CrediaBank S.A. (BCA0.F) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Vassilios, your Chorus Call operator. Welcome, and thank you for joining the CrediaBank conference call to present and discuss the bank's agreement with HSBC Continental Europe regarding the potential majority acquisition of HSBC Bank Malta. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mrs. Eleni Vrettou, CEO of CrediaBank. Mrs. Vrettou, you may now proceed.

Thank you very much. Ladies and gentlemen, good morning, and welcome to today's investor call. We are very excited to be announcing that CrediaBank has signed a put option agreement with HSBC Continental Europe regarding the potential acquisition of the HSBC 70.03% shareholding in HSBC Malta. This is a transformational milestone in our company's history, as we enter a new overseas market in Malta and announced our second significant acquisition in the last 2 years. We started with a vision to transform Attica Bank into a high-growth, high-return banking champion within Greece, the fifth banking pillar that is differentiated from the other banks. Our first step was the successful completion of our merger with Pancretan Bank, the cleanup of our legacy balance sheet and the share capital increase. Today, we are announcing the next chapter in this journey. This is our very first international expansion. We entered the Maltese market. And in doing so, we effectively doubled our organizational scale and transform our business strategy towards a more diversified cross-border entity. Without any further delay, I would like now to delve into the transaction details. I would kindly ask you to shift your attention to our presentation published this morning. We have also allocated additional time for a short Q&A at the conclusion of this presentation. So to begin with on Page 4, we have outlined the key terms of this transaction. We have entered into a put option agreement for the acquisition of 70.03% from HSBC Malta. We have done this at an agreed price of EUR 200 million in the form of 100% cash consideration. The 70% majority acquisition implies a fully distributed valuation of EUR 286 million, a price to tangible book value multiple of 0.48x on a first half '25 basis and 3.7x price to earnings on 2025 estimated earnings. We expect the transaction to be capital neutral and financed entirely from CrediaBank's own resources at the time of completion. The transaction is subject to regulatory approvals by the Malta Financial Services Authority, the European Central Bank and Bank of Greece. Upon completion of the regulatory approvals, CrediaBank will launch a mandatory tender offer for the remaining minorities at a price of EUR 1.44 per share. This is the price calculated applying the MTO formula after yesterday's closing. Given the time required for regulatory approvals to be obtained as per standard process, the MFSA has granted an exception to CrediaBank to fix the price today. It is important to acknowledge that this price reflects the equitable price as defined by the MFSA capital market rules and will provide shareholders with a fair offer at a premium to the undisturbed share price. We seek to open -- we seek to maintain an open and respectful dialogue with the HSBC Malta shareholders base, who we value and for whom we want to provide a fair and transparent value proposition and more importantly, the opportunity to realize significant higher value creation and attractive returns alongside us. Finally, we are happy to confirm the support of both HSBC Malta and HSBC Continental Europe Board of Directors as well as CrediaBank's own Board of Directors, but also our main shareholders who have endorsed and supported this acquisition from the very first day. We anticipate the transaction will close by the end of 2026, if not earlier, subject to the customary corporate and regulatory approvals. If we turn to Page 5, we are acquiring a great asset with a unique positioning in an attractive and adjusting jurisdiction. Malta currently has the highest growth rate in Europe with a total GDP of EUR 23 billion in 2024. Malta's economy is expected to sustain its growth momentum in 2025, driven by robust domestic consumption and positive net exports. Following a notable 6% GDP expansion in 2024, the Maltese economy is expected to grow by circa 4% in 2025 and 4.1% in 2026. The labor market is projected to stabilize and inflation slow down. On the fiscal front, the debt ratio is stabilizing below 48% of GDP. HSBC Malta is the second largest bank in Malta with EUR 8 billion in total assets and 20% market share currently, focusing mainly on retail domestic business. It has demonstrated a consistent high teens return profile driven by its successful deposit-taking franchise and access to cheap funding, yielding circa EUR 6 billion of deposits, which has converted to a high-quality loan book of circa EUR 3 billion and minimal nonperforming exposures. The bank is also active in wealth management and insurance, commanding as well the second leading position in the market for both of these areas, 2 areas where we plan to further invest and exploit the synergies between the 2 countries. With the potential transaction announced today, CrediaBank is acquiring a majority shareholding in what is a well-capitalized but also prudently managed entity. The terms we have negotiated will also allow us to complete this acquisition with significant negative goodwill, above our hurdle return on invested capital and with significant profit after tax accretion. On Page 6, you can observe some of the immediate impacts from combining our 2 banks. We will effectively double in size based on indicative full year 2024 metrics. Our recurring pre-provision profit jumps to EUR 189 million. Our customer deposits increased to more than EUR 12 billion, and our total assets surpassed the EUR 15 billion mark. On a go-forward basis, we expect recurring profits to rise by EUR 90 million to EUR 100 million annually. We are doubling the size of our P&L, while optimizing our cost-to-income ratio given the very lean operating setup of HSBC Malta. It should be noted that this improvement comes pre-synergies, and we might be able to unlock further efficiency upside. While our loan book doubles initially, similar to CrediaBank at the moment, the excess liquidity of HSBC Malta allows us to put further emphasis on loan growth. We are determined to invest into the business so that we can shift our asset mix from money instruments to additional lending, and this may be potentially enlarge our loan book threefold. It is to be noted that HSBC Malta has attracted very limited investment in recent years by HSBC due to the strategic review and nonpriority stats of the country. As such, we believe that there is significant opportunity for us to reinvest in terms of both products, but also infrastructure and platform to drive growth and modernize the bank. Turning to Page 7. As we have already touched on, CrediaBank and HSBC Malta are very complementary businesses. We believe our combined lending focus will drive a more balanced loan book that delivers high-quality retail and SME exposures across the group's dual operating markets. HSBC Malta's well-established wealth management and insurance offerings add further diversification to CrediaBank's pro forma income mix, and we are excited about the potential for adding these additional offerings and income streams in our business. Some particular points to highlight in addition. We are creating a pro forma entity with over 90% of funding in stable customer retail deposits across both jurisdictions, allowing to have enough liquidity to continue our expansion in each country. In terms of loan quality, we found both assets have similar nonperforming exposure ratio and coverage ratio profiles. Upon consolidation, we do not expect large write-offs and provisioning needs. In fact, HSBC Malta has been historically releasing provisioning, adopting a very conservative policy. We will provide additional guidance on capital consumption in due course. But as already indicated, we expect that at closing this transaction, it will be capital neutral for us. We see this transaction as integral to our core strategy and as an opportunity to accelerate the delivery of our growth the Core 2025-2027 plan. It will deliver exceptional value to all our shareholders by effectively doubling the value of their investment and validating the support shown by the Greek government and private investors during our recapitalization in December last year. In particular, for the Greek government, this transaction allows them to almost fully recover their investment, while additional return is expected for them. Beyond the numbers, though, this transaction will also elevate our role in the European banking ecosystem and will open the door to more international markets in the future. Our intention -- if we go to Page 8, our intention is for HSBC Malta to remain independent and publicly listed in Malta. Assuming everything goes well, our intention is for HSBC Malta's current management team to continue running daily operations independently from our existing operations in Greece, which will remain undestructed. We hope to drive close collaboration and sharing of best practices. As just one example, we are excited to exploit and drive the revenue synergies between the 2 institutions by exchanging best practices in new products and cross-border collaboration. We also want and have committed to preserve Malta's local workforce and employment opportunities. I want to emphasize Credia's commitment to retain local staff for at least the next 2 years and provide equal opportunities within our group. We do not see the need for drastic administrative changes, especially as we believe that the bank is already well run and has a highly dedicated and skilled employee basis with whom we tend to work closely to drive value in the bank. I would like to take a moment to emphasize why we are the ideal the next steward for HSBC Malta -- where we are the ideal next steward for HSBC Malta. From the beginning of the process, CrediaBank stood out as a credible European regulated bank fully aligned with the rigorous EU framework. We have highlighted Malta as not just a financial investment, but a key strategic priority for us. We are committed to investing in the country of Malta through a revitalized banking platform geared towards growth. That's why our focus is to create revenue synergies, produce new competitive products, invest in technology, upgrade services to make the bank more customer-centric and lean. We want to invest in Malta and combine new digital solutions with personalized service, while maintaining the highest standards of risk and governance. Our management team has a proven record of successfully integrating banking operations as we have seen from our recent mergers of both HSBC Greece, but also the merger with Pancretan Bank. Today, we have also completed the operational merger and systems integration with Pancretan Bank, hence another milestone has also been completed just 1 year after the legal merger. Our experience, combined with our familiarity with HSBC structure, culture, infrastructure, the policies, the procedures allows us to approach this acquisition with a high degree of confidence and enthusiasm. Finally, turning to Page 9. I would like to share a little bit more detail on the expected timetable. The transaction is currently subject to an information and consultation process with HSBC Continental Europe's Works Council in France in accordance with HSBC's obligations under French labor law. If, following the finalization of the information and consultation process in France, HSBC decides to proceed with the transaction, we will enter into a definitive agreement for the sale and purchase of HSBC shareholding in the bank. This is a standard process for all subsidiaries that HSBC has disposed across Europe. In addition, we will enter into a cooperation agreement at that stage to govern our respective obligation during the period that we seek regulatory approvals and before the completion of the transaction. The regulatory approval process is expected to be initiated right after the signing of the definitive agreement. Upon completion of all regulatory approvals, as discussed, we will be launching the mandatory tender offer to minority shareholders at today's fixed price. The acceptance period of the mandatory tender offer is expected to take approximately 3 weeks. Given the above, we expect the transaction to complete in the fourth quarter of 2026, with signing and commencement of the transitional services agreement with HSBC no later than the end of December 2026. As we hope it has been made clear, this is an exceptional development for CrediaBank. We think this transaction will drive value creation and significant upside for our shareholders, but also for HSBC Malta and for the Maltese market more broadly. With that, we conclude the presentation part of this investor call, and we'll now invite any questions you may have. Thank you.

[Operator Instructions] The first question comes from the line of Souvleros Andreas with Eurobank Equities.

Congratulations for the transaction. I have 3 questions from my side. The first question is regarding the credit expansion. What is the credit expansion do you expect for HSBC Malta in the coming years? And this will come domestically or from international syndication? And this is my first question. The second question is regarding the securities book, given that it is a large security book. I would like some more details if it's possible, for example, the maturity of the book and the average yield on this book? And the final question is on the PPI target of EUR 280 million that you have guided in the past for stand-alone CrediaBank by 2027. And how should we think about this number now that HSBC Malta is included? That's my question from my side.

Thank you very much for your questions. Just to say a couple of things. As we said, we start now the regulatory approval process with HSBC for the acquisition of HSBC Malta. That means that the business plan that like we will need to submit to the regulator, like to the respective authorities, is still under preparation and has not been finalized yet. We expect that this will be complete before the end of the month. As such, it is not -- it's kind of premature right now to discuss about like the possible credit expansion targets and like the outlook of the business there before this has actually been through the governance that is required by HSBC Malta as well by the local entity. Now having said all that, I wish to reiterate that the Maltese business is predominantly a domestic business aside from the wealth management and insurance piece. So most of the book is actually comprised of mortgages like retail lending and mostly mortgages and some small SMEs. Therefore, our strategy is mostly focused as to how we can drive further the local book by new products that HSBC was actually shy of having extended to the local market, either on mortgages, consumers, but also on the commercial -- on the corporate side, which has been a very small proportion of the book. The same goes for the securities and average yield, again, because this is something that is still under discussion and diligence with the local team before we submit the plan to the regulator. I think we will refrain to answer this today, and we'll revert on that in a future call once we are able to give you more details around that. Now the third aspect about the pre-provision income target of 2027. Clearly, the acquisition of HSBC Malta is an accelerator to our business plan. And it also comes like with a few obligations as well because as you can appreciate, the bank will become a systemic bank after that. So as we go into the regulatory approval process for the acquisition of Malta, we are also asked to revalidate the business plan. So we're working again across all the previous assumptions and like strategies for both the Greek business and the Maltese business, again, in order to identify also all the revenue synergies and all the investment that will need to be undertaken for Malta. And therefore, this is also a target that like we will come back to you probably within October with the full disclosure of the new business plan for the group now. Having said all that, because you can appreciate that with the addition of HSBC Malta, the pre-provision income actually increases by EUR 100 million over the existing targets that we have set. We think that we can actually beat the 2027, EUR 280 million CPI target by the incremental amount that Malta will bring.

The next question comes from the line of Boulougouris Alexandros with Euroxx Securities.

Congratulations on the transaction. Just a clarification, you mentioned the EUR 90 million to EUR 100 million net profitability annually on a recurring basis. This is for 100% of the business, correct, not for the 70% you acquired? That's my first question. My second question is, given the exposure -- significant exposure in retail mortgages, if you could tell us a bit more about it? And is it floating, fixed, any details like that? That's it.

So yes, indeed, we confirm that the EUR 90 million to EUR 100 million is for the 100% of the bank. We will be consolidated, as you can appreciate with a 70%, let me know, majority stake. The one thing I'd like to raise here is that effectively, this has been a very sticky business in Malta with -- basically because it's purely domestic and retail. Now on the mortgage side, most of the book is actually on the floating base. There are a few fixed rate products as well, but very limited because also that had to do with the risk appetite of HSBC across Europe.

Maybe also as a follow-up, I understand you cannot give details on the loan growth, and we have seen HSBC Malta not growing much the loan book for their own specific reasons. But could you tell us a bit about the market growth? Is the loan growth -- what kind of growth do we see in the market in 2025, for example, in Malta, for the country, I mean...

Alex, this is Constantinos. We have a few slides on the Matlese economy and on the target itself. So on Slide 14, you can see what's the breakdown of the loan book of HSBC Malta, where predominantly out of the EUR 2.9 billion, EUR 2.1 billion are mortgages. Now as far as the Matlese economy is concerned, if you go to Slide 18, we present what's the outlook for total assets in the economy. So the expectation for this year is that approximately EUR 2 billion of new assets will be added to the total balance sheet of -- the consolidated balance sheet of Maltese banks. Growing by approximately EUR 2 billion for the entire market, that is, EUR 2 billion per annum for the foreseeable future. Actually, the Matlese economy is one of the highest growing economies in Europe. It grows faster than Greece, to be honest. While as far as penetration is concerned, on the bottom right-hand side of the page, you can see that there is still room, especially in the corporate -- in the wholesale banking space, where the penetration of loans as compared to GDP is at 50% compared to 72% in Europe as an average, with the same applying to retail loans as well. So it is a growing economy with a growing banking sector.

I mean, notwithstanding that, just to say that effectively the excess liquidity that you have in Malta because this is a euro liquidity, like can also be like an additional buffer to support further lending growth in Greece, where we're basically meeting all our plans as per the business plan. And we have a very strong profile of credit expansion.

[Operator Instructions] The next question comes from the line of Demetriou Alex with Jefferies.

Just one question from me. So just on the capital impact, you noted that it's capital neutral. Could you kind of just walk us through the impact of the transaction on your CET1 or perhaps just give us some color on what ending CET1 will be for the combined entity?

So I mean, as we said, indeed, we expect that the transaction is capital neutral based on the current business plan of CrediaBank at the time of the completion so that will bring us to the fourth quarter of 2026. As we have discussed, and you have to bear with us because we are actually releasing our second quarter financials, like our first half financials at the -- in a week's time so we can't really say much before we actually publish our financial statements. Where we say that during previous analyst call is that the bank has already embarked in a couple of nondilutive capital actions that are expected to generate additional capital for the bank, not a share capital increase before the end of the year. So with these actions being completed and given our target SREP levels, this is a capital-neutral transaction on the CET1 level. Now having said all that, because as you -- as I mentioned, we actually embark in a regulatory process and dialogue with ECB, and we also become a systemic bank. We cannot know from the outset what will be additional expectations or additional buffers that ECB may or may not ask. We do not know. So that is something that we will have better clarity because of the feedback we will get from ECB and MFSA, who is the primary regulator for the authorization of this acquisition, closer to the second quarter of 2026 when this process will have matured. Now if that means that ECB does request additional buffers, we will see whether the additional dilutive action -- nondilutive actions that we have taken are sufficient or whether we need to do something else. If they conclude that they are okay with the current SREP levels and our target CET1, then we do not need to raise any additional capital as we stand based on the current business plan.

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mrs. Eleni Vrettou for any closing comments. Thank you.

Thank you very much for the call today.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant day.