17.3.2021- Piraeus Bank: Results Q4/FY:20 review

Piraeus Bank (Results Q4/FY:20 review): Piraeus announced Q4:20 losses of €518m on higher impairments and one-offs despite posting resilient core income in mixed set of quarterly results. Piraeus Bank reported full-year losses of €668m, and €652m from continuing operations. The 2020 bottom-line was burdened also by taxes of €128m, mainly attributable to the tax impact of Phoenix and Vega securitizations. In full year basis:

§  Net Interest Income reached €1,486m, +4% y-o-y. Funding costs have been particularly supportive -19% y-o-y, due to the significant containment of deposit costs and the utilization of the ECB TLTRO III facility, which absorbed the increased cost of Tier 2 debt servicing. The €3.9bn and €6.3bn of new loans disbursed in 2019 and 2020 respectively, as well as the increased fixed income holdings, have contributed to the growth in the NII line. ΝΙΜ in FY.2020 stood at 2.2% compared to 2.3% in FY.2019, on the back of a significantly increased asset base.

§  Net Fee and Commission Income stood at €317m, flat y-o-y, a resilient performance given the lockdown headwinds during most of the year. Net fee income over assets stood at the level of 0.5%, stable vs FY19.

§  Operating expenses in FY:20 reached €891m (-7% y-o-y) on a like-for-like basis; including one-off items and the fees paid to the NPE servicer, total operating expenses increased by 7% at €1,084m. Recurring staff costs declined by 10% y-o-y as the Bank is reaping the benefits of the carveout of the NPE servicing platform and the 2019 VES. Administrative costs (including gains from sale of property) increased by 3% y-o-y at €399m, as NPE servicer related costs accrued in 2020 for the whole year compared to 3.5 months in 2019.

§  Loan impairment charges stood at €1,104m from €710m during 2019. One-off impairments attributed to the COVID-19 pandemic and other impairments booked in the context of the new NPE reduction plan amounted to €695m in 2020. Underlying CoR as a percentage of net loans stood at 1.5% in 2020, compared to 1.7% in 2019.  Additionally, in order to capture the uncertainty derived from the COVID-19 pandemic, the Group increased the Stage 2 loans by €0.8bn in Q4:20.

§  Pre-tax losses in 2020 stood at a €530m compared to a profit of €389m in 2019.  Adjusting for one-off staff restructuring costs and impairments related to COVID-19 and the NPE clean-up preparation, the Group would have booked a pre-tax profit of €312m from its recurring operating lines, against a recurring pre-tax profit of €74m in 2019.  Group net results stood at a loss of €668m, compared to €276m net profit in 2019.  FY.2020 tax stood at €128m, mainly attributable to the tax impact of Phoenix and Vega securitizations.

§  Deposits amounted to €49.6bn at the end of December 2020, up 5% y-o-y. Gross loans before impairments amounted to €49.5bn at the end of December 2020, while net loans amounted to €39.6bn. The Bank’s domestic performing loan book increased by €1.5bn in FY:20, with business lending as main driver. Loan disbursements reached €6.3bn in 2020, from €3.9bn in 2019. State Support Programs utilization reached €1.7bn in 2020 to assist COVID-19 affected customers.

§  NPEs stood at €22.5bn at the end of December 2020 down from €24.5bn a year ago. The NPE coverage ratio remained stable at the level of 44%. The Phoenix and Vega NPE securitizations of €7bn total gross book value, which are expected to be completed in mid-2021, will further decrease

§  the NPE stock of the Group, while additional NPE de-risking transactions are in progress at the moment, building on the improved capital trajectory of the Group. NPE outflows remained strong during 2020 despite auctions being suspended for the largest part of the year. On the other hand, inflows picked up in Q4.2020, mainly due to the first group of moratoria expirations. During Q4:20 €3.3bn moratoria expired, reducing active moratoria to c.€1bn at the end of December 2020.

§  Common Equity Tier 1 ratio of the Group as at the end December 2020 was at 13.8%, while total capital ratio stood at 15.8%, improved by 23bps during 2020 and comfortably above the total capital requirement including COVID-19 flexibility of 11.25%. Fully loaded CET1 and total capital ratio stood at 11.3% and 13.4% respectively. The capital position of the Group will be further enhanced by additional capital actions already underway, summing up to c.€2.6bn.

More importantly the bank presented an updated plan for reducing NPE exposures:

§  Piraeus said that accelerates NPE reduction to reach a single-digit NPE ratio in the next 12 months, through the securitization and subsequent de-recognition of NPEs with a total estimated gross book value of up to €19bn (including Projects Phoenix and Vega); moving to the next significant milestone in this accelerated plan, Piraeus Bank submitted today an application for the inclusion of its new c.€7bn Sunrise 1 NPE securitization in the “Hercules” Scheme;

§  A share capital increase of circa €1.0bn will take place via a non-pre-emptive fully marketed offering, which, along with the non-dilutive capital enhancing actions already completed or under way, will result in a cumulative capital benefit of approximately €2.6bn, including potential Additional Tier 1 issuance of up to €0.6bn.

§  The bank aims to a single-digit NPE ratio in the next 12 months and below 3% in the medium term, via ongoing organic and inorganic NPE management, incorporating any COVID-19 related inflows. NPEs are expected to decrease from €22.5bn at the end of 2020 to c.€3.6bn in the next 12 months and to c.€1bn in the medium term; Total capital ratio above 16%, following improved organic capital generation and debt issuance as per MREL compliance strategy; RoATE above 10%, unlocking the underlying business potential post NPE clean-up.

§  In the conference call management stated that is still early to talk about dividends. BoP provision coverage post “Sunrise” securitizations will be at “40s” and gradually lift to 100%. Mezzanine notes distribution is not yet decided. A c300m increase in NII in the next three years will be achieved through a €10bn credit expansion. Piraeus Bank is targeting PPI of € 0.9bn in the short-term and €1.1bn in the medium-term; EBT of €0.4bn in the short-term and €0.8bn in the medium-term.

§  EGM resolution on April 7 (along with reverse split and stock option plan), mid-April launch of book-building and late April pricing announcement – final offer price to be approved by the BoD. New shares will resume trading early May. HFSF plans to reduce its participation to a non-blocking minority shareholding, while confirming its intention to fully support the capital increase.

Overall an ambitious plan which aims to transform the Piraeus into a proper bank institution with significant organic recurring profitability.

The following table summarise Q4:20 results

 

Bank of Piraeus

 Actual

Overview

(In Million Euro)

4Q19

3Q20

4Q20

QoQ

YoY

NII

363.0

380.0

378.4

-0.4%

4.3%

Fee income

91.0

81.0

85.4

5.5%

-6.1%

Trading

359

35

11

-68.6%

-96.9%

Other Income

0

0

0

Total income

813

496

475

-4.3%

-41.6%

Operating costs

-264

-234

-399

-70.5%

-51.1%

Pre-provision-profits

549

262

76

-71.0%

-86.2%

Provisions

-221

-146

-378

-158.9%

-71.0%

Other results

-50

-34

-95

-179.4%

-90.0%

PBT

278

82

-397

-584.3%

-242.9%

Corporate taxes

88

77

118

53.2%

34.1%

Net profit (continued)

190

5

-515

Discontinued operations

0

-2

-3

Net profit

190

3

-518

 

MANOS CHATZIDAKIS – BETA SECURITIES