“In today’s changing environment, our priority is to restore our credibility internationally and act as an equal partner to our European counterparts in pursuing a resolution to the European crisis, instead of appearing to be part of the problem” said Eurobank Ergasias Chairman Mr. Efthymios Christodoulou in a speech to the Annual General Meeting of the Shareholders today.
Referring to the newly formed government in Greece, Mr. Christodoulou, noted that “..it is undertaking the most difficult task in the post-war history of our country: to successfully deal with the major problems of Greek society and economy and to go forward with significant structural changes that are essential to exiting the crisis. Those reforms should be implemented quickly and decisively as we have no time to waste. The expressed will of the Greek society is now, to remain very much part of Europe and this should form the basis of any relevant policy decision.”
Mr. Christodoulou added: “As part of the solution to the crisis in Europe, Greece is expected to complete the adjustment of its economy, as it committed to do so, within the Memorandum framework. However, I do not believe that the Memorandum was rationally negotiated. It was instead a product of widespread panic at the time. It should be noted that an enforcement of the Memorandum could lead to a ‘vicious circle’, to a ‘downwards spiral’ in economists’ language. That is why the realistic solution now is the re-negotiation of the Memorandum principles on the basis of a more viable and socially acceptable program that would create the prospect for the revival of the real economy.”
On his part, Eurobank Ergasias CEO Mr. Nicholas Nanopoulos noted that: “Dealing with the crisis requires immediate and consistent continuation of the fiscal adjustment process together with a new long-term development program to revive the economy on two levels. First implement, significant structural reforms - with a rational plan to recapitalize the banking system. Second, change the country’s business model toward the more extrovert sectors of the economy, by also encouraging sector entrepreneurship.”
Regarding the banking system recapitalization, Eurobank’s CEO noted that “One of the more crucial issues is, to ensure that the banks retain their private sector characteristics. This can be achieved by establishing a recapitalization framework that will encourage and attract private sector capital. Private capital would contain the need for official sector support, with obvious benefits for Greek-tax payers. It will also ensure transparency without extraneous intervention and clientelistic characteristics, and enhance the banking system’s role in economic development.”
With regards to the impact of the fiscal crisis on the Greek banking system, Mr. Nanopoulos noted: “The crisis in Greece is a result of the expanding public sector deficits that grew over the past years to become unsustainable and to considerably inflate the total public debt. This forced our country to resort to the PSI initiative. Greek banks participated voluntarily, with a total government and other public sector debt of about €50 million. The banks’ participation, which corresponds to 25% of the total perimeter of the initiative, was necessary under the circumstances, and was a critical factor for the success of the PSI initiative.
The voluntary participation of Greek Banks to the PSI had a profound impact on their capital base, resulting in estimated pre-tax losses of €37 billion and forcing banks into a recapitalisation process with the support of the Hellenic Financial Stability Fund. Furthermore, and unfortunately for our country, the derailment of public finances, brought on a crisis of confidence and liquidity, that culminated with the dramatic reduction of deposits. The Eurosystem and the Greek State undertook a series of initiatives to counter this problem, and the relevant measures taken to date amount to approximately €145 billion in total. Of this amount, 90% relates to Greek State guarantees that has been used by Greek banks to raise liquidity of €125 billion from the Eurosystem.”
Mr. Nanopoulos stressed that: “Issuing government guarantees is quite different from supporting banks with ‘real money’. The latter would burden the State Budget and, by extension, the Greek taxpayers. By contrast, it is estimated that Greek banks will pay fees of more than €1 billion to the Greek State on an annual basis on account of the guarantees that have been issued to them. This significant liquidity injection was vital to ensure the safety of depositors, but also to avert a drastic cutback on household and corporate lending, that would otherwise ensue from the deposit reduction.”
On the strategy employed by Eurobank during the crisis, Mr. Nanopoulos said: “Anticipating the effects of the deep recession and the PSI scheme, our Bank reacted proactively by pursuing a comprehensive strategy to strengthen its capital base and liquidity, through organic means, without having to resort to its Shareholders. In the first quarter of 2012, we repurchased hybrid and subordinated securities, improving our capital base by €250 million (i.e. 60 basis points) and proceeded with an asset/liability management exercise, which further improved our capital by €100 million in the second quarter of 2012. In April 2012, we completed the sale of our Polish subsidiary. This highly successful transaction improved our capital base by €450 million (or 100 bps), enhancing, at the same time, our liquidity by € 2.9 billion. We have also already initiated the sale of Eurobank Tekfen, whose completion is expected in Q3 2012, enhancing our capital base by a further €300 million, i.e. almost 60 bps. On aggregate, these organic actions enhance our Core Tier I capital by €1.1 billion, (or 245 bps). In today’s adverse environment, the capital enhancement achieved through these actions is of critical importance, since it reduces the Bank’s capital requirements by an equal amount. Following the completion of the aforementioned transactions, the liquidity of the Bank will increase by about € 3.7 billion.”
On Eurobank’s capital position, Mr. Nanopoulos emphasized that, without the impact of the PSI scheme, the Core Tier I Capital Ratio of the Bank would have stood at 9.8% at the end of 2011, well above the 9% requirement set by the Bank of Greece, and without including the capital actions planned for 2012.
Mr. Nanopoulos also reiterated the Group’s cost containment efforts. “In 2011, operating expenses were reduced by 6.4% at the Group level and by 8.8% in Greece, exceeding our original targets. Effective cost control continued in Q1 2012, as Total Operating Costs were cut by 4.6% on an annual basis. Initiatives are already underway for further cost reduction with the aim to approach a double digit percentage in 2012. We estimate that for the period 2008-2012 the overall cost reduction effort will be well above 20%, reaching approximately
€300 million in total for this four-year period at year-end 2012.”
Next, Mr. Nanopoulos elaborated on the Group’s priorities for this year, stressing that they are dictated by the requirements and challenges of the current circumstances. Eurobank’s priorities are:
* To further improve its capital base via organic means and to further contain capital needs, in view of the recapitalization process.
* To safeguard its private sector character and client centric orientation.* To secure sufficient liquidity and funding, by also reducing ECB dependence and utilizing alternative financing sources, while also strengthening the self-funding capabilities of Eurobank’s international subsidiaries. * To manage risk effectively.* To target the business growth of international subsidiaries.* To implement further cost cutting measures aiming to approach double-digit reduction in 2012.* To continue to develop the skills and encourage the dedication and positive attitude of the Group’s employees.* To continue to offer solid support to clients.
* To contribute actively and effectively to the country’s effort to exit the crisis and to enter a growth trajectory.
In conclusion, Mr. Nanopoulos noted: “It is our conviction that the Greek economy can break from the dramatic recessionary cycle of self feeding deficit and debt once and for all, to become productive and competitive by restoring the confidence that has been lost, and enter a virtuous circle of sustainable growth, employment and prosperity. Our Group remains actively engaged in the country’s effort to exit the crisis and we plan our business strategy and operational decisions accordingly.’’
The AGM, with a majority exceeding the minimum required by the law, approved all issues on the agenda. Specifically, the AGM approved the annual financial statements for the financial year 2011 (solo and consolidated), as well as the Directors’ and Auditors’ Reports. The AGM also approved amendment of article 1 of the Articles of Association regarding the Bank’s corporate name. The new corporate name of the Bank shall be in the Greek language “Τράπεζα Eurobank Ergasias Α.Ε.” and in the English language “Eurobank Ergasias S.A.” Moreover the AGM was informed of the appointment of HFSF’s representative Mr. Christos Glavanis as additional member to the Board of Directors pursuant to Law 3864/2010. Shareholders were also informed that, at the request of HFSF, Mr. Glavanis was appointed as a member of the Risk Committee, Remuneration Committee, Nomination Committee and Audit Committee of the Bank, with the relevant BoD decision dated 26 June 2012. All shareholders present agreed with the decision.