Hellenic Bank, claiming to be the biggest retail lender after taking over the good operations of the Cyprus Co-operative 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 €23 mln, compared to €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 €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 €298 mln as a result of the Acquisition and the increased impairment losses of €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 €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 €9.3 bln, comprising of loans of €4.0 bln (€3.6 bln of performing loans and €400 mln of NPEs), Cyprus Government Bonds (“CGBs”) (€4.1 bln), cash (€1.0 bln), customer deposits (€8.8 bln) and certain other current liabilities and assets.
In addition, some €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 €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 €9.44 bln, comprising of loans of €4.272 bln, bonds worth €4.074 bln, cash of €1.014 bln and customer deposits of €8.78 bln.
After a ‘fair’ valuation, the net asset value transferred to Hellenic after the valuation adjustment amounts to €247 mln, with the acquirer paying a final amount of €74.2 mln. The total value of loans covered by the asset protection scheme amounts to €2.608 bln.
KEDIPES said the government intends to recover its capital injection of €3.6 bln through an “independent and prudent management of assets”.
These recoverable assets include loans worth €7.371 bln, real estate worth €681 mln, cash in the bank of €81 mln and other investments worth €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.
