The sale price of National Bank’s (NBG) insurance arm to US fund CVC Capital came in at 69 percent below 2019 equity levels (1.08 billion euros), the value the asset had been priced at on the lender’s books.
Despite efforts by National Bank to save face by announcing that the sale price corresponds to a valuation of 505 million euros, in fact, the result is much more unpleasant: 120 million euros of the price is tied to achieving specific goals on selling bank insurance products until 2026.
That is, the definite price of the transaction is 385 million euros, or 346 million euros for 90.01 percent of the company that will be transferred by NBG.
Analysts estimate that this is an effort to build up the result as in essence these are commissions that National Bank would have received anyway from the provision of insurance products to its customers.
Worse still, Ethniki Insurance employees claim that there is a special condition that provides for the deduction of 125 million from the price, if losses from contracts providing hospital coverage exceed certain predetermined limits. If these reports are confirmed, then the real price for the lender for the sale of a company with assets of 4 billion euros, with profits of 81 million euros and with equity of 1 billion euros is less than 300 million euros.
But even if things go as the bank hopes and goals on selling bank insurance products are met, then the 454.5 million euros (which NBG will receive from the sale) is only 5.6 times higher than 2019 profits, when European insurance companies such as Allianz, AXA, Swiss Life and NN trade with a P/E ratio ranging from 10 to 20.
Why so low?
Market watchers point out to Business Daily that the agreement is beneficial for the bank and reflects the conditions that prevailed for decades at Ethniki Insurance.
They point out that the low price reflects the difficult reality shaped by a low interest rate environment for insurance companies and especially in terms of Ethniki Insurance’s problems associated with underestimated risks in the company's portfolio, guaranteed insurance products and hospital insurance contracts that may result in large losses, insufficient reserves and commitments for excessive benefits to staff. In other words, the 1 billion equity does not reflect the full picture of the company and its ability to generate profits in the future.
In addition, an additional benefit for National Bank from the sale will be the release of valuable regulatory funds that were frozen.
It is noted that National Bank had valued Ethniki Insurance on its books at over 1 billion euros and in 2019, realizing that this was unrealistic valuation, recognized losses of 494 million euros, losses from discontinued activities in 2019, which included impairment charges.
High pressure
It is noted that Ethniki Insurance was a problem inherited by the Mylonas administration with little room for any maneuvering, as the deal was a commitment made by the bank and Greece to the Commission's Directorate-General for Competition, in exchange for receiving state aid for a recapitalisation. The total state aid received by National Bank was 12.7 billion euros, which corresponded to 20 percent of its weighted assets, part of which was repaid.
Thus, the sale to CVC was essentially a pressure transaction which drastically reduced the seller's bargaining power and enhanced the buyer's position. Despite the fact that the National Bank fully repaid the CoCos it had received in 2015, sold Finansbank and left most of the foreign countries where it was present, the EU insisted on the sale of the insurance arm despite the unfavorable conditions created by the pandemic, rejecting an extension of the deadline.
DG Comp had given several extensions to the Greek lender due to the failure to complete the sale of the insurance, extensions that the bank failed to use in order to form a more positive framework and achieve a better price. It is no coincidence that NBG finally sold its subsidiary, the largest insurance company in the country, to a fund that aims to resell its holdings within 5 years.
With about 450 million euros, CVC will acquire the largest insurance company in the country with assets of 4 billion euros, 1.1 million insured persons and access to 5 million customers of National Bank through the deal. Based on the profitability of 81 million euros in 2019, the fund will need about five years to recover its entire investment in Ethniki Insurance. It has 13 administrative branches, 1,648 insurance consultants in 132 sales offices across the country and 1,299 partner agencies and brokers.
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