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Research: Financials
There were some encouraging signs in Attica’s Q221 results, with good momentum in core (interest and fees) revenue while impairments have now been at relatively low levels for two quarters after the balance sheet clean-up in recent years. The reported €4.4m loss reflects the fact that Attica needs to gain scale before it can be profitable. This requires more equity: Attica’s statutory CET1 is now only 3.1% (3.7% in Q121). Attica is pushing forward with its capital strategy. The deferred tax assets (DTA) to deferred tax credits (DTC) conversion has been activated, which will result in €151m (about 500bp of H121 risk-weighted assets, RWA) of equity being injected. Attica has also made progress on the securitisations front while shareholders have approved an equity raising of up €240m for this year. We suspended forecasts in July until further clarity on the outcome of these capital actions.
Written by
Attica Bank |
Q221 results and capital actions progress |
Q221 results |
Banks |
9 September 2021 |
Share price performance
Business description
Next events
Analyst
Attica Bank is a research client of Edison Investment Research Limited |
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There were some encouraging signs in Attica’s Q221 results, with good momentum in core (interest and fees) revenue while impairments have now been at relatively low levels for two quarters after the balance sheet clean-up in recent years. The reported €4.4m loss reflects the fact that Attica needs to gain scale before it can be profitable. This requires more equity: Attica’s statutory CET1 is now only 3.1% (3.7% in Q121). Attica is pushing forward with its capital strategy. The deferred tax assets (DTA) to deferred tax credits (DTC) conversion has been activated, which will result in €151m (about 500bp of H121 risk-weighted assets, RWA) of equity being injected. Attica has also made progress on the securitisations front while shareholders have approved an equity raising of up €240m for this year. We suspended forecasts in July until further clarity on the outcome of these capital actions.
Year end |
Pre-provision profit (€m) |
PBT |
EPS |
ROE |
P/E |
Price/NTA* |
12/18 |
38.8 |
4.8 |
(0.01) |
(0.4) |
N/A |
0.09 |
12/19 |
1.6 |
(23.6) |
0.01 |
1.0 |
N/A |
0.09 |
12/20 |
0.01 |
(285.8) |
(0.66) |
(87.4) |
N/A |
0.22 |
Note: *NTA = net tangible assets.
Core revenue +30% y-o-y
Attica’s core revenue in Q221 was up 30% y-o-y to €15.9m driven by rising activity levels and lower funding costs. Total revenue did drop by 12% y-o-y to €16.2m, but the decline was due to losses on Greek government bonds, which is a volatile line. Operating expenses were flat at €17.6m and impairments totalled €3.1m (annualised charge rate of 74bp). Net loans rose by +13% y-o-y, and new loan generation doubled from Q121.
Securitisations moving ahead…
Attica announced on 27 August that it was selling its controlling stake in Thea Artemis, the manager of the Omega securitisation, to Ellington Securities with a €1m gain for Attica bank. This sale has now been done. Attica expects to complete the sale of the mezzanine and junior tranches in its Omega securitisations to Ellington. It has also received a non-binding offer for Astir 1 tranches. The sale of tranches in these two securitisations and Astir 2 have the aim to remove the legacy non-performing exposure (NPE) from the balance sheet and reduce the total NPE percentage of gross loans from 45% to 1%.
…as well as other capital actions
The conversion of the DTA to DTC is expected to effectively result in an equity injection of €151m (c 500bp of H121 RWA). We describe this process and Attica’s various capital actions in our 6 July note Capital action to the fore. The planned rights issue carries the risk of significant dilution to existing shareholders. However, if successful Attica would likely have a healthy balance sheet that would allow it to pursue its strategy of doubling the loan book in three years by focusing on the energy, green and infrastructure business loan segments.
Q221 results
Attica reported a pre-tax loss of €4.3m in Q221, compared to a loss of €8.2m in the previous quarter and a loss of €16.5m of a year ago. There are good underlying trends with net interest margin (NIM) continuing to rise and impairment charges well below 1% for the second quarter following the heavy provisioning done in Q420. Core revenue (interest income and fees) rose by 30% y-o-y, while operating costs have remained flat. Exhibit 1 shows the recent quarterly progression.
Attica’s strategic plan calls for doubling the balance sheet and increasing product penetration (with a focus on bancassurance) to increase the revenue base to allow the bank to become profitable. The bank believes it has mostly right sized for growth although it is still operating a voluntary exit plan for employees to further increase efficiency. At the same time, it is still recruiting for some key positions.
Attica’s digital channels are being increasingly used as management continues to enhance these channels. Active e-banking users increased by 25% y-o-y in H121 and mobile transactions increased by 110%.
Net loans growth has increased by 13% y-o-y to €1,680m while client deposits rose 9%. The bank believes that it could end this year with net loans around at €1.8bn. New loan generation doubled in Q221 compared to Q121, so momentum seems to be picking up.
However, balance sheet expansion is greatly limited by bank’s low capital position. Attica’s statutory CET1 fell from 3.7% to 3.1% during Q221. Attica’s NPE remains little changed at 45% of gross loans; this is before the ongoing securitisations. If the securitisations are successfully completed this is expected to drop to c 1% of gross loans.
Exhibit 1: Quarterly progression
|
Q220 |
Q320 |
Q420 |
Q1021 |
Q221 |
y-o-y% |
Net interest income |
11,794 |
14,637 |
12,489 |
14,169 |
14,615 |
24% |
Net fees and commissions |
457 |
1,112 |
-863 |
752 |
1,256 |
175% |
Core revenue |
12,251 |
15,749 |
11,626 |
14,921 |
15,871 |
30% |
Other operating income |
6,124 |
5,151 |
2,349 |
(4,827) |
386 |
-94% |
Total revenue |
18,375 |
20,900 |
13,976 |
10,094 |
16,258 |
-12% |
Operating expense |
(17,564) |
(17,090) |
(18,858) |
(15,788) |
(17,567) |
0% |
Pre-provision profit |
811 |
3,811 |
(4,883 |
(5,695 |
(1,309) |
n.m. |
Impairment charge for loan losses |
(16,718) |
(10,060) |
(226,607 |
(2,324) |
(3,079) |
n.m. |
Profit before tax |
(16,452) |
(6,245) |
(252,066) |
(8,208) |
(4,338 |
n.m. |
Net loans |
1,490,898 |
1,545,493 |
1,600,946 |
1,627,186 |
1,679,771 |
13% |
DTA |
448,516 |
449,649 |
421,357 |
423,495 |
414,307 |
-8% |
Assets |
3,619,463 |
3,603,629 |
3,579,549 |
3,647,565 |
3,647,151 |
1% |
Client Deposits |
2,650,147 |
2,653,072 |
2,801,439 |
2,851,646 |
2,896,037 |
9% |
Tier 2 debt securities |
99,755 |
99,768 |
99,781 |
99,794 |
99,807 |
0% |
Equity |
462,705 |
453,992 |
206,689 |
201,476 |
187,535 |
-59% |
Ratios |
||||||
NIM % financial assets |
1.77% |
2.18% |
1.85% |
2.00% |
2.03% |
|
Impairment charge % net loans |
4.46% |
2.65% |
57.62% |
0.58% |
0.74% |
|
NPE % gross loans |
46.5% |
46.5% |
44.6% |
44.2% |
45.3% |
|
Impaired % net tangible assets |
140.3% |
143.4% |
335.1% |
357.6% |
434.7% |
|
LLA % NPE coverage |
33% |
33% |
44% |
44% |
41% |
|
CET 1 Statutory |
9.8% |
9.4% |
4.9% |
3.7% |
3.1% |
Source: Attica Bank
Capital plans update
Offers received for securitisations
Since our last note was published, Attica has received a binding offer from Ellington for the mezzanine and junior notes of the Omega securitisation as well as for the majority share capital of Theo Artemis, Omega’s manager. This offer has been accepted by Attica Bank. The Omega securitisation comprises of the repackaging of the Artemis securitisation (with of €1.4bn gross value of NPEs, no longer on the balance sheet) concluded in 2017 plus an estimated €211m (€156m net of allowances) of newly securitised loans from the balance sheet. Attica had €935m of NPEs in H121 with more than 95% being legacy NPEs that are planned to be removed through the three securitisations, Omega and Astir 1 (mostly business loans) and Astir 2 (mostly retail loans),
Attica has also received a non-binding offer for the mezzanine tranche of the Astir 1 securitisation. Astir consists of €342m of NPEs. Management had previously flagged that the sale of the mezzanine and junior notes of the Astir 2 securitisation (€342m of NPEs) were likely to complete after the other two securitisations.
DTA to DTC conversion triggered
Attica Bank formally triggered in July 2021 the conversion €251m of its €418m of its DTA to DTC. Greece passed legislation in 2013 that allows banks to be able to convert some of their DTA into final claims against the government, effectively exchanging these assets for zero risk-weighted cash. Attica’s very large reported loss in FY20 made it attractive to action this conversion under the above formula. Attica management expects to receive c €152m in cash in exchange for writing off these DTAs.
Attica announced on 30 August 2021 that it had issued 992.5m warrants for shares (one to one ratio) in favour of the Greek state. The redemption price is €0.153 and the warrants will trade until 15 September.
We described the process in detail in our July note, but the key point is that this will result in a new share issue that will be taken up by the Greek government if shareholders decide not to partake.
Extraordinary shareholder meeting
An extraordinary shareholder meeting is scheduled for 15 September 2021 to approve some of the steps that must be taken to facilitate the share issue associated with the DTA to DTC conversion.
The proposal is for a 60-to-one reverse share split that will result in the number of Attica’s shares falling from 461,254,013 to 7,687,567 and the nominal value per share rising from €0.30 to €18.00. The share capital would then be increased by €2.10 per share by incorporating part of the newly created special reserve.
This special reserve is made to reducing Attica’s bank share capital by €136.8m by cutting the nominal value per from €18.00 to €0.20 following the share split. The new special reserve offsets the reduction in share capital; there is no actual net reduction in bank equity or book value.
Rights issue authorisation
Attica Bank’s capital strategy envisages about €300m being raised in equity (in addition to the DTA/DTC conversion) in the next three years. The securitisations are designed to help pave the way for the equity offers. Shareholders gave management permission in July to raise up to €240m in equity in 2021 as part of this capital strategy.
Valuation and forecasts need clarification
For the time being, we are not publishing forecasts or a valuation for Attica. The bank is going through a truly transformative period, and currently heightened uncertainty regarding the securitisations and the anticipated rights issues makes forecasting and valuation difficult. Attica’s market capitalisation is only €46m, compared to €300m projected to be raised in equity, and with possible AT1 bonds being issued and the evaluation of the securitisations by the ratings agency, there is scope for significant shareholder dilution. Failure to raise enough equity could lead to various outcomes including a nationalisation or the bank being sold.
On the other hand, successful securitisations could open the door for a successful rights issue, which could see the bank being reborn focused on a high-growth loan segment, with a new digital platform and a cleaned-up balance sheet.
Exhibit 2: Financial summary
€000s, year-end 31 December, IFRS |
|
FY18 |
FY19 |
FY20 |
INCOME STATEMENT |
||||
Net interest income |
|
69,290 |
43,852 |
50,754 |
Net fees and commissions |
|
6,956 |
6,540 |
1,577 |
Other operating income |
|
51,741 |
21,214 |
16,862 |
Revenues |
|
127,987 |
71,606 |
69,193 |
Cost |
|
(89,192) |
(70,043) |
(69,122) |
Pre-provision profit |
|
38,795 |
1,563 |
72 |
Impairment charge for loan losses |
|
(27,527) |
(24,202) |
(264,502) |
Impairment other assets |
|
(3,191) |
(2,050) |
(21,530) |
Associates |
|
(3,329) |
1,042 |
1,286 |
Profit before tax |
|
4,748 |
(23,647) |
(285,846) |
Taxation |
|
(7,105) |
28,645 |
(20,564) |
Non-controlling interest |
|
0 |
0 |
0 |
Preference dividend |
|
0 |
0 |
0 |
Attributable income |
|
(2,357) |
4,998 |
(306,410) |
Shares ranking (m) |
|
461 |
461 |
461 |
EPS (€) |
|
(0.01) |
0.01 |
(0.66) |
Underlying PBT |
|
(25,038) |
(23,647) |
(285,960) |
BALANCE SHEET |
|
|||
Cash and balances with central Bank |
|
60,860 |
138,097 |
173,778 |
Due from Financial institutions |
|
9,429 |
67,437 |
52,359 |
Investment securities |
|
912,238 |
955,200 |
981,061 |
Loans to customers |
|
1,592,144 |
1,547,494 |
1,600,946 |
Associates |
|
3,427 |
4,469 |
4,323 |
Property, plant and equipment |
|
31,646 |
48,468 |
47,831 |
Investment property |
|
57,862 |
58,340 |
56,704 |
Intangible assets |
|
50,413 |
52,893 |
57,673 |
Deferred tax assets |
|
420,357 |
449,734 |
421,357 |
Other assets |
|
202,162 |
205,490 |
30 |
Assets held for sale |
|
0 |
0 |
183,302 |
Total Assets |
|
3,350,505 |
3,527,734 |
3,579,364 |
Deposits from financial institutions |
|
424,649 |
262,456 |
401,177 |
Customer deposits |
|
2,281,875 |
2,608,157 |
2,801,439 |
Defined benefit obligations |
|
12,925 |
11,667 |
9,727 |
Other liabilities |
|
40,483 |
51,642 |
60,735 |
Debt securities issued |
99,676 |
99,729 |
99,781 |
|
Total Liabilities |
|
2,859,609 |
3,033,653 |
3,372,859 |
Total Shareholder's Equity |
|
490,897 |
494,081 |
206,689 |
Preference shares |
|
0 |
0 |
0 |
Non-controlling interest |
|
0 |
0 |
0 |
Total Shareholder's Equity |
|
490,897 |
494,081 |
206,689 |
CAPITAL |
|
|||
Common Equity tier 1 (transitional) |
|
431,148 |
284,392 |
148,312 |
Total Capital |
|
530,824 |
384,121 |
248,041 |
Risk-weighted assets |
|
3,204,638 |
3,222,484 |
3,005,579 |
CET1 ratio % (transitional) |
|
13.5% |
8.8% |
4.9% |
Total Capital ratio % |
|
16.6% |
11.9% |
8.3% |
CET1 ratio % (fully loaded) |
|
8.9% |
8.1% |
-0.4% |
ASSET QUALITY |
|
|||
Neither past due nor impaired/ stage 1 |
|
710,127 |
738,764 |
776,077 |
Past due but not impaired/stage 2 |
|
379,012 |
238,917 |
325,464 |
Impaired/ stage 3 |
|
755,999 |
850,698 |
885,402 |
Gross loans |
|
1,845,138 |
1,828,379 |
1,986,943 |
Impairment allowance |
|
252,944 |
280,885 |
385,998 |
Non-performing exposure as % |
|
41.0% |
46.5% |
44.6% |
NPE cash coverage |
|
33.5% |
33.0% |
43.6% |
PROFITABILITY |
|
|||
Cost/Revenues |
|
69.7% |
97.8% |
99.9% |
Loan impairments % net loans |
|
2.5% |
2.5% |
25.4% |
Return on average equity |
|
(0.4%) |
1.0% |
(87.4%) |
Return on average tangible equity |
|
(0.5%) |
1.1% |
(103.8%) |
Book value per share (€) |
1.06 |
1.07 |
0.45 |
|
Tangible equity per share (€) |
|
0.95 |
0.96 |
0.32 |
Source: Attica Bank
|
|
Research: TMT
IQE’s H121 results are in line with management guidance given in March that H121 revenue and EBITDA would be similar to H120 levels on a constant currency basis. However, currency headwinds resulted in an 11.5% year-on-year reduction in revenues and a 28.9% drop in adjusted EBITDA. Noting that the recovery in demand for epitaxy for 5G infrastructure applications is not now likely until FY22, we have revised our FY21 estimates, cutting PBT from £2.5m to £0.1m, while leaving our FY22 estimates unchanged.