Estonian bank LHV is set to acquire Danske Bank’s private customer loan portfolio, for around EUR 410 million.
In February, Danske was ordered to close its doors by the Finanical Supervisory Authority (FSA), ending months of speculation following revelations that as much as EUR 200 billion in potentially illicit funds had passed through the bank over a period of several years. Danske, which stopped taking on new private clients several years ago, was given around seven months to wind up its activities.
LHV will acquire EUR 470 million in private client loans portfolio, for an estimated EUR 410 million, with the agreement due to be signed on June 5.
The final volume and transaction price, as well as the transaction itself, will take place in the autumn, and is pending a permit from the competition authority, as well as additional capital to be raised by AS LHV Group.
The price was based on a discount of EUR 39 million, deducted from the volume of the portfolio at the moment the transaction takes place, meaning the portfolio size is estimated to fall to EUR 450 million by that time.
97% of the loan portfolio comes from home loans, which LHV estimates is based on well-secured credit. LHV will be taking on just under 11,000 private customers, it is reported, about 80% of who are new customers (i.e. did not have an account with LHV).
The affected customers do not need to do anything concrete ahead of the transfer, and will receive more detailed information once the transaction has taken place. They will be automatically set up with an LHV account, which loan payments outgoings will be transferred to, and the terms of conditions of their loans will not change.
The move will raise LHV’s loan portfolio to over EUR 1 billion, and the bank is due to mobilize EUR 280 million in funding to complete the deal, it is reported. The bank reports that it will be able to provide finance from both foreign and domestic deposits, the latter having grown more rapidly than projected.
Deposit-raising platforms, principally using Raisin, will bring in additional deposits from individuals in German, Austria, the Netherlands and Spain, it is reported. However, this method is likely to be expensive, and LHV is planning to issue bond to finance the transaction in the longer term.
From 2021, the projected added value of the loan portfolio acquisition will be a reported EUR 4 million, improving the bank’s return on investment by 0.4% per year.
“On February 19, we announced that we would be ending banking operations in the Baltic States. Today’s agreement is thus an important step towards this goal, and a good solution for private customers involved in the transaction,” said Frederik Bjorn, head of the Baltic banking and business unit at Danske Bank.
Assets of Danske Estonia, which is to be liquidated, were estimated at EUR 1.2 billion at the beginning of 2019.
The bulk of this was issued loans, to a value of EUR 1.06 billion, or 5.45% of market share in Estonia. According to data from the FSA, this was split roughly 50:50, between loans to private individuals and to legal persons.
Of the loans granted to legal persons, EUR 147 million constitute local government loans, EUR 18.7 million are central government loans, and EUR 15.5 million are additional loans to local governments or non-financial corporations.
The ratio of branch deposits to loans at Danske was small – 0.54% (EUR 95.6 million), with the bulk of these being residents’ deposits. EUR 8.6 million of deposits are from non-residents; Danske stopped taking on non-resident clients from 2015, and it is thought the bulk of the illicit funds originated in this sector.
With EUR 127.2 million in liquid assets, versus EUR 96.8 in funds held with other credit institutions, liquid funds cover deposits 1.33 times, it is reported.
LHV Group is a financial group and capital provider in Estonia. LHV Group’s key subsidiaries are LHV Pank and LHV Varahaldus. LHV employs over 390 people, and more than 161,000 customers use LHV’s banking services. Pension funds managed by LHV have more than 178,000 active clients. (ERR/Business World Magazine)