Piraeus Financial Holdings S.A.

Good afternoon, ladies and gentlemen, and good morning to those joining us from the US. I’m Christos Megalou, CEO of Piraeus Bank.

And I am here today with Theodore Gnardellis, Group CFO and Chrys Berbati, from our Investor Relations. Thank you for attending our Nine Month 2020 results presentation.

So I have two questions to start, the first one will be on the CoCo. So could you share a bit more on the rationale behind the discussions at the board level around skipping the coupon payment economic thinking?

You also have the choice of paying the coupon in shares, so any extra color there I think is helpful. Then second follows the capital position going forward more on Slide 22.

Your comments on the call around the additional firepower, you have to reduce NPEs by another 5 billion to 6 billion on top of the planned securitization. Just wondering if you have anything else in terms of targets or it could be target of NPE ratio, could also be a target of timing, this 5 billion to 6 billion NPE is for 2021, 2022.

And also, again, on the NPE reduction, is this assuming that Hercules continues as your main tool to decrease the stock of similar kind of securitization, or maybe there's another tool that you may be considering as well. Thank you.

On the CoCo discussion, given the decision of the ECB and given that in Europe there is a directive to preserve capital through this distribution bank, which of course applies also to Piraeus Bank. The decision of the board was to whether we will pay the CoCo company shares or whether we will not pay and therefore convert the whole 2 billion into equity.

Given the dilution effect and the disproportionality of dilution between the payment of CoCo coupon in shares and the whole conversion of the CoCo, it was pretty evident that the board decided to go for nonpayment and therefore to effect through this, and it was in the absolute discretion of the board the conversion into Piraeus Bank equity at €6 per share.

On the question on the NPE, our initial plan let's say was focused primarily on Phoenix and Vega recognition, which is a step change for the NPEs of the bank from the current level of the late-40s, 47% in Q3. It would get us to the early 30s, between 33% and 35% in 2021 and then on to the 20s in 2022.

Obviously now with the new capital that is being economized from the conversion plus the capital actions that we're presenting on '22, we're looking at a much more ambitious and more aggressive plan that will have material difference as early as 2021. The exact details are described and the inherent targets are still being devised and we’ll present them in our Q4 results.

My first question will be on the NPE formation from loans on the moratorium please. You've helpfully given us that 25% figure.

However it does strike me as quite high, especially considering that this is post all the support measures and moratoria were given to customers in good health in the first place. So can I check what do you think is causing this and how conservative is this view?

And similarly, do you have a view on the forborne and the moratoria portfolio, which I see was at 1.1 billion and what would be the inflows there going forward? My second question is on the capital actions that you're planning.

Can I check please why you've chosen to carve out the merchant acquiring business just strategically and what will be the impact of it on your fee base going forwards? And similarly, what's the impact you would expect from the other actions, such as the synthetic securitization on the P&L following those actions.

And my final question is on the tax expense in the third quarter, if you could give us any color on that that will be very helpful. Thanks very much.

On your moratoria question, on the 25%, this is an assessment that we have done bottom up, looking at the portfolio of the moratoria, also evaluating the payment figure of these as they come out of the market and to come back in it was a dynamic set. Is it conservative?

I would say it is a fair assessment right now and with a second lockdown that we're going through, we're targeting for this number. Could it be better?

It could be better and we will try for that. But what is important here to illustrate is that in the grand scheme of things and given the NPE levels of the bank, it is not something that rocks the numbers by that much, if it's 700 or 1.2 billion, it doesn't make that big of a difference in a program that tries to be recognized more than 20 billion of NPEs.

On the FMPs it's a similar effect. It will basically delay curings by some extent, which will affect the organic outflows.

Some of the FMPs will roll into denounced status by generating increased losses. Again, it's 1 billion of moratoria and the effect of that will be assessed over 2021, but it will have either a curing delay effect or an excess denouncement effect.

On the capital actions, the merchant acquiring. This is a deal that has happened across Europe.

We've also seen recent, big European banks going down that path. It is a very tech focused business with a lot of key payment players coming into markets.

We found value in being the inaugural transaction in this field, and this generates a big capital multiple for us versus for others carve outs.

A few more questions on the capital plan, you mentioned 600 million of capital issuance. What form would that take please?

And also any thoughts with the state moving to 61% share. Are there any thoughts of some kind of state supported recapitalization that might accelerate still further the NPE cleanup?

Anything on those two would be great. Thank you.

The 600 million that we have on the page is obviously an indicative number. It will depend a lot on the RWA projection of the bank, which is a product of the NPE plan, obviously.

So it would probably be a mix of nondilutive capital issuances of and/or Tier 2. But I would say that more on that we will give once the plan has been completed and there's absolutely no thoughts of any sort of state support or state aid consequences as a result of the COVID conversion.

Just wanted to get some color on the operating expense front. Are you still calling for mid single digit decline this year, maybe it would be even higher than that potentially.

And then obviously we think about 2021, I see some programs on 150 million reduction. If you could give us a bit more color there would be helpful.

Thank you.

Indeed, we're looking at very, very good cost performance in 2020 8% year-in-year. We should hover around those levels for year end, more closer to the 6% I would say for year end.

And for 2021 the 40 million reduction of payroll costs after the successful program that the bank has in run in transformation also gives a head start on the run rate for costs for continued cost reduction next year. Overall, the transformation program speaks for 150 million of cost reduction over the coming years.

Just wanted to check if you have anything you can share with us on the timeline of the issuance of new conversion shares at this stage following the coupon payments? Thank you.

As per the terms of the CoCo, the conversion will happen a month post the nonpayment of the coupon, i. e.

within the month of December 2nd. So therefore within the month of December, the results should be issued.

I just would like to please ask if you could give a little bit of color of the mechanics of the floating of NPEs in terms of what will be the capital cost, the capital benefit? I understand that when you offload something from your balance sheet, it should be a benefit in terms of reduction of risk weighted assets, as you mentioned in the first part of your presentation but in terms of coverage, what are the prices that you're seeing for the type of assets that you intend to dispose?

I apologize for the negativity of the question, I’m relatively new to the Greek market, but that will be very helpful for me. Thank you.

The recognition happens for the two securitizations on the back of the HAPS transaction. So there's a P&L hit and an expected RWA relief.

We have communicated that the overall cost for the Phoenix transaction, for example, that has concluded was in the 45 basis points that is a mix effect of a P&L loss, total consideration of the notes less than the current net book value of the portfolio, as well as the RWA relief that comes with it. The timing of both securitizations for the recognition is now scheduled for Q1 2021.

It's more a strategic one, these capital action will potentially fund another 5 billion NPE sales, but after the sales we still have 36 billion, 35 billion NPEs. What is your strategy on how to derisk the balance sheet of the bank going forward?

Thank you.

We are right now working on a more aggressive NPE reduction plan. We have been using and we have already implemented the mechanics of the Hercules program, which is extremely helpful in our derisking effort going forward.

And we will come back to the market together with our Q4 results outlining in detail this particular plan. We get some indicative numbers in our presentation coming out of the back of our capital enhancement plan and by the Q4 results, we expect to be, in March of 2021, we'll come with a lot of detail.

Thank you all for participating in our nine month 2020 results conference call. Looking ahead, I'm convinced that our track record for delivering results, along with our focused work to improve the bank's balance sheet, allows us to be optimistic that we have the ability to successfully weather the current situation, looking forward to discuss further with you in the following weeks.

Stay safe and healthy until we meet up close again. Thank you all.