Eurobank has its eyes firmly set on Greece's post-crisis future after completing a landmark deal with doValue, which allows the Greek lender to reduce bad debt at a fast pace in a bid to cut nonperforming loans (NPLs) to below 15 percent and create the largest debt management firm in the country.
The deal with doValue, the largest loan servicing company in southern Europe, gives Eurobank first place among the large securitizations to be completed by Greek banks by taking advantage of state guarantees offered by the government's Hercules Asset Protection Scheme, as it meets two of the conditions set out by the plan:
-The first condition is that the loans to be securitized must be managed by an independent asset manager. Eurobank has agreed to transfer 80 percent of its collections unit FPS to doValue, for 248 million euros. As part of the deal, Eurobank may earn an additional 40 million euros as of 2024 if the operational goals of the new FPS are met. The staff of the new company will be some 1,000 people and will come from Eurobank's problem loans department, which is part of FPS.
-The second condition needed to secure the state guarantees for the senior notes of the project Cairo securitization, worth 7.5 billion euros, is that most of the junior and mezzanine debt must be sold to an investor first. This has been achieved by the agreement with doValue, which has agreed to buy 20 percent of the mezzanine debt and the minimum amount relating to junior notes. The bank will hold onto the senior notes, with a nominal value of 2.4 billion euros, that will be backed by the state.
Beyond the fact that the doValue agreement settles issues regarding project Cairo, the long term cooperation between the two sides creates more significant business in the field of debt management, which could result in considerable benefits for the bank in the future.
Initial benefits will come from awarding the management of all bad loans previously handled by FPS to a company that will combine know-how acquired by FPS, that has been operating in Greece since 2006, with knowledge from doValue, that has a leading position in the loan servicing market in Italy in Italy, where the first state guarantee program in the eurozone was implemented, known as GACS.
Via this ten year deal, Eurobank has passed off the management of NPLs to the new FPS, a company with doValue's know-how, allowing the lender to get on with the business of lending. The new FPS will manage bad debt consisting of consumer loans (nominal value of 8.7 billion euros), mortgages (nominal value 9.1 billion euros), small business loans (4.7 billion euros) and large business loans (4.1 billion euros).
Leading the pack
With a starting portfolio that has a nominal value of 28.4 billion euros, FPS will be the top debt management company in Greece, overtaking Intrum Hellas, which was created by Piraeus Bank and Sweden's Intrum. Next on the list come Cepal and Quant.
From a strong position, FPS will be able to seek the management of more loans that will be securitized by Greek banks and take advantage of know-how from Altamira, that has been merged with doValue, in order to provide Real Estate Owned (REO) management services, an emerging part of the market in Greece.
FPS is seen as having the ability to deliver strong earnings to the two partners. For 2020, it is targetting revenues of more than 100 million euros, with this figure reaching 110 to 120 million revenues in 2021. Its EBITDA is forecast at 37-42 million euros for 2020, and 60-65 million euros in 2021, with a net profit of 7-10 million euros next year rising to 20-25 million euros in the following year. As of 2022, revenues will rise considerably by taking advantage of possibilities arising from REO.
The profile of doValue
doValue is the largest debt and property management company in southern Europe and a market leader in the countries it operates in (Italy, Spain, Portugal, Cyprus). It has been in the business for twenty years with staff of 2,500 people and manages debt worth 140 billion euros, which will now reach 168 billion euros after the deal with Eurobank. The company is the result of NPL servicing operations coming together from some of Europe's largest lenders, namely Intesa Sanpaolo (2006), Unicredit (2015) and Santander/Altamira (2018). Its clients include some of the largest banks in southeastern Europe and specialized global investors, such as Unicredit, Intesa Sanpaolo, Credit Agricole, Santander, BNP Paribas, Cyprus Cooperative Bank, all of Greece's systemic lenders, Fortress, Bain Capital, Cerberus, Davidson Kempner, and CPPIB.
doValue is listed on Milan's bourse and has a market capitalization of some 1 billion euros. Its basic shareholder is Fortress, with a 28 percent stake, with the rest of the company held by international social security and insurance funds, such as Jupiter Asset Management, Standard Life Aberdeen, Investec, Schroders, Norges, Vanguard, AXA, Amundi, Blackrock, and Fidelity. On Friday, doValue's shares jumped by more than 10 percent on the Milan bourse after news of the deal with Eurobank.