Piraeus Financial Holdings S.A.

Good afternoon, ladies and gentlemen, and good morning to those of you joining us from the U.S. I’m Christos Megalou, and I’m here today with Theodore Gnardellis, Group Chief Financial Officer; and Chrys Berbati, the Head of our Investor Relations and Group Planning.

Thank you very much for attending our conference call. Today along with our financial results for 2020, we are announcing a series of major transformational transactional transactions that form the foundation of what Piraeus Bank is said to deliver in the years to come.

Following significant effort by the Piraeus Bank team, we have now signed definitive documentation for certain corporate actions we have been pursuing over the past few months, which will decisively derisk our balance sheet, transform our profitability outlook and secure a solid capitalization for our bank. In addition to the actions undertaken, which will be formally completed in the coming quarters after receiving all the necessary approvals.

We are calling an extraordinary General Meeting for Piraeus shareholders to authorize the Board of Directors to proceed to a share capital increase of circa €1 billion. Before delving into the details of the plan, let me stress the fact that our plan is a self-imposed strategic overall that will frontload our existing strategic agenda.

We are becoming a legacy free, strongly capitalized bank with a single objective to fund the great economic recovery from a position of strength and in a highly profitable capital generative fashion. Starting with Slide 35, I want to emphasize that we are building on a solid base.

We are the largest bank in Greece, serving approximately 60% of bankable customers through a widespread commercial network with consistent recognition for the quality of our services. We are and will remain at the forefront of market developments, including sustainable banking and digitization.

Moving to Page 36, the bank's recent journey could be seen in several phases. Our corporate governance was revamped in 2016 and 2017.

And later, during the 2018/2020 period a number of important initiatives were launched to revitalize our bank. We accelerated the cleanup of our balance sheet.

And in 2019, we established a long-term strategic partnership with Intrum for the management of our NPE stock. We have successfully navigated COVID-19 and we are proud to see our NPE stock and operating expenses decline considerably as compared to our starting point in early 2017.

Going forward, we plan to transform Piraeus Bank even further by conducting a radical NPE cleanup in order to achieve a single-digit NPE ratio imminently within the next 12 months and land to an NPE ratio below 3% by 2024.

Hi, thanks for the call and thanks for the detailed presentation. So my first question is on capital.

So as far try to understand, there is no more room for Tier 2 issuance right and any capital non-diluted capital action will be done via the AT1. Also on the same topic, given that your competitor had mentioned opening the discussion potential possible discussions for dividends after 2022 just wondering if this is something that is also part of your plan?

Then my second question is on coverage. I don't know if I missed on the presentation.

But I'm just wondering what kind of, let's say over the cycle coverage level, we should expect you guys to report after the derisking is done. And then my final question is on your MREL plan.

I see that you haven't realized 52 the €30 million impact on NII as I'm just wondering, what is the - level, to what level the €30 million referred to in the coming years? Thanks.

Hi Jonas, so first question indeed the non-dilutive capital that we will be issuing is a AT1 the Tier 2 has indeed been covered and from the reduce side of UAE trajectory. Now, it is actually fully covered.

There was some buffer before that we had mentioned, but with the new cleanup, indeed, there's no more room for Tier 2, AT1 will be the upcoming issuance. On dividends obviously, the bank is guided for strong profitability in the medium-term.

Realistically for Piraeus Bank, this will happen post the IFRS phasing is completed in 2023 at which point the strong profitability from 2024 onwards will provide room for above average dividends. In terms of coverage levels, immediately in the short-term, we would see similar coverage levels as the ones that we have today so around the mid 40s.

Then on this will gradually escalate so, that in the medium-term we will reach coverage levels of around 100%. And regarding the MREL target, our medium-term MREL target towards the end of 2025 is in around 25% to 26%.

We will be gradually covering that over the coming years with senior bond issuances. And obviously, the AT1 will also contribute to this target so that we can gradually reach those levels and this is incorporated in the plan.

.

Mr. can you hear us?

Mr. .

Thanks very much for taking my calls. And question firstly on AT1 and timing on that, is that going to be after the rights issue?

And would that be supported by the HFSF as well as the rights issue over this pure market deal? And then I had another couple of follow-up questions, please?

Hi Corinne, the timing of the AT1 issuance will really depend on market conditions. It does not have to happen before nor it, doesn't need to happen afterwards.

It will happen over the coming period, depending on market opportunities. We believe that as soon as the plan crystallizes, the right conditions will be in place in the market for us to proceed without issuance.

And to the second part of your question, this will be a fully market offering.

Thank you. And on the securitizations that you're preparing, do you still see in the market strong appetite for mezzanine debt or will this be a partial spin-off to shareholders?

The placement strategy for the mezzanine and junior tranches has not been finalized yet, all options are open. We are very proud of the way that we concluded the Phoenix and Vega transactions.

But in terms of demand, let me just remind you that these mezz tranches actually go for quite some considerations. So, for us to crystallize the capital impact what was very important and what we have achieved is to finalize and have very good estimates on the senior note sizes.

At some point soon enough, we will be able to place the mezz notes in accordance with HAPS law and achieving therefore significant risk transfer.

Thank you. And then last question, and I see that you still kind of refer to the combined buffer as being a part of your usable capital, available capital right now.

Is it something you actually expect to do to dip into the combined buffer or are you literally just reflecting on that slide the fact that it's possible, even if it's not necessarily in your in your plans? Thank you.

We are aware of the tolerance and the relief that has been given on these buffers, and that's why we mentioned them in the material. The plan however, is not dependent on us going into those buffers.

And actually calculate capital levels above OCR at every point in time.

Hi, thank you for taking my question. The first one is on an NII, you are targeting €350 million additional in NII from the performing loans.

Can you give us the assumptions or loan growth rates and this number includes also the Tier positive impact in the coming years? On cost, can you give us more details on the timing of the cost savings on Slide 54 and also I saw that you booked €147 million this quarter?

What covers this amount of restructuring costs and if we need to express the other additional restructuring costs in the coming month? And the last one, can you give us more detail on how moratoria are evolving in these three months over 2021?

Thank you.

Hi Alberto, so in terms of your question on NII, the assumptions are really depicted on Page 52, where we showing that performing exposures will deliver €300 million extra interest income over the coming four-year period. It really assumes a €10 billion cumulative credit expansion over the coming four years at slightly lower rates to what we have today as a result of the mix.

This I have to say does not take into account the Telstra because in terms of the way that we accrue for Telstra, we are still accruing it at negative 50 basis points. So years 2021 and 2022 will benefit from one-off gains from the enhanced total returns at minus 1% so, that will basically defend the NII levels of 2021 and 2022.

While the, performing exposures are kicking in to step-up the overall interest income that we see on this page on page 22. In terms of the timing for costs, it's really a gradual drop that we will be seeing on all lines.

Of course, we saw a substantial reduction of cost levels like-for-like on lines already in 2020. This trajectory is expected to continue throughout the upcoming three year period.

In terms of VS costs and thank you for the question the charge that we've got incorporated into the 2020 P&L has also generated a reserve of over €50 million that we will be using for future restructuring costs. So, it is the actual cost for the reduction that we have done on staff in 2020 is actually below €100 million.

And in terms of moratoria, we have stepped up the disclosure in this result. And we are illustrating how the moratoria have evolved.

The fact is that moratoria is last year is really phenomenon most of them have already expired. Our current active moratoria is something above €1 billion, you can see also the evolution of the moratoria how they expired on Page 28.

So far, I mean some of the early expiry vintages have already generated some first NPEs. The current conversion level is at around 5% as we're seeing on Page 29.

And so out of the €1 billion total NPE flows from moratoria around €200 million are already incorporate in the 2020 numbers. And we expect another €800 million to happen over the coming period, as we're showing on Page 30.

Good evening and many thanks for the presentation and congratulations on the many substantial steps you're taking to accelerate the transformation process. I will have just a few quick questions, please.

First of all, would you be able to guide for an accounting impact coming from Sunrise 1 and 2 already at this stage? Or do you think it's reasonable if you take something pro-rata along the lines of Vega and Phoenix together as you've done last year?

And secondly, just from an accounting perspective, as a clarification for myself, given you have done the high down already, in 2020? Would there be any implication of planting a negative bottom line in 2021 as well just from a timing perspective.

And finally, in terms of the capital raise, is there anything you can share with us already in terms of the timeline and any other details, any initial interest from investors et cetera. At this stage, I appreciate it maybe early, but just you know, asking and double checking?

Thanks very much.

Yes, hi Mehmet, the expected loss for Sunrise 1 and Sunrise 2 are similar levels to what we also saw for Phoenix and Vega from the first transaction having secured the senior note size it is pretty much around the 20% mark, losses against the GBB that we are expecting. And this is what the capital impact, but we are showing is based upon.

So Sunrise 1 and Sunrise 2 will have a 4% of points capital impact in proportion, similar to what we've seen for Phoenix and Vega. In terms of the accounting treatment, and the high down structure, the structure that we have put together for these post side down securitizations, as we have come to internally call them is such that it does not generate a P&L impact at the bank level.

The P&L impact even post side down with the accounting structure that we have put together, happens at the holding level. And this is something that has been secured with all relevant stakeholders.

And Mehmet, as to the ambitious timeline for the share capital increase, we will hold a new GM to authorize our Board to approve the equity offering on the 7th of April. This was decided today by our Board.

We would expect to have prospectus for the equity offering approved by the capital markets committee increased by mid April and proceed with a book building exercise by mid April. The new shares we expect will start trading by early May that's the timeline.

Hello, many thanks for the presentation and congrats on your plans. The maybe I missed the organic NPE development in 2021.

When all said and done, are you expecting a neutral impact that's my first question? And then the second one is, the one-offs in Q4, 2020 were they only VS related I wanted to confirm that?

And then if you could give us just broad assumptions behind all these estimates to providing anything on macro realistic prices, if you could give us any color on that that would be appreciated? Thank you.

Okay, so the organic NPE flows, they basically do guide for a neutral result excluding write-offs. We can see them on Page 42.

It is an estimate of - it is an estimate of €1.7 billion of inflows this year, which is substantially higher to last year, of course, as a result of moratoria inflows that we are expecting. And also outflows have been carefully designed in context of the current legacy stock that we have.

Obviously, in putting together the securitization perimeters, we have been quite diligent in figuring out the imminently durable exposures and making sure that the bank takes benefit of those in its organic result. So yes, reduced exposures because of primarily reduced liquidations in 2021 versus 2020, but good enough so, that, they can even out the increased inflows.

In combination with write-offs and this is what guides for a €1 billion on a negative organic result this year, to allow us to achieve the single-digit ratio after the transactions at hand. Now to your question about macros, obviously, this is a very, this is a story on the back of the extracted macro recovery of the country in the post COVID era.

The actual numbers of macro assumptions show for strong, mid single-digit GDP growth year-on-year, and similar expectations for real estate. That being said, the plan is not though dependent on the actual numbers of the recovery and its actual pace.

The two major elements that have been affecting such plans in the past one is the credit expansion and the other one is the inherent relative value. Create expansion assumptions right now, in the plan is what we are already seeing so nothing extravagant versus current observations.

And the real estate price trajectory becomes less relevant as the bank release itself of its NPEs i.e. collateral based valued assets.

So the plan really depends on a healthy recovery, the actual numbers of which there's flexibility on.

And on the Q4 one-offs, was it all VS related, just wanted to confirm?

They are basically around a particular exposures that we decided to adjust our marks, as well as the first wave of COVID inflow that we have seen. Let's also remember that 2020 was a high down year for PL.

So in view of the upcoming NPE clean up beyond the securitizations, it was also an opportunity for us to take a more conservative view towards the marks of exposures to be sold.

Thank you for taking my question and thank you for the call. A very quick one from me, with regards to the equity raise, you mentioned that the HFSF those agreements are going to be backing it and will be participating to reduce that stake.

Can I just double check and confirm that they take consideration has been taken into account there just with their participation that will have that’s my question?

Hi Sharon, thank you for your question. Back in November 2020 HFSF has made a public statement and publicly communicated that is fully supporting any capital action that may or may not happen, but as well communicated that it is willing to reduce its participation to Piraeus Bank to a non-blocking minority shareholding.

As far as the fully market that offer is concerned. You know we are - we gave you the timeline as before, so we are expecting a midday April execution of the book building process.

And that will include also a Greek offer which will have also retail and Greek institutional demand. We expect that for the offerings, priority allocation will be considered by our Board of Directors for all the investors that are will be participating in both offerings.

Hi, good afternoon from me, some clarification. So Slide 38, is it possible that you breakdown the different impacts in terms of lower risk weighted assets and equity loss?

And then, the second question is, I see that your return on tangible equity goes from 5% in the short-term up to 10% in the long-term, so this is quite a big jump so you're doubling up your return on tangible equity? So, can you give us a better idea of which year we should take as references of short-term which year should we take as a references long-term?

And then another question on your slide, when you show that you lend at card of 60%, you also have to buy the AT1. In terms of, if we look at your target in terms of a common equity fully loaded, what do you expect to reach in 2021/2022 and potentially also in the long-term 2024 let’s say?

Thank you.

Okay Alberto, so impact on the securitizations, the Sunrise 1 and Sunrise 2 combined will generate a P&L effect of approximately €2.3 billion loss and will relief of approximately €6.6 billion of our WAS and this is what calculates to the capital impact where we're giving you this disclosure. So that you can also calculate in terms of, of a percentage of GDP, and as I said before, is something very close to 20%, as have been the previous securitizations that we did.

Short-term, long-term reference short-term is really something within the next 12 months. So some that looks like in 2021 or rather 2022 long-term is sorry medium-term is post , so really talking about 2024.

The enhancement of the IOE is explained on a BPI basis in the current presentation and also supported by the reduction of the cost of risk to normalize the levels around 70 basis points. In terms of fully loaded CET1 capital it will be around the 8, 9 percentile points fully loaded immediately.

That being said, and then eventually in the medium-term, it exceeds the 4% mark. The plans inherit assumption is that and this is also the case for 2021 is that the organic capital generation is the one that really pays for IFRS phasing.

So every year, the trend is for the phased in number to approximately fully loaded number. So when one takes into consideration this plan, it's really a matter of taking into consideration the profitability.

We are leveraging the shareholders at the right level so as to provide also the right returns.

Yes, thank you just a follow-up one clarification on cost of risk in Q4, you’re anticipating some provision that just had for becoming NPE securitization? Can we know how much the amount and if this will reduce the impact on capital from the NPEs securitization that you're doing in Q1 and Q2?

Thank you.

Hi Alberto and thank you for the follow-up. The fact is that this charge that we have taken on the back of NPE cleanup, and also additional COVID inflows, is not directly relevant to the securitizations, but more so to other exposures that we intend to dispose of during the year 2021.

The securitizations in terms of impact to the solo account will not incur any P&L. As a result, the focus was mostly on other exposures that we intend imminently to disposal.

Thank you all for participating in our 2020 results and strategy update conference call. As of tomorrow, we start an extensive program to meet investors and discuss in detail our new strategy and the Sunrise Plan.

We look forward to speaking with you in-person in the following days. In the meantime, stay all safe and healthy.