Estonian bank LHV is set to acquire Danske Bank's private customer loan portfolio, for around €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 €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 the €470 million in private client loans portfolio, for an estimated €410 million, ERR's online news in Estonian reports, with the agreement due to be signed 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 €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 €450 million by that time.
Ninety-seven percent 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, aout 80 percent of whom are new customers (i.e. did not have an account with LHV already).
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 raised LHV's loan portfolio to over €1 billion, and the bank is due to mobilize €280 million in funiding 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 rapidaly than projected.
Deposit-raising platforms, prinicipally 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 €4 million, improving the bank's return on investment by 0.4 percentage points per year.
Danske: Loan portfolio sale one step in winding up Estonian activity
"On February 19, 2019, 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 Bjørn, head of the Baltic banking and business unit at Danske Bank.
Assets of Danske Estonia, which is to be liquidated, were estimated at €1.2 billion at the beginning of 2019.
The bulk of this was issued loans, to a value of €1.06 billion, or 5.45 percent 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, €147 million constitute local government loans, €18.7 million are central government loans, and €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 percent (€95.6 million), with the bulk of these being residents' deposits. €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 €127.2 million in liquid assets, versus €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.
Editor: Andrew Whyte