Hellenic Bank acquisition by Eurobank viewed positively by Fitch

International credit rating agency Fitch recently released a piece of analysis on the acquisition of Hellenic Bank by Greek lender Eurobank, with the agency noting that the completion of all transactions related to the latter’s share increase is expected to be concluded without any issues.

This is in reference to Eurobank’s recent moves to increase its share in the Cypriot bank, which, in turn, will trigger a mandatory public offering for the bank’s shares.

Fitch stated that it believes that the integration process will proceed smoothly despite any potential risks typically associated with such a substantial acquisition.

Eurobank recently made two announcements outlining agreements for stock purchases. The bank has secured deals with the American firm Pimco to acquire a 17.3 per cent stake in Hellenic Bank for €167.9 million, as well as a 1.6 per cent stake from Senvest Management LLC for €15.5 million.

Pending regulatory approvals, these transactions will increase Eurobank’s ownership in Hellenic Bank from 29.2 per cent to 48.1 per cent.

Additionally, based on Cypriot legislation, Eurobank has revealed plans for a public tender offer for all shares of the Greek Bank after the completion of the deal.

“The full impact of the planned acquisition, for both banks, will not be clear until the transactions are concluded, along with the subsequent completion of the mandatory public offer,” stated the agency in a press release issued last Friday.

What is more, Fitch emphasised that Eurobank’s announcement to further increase its stake in Hellenic Bank aligns with its intention to gain control over the Cypriot bank, as part of its strategic plan to solidify its presence in key international markets.

“We see a significant likelihood that Eurobank will achieve a controlling stake in Hellenic Bank following the mandatory offer,” added Fitch.

The exact final ownership stake of Eurobank and the capital impact of the acquisition remain uncertain. Fitch explained that these factors depend on the number of shares ultimately acquired, the price paid, and any potential negative goodwill arising from the acquisition.

With total assets of €20.2 billion as of the end of March, Hellenic Bank constitutes 20 per cent of Eurobank’s combined total assets, which are estimated to stand at approximately €100 billion.

“If completed, the acquisition will enhance Eurobank’s business model, increase geographical diversification, and result in a better balance between retail and corporate banking activities,” Fitch noted.

While Eurobank holds a non-performing loan ratio of 5.9 per cent (excluding securitised loans), the equivalent ratio for Hellenic Bank stands at 3.4 per cent (excluding loans covered by the Asset Protection Scheme).

Fitch continued by saying that “we anticipate a smooth integration process, despite execution risks associated with a large-scale acquisition”.

“Both banks’ complementary business and credit profiles, along with Eurobank’s familiarity with the Cypriot market, support this positive outlook,” the agency added.

Finally, based on the acquisition price paid to Pimco and Senvest (€2.35 per share), Fitch estimated that Eurobank’s acquisition of the entire equity of Hellenic Bank will cost approximately €700 million, equivalent to 10 per cent of the Common Equity Tier 1 (CET1) capital ratio at the end of June.

This corresponds to 50 per cent of its annualised profit for the first half of 2023, which Fitch believes is manageable.