6 for other reasons.
The Bank's employees can be broken down as follows:
Men | Women | Total | |||||||||||||||||||||
Category | 06/30/2020 | 12/31/2019 | 06/30/2020 | 12/31/2019 | 06/30/2020 | 12/31/2019 | |||||||||||||||||
Executives | 23 | 24 | 6 | 5 | 29 | 29 | |||||||||||||||||
Managers | 286 | 278 | 111 | 108 | 397 | 386 | |||||||||||||||||
Professional Areas | 388 | 388 | 400 | 398 | 788 | 786 | |||||||||||||||||
Total | 697 | 690 | 517 | 511 | 1,214 | 1,201 | |||||||||||||||||
At June 30th, 2020, the Bank had 90 part-time employees (7% of the total), with women employees making up 43% of the workforce. The average length of service was 11 years and the average age around 41.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 39
Consolidated interim report on operations
Human resources
Employee training
Employee training in the first half of 2020 was focused on the acquisition and strengthening of specific skills required by company needs and on the updating of individual knowledge, with a specific focus on mandatory, technical, linguistic and behavioural-managerial training.
Training hours* are broken down below by category:
Training area | Hours of training | ||
Mandatory | 5,255 | ||
Technical | 5,276 | ||
Foreign Language | 3,261 | ||
Conduct - Management | 142 | ||
Total | 13,934 |
*FAM included
Mandatory training
The Bank is committed to constantly strengthening a risk and compliance culture across the organisation, which enables its business to be profitable but also sustainable over time.
For this reason considerable attention was paid to mandatory training, extended to all FinecoBank employees, who because of the COVID-19 emergency were able to participate remotely through the MyLearning platform. In addition, mandatory training was periodically monitored to make sure all employees received this training and to protect the Bank from operational, legal and reputational risks arising from the non-completion of courses.
To ensure compliance with occupational health and safety provisions, the Bank guarantees suitable training to all affected resources.
Moreover, in 2020 FinecoBank continued to promote the importance of a Compliance Culture among employees, which is fundamental for promoting transparency and observance of rules as the basis of FinecoBank's business.
In the Customer Care department, employees took mandatory courses in insurance (IVASS) and professional development courses for the purposes of Consob intermediary regulation, adopted with resolution no. 20307 of 15 February 2018.
Technical and behavioural training
In the first six months of the year, compatibly with the COVID-19 emergency, training sessions were organised with the assistance of external suppliers and internal resources for the acquisition of technical skills needed to improve not only company productivity but also the level of employee specialisation.
The MyCampus training catalogue is available to the Bank's human resources, further extending e-learning dedicated to various topics.
With a view to maintaining a high quality service and customer focus, training courses were held for incoming and existing staff in the Customer Care department, with a total of 4,452 hours focused on the acquisition of key technical and role-specific skills.
In 2020 FinecoBank continued to partner with "Valore D", which offers courses and other content aimed at leveraging female talent within the Group.
Foreign language training
In the first half of 2020, some 380 employees were enrolled in English courses (classroom-based, via telephone or online). Some executives also received Legal English instruction.
Due to the COVID-19 emergency, the classrooms originally meant to be in-person were converted into online classrooms until the lockdown was lifted.
Employees are assigned to participate in foreign language training courses based on requests made by the individual unit managers, considering specific professional needs.
40 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Human resources
The subsidiary: Fineco Asset Management Designated Activity Company (Dac)
At June 30th, 2020 the company had 30 employees (9 women and 21 men), with an average age of about 35.
New employees were hired from the market in order to complete the company's organizational set-up in business, support and control functions.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 41
Consolidated interim report on operations
Technology infrastructure
Technology infrastructure
The current architecture of FinecoBank's IT system means that the distribution structure, internal operating structure and applications used by customers to access dedicated services can be very closely integrated.
The technology infrastructure hosted by the Group's Datacenters consists of:
- Enterprise department systems dedicated to the provision of core services, such as storage, relational databases, core banking and core trading services, and digital archiving;
- Distributed systems dedicated to the provision of Omnichannel services (website, mobile apps, extranet, telephone banking, etc.) and non- relational databases (NoSQL);
- Middleware systems for internal technical integration and integration with counterparties (EAI/BPM).
Fineco AM uses a third-party platform to manage investment services.
In the first half of 2020, the ICT & Security Office Department (CIO) carried out its usual activities for the technological upgrading, fortification and development of the ICT system, in order to provide innovative, reliable, added value services to customers.
In terms of architecture, with its customary focus on digitalisation, the Bank continued to optimise infrastructure and applications and to improve and fine-tune the applications security architecture in keeping with regulatory requirements.
A vital activity during the period was to ensure the stability of platforms in response to the especially volatile market conditions brought about by the health emergency. The Group dealt with the crisis by extending remote working options for all employees, equipping them with the necessary hardware and software and shoring up the telecommunications infrastructure.
The following changes were made to applications in light of the COVID-19 emergency:
- digitalisation of the issuance and regeneration of customer access codes;
- extension of interest rate acceptance deadline due to slower loan disbursements;
- approval of loan moratorium requests in accordance with government executive orders;
- approval of personal loan and credit line applications from customers applying for unemployment (Cassa Integrazione) benefits.
42 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Internal control system
Internal control system
The internal control system is a fundamental part of the overall governance system of banks. It ensures that bank activities are in line with bank policies and strategies and are based on principles of sound and prudent management.
Circular no. 285 of December 17th, 2013 (as amended) defines the principles and guidelines with which the internal control system of banks must comply. The circular defines the general principles of organisation, identifies the role and responsibilities of governing bodies, and sets out the characteristics and roles of corporate control functions.
The internal control system must provide protective measures that cover all types of business risk. The primary responsibility for these tasks lies with the bank's bodies, each in accordance with its specific duties. The structure of tasks and lines of responsibility of corporate functions and bodies must be clearly specified.
Banks must apply the provisions according to the proportionality principle, i.e. taking into account the operating scale and organisational complexity, the nature of the activities carried out, and the type of services provided.
As part of the supervisory review and evaluation process, the European Central bank or the Bank of Italy verify the internal control system in terms of completeness, suitability, functionality (in terms of efficiency and effectiveness) and reliability of banks.
In accordance with the provisions laid down by the Supervisory Authority, the Bank's internal control system consists of a set of rules, functions, organisational structures, resources, processes and procedures aimed at ensuring the achievement of the following objectives, in compliance with the principles of sound and prudent management:
- verifying the implementation of the Bank's strategies and policies;
- containing risk within the limits set out in the Bank Risk Appetite Framework - "RAF";
- preventing the Bank's involvement, even if unintentional, in unlawful activities (with specific reference to money laundering, usury and the financing of terrorism);
- protecting the value of assets and preventing losses;
- ensuring the effectiveness and efficiency of corporate processes;
- ensuring the security and reliability of the Bank information and ICT procedures;
- compliance of transactions with the law and supervisory regulations, as well as with the policies, regulations and internal procedures of the Bank and the FinecoBank Group.
As the parent company, FinecoBank has provided the Group with a coherent system of internal controls allowing for effective control of the strategic choices of the group as a whole and the sound management of the individual Group members.
From a methodological point of view, the Internal Control System of the Bank and Fineco AM, the only subsidiary, provides for three types of controls:
- level one controls ("line controls"): these are controls for individual activities and are carried out according to specific operational procedures based on a specific internal regulation. Monitoring and continuously updating these processes is entrusted to 'process supervisors' who are charged with devising controls able to ensure the proper performance of daily activities by the staff concerned, as well as the observance of any delegated powers. The processes subject to control relate to units that have contact with customers, as well as completely internal units;
- level two controls: these are controls related to daily operations connected with the process of measuring quantifiable risks and are carried out continuously by non-operating units. The Risk Management function controls market, credit and operational risks, as regards compliance with limits assigned to operating functions and the consistency of operations of individual production areas with established risk/return objectives; the Compliance unit is responsible for controls on non-compliance risks; for regulatory areas which already have types of control performed by the specialised structures, monitoring of compliance risk is assigned to these structures based on the "Indirect Coverage" operating model;
- level three controls: these controls are typical of internal auditing, based on analysis of information obtained from databases or company reports, as well as on-site controls. This type of control aims to identify breaches of procedures and regulations, in addition to periodically assessing the completeness, adequacy, functioning (in terms of efficiency and effectiveness) and reliability of the internal control system and information system (ICT audit) at a set frequency based on the nature and level of the risks. These controls are assigned to the Internal Audit function; to verify the compliance of the behaviour of the companies belonging to the Group with the guidelines of the Parent Company as well as the effectiveness of the internal control system, the internal audit function of FinecoBank, on a consolidated level, periodically carries out on-site controls on the components of the Group, taking into account the importance of the different types of risk assumed by the entities.
With regard to the subsidiary Fineco AM, the organisational structure involves the performance of Compliance, Risk Management and Internal Audit11 activities by units within the company.
11Previously carried out by an external supplier, Internal Audit functions were insourced in June 2020.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 43
Consolidated interim report on operations
Internal control system
The Parent Company's 2nd and 3rd level units submit an annual report to the corporate bodies illustrating the controls carried out, their results, and the weaknesses detected with reference to the Parent Company and the banking Group as a whole, and proposing steps to be taken to remedy these deficiencies.
Institutional supervisory controls have also been set up at the Parent Company: these refer to controls by the Bank's supervisory bodies, including in particular the Board of Statutory Auditors and the Supervisory Body pursuant to Italian Legislative Decree no. 231 of June 8th, 2001.
Considering the functions and units involved, the FinecoBank's internal control system is based on:
- control bodies and functions including, according to their respective responsibilities, the Board of Directors, the Risk and Related Parties Committee, the Remuneration Committee, the Appointments Committee, the Corporate Governance and Environmental and Social Sustainability Committee, the Chief Executive Officer and General Manager12, the Board of Statutory Auditors, the Supervisory Body set up pursuant to Legislative Decree 231/01 and the corporate control functions (Risk Management, Compliance13, Internal Audit) as well as other company functions with specific internal control duties14;
- procedures for the coordination of entities involved in the internal control and risk management system, which provide for:
o cooperation and coordination among control functions, through specific information flows that are formalised in internal regulations and through managerial committees dedicated to control issues;
o definition of information flows between the Bank's corporate bodies and control functions.
Finally, it should be noted that, under Article 49, paragraph 1, of the Regulation (EU) No. 468/2014 of the European Central Bank (ECB/2014/17) (the SSM - single supervisory mechanism - Framework Regulation), the ECB has published, since September 4th, 2014, a periodically updated list of the names of supervised entities and groups that fall under the direct supervision of the ECB ("significant supervised entities" and "significant supervised groups", as defined in Article 2, points 16 and 22 of the SSM Framework Regulation), indicating the specific reason for direct supervision for each of them, and, if classified as significant based on size, the total value of the assets of the entity or group supervised. The Bank, as a "credit institution established in a participating Member State" and belonging to the UniCredit Group (classified as a "significant supervised group"), was categorized among the "significant supervised entities".
Further to the classification process conducted by the supervisory authorities following FinecoBank's departure from the UniCredit Group, on August 22nd, 2019 the European Central Bank informed FinecoBank of its new status as a "less significant institution" (LSI), assigning direct supervision to the Bank of Italy.
Under the Single Supervisory Mechanism (SSM), the responsibility for overseeing "less significant" banks lies with the National Competent Authorities (NCAs), leaving the ECB with indirect oversight of these banks in keeping with a proportionality principle that takes account of the size and risk profile of the intermediary and its degree of interconnection with the rest of the financial system. On the basis of these criteria, LSIs are divided into three categories (low, medium and high priority) associated with more or less intense direct supervision by the NCAs and indirect supervision by the ECB.
In a letter (no. 0044067/20) of January 14th, 2020, the Bank of Italy announced its decision, approved by the ECB's Supervisory Board on November 18th, 2019, to include FinecoBank on the list of high-priority LSIs for the year 2020.
Main risks and uncertainties
For an exhaustive characterization of the risks and uncertainties faced by the Bank and the Group in the current market situation, reference is made to Part E of the notes to the accounts- Information on risks and related hedging policies.
12 Also appointed as "Director responsible for the internal control and risk management system" in accordance with principle 7.P.3 of the Corporate Governance Code of listed companies.
13 This function includes the Anti Money Laundering and Anti-Terrorism Service, responsible for managing the correct application of regulations on anti-money laundering and combating the financing of terrorism. The Compliance Officer is also appointed Head of the Anti-Money Laundering Function.
14 The legislative framework and the codes of conduct assign control tasks to specific functions - other than corporate control functions - whose work should be seen as being a functional part of the Internal Control System. For the Bank in particular, these include the Local Control System for legislation concerning related -party transactions carried out with associated persons in a conflict of interest situation (under the responsibility of the Corporate Secretariat Unit of the Legal & Corporate Affairs Department), the Nominated Official in charge of drawing up company accounts pursuant to Article 154-bis of the Consolidated Finance Act (identified as the Bank's CFO), the Occupational Health and Safety Officer; the Human Resources function, the Head of Business Continuity & Crisis Management, and the Head of Outsourcing Management (Costs Manager Assistant). All corporate functions, other than corporate control functions, also participate in the Internal Control System by carrying out the level-one controls included in the business processes within their responsibility.
44 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Organisational structure
Organisational structure
In continuity with the gradual organizational adjustments following the establishment of the FinecoBank Banking Group, in April 2020 some changes were made to the structure of the Chief Risk Officer's department consistently with the expansion of risk control duties and responsibilities. Specifically, tasks were reassigned and specific units were placed in charge of internal risk management rules and of validating and developing the internal risk measurement systems.
The Parent Company's Organisational Model
The Parent Company follows a functional organisational model that groups operations on the basis of a specific function and common processes; all knowledge and abilities concerning specific operations are constantly built and strengthened, creating thorough expertise for every individual unit and thus for the organisation as a whole. The strength of the functional model is its ability to promote economies of scale, as all employees belonging to a given function will share competencies and processes, avoiding duplication and waste. The functional model also facilitates the development of vertical capacities and knowledge within the specific area and ensures a dynamic decision-making process. Although the Parent Company's current arrangement applies the concept of "functional specialisation", horizontal connections across the different functions are maintained, in part through a project-based approach at every phase of definition and release of products and services: project groups involve one or more members of the appropriate functions who bring their own in-depth knowledge from their area of expertise. The horizontal connections are also guaranteed by the work of managerial committees whose duties include monitoring progress on the most important projects. The synergies between the distribution channels and the monitoring of decision-making processes that cut across the departments are ensured by a Management Committee.
The model followed by the Bank identifies the following corporate control functions: i) compliance with regulations; ii) risk management; iii) internal audit; as well as additional specialised functions, including the CFO (Chief Financial Officer), Legal Affairs, Human Resources, Corporate Identity, and oversight of the PFA network.
In addition, the model identifies three additional functional lines, which govern:
- the sales network (Network PFA & Private Banking Department);
- the business (Global Business Department);
- operational functioning (GBS Department).
In brief:
- the PFA Network & Private Banking Department is responsible for overseeing the management and development of the personal financial advisors network enabled for off-site distribution, and for guaranteeing the necessary support to the sales network in the management of Private Banking customers;
- the Global Business Department is responsible for overseeing the development of Trading, Banking, Credit and Investing products and the financial advisory services provided to the Bank's customers;
- the GBS (Global Banking Services) Department coordinates the organisational units in charge of monitoring the organisational/operating processes and the ICT and logistics systems needed to ensure the effective and efficient operation of business support systems. The following organisational units report to the GBS Department: ICT & Security (CIO) Department, Customer Relationship Management (CRM) Deparment, Organisation & Bank Operations Department, Financial Operations Department, Procurement Office Team, Network Logistics
Unit, General Services Unit, and Operational Monitoring & Private Bankers Team.
The following organisational units report to the Chief Executive Officer and General Manager: Network PFA & Private Banking Department, Global Business Department, CFO (Chief Financial Officer) Department, CRO (Chief Risk Officer) Department, Network Controls, Monitoring & Services Department, Legal & Corporate Affairs Department, GBS (Global Banking Services) Department, Human Resources Unit, Compliance Unit, Regulatory Affairs Team, and the Identity & Communications Team.
Internal Audit reports directly to the Board of Directors, the body responsible for strategic supervision.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 45
Consolidated interim report on operations
Organisational structure
Chairman
BOARD OF DIRECTORS
Internal Audit
CEO & GM
Regulatory Affairs | Identity & | ||||||||
Communications | |||||||||
Network Controls, | Legal & Corporate | Chief Risk Officer | Chief Financial | ||||||
Human Resources | Compliance | Monitoring and | |||||||
Affairs Dept. | Dept. | Officer Dept. | |||||||
Services Dept. | |||||||||
HR Management & | Advisory & | Corporate Affairs & | Accounting & | ||||||
Network Controls | Financial Legal | Credit | Regulatory | ||||||
Development | Regulators | ||||||||
Advice | Reporting | ||||||||
Planning & Reward | Risk Assessment & | Commercial | Legal Advice & Legal | Risk Management | Planning | ||||
Controls | Monitoring | ||||||||
Network PFA | |||||||||
Industrial Relations | Antimoney- | Commissioning & | Complaints & | Management | |||||
Laundering & Anti- | |||||||||
& HR Services | Network Assistance | Control | |||||||
Litigations | |||||||||
Terrorism Service | |||||||||
Becoming PFA | Tax Affairs & | ||||||||
Project & | |||||||||
Professional | Advisory | ||||||||
Training | |||||||||
Finance | |||||||||
Investor Relations | |||||||||
Sustainability | |||||||||
Network PFA & | Deputy GM Global | Deputy GM Global | |||||||
Private Banking | Banking Services | ||||||||
Business | |||||||||
Dept. | |||||||||
Network PFA | Marketing, | Procurement Office | |||||||
Development & | Advertising & | ||||||||
Support | Events | ||||||||
Regional Network | ICT & Security | Customer | Organization & | Financial | |||||
Products & Services | Relationship Mngt | Bank Operations | |||||||
PFA Referent | Office Dept. (CIO) | Operations Dept. | |||||||
Dept. | Dept. | ||||||||
Private Banking | Exchange Traded & | ICT & Security | Commercial | Operational | Securities | ||||
Advisory | OTC Markets | Governance | Supports | ||||||
Development & | |||||||||
Settlement | |||||||||
Trading | |||||||||
Advisory, Third | Omnichannel | Distributed Systems | PMO & BPR - | Organizational | |||||
Network PFA | Business Process | Development & | |||||||
Party & Private | Development | & Architectures | Markets/ | Retail Derivatives & | |||||
Re-Engineering | Business Continuity | ||||||||
Banking Solutions | Transaction Support | Funds | |||||||
Enterprise Systems | Information | Bancassurance & | |||||||
Security & Fraud | Credit Cards | Pension Funds | Dossier | ||||||
& Architectures | Customer Care | ||||||||
Management | Operations | ||||||||
Administration | |||||||||
DataBase | Banking & Network | ||||||||
Management & | Data Center | Payment Systems | |||||||
Operations | |||||||||
Development | |||||||||
Integration & | Network | ||||||||
PFA: Personal Financial Adviser | Internal Market | ||||||||
Infrastructures | |||||||||
Architectures | |||||||||
PFA Operational
Network Logistic General Services Monitoring &
Private Bankers
46 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Organisational structure
Group management system
The Parent Company FinecoBank is responsible for maximizing the long-term value of the Group as a whole, guaranteeing the uniform governance, guidance and control of the Group entities (currently the only subsidiary is Fineco AM).
For this purpose, FinecoBank has defined rules for the governance of the FinecoBank Banking Group in order to fully exercise its role in managing and coordinating the Group15, and has outlined the Group's managerial/functional management system and disciplined the key processes between the Parent Company and the Group entities.
As the Parent Company, FinecoBank ensures the coordination of the entities' activities using a management system based on the concept of "competence lines", through the strong functional connection between the Parent Company structure and the corresponding structure of the individual entities.
The Competence Lines are the structures/functions which, operating transversally between the Parent Company and the entities, have the objective of directing, coordinating and controlling the activities and risks of the Group as a whole and of the entities, through the structures/functions present locally. The Competence Lines operate in the following areas: Investor Relations, Finance and Treasury, Planning and Control, Accounting & Regulatory Reporting, Budget & Tax Affairs (Chief Financial Officer area); Risk Management and Credit (Chief Risk Officer area); Legal/Corporate; Compliance; Internal Audit and Human Resources, Identity & Communication, Organization/Business Continuity & Crisis Management/ICT/Security/Purchasing (Global Banking Services).
With the aim of achieving a strong functional and managerial connection at Group level, within the constraints set by applicable local laws and regulations, the Competence Line Managers have a direct role and, consistently with the responsibilities of the entities' corporate bodies, specific powers of guidance, support and control with reference to the corresponding functions of each entity, always in coordination with the entity's top management.
15 In accordance with Article 61 of Legislative Decree no. 385 of September 1st, 1993 (the "Italian Banking Law") and the Supervisory Instructions issued by the Bank of Italy.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 47
Consolidated interim report on operations
Main balance sheet aggregates
balance sheet aggregates
Consolidated balance sheet
(Amounts in € thousand)
Amounts as at | Changes | ||||||||
ASSETS | 06/30/2020 | 12/31/2019 | Amounts | % | |||||
Cash and cash balances | 909,802 | 754,386 | 155,416 | 20.6% | |||||
Financial assets held for trading | 14,591 | 7,933 | 6,658 | 83.9% | |||||
Loans and receivables with banks | 723,189 | 566,033 | 157,156 | 27.8% | |||||
Loans and receivables with customers | 4,204,291 | 3,679,829 | 524,462 | 14.3% | |||||
Financial investments | 22,946,524 | 22,304,892 | 641,632 | 2.9% | |||||
Hedging instruments | 75,577 | 64,939 | 10,638 | 16.4% | |||||
Property, plant and equipment | 153,685 | 152,048 | 1,637 | 1.1% | |||||
Goodwill | 89,602 | 89,602 | - | - | |||||
Other intangible assets | 36,592 | 37,492 | (900) | -2.4% | |||||
Tax assets | 4,186 | 23,444 | (19,258) | -82.1% | |||||
Other assets | 254,169 | 342,309 | (88,140) | -25.7% | |||||
Total assets | 29,412,208 | 28,022,907 | 1,389,301 | 5.0% | |||||
(Amounts in € thousand) | |||||||||
Amounts as at | Changes | ||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | 06/30/2020 | 12/31/2019 | Amounts | % | |||||
Deposits from banks | 113,137 | 154,653 | (41,516) | -26.8% | |||||
Deposits from customers | 27,021,199 | 25,919,858 | 1,101,341 | 4.2% | |||||
Financial liabilities held for trading | 8,209 | 3,777 | 4,432 | 117.3% | |||||
Hedging instruments | 207,116 | 94,950 | 112,166 | 118.1% | |||||
Tax liabilities | 62,928 | 11,437 | 51,491 | 450.2% | |||||
Other liabilities | 443,965 | 455,748 | (11,783) | -2.6% | |||||
Shareholders' equity | 1,555,654 | 1,382,484 | 173,170 | 12.5% | |||||
- capital and reserves | 1,373,995 | 1,093,117 | 280,878 | 25.7% | |||||
- revaluation reserves | 1,485 | 1,002 | 483 | 48.2% | |||||
- net profit | 180,174 | 288,365 | (108,191) | -37.5% | |||||
Total liabilities and Shareholders' equity | 29,412,208 | 28,022,907 | 1,389,301 | 5.0% |
48 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Main balance sheet aggregates
Cash and cash balances
Cash and cash balances, amounting to € 909.8 million, mainly includes the liquidity deposited in the HAM (Home Accounting Model) account at Bank of Italy used for short term liquidity management
Financial assets held for trading
Financial assets held for trading totalled € 14.6 million and include financial instruments that meets the definition of held for trading, in particular:
- equities, amounting to € 6.1 million (€ 3.3 million as at December 31, 2019), held in the Bank's portfolio as a result of trading activity or used for the operational hedging of CFD positions on shares open with customers and intended to be traded in the short term;
- the positive valuation of spot contracts for securities in the held for trading portfolio and currencies to be settled in time frames established by market practices ("regular way") for € 6.4 million (€ 1.4 million as at December 31, 2019), which correspond to negative valuations booked under "Financial liabilities held for trading";
- the positive valuation of CFDs (indices, shares, interest rates, commodities and forex), traded in counterpart of the customers, and futures and forex, used for the related operational hedging, for € 2.1 million (€ 3.2 million as at December 31, 2019).
CFDs are "Over the counter" derivative contracts that require the payment of a spread generated by the difference between the opening and closing price of the financial instrument. The bank in operational terms hedges the imbalance of customer positions by underwriting futures or the purchase/sale of equity securities on the same underlyings or through forex transactions with institutional.
Loans and receivables with banks
(Amounts in € thousand)
Amounts as at | Changes | |||||
06/30/2020 | 12/31/2019 | Amount | % | |||
Loans and receivables with central banks | 265,415 | 251,574 | 13,841 | 5.5% | ||
Loans and receivables with banks | 457,774 | 314,459 | 143,315 | 45.6% | ||
Current accounts and demand deposits | 269,810 | 250,501 | 19,309 | 7.7% | ||
Time deposits | 9,994 | 9,994 | - | 0.0% | ||
Other loans: | 177,970 | 53,964 | 124,006 | 229.8% | ||
1. Reverse repos | 743 | 4,316 | (3,573) | -82.8% | ||
2. Others | 177,227 | 49,648 | 127,579 | 257.0% | ||
Total | 723,189 | 566,033 | 157,156 | 27.8% | ||
Loans and receivables with banks, amounting to € 723.2 million, show an increase of 27.8% compare to December 31, 2019 mainly due to the growth of the variation margins with credit institutions for transactions in derivative contracts booked in the item "Other loans - Others".
"Loans and receivables with central banks" consist exclusively of the compulsory reserve deposit previously deposited with Bank of Italy.
"Current accounts and demand deposits" mainly consist of accounts held with credit institutions for the settlement of transactions on payment circuits, for the settlement of transactions in securities, for the management of the liquidity of UK customers and for the management of the liquidity of Fineco AM.
"Time deposits" consist exclusively of the deposit opened by Fineco AM with Intesa Sanpaolo Plc for an amount of € 10 million. The item "Other loans: Others" consists of € 172 million for the amount of the initial and variations margins and collateral deposits placed with credit institutions for derivative transactions (€ 43.8 million as at December 31, 2019) and € 5.2 million for current receivables associated with the provision of financial services (€ 5.8 million as at December 31, 2019).
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 49
Consolidated interim report on operations
Main balance sheet aggregates
Loans and receivables with customers
(Amounts in € thousand)
Amount as at | Changes | |||||
06/30/2020 | 12/31/2019 | Amount | % | |||
Current accounts | 1,422,227 | 1,292,172 | 130,055 | 10.1% | ||
Reverse repos | 153,220 | 160,112 | (6,892) | -4.3% | ||
Mortgages | 1,631,510 | 1,156,353 | 475,157 | 41.1% | ||
Credit cards and personal loans | 707,377 | 810,061 | (102,684) | -12.7% | ||
Other loans | 289,957 | 261,131 | 28,826 | 11.0% | ||
Total | 4,204,291 | 3,679,829 | 524,462 | 14.3% |
Loans and receivables with customers, amounting to € 4,204.3 million, up 14.3% compared to the amount as at December 31, 2019 and can be broken down as follows:
- credit facilities in current accounts of € 1,422.2 million, up 10.1%, of which loans with a security collateral (in particular "Credit Lombard") totalled to € 1,378.9 million;
-
€ 153.2 million in reverse repos, made by:
o "Multiday leverage" with retail customers and stock lending transactions with transactions institutional customers, securities lending transactions guaranteed by sums of money readily available to the lender and which are basically the equivalent of repos on securities, for an amount of € 153 million;
o repos on securities executed on MTS market subject to accounting offsetting, as set out in IAS 32, for an amount of € 0.2 million; - € 1,631.5 million in mortgages, up 41.1%;
- € 707.4 million in credit cards and personal loans, up 12.7%
- € 290 million in other loans, mainly made by collateral deposits and initial and variation margins for derivative and financial instrument transactions, for an amount of € 183 million (€ 151.6 million as at December 31, 2019), and current receivables associated with the provision of financial services, for an amount of € 102.5 million (€ 104.2 million as at December 31, 2019).
50 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Main balance sheet aggregates
The portfolio of loan receivables with ordinary customers amounts to € 3,756.6 million and mainly consists of receivables for personal loans, mortgages, current accounts and credit card revolving and use; overall, loans receivable with ordinary customers increased of 15.4% thanks to the disbursement, during first half 2020, of a further € 78 million in personal loan and € 552 million in mortgages, plus new credit facilities in current accounts for a granted amount of € 429 million.
(Amounts in € thousand)
Amounts as at | Changes | ||||||
Loans and Receivables with Customers (Management Reclassification) | 06/30/2020 | 12/31/2019 | Amount | % | |||
Current accounts | 1,419,994 | 1,290,208 | 129,786 | 10.1% | |||
Credit cards use | 272,570 | 355,133 | (82,563) | -23.2% | |||
Mortgages | 1,631,114 | 1,155,943 | 475,171 | 41.1% | |||
Personal loans | 433,744 | 454,043 | (20,299) | -4.5% | |||
Other loans | 4,370 | 5,312 | (942) | -17.7% | |||
Performing loans | 3,761,792 | 3,260,639 | 501,153 | 15.4% | |||
Current accounts | 2,233 | 1,964 | 269 | 13.7% | |||
Mortgages | 396 | 410 | (14) | -3.4% | |||
Credit cards use | 89 | 25 | 64 | 256.0% | |||
Personal loans | 974 | 860 | 114 | 13.3% | |||
Other loans | 83 | 42 | 41 | 97.6% | |||
Impaired loans | 3,775 | 3,301 | 474 | 14.4% | |||
Loans receivable with ordinary customers | 3,765,567 | 3,263,940 | 501,627 | 15.4% | |||
Reverse repos | 152,386 | 160,112 | (7,726) | -4.8% | |||
Reverse repos - impaired | 834 | - | 834 | n.c! | |||
Collateral deposits and initial and variation margins | 182,970 | 151,555 | 31,415 | 20.7% | |||
Current receivables associated with the provision of financialservices | 102,458 | 103,956 | (1,498) | -1.4% | |||
Current receivables associated with the provision of financialservices - impaired | 76 | 266 | (190) | -71.4% | |||
Current receivables and other receivables | 438,724 | 415,889 | 22,835 | 5.5% | |||
Loans and receivables with customers | 4,204,291 | 3,679,829 | 524,462 | 14.3% | |||
Impaired assets
(Amounts in € thousand)
Gross amount | Impairment provision | Net amount | Coverage ratio | ||||||||||
Amount as at | Amount as at | Amount as at | Data as at | ||||||||||
Category | 06/30/2020 | 12/31/2019 | 06/30/2020 | 12/31/2019 | 06/30/2020 | 12/31/2019 | 06/30/2020 | 12/31/2019 | |||||
Bad exposures | 20,232 | 19,562 | (18,391) | (17,877) | 1,841 | 1,685 | 90.9% | 91.4% | |||||
Unlikely to pay | 3,808 | 4,348 | (2,587) | (2,957) | 1,221 | 1,391 | 67.9% | 68.0% | |||||
Past-due loans | 3,210 | 1,424 | (1,586) | (932) | 1,624 | 492 | 49.4% | 65.4% | |||||
Total | 27,250 | 25,334 | 22,564 | 21,766 | 4,686 | 3,568 | 82.8% | 85.9% | |||||
The amount of non-performing loans net of impairment losses was € 4.7 million, of which € 1.8 million in bad exposure, € 1.2 million in unlikely to pay exposures and € 1.6 million in past-due loans. The impaired assets are the 0.12% of loan receivables with ordinary customers (the 0.11% as at December 31, 2019).
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 51
Consolidated interim report on operations
Main balance sheet aggregates
Financial investments
(Amounts in € thousand)
Amounts as at | Changes | ||||
06/30/2020 | 12/31/2019 | Amount | % | ||
Financial assets at fair value through profit or loss c) other financial assets mandatorily at fair value | 10,575 | 12,226 | (1,651) | -13.5% | |
Financial assets at fair value through other comprehensive income | 149,908 | 321,699 | (171,791) | -53.4% | |
Financial assets at amortised cost | 22,786,041 | 21,970,967 | 815,074 | 3.7% | |
- financial assets at amortised cost with banks - debt securities | 8,366,161 | 8,874,329 | (508,168) | -5.7% | |
- financial assets at amortised cost with customers - debt securities | 14,419,880 | 13,096,638 | 1,323,242 | 10.1% | |
Total | 22,946,524 | 22,304,892 | 641,632 | 2.9% | |
Financial assets at fair value through profit or loss c) other financial assets mandatorily at fair value" primarily consist of the Visa INC class "C" preferred shares, for an amount of € 8.7 million, in line with the fair value booked in 2019, and the residual equity exposure to the Voluntary Scheme set up by the Interbank Deposit Guarantee Fund (IDGF), amounting to € 1.4 million (of which € 1.1 million related to the Carige transaction and € 0.3 million related to Carim, Carismi and CariCesena transaction), with a negative impact booked in first half 2020 income statement of € 1.2 million (gross of taxes). For further details on the exposure to the Voluntary Scheme refer to Part A - Accounting Policies - Section 5 - Other matters of the notes to the accounts.
"Financial assets designated at fair value through other comprehensive income" consist of securities issued by sovereign States and residually of equity interests in companies in which the Group does not exercise control or significant influence for € 5 thousand for which, upon first application of IFRS 9, the "FVTOCI" option was exercised16. The following table shows the debt securities issued by sovereign States:
(Amounts in € thousand) | ||||||||||
Counterparty | Amounts as at | Changes | ||||||||
06/30/2020 | 12/31/2019 | Amount | % | |||||||
Italy | - | 172,704 | (172,704) | -100.0% | ||||||
France | 37,016 | 36,668 | 348 | 0.9% | ||||||
USA | 72,498 | 70,891 | 1,607 | 2.3% | ||||||
Ireland | 40,390 | 41,431 | (1,041) | -2.5% | ||||||
Total | 149,904 | 321,694 | (171,790) | -53.4% | ||||||
The debt securities recorded in "Financial assets at amortized cost" issued by banks include bonds issued by UniCredit S.p.A. for a total amount of € 6,505.8 million (€ 7,501.4 million as at December 31, 2019), covered bonds issued by credit institutions and bonds issued by Supranational organisations and Supranational agencies that fall within the definition of credit institutions.
16 With regard to non-trading equity instruments, IFRS 9 provides for the possibility of measuring them at the fair value recognised through other comprehensive income (so-called FVTOCI - fair value through Other Comprehensive Income).
52 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Main balance sheet aggregates
The debt securities recorded in "Financial assets at amortized cost" issued by customers exclusively refer to bonds consist of securities issued by sovereign States and Supranational agencies. The breakdown by counterparty of securities issued by customers is shown below:
(Amounts in € thousand)
Counterparty | Amounts as at | Changes | |||||||
06/30/2020 | 12/31/2019 | Amount | % | ||||||
Italy | 5,429,235 | 5,139,066 | 290,169 | 5.6% | |||||
Spain | 4,094,939 | 4,081,857 | 13,082 | 0.3% | |||||
Germany | 127,100 | 127,178 | (78) | -0.1% | |||||
Poland | 27,302 | 118,924 | (91,622) | -77.0% | |||||
France | 1,005,249 | 696,810 | 308,439 | 44.3% | |||||
USA | 241,501 | 338,246 | (96,745) | -28.6% | |||||
Austria | 519,572 | 398,087 | 121,485 | 30.5% | |||||
Ireland | 872,079 | 730,905 | 141,174 | 19.3% | |||||
United Kingdom | 55,439 | 58,658 | (3,219) | -5.5% | |||||
Belgium | 559,106 | 417,485 | 141,621 | 33.9% | |||||
Portugal | 395,964 | 333,319 | 62,645 | 18.8% | |||||
Switzerland | 52,077 | - | 52,077 | n.c. | |||||
EFSF (European Financial Stability Facility) | 401,822 | 352,945 | 48,877 | 13.8% | |||||
ESM (European Stability Mechanism) | 397,223 | 303,158 | 94,065 | 31.0% | |||||
Total | 14,178,608 | 13,096,638 | 1,081,970 | 8.3% | |||||
Hedging instruments
(Amounts in € thousand) | |||||||
Amounts as at | Changes | ||||||
06/30/2020 | 12/31/2019 | Amount | % | ||||
Asset hedging derivatives - positive valuations | 2,949 | 21,115 | (18,166) | -86.0% | |||
Liability hedging derivatives - positive valuations | 18,980 | 14,944 | 4,036 | 27.0% | |||
Adjustment to the value of assets under macro-hedge | 53,647 | 28,880 | 24,767 | 85.8% | |||
Total assets | 75,576 | 64,939 | 10,637 | 16.4% | |||
of which: | |||||||
Positive valuations | 22,241 | 37,199 | (14,958) | -40.2% | |||
Accrued interest | (312) | (1,140) | 828 | -72.6% | |||
Adjustments to the value of hedged assets | 53,647 | 28,880 | 24,767 | 85.8% | |||
Total assets | 75,576 | 64,939 | 10,637 | 16.4% | |||
Asset hedging derivatives - negative valuations | 188,770 | 80,852 | 107,918 | 133.5% | |||
Adjustment to the value of assets under macro-hedge | 18,346 | 14,098 | 4,248 | 30.1% | |||
Total liabilities | 207,116 | 94,950 | 112,166 | 118.1% | |||
of which: | |||||||
Negative valuations | 158,021 | 58,128 | 99,893 | 171.9% | |||
Accrued interest | 30,750 | 22,724 | 8,026 | 35.3% | |||
Adjustments to the value of hedged liabilities | 18,346 | 14,098 | 4,248 | 30.1% | |||
Total liabilities | 207,117 | 94,950 | 112,167 | 118.1% | |||
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 53
Consolidated interim report on operations
Main balance sheet aggregates
(Amounts in € thousand)
Summary of hedging derivative valuations | Assets | Liabilities | Difference |
Valuation of hedging derivatives for assets and liabilities | 22,241 | 158,021 | (135,780) |
Change in macro fair value hedged of financial assets/liabilities | 53,647 | 18,346 | 35,301 |
Change in micro fair value hedged of financial assets/liabilities | 99,593 | - | 99,593 |
Total | 175,481 | 176,367 | (886) |
As at June 30, 2020 the financial assets under macro-hedge consisted of mortgages with customers shown in "Financial assets at amortised cost", while the financial liabilities under macro-hedge consisted of direct deposits with customers shown in "Financial liabilities at amortised cost".
The financial assets under micro-hedge are represented by securities issued by sovereign states recorded in "Financial assets at amortized cost".
Positive and negative valuations of hedging derivatives related solely to derivative contracts that the Group has entered into to hedge against interest rate risk inherent in the above-mentioned assets and liabilities, whose income statement effect, net of € 31.1 million of negative accrued interest included in the net interest margin, was a negative amount of € 0.8 million.
Property, plant and equipment
Property, plant and equipment are made by properties, electronic equipment, office furniture and fittings, plant and machinery.
Investments in electronic equipment were made to guarantee the ongoing update of the hardware used by all the Group's departments. Investments in office furniture and fittings and in plant and machinery are intended for use in company offices and in financial stores.
(Amounts in € thousand) | |||||||
Amortisation and | |||||||
Investments | Other changes and sales | impairment | |||||
Property, plant and equipment | Balance 12/31/2019 | First half 2020 | First half 2020 | First half 2020 | Balance 06/30/2020 | ||
Land | 23,932 | - | - | - | 23,932 | ||
Properties | 109,602 | 11,237 | (1,500) | (6,255) | 113,084 | ||
Electronic equipment | 12,736 | 745 | (7) | (2,330) | 11,144 | ||
Office furniture and fittings | 2,583 | 325 | 38 | (388) | 2,558 | ||
Plant and machinery | 3,195 | 269 | (43) | (454) | 2,967 | ||
Total | 152,048 | 12,576 | (1,512) | (9,427) | 153,685 |
It should be noted that the Property, plant and equipment as at June 30, 2020 include the "right of use" relating to buildings for an amount of € 70.3 million, the "right of use" relating to plants and machinery for an amount of € 0.5 million and the book value of the property, where the Bank's registered office is located, located in Milan, piazza Durante 11, for an amount of € 64.8 million, including the related land for an amount of € 23.9 million. Finally, it should be noted that on the basis of the assessments carried out at 30 June 2020, there are no indicators such as to make adjustments to the book value of the property itself
Goodwill
The Goodwill recognised in the Bank' financial statements, and amounting to of € 89.6 million, derives from transactions carried out in the years from 2001 to 2008, involving acquisitions and mergers by absorption of business units and businesses engaged in trading operations or the distribution of financial, banking and insurance products through the personal financial advisors (Fineco On Line Sim S.p.A., Trading and Banking business unit of Banca della Rete, personal financial advisors business unit of the former FinecoGroup S.p.A., and UniCredit Xelion Banca S.p.A.).
These activities have been fully integrated with the Bank's ordinary operations. As a result, it is no longer possible to isolate the contribution of each company/business division from the Bank's overall income; this means that to establish the reasonableness of the value of goodwill recognised in the financial statements it is necessary to take account of the Bank's comprehensive income. The cash generating unit (CGU) is therefore the Bank as a whole, including the contribution from the subsidiary Fineco Asset Management DAC, through a vertically integrated business model.
In fact, in view of the specific business model adopted by the Group, which envisages a high level of integration between personal financial advisors and the trading and banking platform, the allocation of costs/revenues to the macro areas of activity is not considered relevant or meaningful; the personal financial advisors network is an integral part of the overall offer, along with banking, brokerage and investing services.
54 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Main balance sheet aggregates
It should be noted that as at June 30, 2020 there are no indicators of impairment of the goodwill, Fineco brands and domains recorded in the financial statements. COVID-19 on the main parameters used in the valuation model (net profit and RWA relating to the years 2020 and 2021 as from baseline and stressed COVID-19 scenarios approved by the Board of Directors on 7 July 2020). The results did not highlight significant impacts on the value in use, confirming the positive outcome of the impairment test performed at 31 December 2019. The result of the stress test therefore confirms the sustainability of the goodwill and the brand recognized in the financial statements at 30 June 2020 with a value in use significantly higher than the carrying amount. For all other information on the impairment test, see Part B - Balance Sheet Information in the notes to the accounts.
Other intangible assets
Other intangible assets mainly include purchases and the implementation of information technology procedures with useful lives of several years, required in order to manage the development and ongoing provision by the Group of new and more versatile high-added-value services for customers, as well as infrastructure and application optimisations, enhancements to architecture for application security, and the developments needed to meet the new regulatory and financial reporting requirements, including the Fineco brands and domains.
(Amounts in € thousand)
Other changes and | Amortisation and | |||
Investments | sales | impairment | ||
Intangible assets | Balance 12/31/2019 | First half 2020 | First half 2020 | First half 2020 |
Software | 9,578 | 1,926 | - | (2,732) |
Brand | 27,452 | 7 | - | - |
Other intangible assets | 462 | 7 | - | (108) |
Total | 37,492 | 1,940 | - | (2,840) |
Balance 06/30/2020
8,772
27,459
361
36,592
Tax Assets and Other Assets
(Amounts in € thousand)
Amounts as at | Changes | |||||
06/30/2020 | 12/31/2019 | Amount | % | |||
Tax assets | ||||||
Current assets | 373 | - | 373 | - | ||
Deferred tax assets | 28,105 | 47,884 | (19,779) | -41.3% | ||
Deferred tax assets pursuant to Law 214/2011 | 3,300 | 3,828 | (528) | -13.8% | ||
Total before IAS 12 offsetting | 31,778 | 51,712 | (19,934) | -38.5% | ||
Offsetting with deferred tax liabilities - IAS 12 | (27,592) | (28,268) | 676 | -2.4% | ||
Total Tax assets | 4,186 | 23,444 | (19,258) | -82.1% | ||
Other assets | ||||||
Trade receivables according to IFRS15 | 2,931 | 4,579 | (1,648) | -36.0% | ||
Current receivables not related with the provision of financial services | 747 | 2,733 | (1,986) | -72.7% | ||
Improvement and incremental expenses incurred on leasehold assets | 5,704 | 6,067 | (363) | -6.0% | ||
Definitive items not recognised under other items: | 24,042 | 28,062 | (4,020) | -14.3% | ||
- securities and coupons to be settled | 1,996 | 1,537 | 459 | 29.9% | ||
- other transactions | 22,046 | 26,525 | (4,479) | -16.9% | ||
Tax items other than those included in the item "Tax assets": | 158,770 | 259,098 | (100,328) | -38.7% | ||
- tax advances | 151,961 | 252,251 | (100,290) | -39.8% | ||
- tax credit | 6,809 | 6,809 | - | - | ||
- tax advances on employee severance indemnities | - | 38 | (38) | -100.0% | ||
Items awaiting settlement: | 4,250 | 2,495 | 1,755 | 70.3% | ||
- notes, cheques and other documents | 4,250 | 2,495 | 1,755 | 70.3% | ||
Items in processing | 7 | 13 | (6) | -46.2% | ||
Items in transit not allocated to relevant accounts | 2 | 50 | (48) | -96.0% | ||
Accrued income and prepaid expenses other than those related to contracts | ||||||
with customers and other than capitalised in related financial assets or | ||||||
liabilities | 41,123 | 27,178 | 13,945 | 51.3% | ||
Accrued income and prepaid expenses related to contracts with customers | ||||||
other than capitalised in related financial assets or liabilities | 16,593 | 12,034 | 4,559 | 37.9% | ||
Total other assets | 254,169 | 342,309 | (88,140) | -25,7% |
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 55
Consolidated interim report on operations
Main balance sheet aggregates
It is also noted that "Deferred tax assets" are shown in the Balance Sheet net of the relevant "Deferred tax liabilities", where the requirements set out in IAS 12 are met.
The decrease in Tax assets, after IAS 12 offsetting, is mainly due to the recognising of deferred tax assets relating to the tax benefit known as the Patent Box acounted for as at December 31, 2019, following the achievement at the beginning of 2020 of the agreement with the Office of preventive agreements and international disputes of the Italian Revenue Agency regarding the methodology to be used for the calculation of the economic contribution of the intangibles object of application, which expresses its effects with the reduction of the taxable amount in the tax return for 2020.
For the item Other assets, there was a decrease in the "Tax items other than those recorded under the Tax Assets" for an amount of € 100.3 million, due to lower advance taxes paid for the substitute tax on other income, partially offset by higher advance taxes paid for stamp duties and by the increase in "Accrued income and prepaid expenses related to contracts with customers other than capitalised in related financial assets or liabilities" for an amount of € 13.9 million, mainly relating to the increase in accrued income for other administrative expenses
Deposits from banks
(Amounts in € thousand)
Amounts as at | Changes | |||||
06/30/2020 | 12/31/2019 | Amount | % | |||
Deposits from banks | 113,137 | 154,653 | (41,516) | -26.8% | ||
Current accounts and demand deposits | 41,461 | 70,396 | (28,935) | -41.1% | ||
Loans | 54,167 | 74,067 | (19,900) | -26.9% | ||
-Repos | 54,167 | 74,067 | (19,900) | -26.9% | ||
Lease liabilities | 4,922 | 7,207 | (2,285) | -31.7% | ||
Other liabilities | 12,587 | 2,983 | 9,604 | 322.0% | ||
Total | 113,137 | 154,653 | (41,516) | -26.8% |
Deposits from banks amount to € 113.1 million and show a reduction of 26.8% compared to December 31, 2019, mainly attributable to the reduction in liabilities represented by current accounts with credit institutions and by securities lending transactions guaranteed by sums of money which are fully available to the lender.
The item "Current accounts and demand deposits" mainly consisted of current accounts opened by customer banks worth € 39.2 million (€ 69.6 million as at December 31, 2019).
"Repos" are represented by repos and securities lending transactions with credit institutions, securities lending transactions guaranteed by sums of money readily available to the lender and which are basically the equivalent of repos on securities.
The item "Lease liabilities" represents the financial debt corresponding to the present value of the payments due in the lease agreements stipulated with credit institutions not paid at the reporting date, as required by IFRS 16.
The item "Other liabilities" mainly includes margin variations received for derivative transactions for an amount of € 12.4 million (€ 3 million as at December 31, 2019).
Deposits from customers
(Amounts in € thousand)
Amounts as at | Changes | |||||
06/30/2020 | 12/31/2019 | Amount | % | |||
Current accounts and demand deposits | 26,087,072 | 25,573,169 | 513,903 | 2.0% | ||
Time deposits | 733 | 1,359 | (626) | -46.1% | ||
Loans | 730,823 | 163,450 | 567,373 | 347.1% | ||
- Repos | 730,823 | 163,450 | 567,373 | 347.1% | ||
Lease liabilities | 66,409 | 60,118 | 6,291 | 10.5% | ||
Other liabilities | 136,161 | 121,762 | 14,399 | 11.8% | ||
Deposits from customers | 27,021,198 | 25,919,858 | 1,101,340 | 4.2% | ||
56 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Main balance sheet aggregates
Deposits from customers totalled € 27,021.2 million, up 4.2% compared to December 31, 2019 and mainly consisting of current accounts with customers, increased by € 513.9 million (+2%) and repos, increased by € 567.4 million.
"Repos" consist of:
- "Short selling" with retail customers and stock lending transactions with transactions institutional customers, securities lending transactions guaranteed by sums of money readily available to the lender and which are basically the equivalent of repos on securities, for an amount of € 76.7 million;
- repos on securities executed on MTS market subject to accounting offsetting as set out in IAS 32, for an amount of € 654.1 million.
The item "Lease liabilities " represents the financial debt corresponding to the present value of the payments due in the lease agreements stipulated with parties other than credit institutions not paid at the reporting date, as required by IFRS 16.
The item "Other liabilities" comprises current payables related to the provision of financial services, totalling € 30.5 million (€ 41.4 million as at December 31, 2019), initial and variations margins for derivative and financial instrument transactions, which came to € 46 million (€ 41.2 million as at December 31, 2019) and other liabilities for rechargeable credit cards and bankers' drafts, amounting to € 59.7 million (€ 39.2 million at December 31, 2019).
Financial liabilities held for trading
Financial liabilities held for trading totalled € 8.2 million and include financial instruments that meets the definition of held for trading, in particular:
- technical overdrafts, amounting to € 0.9 million (€ 1.9 million as at December 31, 2019), used for the operational hedging of CFD positions on shares open with customers and intended to be traded in the short term;
- the negative valuation of spot contracts for securities in the held for trading portfolio and currencies to be settled in time frames established by market practices ("regular way") for € 6.1 million (€ 1.3 million as at December 31, 2019), which correspond to negative valuations booked under "Financial liabilities held for trading";
- the negative valuation of CFDs (indices, shares, interest rates, commodities and forex), traded in counterpart of the customers, and futures, used for the related management coverage, for € 1.2 million (€ 0.6 million as at December 31, 2019).
CFDs are "Over the counter" derivative contracts that require the payment of a spread generated by the difference between the opening and closing price of the financial instrument. The bank in operational terms hedges the imbalance of customer positions by underwriting futures or the purchase/sale of equity securities on the same underlyings or through forex transactions with institutional.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 57
Consolidated interim report on operations
Main balance sheet aggregates
Tax liabilities and Other liabilities
Amounts as at | Changes | |||||||||
06/30/2020 | 12/31/2019 | Amount | % | |||||||
Tax liabilities | ||||||||||
Current liabilities | 62,928 | 11,437 | 51,491 | 450.2% | ||||||
Deferred tax liabilities | 27,592 | 28,268 | (676) | -2.4% | ||||||
Total before IAS 12 offsetting | 90,520 | 39,705 | 50,815 | 128.0% | ||||||
Offset against deferred tax liabilities - IAS 12 | (27,592) | (28,268) | 676 | -2.4% | ||||||
Total Tax liabilities | 62,928 | 11,437 | 51,491 | 450.2% | ||||||
Other liabilities | ||||||||||
Payables to Directors and Statutory auditors | 197 | 202 | (5) | -2.5% | ||||||
Payables to employees | 15,313 | 13,342 | 1,971 | 14.8% | ||||||
Social security contributions payable | 7,119 | 6,577 | 542 | 8.2% | ||||||
Current payables not related to the provision of financial services | 30,732 | 25,866 | 4,866 | 18.8% | ||||||
Payables for share-based payments or shares of the UniCredit | 59 | 142 | (83) | -58.5% | ||||||
Definitive items not recognised under other items: | 109,521 | 57,514 | 52,007 | 90.4% | ||||||
- securities and coupons to be settled | 9,565 | 20,310 | (10,745) | -52.9% | ||||||
- payment authorisations | 90,278 | 22,494 | 67,784 | 301.3% | ||||||
- other items | 9,678 | 14,710 | (5,032) | -34.2% | ||||||
Tax items other than those included in the item "Tax liabilities": | 74,623 | 133,690 | (59,067) | -44.2% | ||||||
- sums withheld from third parties as withholding agent | 20,694 | 27,616 | (6,922) | -25.1% | ||||||
- other | 53,929 | 106,074 | (52,145) | -49.2% | ||||||
Illiquid items for portfolio transactions | 9,728 | 20,796 | (11,068) | -53.2% | ||||||
Items awaiting settlement: | 67,972 | 74,298 | (6,326) | -8.5% | ||||||
- outgoing bank transfers | 67,935 | 74,251 | (6,316) | -8.5% | ||||||
- POS and ATM cards | 37 | 47 | (10) | -21.3% | ||||||
Items in processing: | 625 | 463 | 162 | 35.0% | ||||||
- incoming bank transfers | 592 | 419 | 173 | 41.3% | ||||||
- other items in processing | 33 | 44 | (11) | -25.0% | ||||||
Sums available to be paid to customers | 4,652 | 3,935 | 717 | 18,2% | ||||||
Current payables not related with the provision of financial | ||||||||||
services | 133 | 183 | (50) | -27.3% | ||||||
Deferred income related to contracts with customers other than | ||||||||||
those capitalised on the related financial assets or liabilities | 10,459 | 6,851 | 3,608 | 52.7% | ||||||
Provisions for employee severance pay | 4,722 | 4,810 | (88) | -1.8% | ||||||
Provisions for risks and charges | 108,110 | 107,079 | 1,031 | 1.0% | ||||||
Total Other liabilities | 443,965 | 455,748 | (11,783) | -2.6% |
It is also noted that, when the requirements of IAS 12 are met, the "Deferred tax liabilities" are offset against "Deferred tax assets" in the balance sheet.
The Tax liabilities, after IAS 12 offsetting, show an increase of € 51.5 million exclusively attributable to the recognition of current taxes.
With regard to the Other liabilities there was a decrease in "Tax items other than those included in the item "Tax liabilities": other" for an amount of
-
59.1 million, mainly due to the decrease in the debt accounted for the stamp duty and for the substitute tax on the administered funds to be paid, in
"Items awaiting settlement", due to outgoing bank transfers for an amount of € 6.3 million, and in "Illiquid items for portfolio transactions" for an amount of € 11.1 million; the decrease is offset by the growthof "Definitive items not recognised under other items" for an amount of € 52 million, due to the increase in the payment authorisations for an amount of € 67.8 million, partially offset by lower "securities and coupons to be settled " and from "Other items", for an amount of € 10.7 million and of € 5 million, respectively.
The Provision for risks and charges consists of:
- Provisions for credit risk relating to commitments and financial guarantees issued that fall within the scope of application of impairment rules in accordance with IFRS 9, for an amount of € 67 thousand;
- Provisions for risks and charges - Other provisions which include allowances for a total of € 108 million, for which, given a liability of uncertain amount and expiry date, a current obligation was identified as a result of a past event and the amount arising from fulfilment of said obligation could be estimated reliably.
58 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Main balance sheet aggregates
The disbursements, with estimated maturity exceeding 18 months, were discounted to present value using a rate equal to the time value of money.
(Amounts in € thousand)
Amounts as at | Changes | ||||
06/30/2020 | 12/31/2019 | Amount | % | ||
Provision for risks and charges for commitments and financial guarantees given | 67 | 21 | 46 | 219.0% | |
Legal and fiscal disputes | 28,667 | 30,910 | (2,243) | -7.3% | |
- Pending cases | 20,832 | 22,370 | (1,538) | -6.9% | |
- Complaints | 4,099 | 4,794 | (695) | -14.5% | |
- Tax disputes | 3,736 | 3,746 | (10) | -0.3% | |
Staff expenses | 2,480 | 4,949 | (2,469) | -49.9% | |
Other | 76,896 | 71,199 | 5,697 | 8.0% | |
- Supplementary customer indemnity provision | 64,262 | 63,618 | 644 | 1.0% | |
- provision for contractual payments and payments under non-competition agreements | 392 | 395 | (3) | -0.8% | |
- Other provision | 12,242 | 7,186 | 5,056 | 70.4% | |
Provision for risks and charges - Other provision | 108,043 | 107,058 | 985 | 0.9% | |
Total provision for risks and charges | 108,110 | 107,079 | 1,031 | 1.0% | |
The item "Staff expenses", solely includes, the provisions made for the variable remuneration to be paid to employees in subsequent years, which have an uncertain due date and/or amount.
Other provisions included the provision in relation to the proceedings initiated against the Bank in December 2019 by the Italian Antitrust Authority (AGCM). In this regard, it should be noted that on December 20th, 2019, the Bank received notice from the AGCM that it had initiated proceedings to assess the compliance with the Consumer Code (Legislative Decree 206/2005) of a commercial practice that the Bank had previously used to encourage people to open current accounts. During the first half of 2020, FinecoBank - on the advice of its lawyers - provided the AGCM with all the information required for the purposes of the assessment within the prescribed time limits, explaining the reasons why it believes it has operated correctly. Taking into account the outcome of the hearings and discussions with the AGCM, the Bank - while maintaining that it acted properly - decided to pay back customers affected by this commercial practice (the monthly account maintenance fees) charged in 2020 and to not apply these fees until December 31, 2020.
Pending the AGCM's decisions on the proposals made by the Bank, this substantial commitment taken by the Bank at the reporting date has been covered by a specific allocation to the Provision for risks and charges as at June 30th, 2020 in the amount of € 4 million. If the above proposal is accepted, this amount will be paid to the customers concerned during the second half of 2020 by promptly repaying the fees charged to them from February 1st, 2020.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 59
Consolidated interim report on operations
Main balance sheet aggregates
Shareholders' equity
(Amounts in € thousand)
Amounts as at | Changes | |||||
06/30/2020 | 12/31/2019 | Amount | % | |||
Share capital | 201,153 | 200,941 | 212 | 0.1% | ||
Share premium reserve | 1,934 | 1,934 | - | 0.0% | ||
Reserves | 678,378 | 397,592 | 280,786 | 70.6% | ||
- Legal reserve | 40,229 | 40,188 | 41 | 0.1% | ||
- Extraordinary reserve | 574,832 | 309,131 | 265,701 | 86.0% | ||
- Treasury shares reserve | 7,470 | 7,351 | 119 | 1.6% | ||
- Other reserves | 55,847 | 40,923 | 14,924 | 36.5% | ||
(Treasury shares) | (7,470) | (7,351) | (119) | 1.6% | ||
Revaluation reserves | 1,485 | 1,002 | 483 | 48.2% | ||
Equity instruments | 500,000 | 500,000 | - | 0.0% | ||
Net profit (Loss) for the year | 180,174 | 288,365 | (108,191) | -37.5% | ||
Total | 1,555,654 | 1,382,484 | 173,170 | 12.5% |
As at June 30, 2020, the Bank's share capital came to € 201.2 million, divided into 609,554,043 ordinary shares with a par value of € 0.33 each. Share premium reserve amounts to € 1.9 million.
The reserves consisted of the:
- Legal reserve, amounting to € 40.2 million;
- Extraordinary reserve, amounting to € 574.8 million;
- Reserve for treasury shares held, amounting to € 7.5 million;
-
Other reserves:
o Reserve related to equity-settled plans, amounting to € 35.2 million;
o Reserves from profits of the subsidiary Fineco AM, amounting to € 15.6 million;
o Reserves of unavailable profits pursuant to Article 6 paragraph 2 of Legislative Decree 38/2005, for an amount equal to € 5.1 million.
Consolidated Shareholders' equity includes the following financial instrument:
- Additional Tier 1 issued on 31 January 2018. The financial instrument is a perpetual private placement17, issued for a total of € 200 million and entirely subscribed by UniCredit S.p.A. The coupon for the first 5.5 years has been fixed at 4.82%. During first half 2020 the payment of the related coupon had been accounted for in decrease of the Extraordinary reserve for € 3.5 million, net of the related taxation;
- Additional Tier 1 issued on 11 July 2019. The financial instrument is a perpetual public placement, traded on Euronext Dublin's non- regulated market, Global Exchange Market, notes rating of BB- (S&P Global Ratings), issued for a total of € 300 million. The coupon for the first 5 years has been fixed at 5.875%. During first half 2020 the coupons paid were accounted for as a reduction in Extraordinary Reserve for an amount of € 6.4 million, net of related taxes.
As at June 30, 2020, the Group, specifically the Bank, held in the portfolio 753,310 FinecoBank ordinary shares, in order to execute the PFA incentive plans of the Bank, corresponding to 0.12% of the share capital, for an amount of € 7.5 million. During first half 2020 n. 44,000 shares were purchased in relation to the "2019 PFA Incentive System" for personal financial advisors identified as "Key personnel" and n. 11,548 and n. 16,590 FinecoBank ordinary shares held in the portfolio were assigned to personal financial advisors respectively in execution to the "2016 PFA Incentive System" and "2017 PFA Incentive System".
The Revaluation reserves consisted of:
- € 2.4 million from the net positive reserve from valuation of debt securities issued by central governments recognized in the "Financial assets designated at fair value through other comprehensive income", which recorded a decreased by € 0.7 million during first half 2020, of which +€ 1.3 million relating to the positive change in fair value and -€ 2 million relating to the reversal to the income statement for losses on the sale and repayment of the securities;
- -€0.9 million from the IAS19 negative reserve, which recorded a positive change of € 1.2 million during first half 2020 as a result of the recognition of actuarial gains mainly attributable to the for the Supplementary customer indemnity provision and the provision for contractual payments.
17 Unrated and unlisted
60 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Main balance sheet aggregates
On February 11, 2020, in view of the favourable opinion provided by the Remuneration Committee in its meeting of February 7, 2020, the Board of Directors of FinecoBank approved execution of the following incentive/loyalty systems:
- 2014-2017Top Management Multi-Year Plan for employees. In particular, we approved the allotment of 422,779 free ordinary shares to the beneficiaries of the fourth tranche of the Plan, assigned in 2017, and consequently an increase in Share capital for a total amount of € 139,517.07 with immediate effect;
- 2014, 2015, 2016, 2017,2018 and 2019 Incentive systems for employees. In particular, we approved the allotment of 201,121 free ordinary shares to the beneficiaries of the fourth equity tranche of the 2014 Incentive System, of the third tranche of the 2015 Incentive System and of the second tranche of the 2016 Incentive System and of the first tranche of the 2017 Incentive System, and consequently an increase in Share capital for a total amount of € 66,369.93 with effect from 31 March 2020.
The FinecoBank Board of Directors of 12 March 2020 approved a free share capital increase to service the incentive plans for employees for an amount of € 5,459.19, through the issue of n. 16.543 ordinary shares, effective May 31, 2020.
In view of the above capital increases, the reserves from allocation of profit from previous years were reduced accordingly.
The Shareholders' Meeting of FinecoBank held on April 28, 2020 approved the allocation of profit for the year 2019 of FinecoBank S.p.A., amounting to € 285.9 million, as follows:
- € 0.04 million to the Legal Reserve, corresponding to 0.014% of the profit for the year, having reached the limit of a fifth of the share capital;
- € 285.8 million to the Extraordinary Reserve.
It should be noted that, in full compliance with the reference legislation, the indications of the Supervisory Authorities and the best consolidated practice on the matter, the Board of Directors of 6 April 2020 decided to revoke the proposal for the distribution of a unit dividend of 0.32 euro for a total of € 195,052,000 approved by the Board of Directors on 11 February 2020, resolving to propose to the Ordinary Shareholders' Meeting convened for 28 April 2020 the allocation to reserves of the profit for the year 2019.
The same Shareholders' Meeting, upon proposal of the Board of Directors of 11 February 2020, also approved the coverage of the negative reserve deriving from the first application of the accounting standard IFRS 9 through the use of the Extraordinary Reserve for an amount equal to € 4.9 million.
Simultaneously with the recognition of the allocation of the profit for the year 2019, the extraordinary reserve was made unavailable, pursuant to article 6 paragraph 2 of Legislative Decree 38/2005, for an amount equal to € 5.1 million.
The "Reserve related to equity-settled plans" was increased by around € 2.8 million, due to the recognition during the period of the income statement and balance sheet effects of the payment plans based on FinecoBank ordinary shares during the vesting period for the instruments, and was used of about € 0.3 million, following the allotment to personal financial advisors respectively of the second equity tranche of the "2016 PFA Incentive System", corresponding to 11,548 of FinecoBank' ordinary shares, and of the first tranche of the "2017 PFA Incentive System", corresponding to 16,590 of FinecoBank' ordinary shares.
The treasury share reserve was increased by a total of € 0.1 million, with a simultaneous decrease in the extraordinary reserve, against the aforementioned allocations in favor of personal financial advisors and treasury share purchases.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 61
Consolidated interim report on operations
Main balance sheet aggregates
Reconciliation between Shareholders' equity and net profit/(loss) for the period of FinecoBank and corresponding consolidated figures.
(Amounts in € thousand) | ||
of which: net profit (loss) | ||
Description | Shareholders' equity | as at 06/30/2020 |
FinecoBank balances as at June 30, 2020 | 1,529,701 | 169,829 |
Effect of consolidation of Fineco AM | 40,177 | 24,569 |
Dividends from Fineco AM cashed in the period | (14,224) | (14,224) |
Shareholders' equity and profit attributable to minorities | - | - |
Balances attributable to the Group as at June 30, 2020 | 1,555,654 | 180,174 |
62 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Income Statement Figures
Income Statement figures
Consolidated Income Statement
(Amounts in € thousand)
1st Half | Changes | |||||
2020 | 2019 | Amounts | % | |||
Net interest | 138,229 | 141,767 | (3,538) | -2.5% | ||
Net fee and commission income | 209,739 | 158,643 | 51,096 | 32.2% | ||
Net trading, hedging and fair value income | 56,482 | 17,837 | 38,645 | 216.7% | ||
Net other expenses/income | 1,392 | 537 | 855 | 159.2% | ||
OPERATING INCOME | 405,842 | 318,784 | 87,058 | 27.3% | ||
Staff expenses | (48,893) | (44,097) | (4,796) | 10.9% | ||
Other administrative expenses | (123,338) | (123,742) | 404 | -0.3% | ||
Recovery of expenses | 52,263 | 50,817 | 1,446 | 2.8% | ||
Impairment/write-backs on intangible and tangible assets | (12,268) | (10,510) | (1,758) | 16.7% | ||
Operating costs | (132,236) | (127,532) | (4,704) | 3.7% | ||
OPERATING PROFIT (LOSS) | 273,606 | 191,252 | 82,354 | 43.1% | ||
Net impairment losses on loans and provisions for guarantees and commitments | (3,670) | (146) | (3,524) | 2413.7% | ||
NET OPERATING PROFIT (LOSS) | 269,936 | 191,106 | 78,030 | 41.2% | ||
Other charges and provisions | (7,636) | (3,836) | (3,800) | 99.1% | ||
Net income from investments | (3,818) | 5,805 | (9,623) | -165.8% | ||
PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS | 258,482 | 193,075 | 65,407 | 33.9% | ||
Income tax for the period | (78,308) | (58,961) | (19,347) | 32.8% | ||
NET PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS | 180,174 | 134,114 | 46,060 | 34.3% | ||
PROFIT (LOSS) FOR THE PERIOD | 180,174 | 134,114 | 46,060 | 34.3% | ||
PROFIT (LOSS) FOR THE PERIOD ATTRIBUTABLE TO THE GROUP | 180,174 | 134,114 | 46,060 | 34.3% |
Net interest
Net interest in first half 2020 amounted to € 138.2 million, down by 2.5% on same period the previous year, due mainly to the fall in market interest rates, partially offset by the positive contribution of the increase in volumes, the growth in lending, and more dynamic treasury management. In this regard it should be noted that the structure of the investments carried out by the Group contributed to maintaining a significant level of interest income, with the average gross margin on interest-earning assets at 1.06% (1.20% at June 30th, 2019). The net interest item also included the income generated by the securities lending activity carried out by the Parent Company's treasury, which started in the first half of 2020, for an amount of € 0.8 million.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 63
Consolidated interim report on operations
Income Statement Figures
(Amounts in € thousand)
Interest Income | 1st Half | Changes | |||||||||
2020 | 2019 | Amount | % | ||||||||
Financial Assets held for trading | - | 1 | (1) | -100.0% | |||||||
Financial assets at fair value through comprehensive income | 794 | 1,653 | (859) | -52.0% | |||||||
Other financial assets mandatorily at fair value | 1 | 2 | (1) | -50.0% | |||||||
Financial assets at amortised cost - Debt securities issued by banks | 55,205 | 70,321 | (15,116) | -21.5% | |||||||
Financial assets at amortised cost - Debt securities issued by customers | 62,323 | 42,415 | 19,908 | 46.9% | |||||||
Financial assets at amortised cost - Loans and receivables with banks | 343 | 6,405 | (6,062) | -94.6% | |||||||
Financial assets at amortised cost - Loans and receivables with customers | 32,133 | 30,821 | 1,312 | 4.3% | |||||||
Hedging derivatives | (8,880) | (3,224) | (5,656) | 175.4% | |||||||
Other assets | - | 12 | (12) | -100.0% | |||||||
Financial liabilities | 2,324 | 1,658 | 666 | 40.1% | |||||||
Income from Treasury activity | 830 | - | 830 | 0.0% | |||||||
Total interest income | 145,073 | 150,064 | (4,991) | -3.3% | |||||||
(Amounts in € thousand) | |||||||||||
Interest Expenses | 1st Half | Changes | |||||||||
2020 | 2019 | Amount | % | ||||||||
Financial liabilities at amortised cost - Deposits from banks | (116) | (74) | (42) | 56.8% | |||||||
Financial liabilities at amortised cost - Deposits from customers | (5,266) | (6,704) | 1,438 | -21.5% | |||||||
Financial assets | (1,462) | (1,519) | 57 | -3.8% | |||||||
Total interest expenses | (6,844) | (8,297) | 1,453 | -17.5% | |||||||
Net interest | 138,229 | 141,767 | (3, 538) | -2.5% |
Interest income on Financial assets measured at amortized cost - Debt securities issued by banks mainly refer to interest accrued on bonds issued by UniCredit S.p.A.. The decrease is mainly due to the reduction in volumes due to the repayment of securities maturing or repurchased by UniCredit S.p.A..
Interest income on Financial assets measured at amortized cost - Debt securities issued by customers refer to interest accrued on government and supranational institution securities. The increase is attributable to the growth in volumes due to purchases made during the period.
Interest income on financial liabilities mainly refers to interest recognized on repurchase agreements carried out on the MTS market, while interest expense on financial assets mainly refers to interest recognized on initial margins and guarantee deposits paid for operations in derivatives and on financial markets and on securities lending transactions guaranteed by sums of money with institutional customers.
64 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Income Statement Figures
The following table provides a breakdown of interest income associated with banks and customers recorded in "Financial assets at amortised cost":
(Amounts in € thousand)
Breakdown of interest income | 1st Half | Changes | ||||
2020 | 2019 | Amount | % | |||
Interest income on loans and receivables with banks | 343 | 6,405 | (6,062) | -94.6% | ||
- current accounts | - | 5,802 | (5,802) | -100.0% | ||
- reverse repos | 13 | 14 | (1) | -7.1% | ||
- time deposits | - | 548 | (548) | -100.0% | ||
- other loans | 330 | 41 | 289 | 704.9% | ||
Interest income on loans and receivables with customers | 32,132 | 30,821 | 1,311 | 4.3% | ||
- current accounts | 6,988 | 6,077 | 911 | 15.0% | ||
- reverse repos | 5,318 | 6,060 | (742) | -12.2% | ||
- mortgages | 8,596 | 7,125 | 1,471 | 20.6% | ||
- credit cards | 2,338 | 2,412 | (74) | -3.1% | ||
- personal loans | 8,859 | 9,095 | (236) | -2.6% | ||
- other loans | 33 | 52 | (19) | -36.3% | ||
Interest income on loans and receivables with banks amounted to € 0.3 million, down 94.6% compared to first half 2019. The decrease was attributable to the lower interest recorded on the liquidity in foreign currency held by credit institutions, in particular UniCredit S.p.A..
Interest income on loans and receivables with customers amounted to € 32.1 million, showing an increase of 4.3% compared to first half of the previous year, thanks to higher interest on mortgages and usage of current account, partially offs by the reduction in the interest income on personal loans and in the reverse repo transactions, in particular "Multiday leverage" transactions, which during the first half recorded a decrease in volumes due to the situation on the financial markets due to the pandemic from COVID-19
The following table provides a breakdown of interest expenses related to banks and customers recorded in "Financial liabilities at amortised cost":
(Amounts in € thousand)
Breakdown of interest expenses | 1st Half | Changes | ||||
2020 | 2019 | Amount | % | |||
Interest expenses on deposits from banks | (116) | (74) | (42) | 56.8% | ||
- current accounts | (44) | (35) | (9) | 25.7% | ||
- other loans | (13) | (11) | (2) | 18.2% | ||
- lease liabilities | (59) | (28) | (31) | 110.7% | ||
Interest expenses on deposits from customers | (5,266) | (6,704) | 1,438 | -21.5% | ||
- current accounts | (4,788) | (6,279) | 1,491 | -23.7% | ||
- time deposits | (3) | (9) | 6 | -66.7% | ||
- lease liabilities | (475) | (416) | (59) | 14.2% | ||
Interest expenses on deposits from banks amounted to € 0.1 million and do not show significant changes compared to the same period of the previous year.
Interest expenses on deposits from customers came to € 5.3 million, down 21.5% compared to the same period of the previous year, thanks to lower interest expenses on customer current accounts.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 65
Consolidated interim report on operations
Income Statement Figures
Income from brokerage and other income
(Amounts in € thousand)
1st Half | Changes | |||||
2020 | 2019 | Amounts | % | |||
Net interest | 138,229 | 141,767 | (3,538) | -2.5% | ||
Net fee and commission income | 209,739 | 158,643 | 51,096 | 32.2% | ||
Net trading, hedging and fair value income | 56,482 | 17,837 | 38,645 | 216.7% | ||
Net other expenses/income | 1,392 | 537 | 855 | 159.2% | ||
OPERATING INCOME | 405,842 | 318,784 | 87,058 | 27.3% |
Net fee and commission income
(Amounts in € thousand)
Management reclassification | 1st Half | Changes | |||||||
2020 | 2019 | Amount | % | ||||||
Brokerage | 73,136 | 36,532 | 36,604 | 100,2% | |||||
of which: | |||||||||
Equity | 60,989 | 30,289 | 30,700 | 101,4% | |||||
Bond | 4,827 | 1,836 | 2,991 | 162,9% | |||||
Derivatives | 8,222 | 4,455 | 3,767 | 84,6% | |||||
Other commissions | (902) | (48) | (854) | 1779,2% | |||||
Investing | 117,892 | 111,826 | 6,066 | 5,4% | |||||
of which: | |||||||||
Placement fees | 3,056 | 2,471 | 585 | 23,7% | |||||
Management fees | 120,767 | 116,802 | 3,965 | 3,4% | |||||
other to PFA's | (5,931) | (7,447) | 1,516 | -20,4% | |||||
Banking | 19,119 | 10,047 | 9,072 | 90,3% | |||||
Other | (408) | 238 | (646) | -271,4% | |||||
Total | 209,739 | 158,643 | 51,096 | 32,2% |
Net fee and commission income increased by € 51.1 million compared to the first half of the previous year, mainly due to the commissions generated by the Brokerage segment (+€ 36.6 million), driven by a highly volatile market, an increase in the proportion of the Bank's customers active in the Brokerage segment and the review of the offer, as well as the commissions generated by the Banking segment (+€ 9.1 million), driven in particular by the change in the monthly cost of keeping euro-denominated current accounts, which took effect from February 2020. It should be noted that this item includes the account maintenance fees that - whose introduction is subject of the proceedings brought against the Bank in December 2019 by the Italian Antitrust Authority (AGCM). Taking into account the outcome of the hearings and discussions with the abovementioned Authority, the Bank
- while maintaining that it acted properly - decided to pay back customers affected by this commercial practice, for an estimated amount of € 4 million as at June 30th, 2020 (already recognised under the item Provisions for risks and charges, to which readers should refer). Despite the tough market environment, commissions generated by the Investing segment also increased (+€ 6.1 million), thanks to the continuous improvement of the offer and the quality of sales. In the first half of 2020, the subsidiary Fineco AM generated net commissions of € 32.4 million.
Net trading, hedging and fair value income was mainly generated by profits realised by the Brokerage segment, which includes internalisation of securities and regulated/OTC derivatives, financial instruments used for operational hedging of securities and internalised derivatives and the exchange differences on assets and liabilities denominated in currency; it was up € 31.2 million compared to the first half of the previous year, driven by financial-market volatility in the first half of 2020, which resulted in an increase of over 180% in internalised volumes. This result also includes the income components from financial instruments recognised under "Other financial assets that must be designated at fair value", which include the Visa INC class "C" preferred shares and the equity exposure accounted for the contributions paid to the Voluntary Scheme established by the National Interbank Deposit Guarantee Fund, whose fair-value measurements respectively generated, in the first half of 2020, a gain of € 0.06 million (+€ 1.9 million in the first half of 2019) and a loss of € 1.2 million (-€ 4.8 million in the first half of 2019). Finally, there are the net profits generated by the sale of government bonds recognised under "financial assets at fair value through other comprehensive income", amounting to € 1.8 million (€ 0.7 million in the first half of 2019), and recognised under "Financial assets at amortised cost", amounting to € 7 million (€ 2.1 million in the first half of 2019, including securities issued by UniCredit).
66 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Income Statement Figures
The balance of Net other expenses/income is positive for € 1.4 million euros and shows an increase of 0.9 million euros compared to the same period of the previous year, mainly thanks to higher insurance reimbursements received in the first half of 2020.
Operating costs
(Amounts in € thousand)
1st Half | Changes | |||||
2020 | 2019 | Amount | % | |||
Staff expenses | (48,893) | (44,097) | (4,796) | 10.9% | ||
Other administrative expenses | (123,338) | (123,742) | 404 | -0.3% | ||
Recovery of expenses | 52,263 | 50,817 | 1,446 | 2.8% | ||
Impairment/write-backs on intangible and tangible assets | (12,268) | (10,510) | (1,758) | 16.7% | ||
Total operating costs | (132,236) | (127,532) | (4,704) | 3.7% | ||
Operating costs show an increase compared to the same period of the previous year (+3.7%) growth that is however contained with respect to the expansion of activities, masses, customers, structure and staff, confirming the Group's strong operating leverage and the widespread corporate culture in terms of cost governance.
Staff expenses amounted to € 48.9 million, of which € 2 million relating to staff expenses of Fineco AM, increasing by 10.9% compared to first half of the previous year, thanks to continuous growth of the operating structure. In fact, the number of employees rose from 1,176 units as at June 30, 2019 to 1,244 resources as at June 30, 2020.
(Amounts in € thousand)
Staff expenses | 1st Half | Changes | ||||
2020 | 2019 | Amount | % | |||
1) Employees | (47,985) | (43,401) | (4,584) | 10.6% | ||
- wages and salaries | (32,380) | (29,955) | (2,425) | 8.1% | ||
- social security contributions | (8,483) | (7,577) | (906) | 12.0% | ||
- provision for employee severance pay | (434) | (420) | (14) | 3.3% | ||
- allocation to employee severance pay provision | (33) | (63) | 30 | -47.6% | ||
- payment to supplementary external pension funds: | (2,181) | (1,786) | (395) | 22.1% | ||
a) defined contribution | (2,181) | (1,786) | (395) | 22.1% | ||
- costs related to share-based payments* | (1,881) | (1,621) | (260) | 16.0% | ||
- other employee benefits | (2,593) | (1,979) | (614) | 31.0% | ||
2) Directors and statutory auditors | (818) | (656) | (162) | 24.7% | ||
3) Recovery of expenses for employees seconded to other companies | 1 | 94 | (93) | -98.9% | ||
4) Recovery of expenses for employees seconded to the company | (91) | (134) | 43 | -32.1% | ||
Total staff expenses | (48,893) | (44,097) | (4,796) | 10.9% | ||
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 67
Consolidated interim report on operations
Income Statement Figures
(Amounts in € thousand)
Other Administrative Expenses and Recovery of expenses | 1st Half | Changes | ||||
2020 | 2019 | Amount | % | |||
1) INDIRECT TAXES AND DUTIES | (55,330) | (52,975) | (2,355) | 4.4% | ||
2) MISCELLANEOUS COSTS AND EXPENSES | (15,745) | (19,951) | 4,206 | -21.1% | ||
A) Advertising expenses - Marketing and communication | (10,189) | (12,303) | 2,114 | -17.2% | ||
Mass media communications | (9,030) | (8,842) | (188) | 2.1% | ||
Marketing and promotions | (893) | (2,655) | 1,762 | -66.4% | ||
Sponsorships | (219) | (37) | (182) | 491.9% | ||
Conventions and internal communications | (47) | (769) | 722 | -93.9% | ||
B) Expenses related to credit risk | (644) | (840) | 196 | -23.3% | ||
Credit recovery expenses | (107) | (307) | 200 | -65.1% | ||
Commercial information and company searches | (537) | (533) | (4) | 0.8% | ||
C) Expenses related to personnel | (11,044) | (11,887) | 843 | -7.1% | ||
Personnel training | (253) | (296) | 43 | -14.5% | ||
Car rental and other staff expenses | (11) | (39) | 28 | -71.8% | ||
Personal financial adviser expenses | (10,560) | (11,036) | 476 | -4.3% | ||
Travel expenses | (192) | (487) | 295 | -60.6% | ||
Premises rentals for personnel | (28) | (29) | 1 | -3.4% | ||
D) ICT expenses | (20,977) | (18,346) | (2,631) | 14.3% | ||
Lease of ICT equipment and software | (1,473) | (1,255) | (218) | 17.4% | ||
Software expenses: lease and maintenance | (5,448) | (4,847) | (601) | 12.4% | ||
ICT communication systems | (3,713) | (3,385) | (328) | 9.7% | ||
ICT services: external personnel/outsourced services | (3,745) | (3,504) | (241) | 6.9% | ||
Financial information providers | (6,598) | (5,355) | (1,243) | 23.2% | ||
E) Consultancies and professional services | (1,907) | (2,154) | 247 | -11.5% | ||
Consultancy on ordinary activities | (1,616) | (1,152) | (464) | 40.3% | ||
Consultancy for strategy, business development and organisational optimisation | (154) | (503) | 349 | -69.4% | ||
Legal expenses | (70) | (260) | 190 | -73.1% | ||
Legal disputes | (67) | (239) | 172 | -72.0% | ||
F) Real estate expenses | (2,382) | (4,247) | 1,865 | -43.9% | ||
Real estate services | (84) | (250) | 166 | -66.4% | ||
Repair and maintenance of furniture, machinery, and equipment | (79) | (135) | 56 | -41.5% | ||
Maintenance of premises | (524) | (992) | 468 | -47.2% | ||
Premises rentals | (483) | (1,421) | 938 | -66.0% | ||
Cleaning of premises | (313) | (289) | (24) | 8.3% | ||
Utilities | (899) | (1,160) | 261 | -22.5% | ||
G) Other functioning costs | (19,831) | (19,882) | 51 | -0.3% | ||
Surveillance and security services | (99) | (202) | 103 | -51.0% | ||
Postage and transport of documents | (1,534) | (1,971) | 437 | -22.2% | ||
Administrative and logistic services | (7,718) | (8,737) | 1,019 | -11.7% | ||
Insurance | (1,815) | (1,756) | (59) | 3.4% | ||
Printing and stationery | (258) | (181) | (77) | 42.5% | ||
Association dues and fees | (7,322) | (6,779) | (543) | 8.0% | ||
Other administrative expenses | (1,085) | (255) | (830) | 325.5% | ||
H) Adjustments of leasehold improvements | (1,034) | (1,109) | 75 | -6.8% | ||
I) Recovery of costs | 52,263 | 50,817 | 1,446 | 2.8% | ||
Recovery of ancillary expenses | 50 | 82 | (32) | -39.0% | ||
Recovery of taxes | 52,213 | 50,735 | 1,478 | 2.9% | ||
Total other administrative expenses and recovery of expenses | (71,075) | (72,925) | 1,850 | -2.5% | ||
Other administrative expenses net of Recovery of expenses came to € 71.1 million, of which € 2 million relating to Fineco AM, with a reduction of
- 1.8 million compared to first half of the previous year.
68 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Income Statement Figures
There is an increase relating to the "ICT expenses", in particular higher "Software expenses: lease and maintenance" for € 0.6 million, "ICT
communication systems" for € 0.3 million, "ICT services: external personnel/outsourced services" for € 0.2 million and "Financial information providers" for € 1.2 million, in addition to an increase, within the item "Other functioning costs", of the " Association dues and fees " for € 0.5 million, attributable to higher Enasarco contributions and contributions to trade associations, and the "Other administrative expenses" for € 0.8 million, attributable to higher costs connected with the performance of the Shareholders' Meeting and the renewal of the Board of Directors.
At the same time, there was a reduction in the "A) Advertising expenses - Marketing and communication" of € 2.1 million, in the " Expenses related to personnel " of € 0.8 million, attributable to the "Personal financial advisor expenses" and "Travel expenses"," Real estate expenses "for € 1.9 million and "Administrative and logistic services", under the item "Other functioning costs ", for € 1 million, due to the internalisation some services, including the internal audit function from May 2019.
Impairment/write-backs on intangible and tangible assets show an increase of € 1.8 million mainly referred to the depreciation recognized on the rights of use of the lease contracts entered among tangible assets, for an amount of € 1.2 million, and the depreciation on software and electronic machines, for an amount of € 0.5 million.
Profit/(loss) before tax from continuing operations
(Amounts in € thousand)
1st Half | Changes | |||||
2020 | 2019 | Amount | % | |||
OPERATING PROFIT (LOSS) | 273,606 | 191,252 | 82,354 | 43.1% | ||
Net impairment losses on loans and provisions for guarantees and commitments | (3,670) | (146) | (3,524) | n.c. | ||
NET OPERATING PROFIT (LOSS) | 269,936 | 191,106 | 78,830 | 41.2% | ||
Other charges and provisions | (7,636) | (3,836) | (3,800) | 99.1% | ||
Net income from investments | (3,818) | 5,805 | (9,623) | -165.8% | ||
PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS | 258,482 | 193,075 | 65,407 | 33.9% |
Loan loss provisions in the first half of 2020 stood at € -3.7 million (-0.1 million in the first half of 2019) and were affected by the change in the macroeconomic scenarios used in the calculation of LLPs at June 30th, 2020 fro Expected Credit Losses. As described above in "Significant events during the period", when assessing performing credit exposures at June 30th, 2020, the Group considered an updated macroeconomic scenario to take into account the effects of the crisis arising from the COVID-19 pandemic. The updated macroeconomic scenarios led to € 0.3 million in LLPs. As regards other counterparties, the updated macroeconomic scenarios led to LLPs of € 0.8 million, recognised using IFRS 9 impairment models and their post-model overlay and adjustment. It should also be noted that at June 30th, 2019, the Group had recorded writebacks of approximately € 2.3 million with respect to the counterparty UniCredit S.p.A., thanks to both a reduction in exposures and an improvement in the counterparty's risk profile, as a result of the financial guarantee received under the Pledge Agreement entered into following the exit of FinecoBank from the UniCredit Banking Group.
Provisions for risks and charges amounted to -€ 7.6 million, increasing on the -€ 3.8 million recorded in the first half of 2019. During the first half of 2020 the ordinary annual contribution required for the 2020 financial year under Directive 2014/59/EU (Single Resolution Fund) was recognised in the amount of € 0.7 million (no contribution had been requested for the 2019 financial year). In June 2020, the Bank of Italy called in additional contributions to the National Resolution Fund pursuant to Art. 1, paragraph 848 of Law 208/2015. The contribution payable by the Bank was € 0.2 million. At June 30, 2020 the Provisions for risks and charges includes in addition a provision made by tha Bank in relation to the proceedings initiated against itself in December 2019 by the Italian Antitrust Authority (AGCM). In this regard, it should be noted that on December 20th, 2019, the Bank received notice from the AGCM that it had initiated proceedings to assess the compliance with the Consumer Code (Legislative Decree 206/2005) of a commercial practice that the Bank had previously used to encourage people to open current accounts. During the first half of 2020, FinecoBank - on the advice of its lawyers - provided the AGCM with all the information required for the purposes of the assessment within the prescribed time limits, explaining the reasons why it believes it has operated correctly. Taking into account the outcome of the hearings and discussions with the AGCM, the Bank - while maintaining that it acted properly - decided to pay back customers affected by this commercial practice (the monthly account maintenance fees) charged in 2020 and to not apply these fees until December 31, 2020.
Pending the AGCM's decisions on the proposals made by the Bank, this substantial commitment taken by the Bank at the reporting date has been covered by a specific allocation to the Provision for risks and charges as at June 30th, 2020 in the amount of € 4 million. If the above proposal is accepted, this amount will be paid to the customers concerned during the second half of 2020 by promptly repaying the fees charged to them from February 1st, 2020.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 69
Consolidated interim report on operations
Income Statement Figures
Profit from investments showed a loss of € 3.8 million, down € 9.6 million on the first half of 2020. As described above, when assessing performing credit exposures at June 30th, 2020, the Group considered an updated macroeconomic scenario to take into account the effects of the crisis arising from the COVID-19 pandemic. Regarding exposures to bond issuers, where the greatest impact was on sovereign exposures, the updated macroeconomic scenarios led to additional provisions of € 3.6 million, recognised using IFRS 9 impairment models and their post-model overlay and adjustment. It should also be noted that at June 30th, 2019, the Group had recorded writebacks of approximately € 6.5 million with respect to the issuer UniCredit S.p.A., thanks to both a reduction in exposures in debt securities and an improvement in the issuer's risk profile, as a result of the financial guarantee received under the Pledge Agreement entered into following the exit of FinecoBank from the UniCredit Banking Group.
Profit (loss) before tax from continuing operations amounted to a profit of € 258.5 million, increasing by 33.9% on the first half of the prior year, owing in particular to the increase in Net commissions and Net trading, hedging and fair value income. Excluding non-recurring items in the first half of 2020 as previously described18, profit before tax from continuing operations would have been € 259.7 million, up 31.3% compared to the first half of 2019 (also net of non-recurring items19).
Income tax for the period
(Amounts in € thousand) | |||||||
Income tax for the year | 1st Half | Changes | |||||
2020 | 2019 | Amount | % | ||||
Current IRES income tax charges | (44,435) | (44,404) | (31) | 0.1% | |||
Current IRAP corporate tax charges | (10,446) | (9,910) | (536) | 5.4% | |||
Current foreign corporate tax charges | (3,550) | (3,259) | (291) | 8.9% | |||
Total current tax | (58,431) | (57,573) | (858) | 1.5% | |||
Change in deferred tax assets | (19,991) | (2,499) | (17,492) | 700.0% | |||
Change in deferred tax liabilities | 114 | 1,309 | (1,195) | -91.3% | |||
Total deferred tax liabilities | (19,877) | (1,190) | (18,687) | 1570.3% | |||
Goodwill redemption substitute tax | - | (198) | 198 | -100.0% | |||
Income tax for the year | (78,308) | (58,961) | (19,347) | 32.8% | |||
Income tax for the year were calculated according to the legal provisions introduced by Legislative Decree no. 38 of February 28, 2005, which incorporated the IAS/IFRS Accounting Standards into Italian legislation, of Decree no. 48 of April 1, 2009 which introduced provisions for the implementation and coordination of tax requirements for IAS Adopter parties and subsequent provisions.
Current taxes were determined applying an IRES income tax rate of 27.5% (24% ordinary rate and 3.5% additional rate for banks) and an IRAP tax rate of 5.57% in Italy.
As regards Fineco AM, current income taxes were calculated at a rate of 12.5%, according to the currently applicable tax regime.
Law 190/2014, as amended by art. 5 of Decree-Law 3/2015, introduced the Patent Box regime into Italian law, with effect from the tax period following the one in progress as at 31 December 2014. The Patent Box is an optional regime for reduced taxation of income derived from the use (direct or indirect) of legally protectable intellectual property, industrial patents, trademarks, designs and models, processes, formulas and information relating to experience acquired in the industrial, commercial or scientific field.
The tax break consists of the exclusion of 50% of the income deriving from these intangible assets from the IRES and IRAP tax base. The exclusion percentage was 30% for the tax period after the one in progress as at 31 December 2014 and 40% for the tax period after the one in progress as at 31 December 2015. The option is irrevocable, has a duration of five financial years and is renewable.
In 2015, FinecoBank applied for its software and trademark to be admitted to the Patent Box for the five-year period 2015-2019.
In early 2020, an arrangement was reached with the Prior Agreements and International Disputes Office of the Italian Revenue Agency on the methodology to be used for the calculation of the income deriving from the intangible assets that were the subject of the application.
- Change in the fair value of the equity exposure to the Voluntary Scheme set up by the Interbank Deposit Guarantee Fund totalling -€1.2 million (-€0.8 million net of tax effect).
- Change in the fair value of the equity exposure to the Voluntary Scheme set up by the Interbank Deposit Guarantee Fund totalling -€4.8 million (-€3.2 million net of tax effect).
70 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Income Statement Figures
In terms of renewal of the Patent Box for the next five years 2020-2024, the software aspect is expected to be renewed, but the trademark has been excluded by express provision of law.
Net profit/(loss) for the period and Net profit/(loss) attributable to the Group
The Net profit (loss) for the period - which is the same as the net profit (loss) attributable to the Group as Fineco AM is 100% controlled by the Bank
- amounted to € 180.2 million, with an increase of 34.3% on first half of the previous year. Excluding the non-recurring items accounted for first half 2020 mentioned before, the Net profit for the period should be € 181 million, up 30.1% compared to the net profit of first half 2019 net of non-recurring items.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 71
Consolidated interim report on operations
Results of the parent and the subsidiary
The parent: FinecoBank S.p.A.
Results of the parent and the subsidiary
The key figures, reclassified Balance sheet and Income statement are shown below in comparison with those of the 2019 financial year and a report on the results achieved by FinecoBank S.p.A. at individual level is shown as well.
Key figures
Operating structure
Data as at | |||
06/30/2020 | 12/31/2019 | 06/30/2019 | |
No. Employees | 1,214 | 1,201 | 1,144 |
No. Personal financial advisors | 2,569 | 2,541 | 2,566 |
No. Financial shops ¹ | 399 | 396 | 394 |
(1) Number of operating financial shops: financial shops managed by the Bank and financial shops managed by personal financial advisors (Fineco Centers).
Main balance sheet figures
(Amounts in € thousand)
Amounts | Changes | |||||
06/30/2020 | 12/31/2019 | Amounts | % | |||
Loans receivable with ordinary customers ⁽¹⁾ | 3,765,567 | 3,263,940 | 501,627 | 15.4% | ||
Total assets | 29,376,269 | 27,996,389 | 1,379,880 | 4.9% | ||
Direct deposits ² | 26,077,316 | 25,589,652 | 487,664 | 1.9% | ||
Assets under administration ³ | 56,569,091 | 55,829,163 | 739,928 | 1.3% | ||
Total customers sales (direct and indirect) | 82,646,407 | 81,418,815 | 1,227,592 | 1.5% | ||
Shareholders' equity | 1,529,701 | 1,366,876 | 162,825 | 11.9% | ||
- Loans refer solely to loans granted to customers (current account overdrafts, credit cards, personal loans, mortgages and unsecured loans);
(2) Direct deposits include overdrawn current accounts and the Cash Park deposit account;
(3) Assets under administration consist of products placed online or through the sales networks of FinecoBank.
72 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Results of the parent and the subsidiary
The parent: FinecoBank S.p.A.
Balance Sheet indicators
Data as at | |||
06/30/2020 | 12/31/2019 | ||
Loans receivable with ordinary customers/Total assets | 12.82% | 11.66% | |
Loans and receivables with banks/Total assets | 2.39% | 1.96% | |
Financial assets/Total assets | 78.12% | 79.68% | |
Direct sales/Total liabilities and Shareholders' equity | 88.77% | 91.40% | |
Shareholders' equity (including profit)/Total liabilities and Shareholders' equity | 5.21% | 4.88% | |
Ordinary customer loans/Direct deposits | 14.44% | 12.75% | |
Credit quality | Data as at | ||
06/30/2020 | 12/31/2019 | ||
Non-performing loans/Loans receivable with ordinary customers | 0.12% | 0.11% | |
Bad loans/Loans receivable with ordinary customers | 0.05% | 0.05% | |
Coverage ¹ - Bad loans | 90.90% | 91.39% | |
Coverage ¹ - Unlikely to pay | 67.94% | 68.01% | |
Coverage ¹ - Impaired past-due exposures | 49.41% | 65.45% | |
Coverage ¹ - Total Non-performing loans | 82.80% | 85.92% | |
(1) Calculated as the ratio between the amount of impairment losses and gross exposure.
Own funds and capital ratios
(Amounts in € thousand) | ||
Data as at | ||
06/30/2020 | 12/31/2019 | |
Common Equity Tier 1 (€ thousand) | 791,188 | 567,638 |
Total own funds (€ thousand) | 1,291,188 | 1,067,638 |
Total risk-weighted assets (€ thousand) | 3,355,223 | 3,187,485 |
Ratio - Common Equity Tier 1 Capital | 23.58% | 17.81% |
Ratio - Tier 1 Capital | 38.48% | 33.49% |
Ratio - Total Own Funds | 38.48% | 33.49% |
(Amounts in € thousand) | ||
Data as at | ||
06/30/2020 | 12/31/2019 | |
Tier 1 Capital (€ thousand) | 1,291,188 | 1,067,638 |
Exposure for leverage (€ thousand) | 29,832,569 | 28,125,725 |
Transitional leverage ratio | 4.33% | 3.80% |
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 73
Consolidated interim report on operations
Results of the parent and the subsidiary
The parent: FinecoBank S.p.A.
The prudential supervisory requirements of the Bank at 30 June 2020 were determined on the basis of the harmonized regulation for banks and investment firms contained in Directive 2013/36/ EU (CRD IV) and in Regulation (EU) 575/2013 (CRR ) of June 26, 2013 and subsequent Directives/Regulations that modify the content, which transpose the standards defined by the Basel Committee for banking supervision (so-called Basel 3 framework), collected and implemented by the Bank of Italy through the Circular no. 285 of 17 December 2013 "Supervisory provisions for banks" and subsequent updates.
On 26 June 2020, Regulation 2020/873 of the EU Parliament and of the Council amending the CRR was published, making a number of adjustments to the prudential framework in the light of the health emergency Covid-19. For further details on the contents of the Regulation, see Part F - Consolidated shareholders' equity - Section 2 - Own funds and bank supervisory ratios of the Notes to the accounts
Own funds as at June, 30 2020 are equal to €1,291.2 million, including part of the profit of the first half 2020, allocated to increase the value of the reserves, for an amount equal to €34.6 million, assuming the conditions set out in art. 26, paragraph 2, of EU Regulation 575/2013 (CRR), and the whole amount of 2019 profits equal to € 285.9 million.
It should be noted that on 6 April 2020 the Board of Directors of FinecoBank S.p.A, taking into account the Recommendations of the European Central Bank and the Bank of Italy issued on 27 March 2020 on dividend policy in the context of the COVID-19, in full compliance with the relevant regulations and the best consolidated practice, resolved to revoke the proposal to distribute the dividend on 2019 profits, for a total amount of 195,052,000 euros, made by the Board of Directors on 11 February 2020, and therefore resolved to propose to the Shareholders' Meeting to allocate the all 2019 result to reserves. This proposal was approved by the FinecoBank Shareholders' Meeting held on 28 April 2020.
The increase in risk-weighted assets during the first half 2020 is mainly due to credit risk due to the growth of the business, in particular to the growth of lending activity to customers and investments in covered bonds and counterparty risk due to unsecured lending.
It should be noted that as of 30 June 2020, the SREP process conducted by the Bank of Italy is underway which will lead to the definition of a second Pillar requirement that the FinecoBank Group will have to comply with.
The following is a summary of the transitional capital requirements and reserves for FinecoBank required as of June 2020.
Requirements | CET1 | T1 | Total capital | |
A) Pillar 1 requirements | 4.50% | 6.00% | 8.00% | |
B) Pillar 2 requirements | 0.00% | 0.00% | 0.00% | |
C) TSCR (A+B) | 4.50% | 6.00% | 8.00% | |
D) Combined Buffer requirement, of which: | 2.517% | 2.517% | 2.517% | |
1. | Capital Conservation Buffer (CCB) | 2.500% | 2.500% | 2.500% |
2. | Institution-specific Countercyclical Capital Buffer (CCyB) | 0.017% | 0.017% | 0.017% |
E) Overall Capital Requirement (C+D) | 7.017% | 8.517% | 10.517% |
As at 30 June 2020, the Fineco Bank ratios are compliant with all the above requirements.
74 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Results of the parent and the subsidiary
The parent: FinecoBank S.p.A.
Condensed Accounts
Balance sheet
(Amounts in € thousand) | |||||||||||
Amounts as at | Changes | ||||||||||
ASSETS | 06/30/2020 | 12/31/2019 | Amounts | % | |||||||
Cash and cash balances | 909,802 | 754,386 | 155,416 | 20.6% | |||||||
Financial assets held for trading | 14,591 | 7,933 | 6,658 | 83.9% | |||||||
Loans and receivables with banks | 700,897 | 549,632 | 151,265 | 27.5% | |||||||
Loans and receivables with customers | 4,190,202 | 3,668,933 | 521,269 | 14.2% | |||||||
Financial investments | 22,949,188 | 22,307,025 | 642,163 | 2.9% | |||||||
Hedging instruments | 75,577 | 64,939 | 10,638 | 16.4% | |||||||
Property, plant and equipment | 152,631 | 150,925 | 1,706 | 1.1% | |||||||
Goodwill | 89,602 | 89,602 | - | - | |||||||
Other intangible assets | 36,406 | 37,280 | (874) | -2.3% | |||||||
Tax assets | 3,824 | 23,450 | (19,626) | -83.7% | |||||||
Other assets | 253,549 | 342,284 | (88,735) | -25.9% | |||||||
Total assets | 29,376,269 | 27,996,389 | 1,379,880 | 4.9% | |||||||
(Amounts in € thousand) | |||||||||||
Amounts as at | Changes | ||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | 06/30/2020 | 12/31/2019 | Amounts | % | |||||||
Deposits from banks | 113,137 | 154,653 | (41,516) | -26.8% | |||||||
Deposits from customers | 27,014,501 | 25,912,444 | 1,102,057 | 4.3% | |||||||
Financial liabilities held for trading | 8,209 | 3,777 | 4,432 | 117.3% | |||||||
Hedging instruments | 207,116 | 94,950 | 112,166 | 118.1% | |||||||
Tax liabilities | 62,928 | 11,344 | 51,584 | 454.7% | |||||||
Other liabilities | 440,677 | 452,345 | (11,668) | -2.6% | |||||||
Shareholders' equity | 1,529,701 | 1,366,876 | 162,825 | 11.9% | |||||||
- capital and reserves | 1,358,387 | 1,079,983 | 278,404 | 25.8% | |||||||
- revaluation reserves | 1,485 | 1,002 | 483 | 48.2% | |||||||
- net profit | 169,829 | 285,891 | (116,062) | -40.6% | |||||||
Total liabilities and Shareholders' equity | 29,376,269 | 27,996,389 | 1,379,880 | 4.9% |
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 75
Consolidated interim report on operations
Results of the parent and the subsidiary
The parent: FinecoBank S.p.A.
Balance sheet - Quarterly data
(Amounts in € thousand)
Amount sas at | |||||||||
ASSETS | 06/30/2020 | 03/31/2020 | 12/31/2019 | 09/30/2019 | 06/30/2019 | ||||
Cash and cash balances | 909,802 | 1,177,380 | 754,386 | 1,208,686 | 1,230,599 | ||||
Financial assets held for trading | 14,591 | 12,888 | 7,933 | 10,592 | 7,475 | ||||
Loans and receivables with banks | 700,897 | 598,329 | 549,632 | 784,595 | 686,998 | ||||
Loans and receivables with customers | 4,190,202 | 3,724,733 | 3,668,933 | 3,559,459 | 3,397,711 | ||||
Financial investments | 22,949,188 | 23,403,670 | 22,307,025 | 21,522,414 | 19,914,762 | ||||
Hedging instruments | 75,577 | 76,454 | 64,939 | 71,941 | 49,365 | ||||
Property, plant and equipment | 152,631 | 151,884 | 150,925 | 147,476 | 142,607 | ||||
Goodwill | 89,602 | 89,602 | 89,602 | 89,602 | 89,602 | ||||
Other intangible assets | 36,406 | 36,854 | 37,280 | 8,535 | 8,521 | ||||
Tax assets | 3,824 | 3,300 | 23,450 | 7,698 | 3,498 | ||||
Other assets | 253,549 | 202,097 | 342,284 | 299,610 | 269,816 | ||||
Total assets | 29,376,269 | 29,477,191 | 27,996,389 | 27,710,608 | 25,800,954 | ||||
(Amounts in € thousand) | |||||||||
Amount sas at | |||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | 06/30/2020 | 03/31/2020 | 12/31/2019 | 09/30/2019 | 06/30/2019 | ||||
Deposits from banks | 113,137 | 330,928 | 154,653 | 188,171 | 206,643 | ||||
Deposits from customers | 27,014,501 | 27,194,669 | 25,912,444 | 25,420,269 | 24,132,042 | ||||
Financial liabilities held for trading | 8,209 | 11,039 | 3,777 | 4,734 | 2,413 | ||||
Hedging instruments | 207,116 | 143,500 | 94,950 | 156,435 | 84,086 | ||||
Tax liabilities | 62,928 | 30,273 | 11,344 | 49,008 | 64,665 | ||||
Other liabilities | 440,677 | 318,295 | 452,345 | 638,728 | 406,256 | ||||
Shareholders' equity | 1,529,701 | 1,448,487 | 1,366,876 | 1,253,263 | 904,849 | ||||
- capital and reserves | 1,358,387 | 1,366,884 | 1,079,983 | 1,087,000 | 787,633 | ||||
- revaluation reserves | 1,485 | 3,152 | 1,002 | (6,567) | (7,202) | ||||
- net profit | 169,829 | 78,451 | 285,891 | 172,830 | 124,418 | ||||
Total liabilities and Shareholders' equity | 29,376,269 | 29,477,191 | 27,996,389 | 27,710,608 | 25,800,954 |
Cash and cash balances, amounting to € 909.8 million, consisted mainly of the liquidity deposited in the HAM (Home Accounting Model) account with the Bank of Italy, used to manage short-term liquidity.
Loans to banks came to € 700.1 million, an increase of 27.5% compared to December 31st, 2019, driven mainly by higher variation margins paid for derivative dealing. This item also includes cash and cash equivalents with credit institutions held mainly for the settlement of payment transactions and transactions involving own and customers' financial instruments.
Loans to customers came to € 4,190.2 million, up 14.2% compared to December 31st, 2019, thanks to the increase in lending activities. In the first half of 2020, € 78 million in personal loans and € 552 million in mortgages were granted, and € 429 million in current account overdrafts were arranged, with an increase in exposures in current account of € 130 million; this resulted in an overall 15.4% aggregate increase in loans to ordinary customers compared to December 31st, 2019. Non-performing loans net of impairment losses totalled € 4.7 million (€ 3.6 million as at December 31st, 2019), with a coverage ratio of 82.8%. The ratio between the amount of non-performing loans and total loans to ordinary customers came to 0.12% (0.11% as at December 31st, 2019).
76 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Results of the parent and the subsidiary
The parent: FinecoBank S.p.A.
Other financial assets came to € 22,949.2 million, up 2.9% compared to December 31st, 2019. The book value of debt securities issued by UniCredit S.p.A. amounted to € 6,505.8 million, down compared to € 7,501.4 million at December 31st, 2019 due to the redemption of securities maturing during the first half of 2020. Purchases made by the Group during the first half of 2020 mainly involved bonds issued by governments, supranational entities and covered bonds.
Deposits from banks amounted to € 113.1 million, down 26.8% compared to December 31st, 2019, mainly due to a reduction in liabilities represented by current accounts with credit institutions and securities lending transactions secured by sums of money that are fully available to the lender. This item also includes "Lease liabilities" payable to banks, amounting to € 4.9 million, which represent the financial liability corresponding to the present value of the payments due under lease agreements with credit institutions not paid on the reporting date, as required by IFRS 16.
Deposits from customers amounted to € 27,014.5 million, up 4.3% over December 31st, 2019, due to growth in direct deposits from customers and repurchase agreements on the MTS market. The item also includes "Lease liabilities" payable to customers of € 65.6 million, which represents the present value of payments due under lease agreements entered into with parties other than credit institutions that were not paid at the reporting date, as required by IFRS 16.
Equity came to € 1,529.7 million, up € 162.8 million compared to December 31st, 2019, attributable mainly to the profit earned in the first half of 2020. During the first half of 2020, coupons were paid on the AT1 instruments issued by FinecoBank, which, net of taxes, resulted in a reduction in equity of
- 9.9 million.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 77
Consolidated interim report on operations
Results of the parent and the subsidiary
The parent: FinecoBank S.p.A.
Income Statement20
(Amounts in € thousand)
1st Half | Changes | |||||
2020 | 2019 | Amounts | % | |||
Net interest | 138,318 | 141,803 | (3,485) | -2.5% | ||
Dividends and other income from equity investments | 14,224 | 13,110 | 1,114 | 8.5% | ||
Net fee and commission income | 177,360 | 128,795 | 48,565 | 37.7% | ||
Net trading, hedging and fair value income | 56,408 | 17,797 | 38,611 | 217.0% | ||
Net other expenses/income | 1,530 | 562 | 968 | 172.2% | ||
OPERATING INCOME | 387,840 | 302,067 | 85,773 | 28.4% | ||
Staff expenses | (46,871) | (41,940) | (4,931) | 11.8% | ||
Other administrative expenses | (121,375) | (122,258) | 883 | -0.7% | ||
Recovery of expenses | 52,263 | 50,817 | 1,446 | 2.8% | ||
Impairment/write-backs on intangible and tangible assets | (12,142) | (10,394) | (1,748) | 16.8% | ||
Operating costs | (128,125) | (123,775) | (4,350) | 3.5% | ||
OPERATING PROFIT (LOSS) | 259,715 | 178,292 | 81,423 | 45.7% | ||
Net impairment losses on loans and provisions for guarantees and commitments | (3,679) | (150) | (3,529) | n.c. | ||
NET OPERATING PROFIT (LOSS) | 256,036 | 178,142 | 77,894 | 43.7% | ||
Other charges and provisions | (7,636) | (3,836) | (3,800) | 99.1% | ||
Net income from investments | (3,818) | 5,805 | (9,623) | -165.8% | ||
PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS | 244,582 | 180,111 | 64,472 | 35.8% | ||
Income tax for the period | (74,754) | (55,693) | (19,061) | 34.2% | ||
NET PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS | 169,829 | 124,418 | 45,411 | 36.5% | ||
PROFIT (LOSS) FOR THE PERIOD | 169,829 | 124,418 | 45,411 | 36.5% |
20 As described in the "Introduction to the Annual Reports and Accounts", it should be noted that as of December 31, 2019 a chan ge was made in the condensed accounts shown in the Consolidated Report on Operations. In particular dividends and other income on equity investments and equity securities mandatorily at fair value shown in the bala nce sheet item "Dividend income and similar revenue", previously included in the condensed accounts item "Dividends and other income from equity investments", were included in the item "Net trading, hedging and fair value income" in the condensed accounts. For homogeneity, the comparative data relating to the 2019 condensed accounts have also been reclassified. For additional information, reference is made to "Reconciliation of condensed consolidated accounts to mandatory reporting schedule" and to "Reconciliation of condensed accounts to mandatory reporting schedule" of the Annexes.
78 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Results of the parent and the subsidiary
The parent: FinecoBank S.p.A.
Income statement - Quarterly data21
(Amounts in thousand) | |||||||
2020 | |||||||
1st Quarter | 2nd Quarter | ||||||
Net interest | 68,201 | 70,117 | |||||
Dividends and other income from equity investments | - | 14,224 | |||||
Net fee and commission income | 88,304 | 89,056 | |||||
Net trading, hedging and fair value income | 26,322 | 30,086 | |||||
Net other expenses/income | 475 | 1,055 | |||||
OPERATING INCOME | 183,302 | 204,538 | |||||
Staff expenses | (23,194) | (23,677) | |||||
Other administrative expenses | (59,225) | (62,150) | |||||
Recovery of expenses | 23,807 | 28,456 | |||||
Impairment/write-backs on intangible and tangible assets | (5,997) | (6,145) | |||||
Operating costs | (64,609) | (63,516) | |||||
OPERATING PROFIT (LOSS) | 118,693 | 141,022 | |||||
Net impairment losses on loans and provisions for guarantees and commitments | (946) | (2,733) | |||||
NET OPERATING PROFIT (LOSS) | 117,747 | 138,289 | |||||
Other charges and provisions | (1,124) | (6,512) | |||||
Net income from investments | (89) | (3,729) | |||||
PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS | 116,534 | 128,048 | |||||
Income tax for the period | (38,083) | (36,670) | |||||
NET PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS | 78,451 | 91,378 | |||||
PROFIT (LOSS) FOR THE PERIOD | 78,451 | 91,378 | |||||
(Amounts in € thousand) | |||||||
2019 | |||||||
4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter | ||||
Net interest | 69,729 | 69,859 | 71,422 | 70,381 | |||
Dividends and other income from equity investments | 35,191 | - | 13,110 | - | |||
Net fee and commission income | 65,890 | 68,025 | 65,757 | 63,038 | |||
Net trading, hedging and fair value income | 15,318 | 11,492 | 8,066 | 9,731 | |||
Net other expenses/income | 235 | 159 | 368 | 194 | |||
OPERATING INCOME | 186,363 | 149,535 | 158,723 | 143,344 | |||
Staff expenses | (22,604) | (21,523) | (21,161) | (20,779) | |||
Other administrative expenses | (60,372) | (55,230) | (57,938) | (64,320) | |||
Recovery of expenses | 26,582 | 26,669 | 24,227 | 26,590 | |||
Impairment/write-backs on intangible and tangible assets | (6,511) | (5,723) | (5,308) | (5,086) | |||
Operating costs | (62,905) | (55,807) | (60,180) | (63,595) | |||
OPERATING PROFIT (LOSS) | 123,458 | 93,728 | 98,543 | 79,749 | |||
Net impairment losses on loans and provisions for guarantees and commitments | (589) | (1,227) | 1,123 | (1,273) | |||
NET OPERATING PROFIT (LOSS) | 122,869 | 92,501 | 99,666 | 78,476 | |||
Other charges and provisions | (3,536) | (19,780) | (2,856) | (980) | |||
Integration costs | - | - | 2 | (2) | |||
Net income from investments | 1,123 | 449 | 6,463 | (658) | |||
Goodwill impairment | 120,456 | 73,170 | 103,275 | 76,836 | |||
PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS | 120,456 | 73,170 | 103,275 | 76,836 | |||
Income tax for the period | (7,395) | (24,758) | (30,009) | (25,684) | |||
NET PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS | 113,061 | 48,412 | 73,266 | 51,152 | |||
PROFIT (LOSS) FOR THE PERIOD | 113,061 | 48,412 | 73,266 | 51,152 |
21 As described in the "Introduction to the Annual reports and Accounts", it should be noted that as of December 31, 2019 a chan ge was made in the condensed accounts shown in the Consolidated Report on Operations. In particular dividends and other income on equity investments and equity securities mandatorily at fair value shown in the balance sheet item "Dividend income and similar revenue", previously included in the condensed accounts item "Dividends and other income from equity investments", were included in the item "Net trading, hedging and fair value income" in the condensed accounts. For homogeneity, the comparative data relating to the 2019 condensed accounts have also been reclassified. For additional information, reference is made to "Reconciliation of condensed consolidated accounts to mandatory reporting schedule" and to "Reconciliation of condensed accounts to mandatory reporting schedule" of the Annexes.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 79
Consolidated interim report on operations
Results of the parent and the subsidiary
The parent: FinecoBank S.p.A.
Operating income came to € 387.8 million, up 28.4% compared to € 302.1 million in first half 2019.
Net fee and commission income and Net trading, hedging and fair value income contributed to the increase in the operating income as they rose, respectively, by 37.7% and 216.9%, while Net interest fell slightly by 2.5%.
Net interest decreased by € 3.5 million compared to the first half of the previous year due mainly to the fall in market interest rates, partially offset by the positive contribution of the increase in volumes, the growth in lending, and more dynamic treasury management. In this regard it should be noted that the structure of the investments carried out by the Bank contributed to maintaining a significant level of interest income, with the average gross margin on interest-earning assets at 1.06% (1.20% at June 30th, 2019).
Dividends and other income from equity investments exclusively include dividends received by Fineco AM, equal to € 14.2 million.
Net fee and commission income increased by € 48.6 million compared to the first half of the previous year, mainly due to the commissions generated by the Brokerage segment (+€ 36.6 million), driven by a highly volatile market, an increase in the proportion of the Bank's customers active in the Brokerage segment and the review of the offer, as well as the commissions generated by the Banking segment (+€ 9.1 million), driven in particular by the change in the monthly cost of keeping euro-denominated current accounts, which took effect from February 2020. It should be noted that this item includes the account maintenance fees that - whose introduction is subject of the proceedings brought against the Bank in December 2019 by the Italian Antitrust Authority (AGCM). Taking into account the outcome of the hearings and discussions with the abovementioned Authority, the Bank
- while maintaining that it acted properly - decided to pay back customers affected by this commercial practice, for an estimated amount of € 4 million as at June 30th, 2020 (already recognised under the item Provisions for risks and charges, to which readers should refer). Despite the tough market environment, commissions generated by the Investing segment also increased (+€ 3.5 million), thanks to the continuous improvement of the offer and the quality of sales.
Net trading, hedging and fair value income was mainly generated by profits realised by the Brokerage segment, which includes internalisation of securities and regulated/OTC derivatives, financial instruments used for operational hedging of securities and internalised derivatives and the exchange differences on assets and liabilities denominated in currency; it was up € 31.2 million compared to the first half of the previous year, driven by financial-market volatility in the first half of 2020, which resulted in an increase of over 180% in internalised volumes. This result also includes the income components from financial instruments recognised under "Other financial assets that must be designated at fair value", which include the Visa INC class "C" preferred shares and the equity exposure accounted for the contributions paid to the Voluntary Scheme established by the National Interbank Deposit Guarantee Fund, whose fair-value measurements respectively generated, in the first half of 2020, a gain of € 0.06 million (+€ 1.9 million in the first half of 2019) and a loss of € 1.2 million (-€ 4.8 million in the first half of 2019). Finally, there are the net profits generated by the sale of government bonds recognised under "financial assets at fair value through other comprehensive income", amounting to € 1.8 million (€ 0.7 million in the first half of 2019), and recognised under "Financial assets at amortised cost", amounting to € 7 million (€ 2.1 million in the first half of 2019, including securities issued by UniCredit).
Operating costs remained under control with an increase of € 4.3 million compared to the previous year (+€ 4.9 million for "Staff expenses", -€ 2.3 million for "Other administrative expenses net of Recovery of expenses" and +€ 1.7 million for "Impairment/write-backs on intangible and tangible assets"). The 3.5% increase is, in any case, well contained when compared to the growth in activities, AUM, customers, structure and staff, confirming the Bank's strong operating leverage and widespread corporate culture of cost management, proven by a cost/income ratio at 33.4% (41% as at June 30th, 2019).
Loan loss provisions in the first half of 2020 stood at € -3.7 million (-0.1 million in the first half of 2019) and were affected by the change in the macroeconomic scenarios used in the calculation of LLPs for Expected Credit Losses at June 30th, 2020. As described above in "Significant events during the period", when assessing performing credit exposures at June 30th, 2020, the Group considered an updated macroeconomic scenario to take into account the effects of the crisis arising from the COVID-19 pandemic. The updated macroeconomic scenarios led to € 0.3 million in LLPs. As regards other counterparties, the updated macroeconomic scenarios led to LLPs of € 0.8 million, recognised using IFRS 9 impairment models and their post-model overlay and adjustment. It should also be noted that at June 30th, 2019, the Bank had recorded writebacks of approximately € 2.3 million with respect to the counterparty UniCredit S.p.A., thanks to both a reduction in exposures and an improvement in the counterparty's risk profile, as a result of the financial guarantee received under the Pledge Agreement entered into following the exit of FinecoBank from the UniCredit Banking Group.
Provisions for risks and charges amounted to -€ 7.6 million, increasing on the -€ 3.8 million recorded in the first half of 2019. During the first half of 2020 the ordinary annual contribution required for the 2020 financial year under Directive 2014/59/EU (Single Resolution Fund) was recognised in the amount of € 0.7 million (no contribution had been requested for the 2019 financial year). In June 2020, the Bank of Italy called in additional contributions to the National Resolution Fund pursuant to Art. 1, paragraph 848 of Law 208/2015. The contribution payable by the Bank was € 0.2 million. At June 30, 2020, the Provisions for risks and charges also include a provision made by the Bank in relation to the proceedings initiated against itself in December 2019 by the Italian Antitrust Authority (AGCM). In this regard, it should be noted that on December 20th, 2019, the Bank received notice from the AGCM that it had initiated proceedings to assess the compliance with the Consumer Code (Legislative Decree 206/2005) of a commercial practice that the Bank had previously used to encourage people to open current accounts. During the first half of 2020, FinecoBank - on the advice of its lawyers - provided the AGCM with all the information required for the purposes of the assessment within the prescribed time limits, explaining the reasons why it believes it has operated correctly. Taking into account the outcome of the hearings and discussions with the AGCM, the Bank - while maintaining that it acted properly - decided to pay back customers affected by this commercial practice (the monthly account maintenance fees) charged in 2020 and to not apply these fees until December 31, 2019.
80 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Results of the parent and the subsidiary
The parent: FinecoBank S.p.A.
Pending the AGCM's decisions on the proposals made by the Bank, this substantial commitment taken by the Bank at the reporting date has been covered by a specific allocation to the Provision for risks and charges as at June 30th, 2020 in the amount of € 4 million. If the above proposal is accepted, this amount will be paid to the customers concerned during the second half of 2020 by promptly repaying the fees charged to them from February 1st, 2020.
Profit from investments showed a loss of 3.8 million, down 9.6 million on the first half of 2020. As described above, when assessing performing credit exposures at June 30th, 2020, the Bank considered an updated macroeconomic scenario to take into account the effects of the crisis arising from the COVID-19 pandemic. Regarding exposures to bond issuers, where the greatest impact was on sovereign exposures, the updated macroeconomic scenarios led to provisions of € 3.6 million, recognised using IFRS 9 impairment models and their post-model overlay and adjustment. It should also be noted that at June 30th, 2019, the Bank had recorded writebacks of approximately € 6.5 million with respect to the issuer UniCredit S.p.A., thanks to both a reduction in exposures in debt securities and an improvement in the issuer's risk profile, as a result of the financial guarantee received under the Pledge Agreement entered into following the exit of FinecoBank from the UniCredit Banking Group.
Profit (loss) before tax from continuing operations amounted to a profit of € 244.6 million, increasing by 35.8% on the first half of the prior year, owing in particular to the increase in Net commissions and Net trading, hedging and fair value income. Excluding non-recurring items in the first half of 2020 as previously described22, profit before tax from continuing operations would have been € 245.8 million, up 32.9% compared to the first half of 2019 (also net of non-recurring items23).
Profit for the period came to € 169.8 million, up 36.5% compared to € 124.4 million for the first half of the previous year. Excluding non-recurring items in the first half of 2020 as previously described24, profit for the period would have been € 170.6 million, up 31.8% compared to the first half of 2019 (also net of non-recurring items25).
- Change in the fair value of the equity exposure to the Voluntary Scheme set up by the Interbank Deposit Guarantee Fund totalling -€1.2 million (including tax effect).
- Change in the fair value of the equity exposure to the Voluntary Scheme set up by the Interbank Deposit Guarantee Fund totalling -€4.8 million (including tax effect).
- Change in the fair value of the equity exposure to the Voluntary Scheme set up by the Interbank Deposit Guarantee Fund totalling -€0.8 million (including tax effect).
- Change in the fair value of the equity exposure to the Voluntary Scheme set up by the Interbank Deposit Guarantee Fund totalling -€3.2 million (including tax effect) and the tax benefit from the so-called Patent Box regime amounting to €1.8 million.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 81
Consolidated interim report on operations
Results of the parent and the subsidiary
The subsidiary: Fineco Asset Management (DAC)
Fineco AM, a wholly owned subsidiary of FinecoBank, is a UCITS Management Company and was established on 26 October 2017 in the Republic of Ireland. The principal activity of Fineco AM to offer its customers a range of UCITS product with a strategy focused on the definition of strategic asset allocation and selection of the best international managers, and therefore, diversify and improve the offer of asset management products and further increase the competitiveness of the Group within its vertically integrated business model.
The volumes of net assets under management managed by Fineco AM at 30 June 2020 amounted to € 14.2 billion (€ 13.8 billion as at December 31, 2019). This is broken down as per below:
- € 5.1 billion referred to Core Series Umbrella Fund (€ 5.8 billion as at December 31, 2019);
- € 6.8 billion referred to FAM Series UCITS ICAV (€ 6.3 billion as at December 31, 2019);
- € 2.3 billion referred to FAM Evolution ICAV (launched in January 2019).
It should also be noted that € 8.9 billion relate to retail classes and € 5.3 billion relating to institutional classes.
As at June 30, 20220, Fineco AM has a total asset of € 45.9 million. This consists of Loans and receivables with banks, represented by a time deposit for an amount of € 10 million and by the sight deposits with credit institutions for € 12.3 million, and by Loans and receivables with customers, exclusively represented operating receivables associated with the provision of services, for an amount of € 20.8 million.
Fineco AM also holds shares in its UCITS Funds, in relation to the seeding activity for an amount of € 0.3 million, which are recorded under "Financial assets at fair value through profit or loss c) other financial assets mandatorily at fair value". Fineco AM also holds Other assets for an amount of € 0.9 million, relating to prepaid expenses and tax items other than those included in the item "Tax assets":.
Deposits from banks and Deposits from customers totalled € 13.4 million, are represented exclusively by operating payables connected with the provision of financial services, relating to the placement and management fees of UCITS to be paid back to the placers, including FinecoBank itself for € 6.8 million, and to investment advisors. It should be noted that the item Deposits from customers also includes the "Lease liabilities" from customers, amounting to € 0.8 million representing the financial debt corresponding to the present value of the payments due in the lease agreements stipulated with credit institutions not paid at the reporting date, as required by IFRS 16.
The Other liabilities, equal to € 3.5 million, are recognised in payables to employees and other personnel and in current payables not related with the provision of financial services.
Shareholders' equity amounted to € 28.9 million and consists of share capital for € 3 million and net income for the period of € 24.6 million and of reserves for € 1.3 million.
In first half 2020 Fineco AM generated Net commissions for € 32.4 million (€ 86.1 million in fee and commission income and € 53.7 million in fee and commission expense) and the Net Profit for the period amounted to € 24.6 million.
The number of persons employed by Fineco AM as at 30 June 2020 is 30.
82 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim report on operations
Related-party Transactions
Related-Party Transactions
At its meeting of November 5th, 2019 and with the prior favourable opinion of the Risk and Related Parties Committee and the Board of Statutory Auditors, the Board of Directors, to ensure continued compliance with applicable legal and regulatory provisions on the corporate disclosure of transactions with related parties and persons in conflict of interest, approved the new Global Policy Procedure for the management of transactions with persons in potential conflict of interest of the FinecoBank Group (the "Global Policy").
The Global Policy contains the provisions to observe when managing:
- related party transactions pursuant to Consob Regulation no. 17221 of March 12th, 2010 (as amended);
- transactions with associated persons pursuant to the regulations on "Risk activities and conflicts of interest with associated persons" laid down by Bank of Italy Circular no. 263 of December 27th, 2006 (Title V, Chapter 5: "New regulations for the prudential supervision of banks", as amended);
- obligations of bank officers pursuant to Article 136 of Legislative Decree 385 of September 1st, 1993 (the Consolidated Banking Act).
Considering the above, in the first half of 2020 the Group conducted less material transactions with related parties in Italy and abroad in the course of ordinary business and associated financial activities, carried out under standard conditions, hence under the terms normally applied to transactions with unrelated parties; no other transactions were undertaken with related parties that could significantly affect the Bank's or the Group's asset situation and results, nor were any atypical and/or unusual transactions conducted, including of an intercompany or related party nature.
Transactions with Group companies
FinecoBank is the parent company of the FinecoBank Banking Group.
The following table summarises outstanding assets, liabilities, guarantees and commitments at June 30th, 2020 as well as the costs (-) and revenues
(+) recognised in first half 2020 with Fineco AM, which is the sole wholly-owned consolidated company.
(Amounts in € thousand)
Guarantees and | |||||
Assets | Liabilities | commitments | Revenues (+) | Costs (-) | |
Transactions with the subsidiary Fineco Asset Management DAC | 6,987 | - | - | 55,587 | - |
The assets shown above consist mainly of current receivables for the placement of financial products, due from the subsidiary Fineco AM and recognised as "Financial assets at amortized cost". The revenues column includes placement and management fee income paid back by the subsidiary and recognised by FinecoBank in the first half of 2020, as well as dividends on 2019 profit paid by Fineco AM for a total of € 14.2 million.
Treasury shares
At June 30th, 2020 the Group held 753,310 FinecoBank ordinary shares (all held by the Bank itself) in connection with PFA incentive plans, amounting to 0.12% of the share capital, for a total of € 7.5 million. In the first half of 2020, 44,000 shares were purchased in relation to the 2019 PFA Incentive System for personal financial advisors identified as key personnel while 11,548 and 16,590 FinecoBank ordinary shares held in the portfolio were assigned to personal financial advisors under the 2016 and the 2017 PFA Incentive Systems, respectively.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 83
Consolidated interim report on operations
Subsequent events and outlook
Subsequent events and outlook
Subsequent events
After the end of the period, there were no significant events that lead to the adjustment of the results shown in the Condensed Interim Financial Statements at 30 June 2020.
Outlook
The prospective scenario, despite a context of pressure on margins and general uncertainty about the effects and duration of the Coronavirus epidemic, sees the Group benefiting from two structural trends that are transforming Italian society: digitization and demand for advisory services.
The habits of banking customers have changed radically over the last ten years. The need for them to access services far from their branch or at unconventional times has increased and they are increasingly able to use the internet at any time of the day and anywhere. This need was accentuated in the months characterized by the lockdown and FinecoBank intends to continue the digitisation and computerisation of its business, not only in how it interfaces with its customers but also in its internal operational processes. The objective is to increase digitisation and generate greater savings and efficiencies for the Group. The operating leverage is identified as a key point of Fineco's competitive advantage thanks to the core system developed and managed internally. The solid and widespread IT culture within the Bank allows a high scalability of the business, also thanks to the Big Data Analytics developed internally. The increased use of mobile devices and the internet offers competitive advantages to a bank such as FinecoBank, which has always focused on technology and, more specifically, on the dual track of a digital platform matched with a network of personal specialised financial advisors.
Another structural trend that favours FinecoBank's positioning relates to the growing demand from customers for advanced and specialised advisory services, supported by Italians' propensity to save. The Italian market remains characterised by a high level of household wealth and a high rate of wealth employed in real estate investments. The higher level of uncertainty and the volatility of the financial markets, and above all the exceptional contingency experienced in the last months of the first quarter of 2020, have directed the preferences of households towards liquid products (bank drafts and deposits), insurance products and pension funds. There was, however, a clear uptick in investments in mutual funds, albeit remaining lower than in other Eurozone countries. The recent health emergency has helped to consolidate a greater awareness of the importance of managing one's savings correctly, and to promote greater attention for the world of markets. Furthermore, a change in mentality is underway by savers increasingly inclined to take advantage of qualified advice and to invest directly in the markets.
The Group will continue to pursue its organic growth-driven strategy, relying on efficient processes and quality services. The objective is to further strengthen its competitive positioning in the sector of integrated banking, brokerage and investing services, through the high quality and completeness of the financial services it offers, summed up in "one-stop solution" concept, This will be partially driven by the asset management activities of Fineco AM, which will enable the Bank to meet its customers' needs even better, be more efficient in product selection and be more profitable thanks to its vertically integrated business model.
FinecoBank had a market share by TFA (source: Bank of Italy statistical data, return flows) of 1.68% as at March 31, in June 2020, with significant potential growth margins.
Fineco intends to pursue its long-term sustainable growth objectives, including in terms of ESG26, in order to create value for stakeholders while maintaining a low risk appetite. Fineco intends to do this mainly by raising from customers without resorting to aggressive commercial offers and through the offering products characterized by fair pricing and "no performance fees", in combination with highly liquid and low risk.
26 Details available in the FinecoBank Group's Consolidated Non-Financial Statement published on the FinecoBank website (https://www.finecobank.com).
84 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim financial statements
Consolidated balance sheet
Consolidated Financial Statements | Consolidated Balance Sheet | |||||||
(Amounts in € thousand) | ||||||||
Assets | 06/30/2020 | 12/31/2019 | ||||||
10. | Cash and cash balances | 909,802 | 754,386 | |||||
20. | Financial assets at fair value through profit and loss | 25,166 | 20,159 | |||||
a) financial assets held for trading | 14,591 | 7,933 | ||||||
c) other financial assets mandatorily at fair value | 10,575 | 12,226 | ||||||
30. | Financial assets at fair value through other comprehensive income | 149,908 | 321,699 | |||||
40. | Financial assets at amortised cost | 27,713,521 | 26,216,829 | |||||
a) loans and receivables with banks | 9,089,350 | 9,440,362 | ||||||
b) loans and receivables with customers | 18,624,171 | 16,776,467 | ||||||
50. | Hedging derivatives | 21,930 | 36,059 | |||||
60. | Changes in fair value of portfolio hedged financial assets (+/-) | 53,647 | 28,880 | |||||
90. | Property, plant and equipment | 153,685 | 152,048 | |||||
100. | Intangible assets | 126,194 | 127,094 | |||||
- goodwill | 89,602 | 89,602 | ||||||
110. | Tax assets | 4,186 | 23,444 | |||||
a) current tax assets | 373 | - | ||||||
b) deferred tax assets | 3,813 | 23,444 | ||||||
130. | Other assets | 254,169 | 342,309 | |||||
Total assets | 29,412,208 | 28,022,907 | ||||||
(Amounts in € thousand) | ||||||||
Liabilities and shareholders' equity | 06/30/2020 | 12/31/2019 | ||||||
10. | Financial liabilities at amortised cost | 27,134,336 | 26,074,511 | |||||
a) deposits from banks | 113,137 | 154,653 | ||||||
b) deposits from customers | 27,021,199 | 25,919,858 | ||||||
20. | Financial liabilities held for trading | 8,209 | 3,777 | |||||
40. | Hedging derivatives | 188,770 | 80,852 | |||||
50. | Changes in fair value of portfolio hedged financial liabilities (+/-) | 18,346 | 14,098 | |||||
60. | Tax liabilities | 62,928 | 11,437 | |||||
a) current tax liabilities | 62,928 | 11,437 | ||||||
80. | Other liabilities | 331,133 | 343,859 | |||||
90. | Provisions for employee severance pay | 4,722 | 4,810 | |||||
100. | Provisions for risks and charges: | 108,110 | 107,079 | |||||
a) commitments and guarantees given | 67 | 21 | ||||||
c) other provisions for risks and charges | 108,043 | 107,058 | ||||||
120. | Revaluation reserves | 1,485 | 1,002 | |||||
140. | Equity instruments | 500,000 | 500,000 | |||||
150. | Reserves | 678,378 | 397,593 | |||||
160. | Share premium reserve | 1,934 | 1,934 | |||||
170. | Share capital | 201,153 | 200,941 | |||||
180. | Treasury shares (-) | (7,470) | (7,351) | |||||
200. | Net Profit (Loss) for the year | 180,174 | 288,365 | |||||
Total liabilities and Shareholders' equity | 29,412,208 | 28,022,907 |
86 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim financial statements
Consolidated Income statement
Consolidated Income Statement
(Amounts in € thousand)
Item | 06/30/2020 | 06/30/2019 | ||||
10. | Interest income and similar revenues | 144,242 | 150,064 | |||
of which: interest income calculated with the effective interest method | 150,797 | 151,615 | ||||
20. | Interest expenses and similar charges | (6,844) | (8,297) | |||
30. | Net interest margin | 137,398 | 141,767 | |||
40. | Fee and commission income | 361,167 | 301,024 | |||
50. | Fee and commission expenses | (150,597) | (142,381) | |||
60. | Net fee and commission income | 210,570 | 158,643 | |||
70. | Dividend income and similar revenue | 53 | 63 | |||
80. | Gains (losses) on financial assets and liabilities held for trading | 49,578 | 18,155 | |||
90. | Fair value adjustments in hedge accounting | (871) | (381) | |||
100. | Gains and losses on disposal or repurchase of: | 8,821 | 2,784 | |||
a) financial assets at amortised cost | 7,051 | 2,057 | ||||
b) financial assets at fair value through other comprehensive income | 1,770 | 727 | ||||
110. | Gains (losses) on financial assets and liabilities at fair value through profit or loss | (1,099) | (2,784) | |||
b) other financial assets mandatorily at fair value | (1,099) | (2,784) | ||||
120. | Operating income | 404,450 | 318,247 | |||
130. | Impairment losses/writebacks on: | (7,457) | 5,627 | |||
a) financial assets at amortised cost | (7,451) | 5,666 | ||||
b) financial assets at fair value through other comprehensive income | (6) | (39) | ||||
140. | Profit/loss from contract changes without cancellation | 21 | - | |||
150. | Net profit from financial activities | 397,014 | 323,874 | |||
180. | Net profit from financial and insurance activities | 397,014 | 323,874 | |||
190. | Administrative expenses | (172,100) | (166,731) | |||
a) staff expenses | (48,893) | (44,097) | ||||
b) other administrative expenses | (123,207) | (122,634) | ||||
200. | Net provisions for risks and charges | (6,779) | (3,804) | |||
a) provision for credit risk of commitments and financial guarantees given | (46) | 32 | ||||
b) other net provision | (6,733) | (3,836) | ||||
210. | Impairment/write-backs on property, plant and equipment | (9,428) | (7,861) | |||
220. | Impairment/write-backs on intangible assets | (2,840) | (2,650) | |||
230. | Other net operating income | 52,621 | 50,247 | |||
240. | Operating costs | (138,526) | (130,799) | |||
280. | Gains (losses) on disposal of investments | (6) | - | |||
290. | Total profit (loss) before tax from continuing operations | 258,482 | 193,075 | |||
300. | Tax expense (income) related to profit or loss from continuing operations | (78,308) | (58,961) | |||
310. | Total profit (loss) after tax from continuing operations | 180,174 | 134,114 | |||
330. | Net Profit (Loss) for the period | 180,174 | 134,114 | |||
350. | Profit (loss) for the period attributable to the Parent Company | 180,174 | 134,114 | |||
01/01/2020 - | 01/01/2019 - | |||||
06/30/2020 | 06/30/2019 | |||||
Earnings per share (euro) | 0.28 | 0.22 | ||||
Diluted earnings per share (euro) | 0.28 | 0.22 |
Note:
For further information on "Earnings per share" and "Diluted earnings per share" please see notes to the accounts, Part C - Information on the Consolidated Income Statement, Section 25.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 87
Consolidated financial statements
Consolidated statement of comprehensive income
Statement of Consolidated Comprehensive Income
(Amounts in € thousand)
Items | 06/30/2020 | 06/30/2019 | |
10. | Net Profit (Loss) for the period | 180,174 | 134,114 |
Other comprehensive income after tax without reclassification through profit or loss | |||
70. | Defined benefit plans | 1,227 | (2,766) |
Other comprehensive income after tax with reclassification through profit or loss | |||
140. | Financial assets (no equity securities) measured at fair value with an impact on total profitability | (744) | 5,357 |
170. | Total other income components after tax | 483 | 2,591 |
180. | Overall profitability (Item 10 + 170) | 180,657 | 136,705 |
200. | Consolidated comprehensive income attributable to Parent Company | 180,657 | 136,705 |
88 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated financial statements
Statement of changes in consolidated shareholders' equity
Statement of Changes in Consolidated Shareholders' Equity | ||||||||||||||||
Statement of changes in consolidated shareholders' equity at 06/30/2020 | ||||||||||||||||
(Amounts in € thousand) | ||||||||||||||||
Balanceas at 12/31/2019 | Changein opening balance | Balanceas at 01/01/2020 | Allocation of profit | Changesin reserves | ofIssuesnew shares | Purchaseof sharesown | Change during the year | optionsStock | Changesin | ownership interests | Comprehensiveexerciseincome 2019 | Shareholders'groupequityas at 06/30/2020 | Shareholders'equity minoritiesas at 6/30/2020 | |||
Reserves | Dividendsand other distributions | Distributionsof extraordinary dividends Changesin equity instruments | shareOwn derivatives | |||||||||||||
from previous year | Shareholders' equity transactions | |||||||||||||||
Share capital: | ||||||||||||||||
- ordinary shares | 200,941 | 200,941 | 212 | 201,153 | ||||||||||||
- other shares | ||||||||||||||||
Share premium | 1,934 | 1,934 | 1,934 | |||||||||||||
reserve | ||||||||||||||||
Reserves: | ||||||||||||||||
- from profits | 364,937 | 364,937 | 288,365 | (9,897) | (212) | 643,193 | ||||||||||
- others | 32,656 | 32,656 | 2,529 | 35,185 | ||||||||||||
Revaluation | 1,002 | 1,002 | 483 | 1,485 | ||||||||||||
reserves | ||||||||||||||||
Equity instruments | 500,000 | 500,000 | 500,000 | |||||||||||||
Treasury shares | (7,351) | (7,351) | 280 | (399) | (7,470) | |||||||||||
Profit (loss) for the | (288,36 | 180,17 | ||||||||||||||
year | 288,365 | 288,365 | 5) | 4 | 180,174 | |||||||||||
Shareholders' | 180,65 | 1,555,65 | ||||||||||||||
Equity Group | 1,382,484 | 1,382,484 | (9,897) | 492 | (399) | 2,317 | 7 | 4 | ||||||||
Shareholders' | ||||||||||||||||
Equity Minor. |
The "Reserves" column includes the 2019 profit of FinecoBank S.p.A.. It should be noted that, in full compliance with the reference legislation, the indications of the Supervisory Authorities and the best consolidated practice on the matter, the Board of Directors of 6 April 2020 decided to revoke the proposal for the distribution of a dividend of € 0.32 per unit for a total of € 195,052,000 approved by the Board of Directors on February 11, 2020, resolving to propose to the ordinary Shareholders 'Meeting convened for April 28, 2020 the allocation to reserves of the profit for the year 2019. The ordinary Shareholders' Meeting convened for on April 28, 2020 it therefore approved the aforementioned proposal.
The column "Stock options" includes the incentives plans serviced by FinecoBank shares.
The "Changes in reserves" column includes THE coupons paid on equity instruments net of related taxes and the transaction costs directly attributable to the issue of Equity instruments net of related taxes.
Statement of changes in consolidated shareholders' equity at 06/30/2019
(Amounts in € thousand)
Balance as at | 12/31/2018 | Change in | opening balance | Balance as at | 01/01/2019 | ||
Allocation of profit from
previous year
Reserves | Dividendsand | other | distributions |
Change during the year | Shareholders' | equitygroup | Shareholders'equity | minoritiesas at | |||||||||||||||
Changesin | reserves | newofIssues shares | Purchaseof | sharesown | Distributionsof Changesin equity instruments | shareOwn derivatives | optionsStock | Changesin | ownership | Comprehensive | income | 06/30/2019 | 06/30/2019 | ||||||
Shareholders' equity transactions | |||||||||||||||||||
Share capital: | ||||||||||||||||
- ordinary shares | 200,773 | 200,773 | 163 | 200,941 | - | |||||||||||
- other shares | ||||||||||||||||
Share premium | 1,934 | 1,934 | 1,934 | - | ||||||||||||
reserve | ||||||||||||||||
Reserves: | ||||||||||||||||
- from profits | 321,537 | 321,537 | 56,718 | (3,074) | (1688) | 375,013 | - | |||||||||
- others | 33,872 | 33,872 | 2,703 | 36,675 | - | |||||||||||
Revaluation | (9,794) | (9,794) | 2,591 | (7,203) | - | |||||||||||
reserves | ||||||||||||||||
Equity | 200,000 | 200,000 | 200,000 | - | ||||||||||||
instruments | ||||||||||||||||
Treasury shares | (13,960 | |||||||||||||||
) | (13,960) | 345 | (181) | (13,796) | - | |||||||||||
Profit (loss) for | 214,119 | 214,119 | (56,718) | (184,501) | 134,114 | 134,114 | - | |||||||||
the year | ||||||||||||||||
Shareholders' | 975,681 | 975,681 | - | (184,501) | (3,074) | 513 | (181) | - | - | 2,535 | - | 136,705 | 927,678 | - | ||
Equity Group | ||||||||||||||||
Shareholders' | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - |
Equity Minor. |
The amount of the dividend approved by the Fineco's Ordinary Shareholders' Meeting in 2019, totalling € 184,500,820.80, corresponds to € 0.303 per share. The column "Stock options" includes the incentives plans serviced by FinecoBank shares.
The "Changes in reserves" column includes: dividends not distributed in relation to any treasury shares held by the Bank at the record date, transferred to the Extraordinary reserve; coupons paid on equity instruments net of related taxes; transaction costs directly attributable to the issue of Equity instruments net of related taxes..
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 89
Consolidated financial statements
Consolidated cash flow statement
Consolidated Statements of Cash Flows
Indirect method
(Amounts in € thousand)
Amount | ||||
A. OPERATING ACTIVITIES | 01/01/2020 - | 01/01/2019 - | ||
06/30/2020 | 06/30/2019 | |||
1. Operations | 380,312 | 273,825 | ||
- operating result (+/-) | 180,174 | 134,114 | ||
- capital gains/losses on financial assets held for trading and on assets designated at fair value through profit and loss (-/+) | 2,699 | 3,615 | ||
- capital gains/losses on hedging operations (+/-) | 871 | 381 | ||
- net write-offs/write-backs due to impairment (+/-) | 7,688 | (5,169) | ||
- net write-offs/write-backs on tangible and intangible assets (+/-) | 12,268 | 10,510 | ||
- provisions and other incomes/expenses (+/-) | 14,803 | 10,255 | ||
-Net uncashed premiums (-) | - | - | ||
-Othernon-cashed income/insurance charges (-/+) | - | - | ||
- not paied tax (+/-) | 54,505 | 54,545 | ||
- disposal groups classified as held for sale (-/+) | - | - | ||
- other adjustments (+) | 107,304 | 65,574 | ||
2. Liquidity generated/absorbed by financial assets | (1,211,297) | (1,459,284) | ||
- financial assets held for trading | (2,680) | (1,098) | ||
- financial assets at fair value | - | - | ||
- other assets mandatorly valued at fair value | 468 | (377) | ||
-Financial assets valued at fair value with impact on overall profitability | 168,343 | 642,102 | ||
- financial assets valued at amortized cost | (1,466,721) | (2,115,450) | ||
- other assets | 89,292 | 15,539 | ||
3. Liquidity generated/absorbed by financial liabilities | 1,060,051 | 988,805 | ||
- financial liabilities valued at amortized cost | 1,086,569 | 1,042,478 | ||
- financial liabilities held for trading | (1,062) | (94) | ||
- financial liabilities designated at fair value | - | - | ||
- other liabilities | (25,456) | (53,579) | ||
Net liquidity generated/absorbed by operating assets | 229,063 | (196,654) | ||
B. INVESTMENT ACTIVITY | ||||
1. Liquidity generated by | 1 | - | ||
- equity investments | - | - | ||
- collected dividends on equity investments | - | - | ||
- sells of tangible assets | 1 | - | ||
- sells of intangible assets | - | - | ||
- sales/purchases divisions | - | - | ||
2. Liquidity absorbed by: | (14,516) | (72,798) | ||
- purchases of equity investments | - | - | ||
- purchases of tangible assets | (12,576) | (70,093) | ||
- purchases of intangible assets | (1,940) | (2,705) | ||
- purchases of subsidiaries and company branches | - | - | ||
Net liquidity generated/absorbed by investment activity | (14,515) | (72,798) | ||
C. FUNDING ACTIVITIES | ||||
- issue/purchase of treasury shares | 92 | 332 | ||
- issue/purchase of equity instruments | - | - | ||
- distribution of dividends and other scopes | (10,391) | (189,414) | ||
-Sale/purchase of control of third parties | - | - | ||
Net liquidity generated/absorbed by funding activities | (10,299) | (189,082) | ||
NET LIQUIDITY GENERATED/ABSORBED IN THE PERIDO | 204,252 | (458,534) |
90 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Consolidated interim financial statements
Consolidated cash flow statement
RECONCILIATION
(Amounts in € thousand) | ||||||||
Amount | ||||||||
Item | ||||||||
01/01/2020 - | 01/01/2019 - | |||||||
06/30/2020 | 06/30/2019 | |||||||
Cash and cash equivalent at the beginning of period | 934,666 | 2,019,314 | ||||||
Total nel liquidity generated/absorbed in the period | 204,252 | (458,534) | ||||||
Cash and cash equivalents: effect of period rate variations | (442) | 1,619 | ||||||
Cash and cash equivalent at the end of the period | 1,138,476 | 1,562,399 | ||||||
Key
- generated (-) used
Cash flows from/used by financial liabilities of the Bank, although in accordance with IAS 7 par. 44A is representative of flows deriving from the financing/funding activity, is classified, in line with the banking activity carried out and as required by Bank of Italy Circular 262/2005, as liquidity deriving from the operating activity.
The term "Cash and cash balances" means cash recorded under item 10 of assets "Cash and cash balances" and the equivalent liquid assets recorded under item 40 of assets "Financial assets at amortised cost: a) loans and receivables with banks" (consisting of current accounts and deposits maturing within 3 months) net of the equivalent liquid liabilities recorded under item 10 of liabilities "Financial liabilities at amortised cost a): deposits from banks" (represented by current accounts and deposits maturing within 3 months).
The item "Cash and cash balances" at the end of first half 2020 consisted of:
- Cash recognised under asset item 10 "Cash and cash balances" in the amount of € 909,802 thousand;
- Current accounts and demand deposits recognised under asset item 40 "Financial assets at amortised cost: a) loans and receivables with banks" in the amount of € 270,091 thousand;
- net of the Current accounts and demand deposits recognised under liability item 10 "Financial liabilities at amortised cost: a) deposits from banks" in the amount of € 41,417 thousand.
The item "Cash and cash balances" at the end of first half of the previous year consisted of:
- Cash recognised under asset item 10 "Cash and cash balances" in the amount of € 1,230,792 thousand;
- Current accounts and demand deposits recognised under asset item 40 "Financial assets at amortised cost: a) loans and receivables with banks" in the amount of € 400,025 thousand;
- net of the Current accounts and demand deposits recognised under liability item 10 "Financial liabilities at amortised cost: a) deposits from banks" in the amount of € 68,418 thousand.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 91
Notes to the accounts
Part A - Accounting policies
Notes to the accounts
Part A - Accounting Policies
A.1 General
Section 1 - Statement of Compliance with IFRS
These condensed interim consolidated financial statements of FinecoBank Banca Fineco S.p.A. (hereafter FinecoBank or Fineco or Bank) has been drawn up in accordance with the recognition and measurement criteria established by the international accounting standards (hereinafter "IFRS", "IAS" or "international accounting standards") issued by the International Accounting Standards Board ( IASB), including the relevant SIC and IFRIC interpretative documents, endorsed by the European Commission until 30 June 2020, as required by European Union Regulation no. 1606/2002 of 19 July 2002 implemented in Italy by Legislative Decree 28 February 2005 n. 38, and applicable to the financial statements for the financial years starting on 1 January 2020, and, in particular, it complies with the international accounting standard applicable for interim financial reporting (IAS 34). Based on paragraph 10 of this principle, FinecoBank Banca Fineco S.p.A.) has availed itself of the option of preparing the consolidated interim financial statements in an abbreviated version.
It also forms an integral part of the consolidated half-year financial report pursuant to paragraph 2 of article 154-ter of the Consolidated Finance Act (TUF, Legislative Decree 24/2/1998 n. 58). The consolidated half-yearly financial report, as required by paragraph 2 of the aforementioned article of the TUF, includes the condensed consolidated half-year financial statements, the interim consolidated management report and the certification of the condensed consolidated half-year financial statements, provided for by paragraph 5 of art. 154-bis of the TUF, pursuant to art. 81-ter of Consob Regulation no. 11971 of May 14, 1999 and subsequent amendments and additions.
Section 2 - Preparation criteria
As mentioned above, these Consolidated interim financial statements have been prepared in accordance with the IAS/IFRS endorsed by the European Commission. The following documents have been used to interpret and support the application of IFRS, even though not all of them have been endorsed by the European Commission:
- The Conceptual Framework for Financial Reporting;
- Implementation Guidance, Basis for Conclusions, IFRICs and any other documents prepared by the IASB or International Financial Reporting Interpretations Committee (IFRIC) supplementing the IFRS;
- Interpretation documents on the application of IFRS in Italy prepared by the Organismo Italiano di Contabilità (Italian Accounting Body);
- ESMA (European Securities and Markets Authority) and Consob documents on the application of specific IFRS provisions;
- the documents prepared by the Italian Banking Association (ABI).
The Consolidated interim financial statements comprise the consolidated Balance Sheet, the consolidated Income Statement, the consolidated Statement of Comprehensive Income, the consolidated Statement of Changes in Shareholders' Equity, the consolidated Cash Flow Statement (compiled using the indirect method), and these notes to the accounts, together with the Directors' Report on Operations ("Consolidated interim Report on Operations") and the Annexes.
The figures in the Consolidated financial statements and the Notes to the Accounts are provided in thousands of euros, unless otherwise indicated, and have been prepared with reference to the instructions on the financial statements of the banks referred to in the Circular 262 of December 22, 2005 and subsequent updates. In accordance with the Bank of Italy Circular 262/2005 items in the consolidated Balance Sheet, consolidated Income Statement and consolidated Statement of Comprehensive Income for which there is no significant information to be disclosed for the reporting period and the previous year or the corresponding period of the same, are not provided nor in such cases have the tables of the Notes to the Accounts been reported.
Any discrepancies between the figures shown in the Consolidated financial statements and the notes to the consolidated accounts is solely due to roundings.
With reference to IAS 1, these Consolidated interim financial statements have been prepared on a going concern basis, as, taking into account the Group's economic, equity and financial situation, there are no doubts or uncertainties as to the ability of the same to continue its business operations and to continue operating for the foreseeable future (at least for the next 12 months).
The measurement criteria adopted are therefore consistent with this assumption and with the principles of accrual based accounting, the relevance and materiality of accounting information, and the prevalence of economic substance over legal form.
These criteria have changed in part with respect to the previous year exclusively relating to the introduction of new standards and interpretations from January 1, 2020, for further details please see the modifications described section 5 " Other matters", and in Part "A.2 - The main items of the accounts".
The activity of the Bank is not affected by any significant seasonal and/or cyclical factor.
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 93
Notes to the accounts
Part A - Accounting policies
Section 3 - Consolidation Procedures and Scope
The following was used in order to prepare the consolidated Accounts at June 30, 2020:
- First-halfaccounts at June 30, 2020 of FinecoBank S.p.A.;
- First-halfaccounts at June 30, 2020 of Fineco Asset Management DAC, fully consolidated, prepared in accordance with IAS/IFRS where the items have been appropriately reclassified and adjusted for consolidation requirements.
The fully consolidation involves combining the balance sheets and income statements of the subsidiary on a "Line-by-Line" basis. The accounting value of the investment in the fully-consolidated companies is eliminated - as a result of assuming their assets and liabilities - as a contra-entry to the relevant quota of Shareholders' Equity of the Bank (100%, as the company is fully owned by the Bank). Assets and liabilities, off-balance sheet transactions, revenues and charges, as well as any profits and losses incurred between companies are fully eliminated, in line with the consolidation methods adopted.
1. | Interests in fully-owned subsidiaries | ||||||||||||||||
Type of | Ownership relationship | Voting rights % | |||||||||||||||
relationship | held by | holding % | (2) | ||||||||||||||
Company names | Headquarters | Registered office | (1) | ||||||||||||||
1. Fineco Asset Management DAC | Dublin | Dublin | 1 | FinecoBank | 100% | 100% effective | |||||||||||
Key: | |||||||||||||||||
(1) | Type of relationship: | ||||||||||||||||
1 = majority of voting rights and the ordinary Shareholders' Meeting | |||||||||||||||||
(2) | Availability of votes in the ordinary Shareholders' Meeting, with a distinction between actual and potential votes. |
2. Valuations and key assumptions to define the scope of consolidation
No data to report.
3. Interests in fully-owned subsidiaries with major minority interests
3.1 Minority interests, availability of minority votes and dividends distributed to minority shareholders No data to report.
3.2 Significant minority interests: accounting data No data to report.
4. Significant restrictions
No data to report.
5. Other information
No data to report.
Section 4 - Subsequent events
No significant events have occurred after the balance sheet date that would make it necessary to change any of the information given in the Consolidated interim Financial Statements as at June 30, 2020.
The Consolidated interim Financial Statements as at June 30, 2020 were approved by the Board of Directors of July 31, 2020, which authorised their publication also pursuant to IAS10.
94 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Notes to the accounts
Part A - Accounting policies
Section 5 - Other matters
In the first half 2020, the following accounting standards, amendments and interpretations, approved by the European Commission, become effective for reporting periods beginning on or after January 1, 2020:
- Amendments to IFRS 9, IAS 39 and IFRS17: Interest Rate Benchmark Reform (EU Regulation 2020/34);
- Amendments to References to the Conceptual Framework in IFRS Standards (EU Regulation 2019/2015);
- Amendments to IAS 1 and IAS 8: Definition of Material (EU Regulation 2019/2104);
- Amendments to IFRS 3 Business Combinations (EU Regulation 2020/551).
Where applicable, these accounting standards, amendments and interpretations had no relevant impact on the consolidated financial position and results as at June 30, 2020.
In particular, as reported in the 2019 consolidated financial statements, at 31 December 2019 the Group had decided not to apply the Commission Regulation (EU) 2020/34, of 15 January 2020 and published on 16 January 2020, early; the Commission Regulation implements the "Amendments to IFRS 9, IAS 39 and IFRS 7: reform of the interest rate benchmarks" issued by the IASB in September 2019 and applicable from January 1, 2020, providing for temporary derogations from the requirements required for the application of hedge accounting in order to mitigate the impact deriving from the uncertainty of the IBOR reform.
In this regard, it should be noted that the Group has only fair value hedges in place which provide for the exchange of the fixed rate against Euribor and whose valuation, as collateralised, is carried out by discounting future flows with the OIS curve. Following the entry into force in 2018 of Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 (EU Benchmark Regulation - BMR), the Euribor was subject to a reform process conducted by the European Money Markets Institute (EMMI), director of the same, to make it compliant with BMR according to a new hybrid calculation methodology (based on three levels) to be implemented by the end of 2019. Authorization was granted, pursuant to art. 34 of the BMR, on 2 July 2019 by the Belgian authority FSMA, supervisor of EMMI. The full transition to the new calculation method was completed in November 2019 and the Euribor is therefore BMR-compliant and continues to be used after January 1, 2020. With reference to the OIS curve, the same will be replaced by the € STR curve. In particular, the clearing houses (Eurex LCH) used by FinecoBank had initially communicated that the OIS curve would be replaced with the € STR curve on 22 June 2020, only to postpone the replacement on 27 July 2020 following the emergency COVID-19, anticipating the disposal of the Eonia rate which, as a result of the reform in question, will take place at the end of 2021.
The Group, which has chosen to continue to apply the hedge accounting requirements of IAS 39, has taken into account the above with respect to assessing the effectiveness of the hedging relationship, not detecting significant impacts on the existing hedging relationships.
As at June 30, 2020, no IFRS and IFRIC accounting standards, amendments and interpretations approved by the European Union but not yet mandatory applicable at June 30, 2020 have been issued.
As at June 30, 2020, moreover, the IASB issued the following accounting principles and interpretations or revisions thereof, whose the application is however still subject to completion of the approval process by the competent bodies of the European Union, which is still ongoing:
- IFRS 17 - Insurance contracts (May 2017), including Amendments to IFRS17 (June 2020);
- Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current (January 2020);
- Amendments to: IFRS 3; IAS 16 , IAS 37 (May 2020);
- Annual Improvements 2018-2020 (May 2020);
- Amendment to IFRS 16 Leases Covid 19-Related Rent Concessions (May 2020);
- Amendments to IFRS 4 - Extension of the temporary exemption from the application of IFRS 9.
The possible effects of the future adoption of these standards, interpretations and amendments, when applicable and relevant for the Group, are reasonably estimated as not significant; the related analyses, also in relation to pending approvals, are in any case still to be completed.
Interbank Deposit Guarantee Fund - Voluntary Scheme
FinecoBank joined the Voluntary Scheme introduced by the Fondo Interbancario di Tutela dei Depositi (FITD - Interbank Deposit Guarantee Fund) in November 2015, through an amendment to its by-laws. The Voluntary Scheme is an instrument for resolving bank crises through support measures in favour of member banks, when specific conditions established by the regulations apply. The Voluntary Scheme has its own independent financial resources and the member banks have committed to providing funds on request for the implementation of its measures.
From 2016 to 2018 the Voluntary Scheme, as a private entity, approved initiatives to support some banks, in particular Cassa di Risparmio di Cesena (CariCesena), Cassa di Risparmio di Rimini (Carim), Cassa di Risparmio di San Miniato (Carismi) and Banca Carige.
For the above initiatives, FinecoBank made cash payments and simultaneously recognised in the financial statements, as indicated by the Bank of Italy, equity instruments previously classified as "Financial assets available for sale" under the accounting standard IAS 39 in effect until December 31st, 2017, and subsequently from January 1st, 2018, as "Financial assets measured at fair value" through profit or loss, based on the current accounting standard IFRS 9: c) other financial assets measured at fair value".
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 95
Notes to the accounts
Part A - Accounting policies
At June 30th, 2020 total equity instrument exposure arising from the Bank's contributions, net of write-downs and cancellations made in previous years and of the effects of the fair value measurement on that date, amounted to € 1,437 thousand (€ 1,116 thousand in contributions for the intervention in favour of Carige and € 321 thousand in favour of Carim, Carismi and CariCesena).
The fair value measurement at June 30th, 2020 of equity instruments recognised by the Bank for the operation approved by the Voluntary Scheme to support Credit Agricole CariParma's intervention on behalf of CariCesena, Cassa di Risparmio di Rimini (Carim) and Cassa di Risparmio di San Miniato (Carismi) showed impairment resulting in a further negative fair value measurement of € 1 thousand in the income statement for the first half of the year. The amount was determined by applying a fair value adjustment to the estimated fair value of Berenice securitisation instruments (mezzanine and junior instruments issued for the securitisation of the three banks' NPLs acquired under the Voluntary Scheme), as measured by an FITD-appointed advisor in the context of drawing up the Voluntary Scheme accounts at December 31st, 2019. The advisor followed the Discounted Cash Flow model in consideration of the collection estimates assumed.
The fair value measurement at June 30th, 2020 of equity instruments recognised by the Bank for the intervention on behalf of Banca Carige S.p.A. showed impairment resulting in a further negative fair value measurement of € 1,192 thousand in the income statement for the first half of the year. As market or price valuations of comparable instruments were not available, the Group determined the fair value of the instrument using an internal model based on the Market Multiples method for multi-scenario analysis, taking account of the steep decline in the price of bank stocks during the first quarter 2020 and not considering the recent increase in their market values, in order to reflect the uncertainty of evaluation deriving from COVID-19.
Contributions to guarantee and resolution funds
With reference to the contributory obligations under Directive 2014/49/EU (the aforementioned DGS directive) for the year 2020, the contributions will be payable and recognized in the third quarter of the year in accordance with IFRIC 21.
With reference to the contributory obligations under Directive 2014/59/EU (the Single Resolution Fund) for the year 2020, the Bank has recognised in item 190. "Administrative expenses b) other administrative expenses" the ordinary annual contribution of € 687 thousand (no contribution was requested of the Bank in 2019).
In June 2020, the Bank of Italy called in additional contributions to the National Resolution Fund pursuant to Art. 1, paragraph 848 of Law 208/2015. FinecoBank's share, recognised in item 190. "Administrative expenses b) other administrative expenses", amounted to € 217 thousand.
Risks relating to the spread of COVID-19 (coronavirus)
The health emergency caused by the spread of the COVID-19 pandemic and the uncertainty regarding its duration have had serious repercussions on the banking and financial system, whose outlook for the near future is difficult to forecast. Even under these circumstances, FinecoBank's business model is diversified and well-balanced: the Group's diverse sources of revenue allow it to face complex stressors like this crisis. The FinecoBank Group's revenues are based on three main components (banking, brokerage, and investing) whose performance during periods of crisis tends to be uncorrelated.
In the first half of 2020 the indirect effects of the health emergency at first caused a decrease in the value of customer assets under management, which was partially reabsorbed as early as the second quarter. In any case, compared with the Bank's competitors that trend is sharply mitigated as performance commissions are not foreseen, which are structurally variable and penalize institutions at times of market crisis. Conversely, as evidence of the decorrelation of revenue sources of the Group, during periods of high volatility as experienced in the first half of the year - especially when the pandemic was spreading most rapidly - there is a decided increase in brokerage revenues.
Regarding the Group's financial investments, mostly comprising government bonds, the direct impact of the emergency was an immediate reduction in their fair value which in any case has already been partly recovered as at June 30, 2020. Most of the Bank's government bonds are held as long- term investments and are recognized in the Held to Collect portfolio, hence their measurement at fair value does not affect the consolidated income statement or consolidated shareholders' equity.
As for the calculation of the expected losses, the measurement of credit exposure in the form of both loans and securities takes account of forward- looking information and consequently is affected by the macroeconomic scenarios used to calculate adjustments in value. During the current crisis, updating the scenarios underlying forward-looking data is an especially complex exercise. The extent of the macroeconomic repercussions of the suspension of economic and social activity during the spread of COVID-19 is still being widely debated, including in light of the extraordinary relief measures for families and businesses that various European countries have taken to help mitigate the impact of the crisis.
By virtue of the uncertainty generated by the COVID-19 pandemic and to these means of government support, the main European and international regulators (IASB, EBA, ESMA, European Commission, etc.) have provided banks and financial institutions with clarity as to the regulatory and accounting treatment of credit exposure. Though they have stressed the need to incorporate the worsening macroeconomic scenario caused by the crisis, in line with the spirit of IFRS 9, they have also determined that the current state of uncertainty justifies using the flexibility that standard affords.
96 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
Notes to the accounts
Part A - Accounting policies
The regulators therefore encourage institutions to take margins of flexibility beyond the mechanical application of standard models to determining provisions, and to estimate losses by giving adequate weight to long-term macroeconomic forecasts.
These authorities have also clarified that relief measures to households and entetprises in the form of legislative or category moratoriums do not in themselves constitute forbearance, as they are preventive and generic in nature rather than formulated ad hoc for the customer. Nor does the use of these measures entail therefore an automatic classify a debtor as unlikely to pay. From an accounting standpoint, it has been clarified that the moratoriums do not in themselves significantly raise credit risk.
Given the above, in valuing its performing loans at June 30th, 2020, FinecoBank has considered a macroeconomic landscape updated to take account of the effects of the COVID-19 crisis. Appropriate corrections have been made to account for the mitigating effects of the support measures granted to customers (government guarantees and moratoriums).
Within FinecoBank's retail clientele, to date there has been a limited impact on loans in terms of new disbursements and credit quality. Any damage to portfolio quality is amply mitigated by the type of product offered (loans are secured where possibly by financial guarantees and real estate) and by the Bank's prudent lending policies. For mortgage loans the average loan-to-value ratio is approximately 50% and credit facilities are backed by gaurantees with conservative margins. This approach is further validated considering the Group's target retail clientele. The updated macroeconomic scenarios have led to € 0.3 million in write-downs as of June 2020. Loans that benefit from the moratoriums have been maintained at Stage 1 of the staging allocation, consistently with the regulators' guidance, unless additional and specific factors were existing or have occurred that have led to a significant increase in credit risk.
As for the remaining counterparties, including bond issuers, the greatest impact of the pandemic effect has concerned Sovereign exposures. In this case, the updated macroeconomic scenarios have led to write-downs of € 3.6 million for bond issuers and approximately € 0.8 million for the other counterparties, calculated according to IFRS 9 impairment models and their post-model overlay and adjustment rules.
The pandemic and consequent economic and financial crisis have not harmed the Group's overall liquidity, which remains solid and stable. During the first half of the year, even during the most acute phase of the pandemic, all key ratios and cash adequacy measurements highlighted wide safety margins with respect to regulatory and internal limits. In the first quarter of 2020, two factors strengthened the Group's liquidity position: the sale of assets by customers due to turbulence in the financial markets, and an especially significant increase in cash and cash equivalents, which further boosted the rising trend for high quality liquid assets (HQLA) that began in 2019. In the second quarter there was a gradual decrease in cash and cash equivalents due mainly to an uptick in customer investing, though they did not fall below standard pre-pandemic levels, representative of an extremely solid liquidity position. FinecoBank has experienced no difficulty or worsening of conditions in accessing the markets and executing transactions there (repos, securities trading) in terms of volumes or prices. For further details of liquidity management and liquidity risk, see Part E of this consolidated interim report.
From a structural point of view, in the near future there will likely be an acceleration toward solutions that will lead to a more modern, digitalized world: customers will increasingly do their banking on digital platforms, favouring the Group's founding business model.
Because it does not base its business model on a network of physical branches, FinecoBank has been less exposed to the risk of pandemics: customers can perform transactions online or with the guidance of personal financial advisors via web collaboration procedures, without experiencing any loss of service. The Group is also set up to ensure operational continuity and remote working arrangements for nearly all its employees, guaranteeing full maintenance of service levels and of the framework of controls without interruption.
Looking forward, then, the Group does not expect to see a substantial impact on its strategic orientation, its objectives, or its business model, which in fact will come out stronger; nor does it estimate an overall relevant impact on performance thanks to its diversified sources of revenues. For further details see the "Subsequent events and outlook" section of the report on operations.
The European and national authorities have responded to the financial crisis caused by the pandemic with a series of measures to support the real economy; the Italian government, too has passed various public relief packages for both individuals and businesses.
Below are the key measures adopted by the European and national authorities of potential benefit to the banking industry:
-
use of capital reserves and liquidity: banks can make full use of their capital reserves and liquidity; specifically, they can temporarily operate below:
o the level of capital defined by Pillar 2 Guidance;
o the capital conservation buffer (national authorities may also revise the countercyclical buffer rates); o the liquidity coverage ratio (LCR). - Pillar 2 Requirement: banks are allowed to partially use capital instruments that do not qualify as Common Equity Tier 1 (CET1) capital (for example, Additional Tier 1 or Tier 2 instruments) to meet the Pillar 2 Requirements (P2R).
- deduction of software from CET1: this is an acceleration of the regulatory procedure that should lead to the partial deduction from CET1 of intangible assets.
- application of transitional IFRS 9 rules: the ECB has recommended that banks that have not yet decided on the matter implement the transitional rules for adopting IFRS 9 as provided for in European Regulation 575/2013 (Capital Requirements Regulation or CRR). Note that the Group has not implemented the transitional provisions.
- request by the ECB that banks not pay dividends until at least October 2020: the ECB has revised its recommendation on the distribution of dividends by banks. To increase their loss absorption capacity and support loans to households, small businesses and corporations,
FinecoBank · Consolidated First Half Financial Report as at June 30, 2020 97
Notes to the accounts
Part A - Accounting policies
banks should not pay dividends for 2019 and 2020 until at least October 1st, 2020. Banks should also refrain from buying back their own shares to remunerate shareholders. As mentioned above, the ordinary general meeting of April 28, 2020 approved the Board of Directors' proposal of April 6, 2020 to carry forward the entire 2019 profit.
- market risk - Fundamental Review of the Trading Book (FRTB) - Standardised Approach (SA): the reference date of the first FRTB SA report pursuant to EU Regulation 876/2019 (CRRII) has been postponed to September 30th, 2021.
It should also be noted that on March 27, 2020 the ECB and the Bank of Italy recommended that banks not pay dividends until at least October 2020. In order to increase the capacity to absorb losses, and to support credit to households, small businesses and corporate companies, the aforementioned Authorities invited the banks not to pay dividends for the years 2019 and 2020, at least until 1 October 2020, and to refrain from the repurchase of own shares aimed at the remuneration of the shareholders. In this regard, please note that the ordinary Shareholders' Meeting called for April 28, 2020 approved the proposal of the Board of Directors on April 6, 2020 to allocate the entire 2019 profit to the reserve.
On 28 July 2020 both Authorities renewed the recommendation not to proceed with the payment of dividends for the financial years 2019 and 2020 (including the distribution of reserves), not to make any irrevocable commitment for the payment of dividends for the same financial years and to not proceed with the repurchase of shares aimed at remunerating shareholders until January 1, 2021.
Regarding the relief measures approved by the Italian government, the Group has adopted the following, including in consideration of its business model geared primarily toward retail customers:
- moratorium on retail mortgage loans. Main characteristics: I) scope of application extended to customers who were in financial difficulty pre-crisis, provided they are no more than 90 days late with their payments, and to freelance/self-employed workers; II) maximum duration: 18 months; III) the fund will pay up to 50% of the interest that accrues during the moratorium; IV) the moratorium already in effect for employees has been extended to freelance/self-employed workers whose revenues have decreased by more than 33% as a result of the emergency; V) elimination of ISEE (income cap) requirement; VI) suspension of complete payments (principal and interest);
- Italian Banking Association (ABI) agreement for household relief. This moratorium allows borrowers to suspend principal payments only for up to 12 months, while continuing to pay interest. It applies to secured loans other than those covered by the aforementioned programme, or to unsecured loans without government subsidies that meet certain conditions (disbursed before January 31, 2020; unimpaired or with unpaid instalments as of January 31st, 2020 for which the acceleration clause has not been invoked or the contract terminated or foreclosure initiated by third parties; mortgage loans must not be for luxury properties). To benefit from the moratorium, the applicant must also meet certain employment conditions (terminated for specified causes; laid off or reduced hours for at least 30 consecutive working days; more than a 33% decrease in revenue, due to the coronavirus emergency, compared with turnover in the last quarter of 2019 for freelance/self- employed workers) or have died or become non-self-sufficient.
The regular amortization plan will resume when the moratorium is over or at the customer's request, and will be extended for the length of time payments were suspended.
In the absence of additional elements not strictly related to the moratorium in question, FinecoBank has applied modification accounting to both of these programmes, in line with ESMA insrtuctions. Also, considering that interest will accrue on suspended payments, there should be no significant impact in terms of modification loss.
Risks and uncertainties related to the use of estimates
In the application of IFRS, management is required to make judgements, estimates and assumptions about the carrying amounts of certain assets and liabilities as well as the information regarding potential assets and liabilities. Estimates and related assumptions are based on previous experience and other factors considered reasonable under the circumstances and have been used to estimate the carrying values of assets and liabilities not readily available from other sources.
In particular, estimated figures have been used to support the measurement of some of the value-based items in the interim consolidated financial statements at June 30th, 2020, as required by the accounting standards and regulations. These estimates are largely based, as regards assets, on calculations of future recoverability of the values recognised in the accounts and, as regards liabilities, on estimates of the probability of using resources to meet the Group's obligations and on the amount of resources necessary to that end, according to the rules laid down in current legislation and standards. They have been made on the assumption of a going concern, on which basis these interim consolidated financial statements have been prepared, i.e. without contemplating the possibility of the forced sale of the estimated items.
The processes adopted support the carrying values at June 30th, 2020. For some of the above items the valuation is particularly complex given the uncertainty of the macroeconomic and market situation, as described in greater detail below. For other items, the complexity and subjectivity of estimates is influenced by the intricacy of the underlying assumptions, the amount and variability of available information and the uncertainties connected with possible future outcomes of proceedings, disputes and litigation.
The parameters, information and predictions used to determine the afore-mentioned values are therefore significantly affected by multiple factors, which could change rapidly in ways that are currently unforeseeable; this means that consequent future effects on the book values cannot be ruled out.
98 Consolidated First Half Financial Report as at June 30, 2020 · FinecoBank
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Finecobank S.p.A. published this content on 07 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 07 August 2020 12:13:14 UTC
