Citigroup Inc. (C) Earnings Call Transcript & Summary

So I am Nicolas Bornozis of Capital Link, and I'm delighted to have with us Minister Christos Staikouras, who is the Minister of Finance of the Hellenic Republic; and Jay Collins, the Managing Director and Vice Chairman of Corporate and Investment Banking of Citi. I would like to thank Citi one more time for being a lead sponsor of this conference. Jay and I were talking we lost track 12 or 14 years already. So thank you to Citi for your commitment and support. Thank you to the Minister, who I know is more than busy dealing with the affairs in Greece and Europe everywhere, and of course, steering Greece through a very tough time. So without any more delay, Jay, the floor is yours, and again, thank you, all.

Thank you. Thank you, Nicolas and to the Capital Link team and effort. As Nicolas said, we've been doing this for 12 to 14 years. I've lost track, and I've been honored to be a part of it and live through some tumultuous times ups and downs of Greece and just honored to be here today. And Minister, fantastic to see you again. Thank you for doing this. For those of you that don't know me, my name is Jay Collins. I'm the Vice Chairman of Banking at Citi and have covered Greece as a banker my entire career, so I have a special place in my heart. I was complementing and thanking Nicolas for deeming the forms titled this year as Looking Ahead with confidence because I think we've been through so much and it's so important to look ahead, not just backward and to look ahead with confidence hopefully with vaccines, hopefully with a turnaround in this tremendously bad period of, [indiscernible] many ways that now is, but it is important to look forward. I will complement the Hellenic Republic and the Minister himself, though, looking a little bit backward at how you all have managed through this year and covering governments for Citi in over 100 countries around the year, I've had the chance to watch governments get it right and some not so right. And certainly, it's just extraordinary to have watched the management administered by you, by the Prime Minister and others, not just of the COVID crisis, but to continue the structural reforms to continue the green efforts, to continue the efforts to attract investment into the economy and manage this difficult fiscal situation that all governments are faced with and the need to respond to the crisis but also to do so with prudence. And so our hats are off to you, but also to the Greek people because I -- one of the things I've seen is how cultural some of this response is. And there's just something about how I think maybe Greek families, Greek people have come together and protected each other in a way that's special. I'm not sure there are going to be a lot of social scientists that write books on which countries got it right and wrong and what was different, not just about policies, but how people as human beings responded, and the Greek people have been very special. And I'm sure a lot will be told about that. So you have funded yourself through this crisis well, Minister. Citi has been honored to be a part of some of that. You've introduced digital transformation. I think one of the things I'd say that's grown fastest through this crisis as Citi is watch governments respond is that digital has been the great winner, so to speak, and the great accelerator and many governments have just bare hugged everything digital through this process. So a lot of transformation and certainly, sustainability and the green efforts have also -- not just the social and ESG, but across the environmental, social and governance factors, they've been a surge in sustainability efforts. So again, Greece has been a leader in that. So let's turn to the EU Minister now. And for those of you that aren't familiar with the Minister, he's been an extraordinary leader of his country, alternate Minister of Finance from 2012 to 2015, if my memory serves me. Head of the Democracy Economic Policy sector after that until becoming Minister of Finance, and over the last 15 months, really leading the way for the country across all things of economic and financial nature for the country. So we'll get into some questions in a minute, but minister, if I may now just turn to you for some of your comments and thoughts for our audience today. And again, thank you for being with us.

Thank you, Jay. Thank you very much for your kind words. Thank you, Nicolas, for the invitation. Ladies and gentlemen, I would like to thank, first of all, the Capital Link for organizing this important, high level Invest in Greece Forum, forum that take place in a period of high uncertainty. Unavoidably, the same happens for the Greek economy. Nevertheless, it has depicted a remarkable resilience due to the effective handling of the pandemic by the government. This is recognized by all stakeholders, namely the users, the markets, the investors, the rating agencies, and last but not least, the Greek society. Indeed, despite the fact that the Greek economy will suffer one of the deepest falls in economic activity in Europe on account mainly of its high exposure to tourism, we have adopted and expand a large set of timely-taken, well-targeted fiscal and liquidity expansionary measures that help CASM, the social and economic cost of the pandemic. These measures are financed by the prudent and neat management of [indiscernible] At the same time, as Jay mentioned before, amid the crisis, which necessitated a focus on more immediate priorities, we have significantly stepped up the pace of reform implementation. Indicatively, the new insolvency code has been adopted in the parliament, confirming our capability despite the confidence motion against the Finance Minister which was overruled. NPLs are in a steep downward trend, reduced by 30% over the last couple of years, which has continued despite the onset of the pandemic. Hercules, the asset protection scheme, has already been adopted by most smart banks while additional securitization projects are in the pipeline. The institutional framework for corporate governance has been upgraded and modernized. The asset development plan has been boosted with a significant expression of interest for the privatization of [ three peripheral ] ports. Plans to address long-standing weaknesses of certain state-owned enterprises has been put into action. And furthermore, as it is mentioned in the last year group report, good progress has also been made in key policy areas like public administration, as Jay mentioned before, digital governance, justice and anticorruption, energy, label market, fiscal policy, shelf sector and others. Consequently, despite the unprecedented circumstances, we have made good use of the time in order to speed up reforms, aiming at ensuring a solid base for recovery. However, the Greek economy continues to face significant challenges, which require resistant reform efforts. We are working prudently and methodically to address the remaining vulnerabilities to successfully tackle the health crisis, population movement and geopolitical turbulences and to make efficient use of the available European funds mainly those from the next-generation [ yield ]. The size of the envelope and its composition pose a unique opportunity for Greece to boost economic activity, through both investments and reforms that will have a prolonged and sustainable impact on the country's long-term economic outlook. Investments and reforms that build on and complement past and ongoing policies in the context of the enhanced [indiscernible] process, also reflecting horizontal European priorities. Investments and reforms, among others, to achieve efficient use of energy; to upgrade networks; to make sustainable use of resources; to achieve climate resilience; to digitalize public and private sector; to promote job creation and participation in the labor market; to improve accessibility and sustainability of health care; to increase access to effective and inclusive social policies; to enhance social cohesion; to make fiscal quality more growth-friendly; to improve tax administration and tax collection; to improve the efficiency of justice system; to strengthen the financial sector and capital markets; to promote endogenous source of growth like education, vocational education and training, a certain innovation; to promote exports; and to improve the business environment. Indeed, our RRP comprises of 4 pillars: the green pillar was reforms of investments that promote the green transition of the economy and include emblematic projects, such as a massive program of energy efficiency renovation, for residential buildings, businesses and public sector buildings and infrastructure. This program will achieve a threefold objective namely, the promotion of climate resilience, the creation of new jobs as well as the reduction of energy cost for households, businesses and the Greek state. Additionally, the interconnection of the Greek islands constitutes another emblematic green project, which will promote the penetration of the renewable energy sources as well as significantly reduce the energy cost for households and businesses. The second pillar, the digital pillar puts forward digital transition projects, such as the development of 5G network holders in all the Greek motorways as well as the digital transformation of SMEs. The third pillar, the employment, skills and social cohesion pillar, embrace reforms and investments that among others, increase the capacity and the resilience of the health sector. These set of factions includes a comprehensive prevention system, the upgrade of primary care services and the introduction of the therapeutic protocols in the e-prescription system, along with digital patient health e-codes. Also this pillar includes reforms that promote the autonomy and high-quality of education of universities and further advance their performance in terms of research and development. And finally, the private investment and economic and institutional transformation pillar will advance projects such as the development of high-quality infrastructure and transport systems that are multi-model, client-resilient, smart and sustainable. It includes investments in access of the Trans-European Network, such as the north part of A65 and the north road access of [indiscernible] This pillar also includes projects that support our persistent fight against tax evasion and smuggling by advancing the employment of artificial intelligence and other digital tools that facilitate effective control it. We have already submitted an ambitious and realistic draft of our national recovery and the resilience plan to the European Commission on the basis of which we are ready on close cooperation with the commission in order to formulate its final version. Its primary consideration is to cover the investment, output and employment gap. The mobilization of significant private sector resources is a central objective of the plan. This will pursuit through the extensive deployment of PPPs, public-private partnership, as a tool for implementing public investments; the use of energy service companies to implement energy efficiency projects in the public sector; and the use of cofinancing by employing financial instruments to leverage additional private resources in the implementation of eligible private investments. Taking parts of all the above, we will have the opportunity not only to recover, but to enter in a strong and sustainable upward trajectory, an opportunity that we are determined to size in order to restructure the economy, to enhance its productivity and to improve its competitiveness. We are looking forward with confidence. Thank you, Jay. Thank you, Nicolas.

Thank you, Minister. Fantastic. Well, on that note, as you look at -- as you look going forward, I'm curious, so much has changed through this crisis. Is there something that you look at out ahead next year that you believe will be fundamentally part of a new normal that is transforming something that's actually changed in terms of how you govern during COVID, but that you think now that new thing will be with us for a very, very long time?

I think we have to concentrate and tackle simultaneously 2 main challenges: first of all, to continue implementing a safety net above households enterprises as a short-term policy in order to capture the problems that arise from the pandemic, but at the same time, to implement our own strategic plan for growth, which will be financed through many European sources, as I mentioned before. Just to give you an intuition, we are going to receive a huge amount of money in the following years, and we expect just in 2021 to receive EUR 5.5 billion. We should concentrate on how we will make the best use of these resources in order to achieve high, sustainable, clever and social justice growth. Going forward 2 are the main pillars for the [ priority ] of the Greek economy: how we will achieve sustainable growth and how we will improve its composition. Because you know very well, we have discussed extensively, Greece faced for many years a significant investment gap, and we have to close it. In this direction, we set forward 2 priorities -- 2 objectives: the first, how we'll close the negative out gap safeguarding, at the same time, sustainable public finances; and the second, how we'll improve the economy supply side, in other words, it's product capacity in order to achieve sustainable and inclusive growth rates with a high level of social cohesion.

Great. And to do all that, given that you, others in the EU, that not necessarily to the same extent, entered the crisis with such a very strict fiscal discipline, how are you going to do that and maintain the fiscal discipline? And how are you responding to all of these needs, but at the same time, protecting the need for the fiscal discipline?

We will keep on fiscal discipline, but you know very well, but that at the European level, we have fiscal flexibility at the moment. I think that on time, we are going at the European level to have this fiscal flexibility for 2020. We extended it for 2021, and we will discuss it once again around summer of 2021, how we'll go ahead with 2022. But fiscal relaxation does not mean that we should not have a fiscal discipline. This means that we should concentrate on an expansionary fiscal policy that will be prudent, targeted on the part of the society that suffers from COVID-19. At the same time, we don't have only deficits, but we have also debt. And you know very well that we have a high level of debt that will increase at the European level, but also from Greece. But on the other hand, we managed, and this has been confirmed by all reports, the most recent coming from ESM and the European Commission and IMF that the Greek debt is sustainable. Why? Because since and after 2012, we managed to improve the composition of debt, the debt profile as it is recorded. So in this case, the annual financing needs of the Greek debt has been reduced significantly, and we expect that we will reverse the situation in the denominator by having a strong growth from 2021 onwards, which will improve even more the sustainability. And if I can make a final comment. In this context, I should stress the critical importance of the next-generation EU program primarily the proper and efficient use of grants from the recovery and the resilience facility. It is critical to achieve the optimum design and swift implementation of the national recovery plans because since we have limited physical space, we should take advantage on grants on appropriate way.

Great. Well, that's fantastic, and to hear how you're incorporating that into the green challenges, but also opportunity is fantastic. Listen, as a banker, having watched Greece through crisis in the past and watching, in particular, the financial sector and its stability I can't but help ask you a little bit about the future of MPLs. I've read through the ECB reports and others that are talking about how the fiscal monetary and prudential regulatory frameworks that have managed us so well through the crisis have essentially prolonged what will eventually be a hit to many banking systems and the potential that we see significant deteriorations in the out years of NPLs. How worried are you about the eventual consequences for the banking system of the crisis, and in particular, about, let's say, looking forward, as the topic of the conference, 12, 18 months, whether banks will still be in a position to continue to lend to the SMEs and sectors that are so critical for your growth?

I will share with you what I mentioned in the last year group, when we discussed the introduction plan, not only for Greece, but the whole Europe regarding the challenges that the European banking sector will face in 2021 onwards, mainly coming up from the COVID-19 outbreak. The implementation of [indiscernible] plan, in order to maintain financial stability, to improve banking competitiveness and to enhance governance and transparency is a priority of the Greek government. To achieve this target -- targets, as we mentioned before, we should reduce more radically the stock of NPLs. This will be achieved through the implementation of specific policies. First one, the adoption as soon as possible of the secondary legislation under the implementation of the necessary IT system to ensure an effective enforcement of full collateral with the new insolvency framework enters into force, addressing both the adverse selection and the moral hazard issues, both of which have contributed significantly to past NPL accumulation. Furthermore, through the early warning system pillar, the insolvency law reduced the probability that a properly service law will fall into the NPL category. The OCW mechanism embedded in the law will also be helpful for the same direction. The second priority is a possible extension of the Hercules scheme since it is close to assume within an environment of record low yields, that demand will exist for properly rated, higher yield securitized assets. The third priority is an establishment of a public credit bureau, providing credit scoring of existing and potential debtors. This is included in the RRF-plus plan as it helps by resolving the information of Symetis problem between borrowers and lenders; and finally, the introduction of a central credit register, hosted by the Bank of Greece, recording on a granular basis the payment history of its individual loan. Combined with the establishment of the [ cash flow ], that will boost further the operation of the already functional secondary NPL market. These are the priorities we have gone ahead in order to tackle the NPL challenges that all European countries will face.

Fantastic. Well, I think we've run out of time, Minister. I think we could go on for much longer, but I understand the constraints on your time and we have to move on to the next agenda item for our program. But thank you again for your comments and your candor today. And wish you and the government and the citizens of Greece, all the best through the crisis, and congratulations, again, on your continued efforts.

Thank you, Jay and Nicolas.

Thank you for me to -- for this very insightful discussion. Thank you.