Hel­lenic Bank 9M record prof­its driven by Co-op takeover

Financial Mirror (Cyprus) - - CYPRUS - By Ma­sis der Parthogh

Hel­lenic Bank, claim­ing to be the big­gest re­tail lender af­ter it took over the good op­er­a­tions of the Cyprus Co­op­er­a­tive Bank ear­lier this year, re­ported a record af­ter-tax profit of EUR 295.9 mln for the nine-month pe­riod, driven mainly by the ‘neg­a­tive good­will’ of EUR 297.9 mln tied to the deal.

Neg­a­tive good­will is an ac­count­ing term to de­scribe the amount that Hel­lenic saved from not pay­ing for the full value of the Co-op takeover, in ef­fect show­ing a profit.

The bank said in its an­nounce­ment that “ex­clud­ing the neg­a­tive good­will and other one-off items, the ad­justed profit be­fore pro­vi­sions for the third quar­ter was EUR 23 mln, com­pared to EUR 9.2 mln in the sec­ond quar­ter.”

Else­where in its an­nounce­ment, un­der “Trad­ing Up­date for the fi­nan­cial re­sults of 4Q2018”, it said that the profit af­ter tax for the fourth quar­ter of 2018 is ex­pected to show a neg­a­tive de­vi­a­tion com­pared to the profit af­ter tax of EUR 261 mln of the cur­rent (third) quar­ter”.

The Hel­lenic Bank an­nounce­ment ex­plained: “The neg­a­tive de­vi­a­tion, is ex­pected to arise from the in­clu­sion in 3Q2018 of (a) neg­a­tive good­will of EUR 298 mln as a re­sult of the Ac­qui­si­tion and the in­creased im­pair­ment losses of EUR 61 mln mainly re­lat­ing to the ac­quired perime­ter re­sult­ing from IFRS9 re­quire­ments (b) only one month’s per­for­mance of ex-CCB iden­ti­fi­able as­sets ac­quired and li­a­bil­i­ties as­sumed com­pared to a full quar­ter in 4Q2018.”

Fol­low­ing the CCB takeover, the Group’s to­tal as­sets more than dou­bled to EUR 16 bln, mak­ing it the lead­ing re­tail bank, with the largest branch network and with mar­ket shares of 39% (up from 12%) and 30% (up from 6%) in house­hold de­posits and loans, re­spec­tively

Hel­lenic Bank is now the sec­ond largest bank in Cyprus, with mar­ket shares of 20% (up from 9%) and 31% (up from 12%) in terms of loans and de­posits, re­spec­tively.

“The ac­qui­si­tion of ex-CCB strength­ens our busi­ness model and pro­pels the bank into con­sis­tent, healthy prof­itabil­ity,” said Hel­lenic CEO Yan­nis Mat­sis, adding that “the strate­gic steps and the cor­rec­tive ac­tions we have been tak­ing over the last few quar­ters are yield­ing re­sults.”

The Co-op deal in­cluded ac­qui­si­tion of a bal­ance sheet to­tal­ing EUR 9.3 bln, com­pris­ing of loans of EUR 4.0 bln (EUR 3.6 bln of per­form­ing loans and EUR 400 mln of NPEs), Cyprus Govern­ment Bonds (“CGBs”) (EUR 4.1 bln), cash (EUR 1.0 bln), cus­tomer de­posits (EUR 8.8 bln) and cer­tain other cur­rent li­a­bil­i­ties and as­sets.

In ad­di­tion, some EUR 431 mln of non-per­form­ing ex­po­sures (NPEs) are guar­an­teed by the govern­ment, through an As­set Pro­tec­tion Scheme and are 90% pro­tected through a ver­ti­cal loss shar­ing with ex-CCB.

Hel­lenic’s new liq­uid­ity po­si­tion is now “well above min­i­mum reg­u­la­tory re­quire­ments and com­pares well with the EU av­er­age” with a CET1 ra­tio (on a tran­si­tional ba­sis) of 18.2% and cap­i­tal ad­e­quacy ra­tio of 20.9% tak­ing into ac­count the EUR 150 mln fully un­der­writ­ten cap­i­tal raise, ex­pected to be com­pleted by March 2019.

Also, thanks to the Co-op deal, Hel­lenic has low­ered on a quar­terly ba­sis its NPEs ra­tio from 51.6% to 25.6% and Net NPEs to as­sets ra­tio re­duced from 12% to 4%.

The bank’s re­sults co­in­cided with an an­nounce­ment from KEDIPES, the ex-CCB en­tity, which said the two sides com­pleted their val­u­a­tion of the trans­ferred as­sets and li­a­bil­i­ties on De­cem­ber 18, with a to­tal bal­ance sheet of EUR 9.44 bln, com­pris­ing of loans of EUR 4.272 bln, bonds worth EUR 4.074 bln, cash of EUR 1.014 bln and cus­tomer de­posits of EUR 8.78 bln. Af­ter a ‘fair’ val­u­a­tion, the net as­set value trans­ferred to Hel­lenic af­ter the val­u­a­tion ad­just­ment amounts to EUR 247 mln, with the ac­quirer pay­ing a fi­nal amount of EUR 74.2 mln. The to­tal value of loans cov­ered by the as­set pro­tec­tion scheme amounts to EUR 2.608 bln.

KEDIPES said the govern­ment in­tends to re­cover its cap­i­tal in­jec­tion of EUR 3.6 bln through an “in­de­pen­dent and pru­dent man­age­ment of as­sets”.

These re­cov­er­able as­sets in­clude loans worth EUR 7.371 bln, real es­tate worth EUR 681 mln, cash in the bank of EUR 81 mln and other in­vest­ments worth EUR 121 mln.

Some 1,100 ex-CCB staff moved to Hel­lenic and the bank re­tains the rights on 72 branches.

Fi­nally, KEDIPES said that its staff now com­prises of 280 peo­ple, while a fur­ther 242 moved to Al­tamira As­set Man­age­ment (Cyprus) Ltd., the re­cov­ery com­pany deal­ing with the 90-day-plus non-per­form­ing loans.

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