Marfin Popular Bank, the new entity to come out of the merger of Laiki Bank, Marfin Financial Group and Egnatia Bank, has set very conservative targets, which are likely to be met and surpassed, leading to increased wealth accumulation for all shareholders.
During a teleconference with foreign analysts, Andreas Vgenopoulos, the strongman of the new entity, admitted that most of the forecasts made in the preliminary document submitted to the Exchange authorities have been prepared on “very conservative estimates”.
Marfin Popular Bank Group (MPG) is forecasting net profits of EUR 249 mln for 2006, the financial year which will see the merger completed, but thereafter, the profit targets are very conservative. Net profit is seen climbing to EUR 370 mln in 2007, EUR 440 mln in 2008 and EUR 510 in 2009.
“The loan portfolio growth rate has been calculated at 15% per annum, which I have to admit is on the low side,” Vgenopoulos admitted to analysts during the teleconference.
Another factor not taken into consideration is the declared intention to utilize the Group’s strong capital adequacy ratio of 17.7%, which according to Vgenopoulos will allow the new merged bank to boost its loan portfolio by “at least another EUR 30 bln”.
No capital increase
The good thing with having such a strong capital base is that not only will MPG be able to boost its loan portfolio, hence make more money, but it will also shield it from having to issue or call up new capital, which would dilute the interests of existing shareholders.
During the teleconference, Vgenopoulos also said that the return-on-equity (ROE) of the Marfin Popular Bank Group, based on the profit assumptions, gives an ROE of 10.7% for 2007, 12% for 2008 and 12.9% for 2009.
Such low ROE rates are not what Marfin, Egnatia and Laiki are known for, which is why there is no doubt that when Vgenopoulos says that he and his management team will make every effort to beat such a low ROE target, they will succeed.
Assuming that Marfin Popular Bank lifts its loan portfolio by EUR 30 bln and it follows its intended 50% payout dividend policy, then by 2009, the Group will see its capital adequacy ratio declining to 11%, which may then raise the issue of tapping the market for capital.
Synergies
The immediate benefit from the three-way merger is the cost-saving of EUR 80 mln in 2007 and EUR 120 mln in 2008, which according to Efthimios Bouloutas, CEO of Marfin Bank also taking part in the teleconference, is also based on very conservative estimates.
“Our cost synergy models are at about half of the typical European average savings ratio of 9% of operating costs,” said Bouloutas.
Asked to give an example of cost saving, he said all three banks have their own mutual fund management companies, which will be merged under one roof. The back-office of the Greek banking operations will also be merged, while other savings will emerge from the funding side, meaning the Group will be able to raise deposits at cheaper rates.
On the revenue side, the Marfin Popular Bank will look to tap its large customer base in all countries where it operates to offer better priced products, leading to higher market share, hence profits.
Expansion plans
Vgenopoulos said the new entity will most likely refrain from further acquisitions in Greece, “unless something really good turns up,” but will look to expand its branch network from the current 150 to 250 by 2009.
“We look to expand into the Mediterranean, Gulf and specifically countries with double digit GDP growth rates, with low banking penetration,” said Vgenopoulos, probably referring to fast-developing countries like the UAE and Egypt.
