- Banks that were forced to sell their insurance subsidiaries in a hurry are now returning to buy them back at twice the price.
- How much did the National Bank lose in the fire sale of Ethniki Asfalistiki?
- The role of Fotakidis and Mylonas, CVC Capital Partners, and the murky background of the sale.
- How much was pocketed from the “fine print” of the deal?
- What Piraeus Bank stands to gain from the acquisition of Ethniki Asfalistiki.
By Data Journalists
In March 2021, the National Bank of Greece (NBG), under intense pressure from the European Commission’s Directorate General for Competition to sell its insurance business, was forced to accelerate the process and sell its crown jewel – Ethniki Asfalistiki.
NBG was not the only bank to be forced to sell its insurance business, although it was the last to do so.
Over the past two decades, and especially during the financial crisis, banks have been forced to exit the insurance sector in order to focus on their core business. As a result, Eurobank sold Eurolife to Canada’s Fairfax, Piraeus Bank sold ATE Insurance to German group Ergo for 90.1 million euros in August 2016, and the National Bank of Greece sold Ethniki Asfalistiki to CVC.
The deal, which was completed in March 2022 through a fast-track process with only one interested buyer, had a clear winner. Oddly enough, that winner was not the seller-NBG, which was forced to part with its most valuable asset but the buyer. The chosen one: Alex Fotakidis of CVC Capital Partners, who acquired 90.01% of Ethniki Asfalistiki’s share capital for what can only be described as peanuts.
An investor with strong connections – something that has been clearly demonstrated in the case of Ethniki Asfalistiki, as insiders in the insurance market wryly point out. But alongside Alex Fotakidis, who has proven to be both shrewd and highly successful, there is also Pavlos Mylonas, the CEO of the National Bank of Greece (NBG), the man who signed off on the sale of Ethniki Asfalistiki to CVC.
Remarkably, three years after the sale, Pavlos Mylonas has emerged as a suitor in the new bidding round for the company. Last December, he did not rule out the possibility of buying back Ethniki Asfalistiki under certain conditions. However, according to those familiar with the matter, the offer he made to Fotakidis was just over €300 million – significantly less than what Piraeus Bank is now willing to pay.
Importantly, the National Bank sold Ethniki Asfalistiki for next to nothing, while the governor of the Bank of Greece turned a blind eye, according to executives in both the insurance and banking sectors. Indeed, they argue that if Mylonas had not sold Ethniki Asfalistiki for a pittance three years ago, not only would he be selling it at a premium now, but the NBG would also be reaping the dividends that Fotakidis has pocketed in the meantime.
A deal with many “conditions”
In the previous round, the deal between the National Bank of Greece (NBG) and CVC was filled with “details” and “conditions” that favored the buyer and disadvantaged the seller. The price for 90.01% of Ethniki Asfalistiki reached 505 million euros. However, it is the details that stand out in this deal.
First and foremost, the transaction with CVC – after approval by the European Commission on February 25, 2002, as well as by the regulatory authorities – involved the sale and transfer of all shares of Ethniki Asfalistiki from NBG to the then newly established subsidiary of CVC, Ethniki Holdings S.à.r.l. In addition, NBG acquired a 9.99% stake in Ethniki Holdings S.à.r.l., a Luxembourg-based company.
The agreement stipulated that part of the payment would be made in cash, with the remainder to be paid in installments over five years – a period that ends next year. In addition, under the terms of the agreement, the National Bank of Greece (NBG) was to receive an upfront payment of €120 million for a 15-year exclusive bancassurance distribution agreement allowing Ethniki Asfalistiki’s products to be sold through NBG’s network. However, a portion of this €120 million may be returned to CVC if pre-determined sales targets for bancassurance products are not achieved by 2026.
Based on these conditions, CVC is estimated to have paid only €240 million in cash upfront. Meanwhile, NBG will receive a further €112 million under the remaining terms of the agreement. However, a further €90 million – originally due by 2026 – remains uncertain as its payment is dependent on the achievement of certain bancassurance sales targets. As these targets have not been met, the payment is now in doubt.
How much was cashed in – The 10 “fine print” details of the deal
Not only did CVC buy the National Bank of Greece’s (NBG) most valuable asset at a bargain price three years ago and now sell it for more than double its initial investment, but it also benefited from past earnings and property sales.
- CVC sold the historic headquarters of Ethniki Asfalistiki in Korai Square, earning €48 million from the deal with Dimand.
- It signed a memorandum of understanding with Iduna Asigurare Reasigurare, a subsidiary of German insurance group Signal Iduna, to sell Garanta, Ethniki Asfalistiki’s Romanian subsidiary.
- CVC has also put Ethniki Asfalistiki’s Syngrou Avenue property up for sale.
- In August 2023, an Extraordinary General Meeting approved a distribution of €38.86 million from profits accumulated in 2021 and 2022.
- On November 25, 2022, an Extraordinary General Meeting approved the distribution of €91.69 million in dividends.
- A few months later, on February 28, 2023, the Extraordinary General Meeting approved the distribution of € 341,533.25 to pay a one-time special compensation to the members of the Company’s Executive Management.
- This was preceded by a resolution of the EGM in June 2022 to distribute € 1,336,000 to pay a one-time special compensation to the members of the Company’s management.
- In addition, the Company has secured a subordinated loan with no fixed maturity of € 50 million, of which € 45 million is with NBG and € 5 million is with NBG Bank Malta (a subsidiary of NBG). On May 20, 2022, NBG Bank Malta transferred all of its bonds to NBG, making NBG the sole bondholder. The loan bears interest at 6-month EURIBOR plus a margin of 800 basis points. The loan qualifies for inclusion in Tier 1 capital under the Solvency II framework.
- The Company has also entered into a €125 million 10-year subordinated loan facility with NBG. The loan has a fixed interest rate of 650 basis points (6.50%) for the entire term. The fair value of the entire loan is estimated at € 169.267 million (2022: € 163.560 million).
- Naturally, before the sale to CVC, the National Bank of Greece ensured that Ethniki Asfalistiki would not be burdened. In 2021, 116 employees left the bank as part of a voluntary exit program, a move that is estimated to have reduced payroll costs by €7.8 million per year.
In short, CVC hit the jackpot with Ethniki Asfalistiki. And now it’s gearing up for another jackpot. Based on Piraeus Bank’s proposal to acquire 70% of Ethniki Asfalistiki, the price for the 70% is set at €469 million. This means that the insurance company is valued at €670 million, which is 32.6% higher than the valuation when CVC bought the company from the National Bank of Greece.
Ethniki Asfalistiki’s Identity – What Piraeus Bank Expects
Ethniki Asfalistiki is the leading insurance company in Greece, offering a full range of insurance products, with a market share of approximately 14% (17% in life insurance and 11% in general insurance) and gross written premiums of €800 million. The company had total assets of €4 billion and a share capital of €400 million. Underlying pre-tax profit, excluding one-off items, reached € 100 million. However, after compensation payments for the storm “Daniel” and losses on the old health insurance portfolio, the final result was a net loss of € 38.4 million. Ethniki Asfalistiki’s distribution network covers the whole of Greece and consists of approximately 130 distribution network offices with over 1,600 insurance agents, 1,100 affiliated insurance agencies, and approximately 135 partner insurance brokers, all supported by a network of six branch offices.
According to Christos Megalou, CEO of Piraeus Bank, the proposed acquisition of Ethniki Asfalistiki from CVC Capital Partners is seen as a strategic move to counteract the decline in interest rates and strengthen fee-based revenues. Ultimately, Piraeus Bank aims to bring its fee income levels closer to those of Italian banks such as Intesa Sanpaolo and Unicredit, which generate 30% of their total revenues from this sector. According to Piraeus Bank’s management, the acquisition is also expected to create synergies, although specific details will not be disclosed until the deal is finalized. However, bank executives have stressed that Piraeus Bank’s existing partnerships with insurance companies Ergo and NN will not be affected by the upcoming 70% acquisition of Ethniki Asfalistiki.
Past deals that fell through
For the record, long before the deal with CVC Capital – and under increasing pressure from Brussels – the National Bank of Greece (NBG) had made several attempts to sell Ethniki Asfalistiki elsewhere. This was a common trend over the past 15 years, as all Greek banks were forced to divest themselves of their insurance subsidiaries under the strict supervision of the Troika during the bailout programs. For example, Piraeus Bank sold its stake in European Reliance, Eurobank sold Eurolife, Alpha Bank sold Alpha Life and Alpha Insurance, and NBG tried to sell Ethniki Asfalistiki.
However, before Alex Fotakidis took over, NBG had been looking for a buyer since 2016. There were several unsuccessful bidding rounds, including one in 2018 in which five investors expressed interest. At the time, non-binding offers for 80 percent of Ethniki Asfalistiki reportedly reached 600 million euros. Previously, in 2017, a deal with the consortium J. Calamos – Exin Group had collapsed. Then came another failed attempt with China’s Fosun, before the insurance company finally landed like ripe fruit in the hands of CVC Capital and Alex Fotakidis, who acquired 90.01% of the company. Now, just three years later, CVC is preparing to exit with massive profits from its investment in Ethniki Asfalistiki.
A new cycle of speculation
It seems that after the first round of speculation, the banks – which the taxpayers paid a high price to recapitalize – are now returning to the activities they had hastily shed in the recent past to “focus on their core business” (sic). And, of course, with the backing of the European Commission. It is quite clear that everything that has happened – and is still happening – is designed to make certain players a lot of money. A lot of money.
