3. june 2019
LHV Pank and Danske Bank have reached an agreement that LHV will acquire Danske Bank’s unit involved with Estonian private loans, that essentially consists of the loan portfolio of private clients in the amount of approximately 470 million euros.
Read the Market announcement of 3 June
With the transaction, LHV Pank will take over serving about 10,800 private customers. According to LHV’s settlement analysis approximately 80% of these are new customers for LHV.
Current loan customers of Danske do not have to change anything in their activities, and they will be provided with more specific instructions as soon as the transaction is finalised in the second half of 2019. LHV intends to automatically open a personal account for loan servicing at LHV for every client and formalise amendments to contracts so that all that the clients have to do is redirect loan payments to their new bank account. The current loan terms will not change with the automatic transfer of loans, unless clients themselves wish to amend the contracts.
“After the transaction is finalised, we will certainly invite new loan clients to use all other LHV services as well. We can serve the new clients in the best possible way: we offer all banking services, the best service in Estonia, a network of ATMs across Estonia, and an extremely comfortable internet and mobile bank,” said Erki Kilu, Chairman of the Management Board of LHV Pank.
“This is an important event for us. LHV’s loan portfolio will increase by 40% as a result of the transaction taking place, and the importance of retail banking in LHV’s business will increase dramatically. This event can also be considered significant in Estonian banking since a bank based on Estonian capital intends to take over the business of outgoing foreign capital and considerably increase its market share in a strategically important sector,” said Madis Toomsalu, CEO of LHV Group.
“LHV has indeed grown to become the largest domestic financial group, but the success of the transaction requires us to take on over half a billion euros of deposits and, considering the growth of existing business volumes, raise capital to the extent of about 50 million euros through three different capital instruments. The latter is divided between bonds and share capital,” Toomsalu clarified.
The volume of the loan portfolio of the unit as of the end of February is 470 million euros, about 97% of which are home loans. According to LHV’s assessment, this is a well-guaranteed strong credit portfolio. Whereas the interest rates of granted home loans were essentially near cost price, the transaction is only possible due to the discounted sale of the portfolio. LHV Pank and Danske Bank have agreed on the price of the transaction, according to which a discount of 39 million euros will be subtracted from the volume of the portfolio at the moment of the transaction. The estimated price of the transaction will be around 410 million euros.
To finance the loan portfolio to be acquired, LHV Group requires 27 million euros of own funds, at least 16 million euros of which are Tier 1 own funds and 11 million euros of which are Tier 2 own funds. To raise additional capital, LHV plans the following steps in the coming months:
- Issuing subordinated bonds (in June)
- Issuing additional Tier 1 own funds (in June)
- Further issuance of LHV Group shares (presumably in September)
The transaction will be finalised in the autumn of the current year, when the final scope and price of the transaction will also be determined. Prerequisites for finalising the transaction are getting permission from the Competition Authority and raising additional capital for LHV Group. The transaction is not to be considered a transaction with related parties.
LHV Group is the largest domestic financial group and capital provider in Estonia. LHV Group's key subsidiaries are LHV Pank and LHV Varahaldus. LHV employs over 400 people. LHV’s banking services are used by 174,000 clients, and pension funds managed by LHV have more than 177,000 active clients.
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