National Bank of Greece (NYSE:NBG)
F4Q11 Earnings Call
April 20, 2012 12:30 PM ET
Paul Mylonas – General Manager, Strategy and Governance
Apostolos Tamvakakis – CEO
Anthimos Thomopoulos – Group CFO, Deputy CEO and General Manager, Retail Banking
Stefan Nedialkov – Citigroup
Heiner Luz – Goldman Sachs
Antonio Ramirez – KBW
Paul Formanko – JP Morgan
Good afternoon, ladies and gentlemen, and welcome to the announcement of Full Year 2011 Results. My name is Faye and I will be your coordinator for today’s conference. For the duration of the call, you’ll be on listen-only. However, at the end of the call, you will have the opportunity to ask questions. (Operator Instructions)
I’ll now hand you over to your host to begin today’s call. Thank you.
Good afternoon. Paul Mylonas from NBG. I’m here with our CEO Apostolos Tamvakakis, Deputy CEO, Anthimos Thomopoulos; CFO Bambis Mazarakis and from Global Markets (inaudible). We will start today with an introduction from Apostolos and then Anthimos will go through the more integrity of the results and then, we’ll have the Q&A. So start with Apostolos.
Thanks, Paul. Good evening, ladies and gentleman. In my brief introductory remarks, I’d like to provide you with my thoughts on the challenges facing the Greek banking system in general and what NBG’s strategy is.
First few words regarding the Greek macroeconomic environment. Greece has agreed with its international partners to Europe and the IMS on the new adjustment program. Through its generous financial support, it provides Greece more time to implement a very ambitious overhaul of its economy. The aim is to return to the primary surplus and push the GDP growth from 2015 and then. The significant debt reduction achieved by the surplus is another significant milestone which provides appropriate condition for Greece to return to a sustainable growth path.
Knowing new start was clearly necessary; it is a mistake to ignore, what was achieved by the first program. Despite a software collapse in output by 14% during the past three, four years, as well as a dramatic increase in unemployment to nearly 22% from around 7.5% debt crisis, Greece implemented an unprecedented amount of fiscal measures equivalent to 14.5% of GDP and achieved a primary balance adjustment of 8% of GDP.
In addition, bold and socially difficult structural changes could be in May, most notably to the public administration. These will gradually increase the country’s efficiency and competitiveness, though their effects are not get obvious to outside of service.
International focus has often been on policy slip as compared with targets rather than on the abusiveness of the targets themselves. No other campaign has ever achieved so much in such a difficult environment while maintaining social cohesion.
However, clearly more need to be done. The new adjustment program provides a unique opportunity for Greece to complete its task of becoming a more dynamic and more equitable and more competitive economy. I’m sure that Greek society as a whole will seize this opportunity, as failure clearly means the loss of several decades of development and the isolation of the country on the international stage.
Let’s now turn to the challenges of the Greek banking season. The PSI+ related losses necessitate unprecedented capital support for the Greek banking system of several tens of billions of euros. Greece has already received €25 billion of disperse as a first tranche effectively – effective immediately. Additional resources are available if necessary, once the final recapitalization needs have been determined by the Bank of Greece. Moreover, the current trends does not cover any capital requirements arising from the BlackRock loan diagnostic exercise for which NBG will not need additional capital.
Clearly these factors can change the total recapitalization need by several billions of euros. Another important unknown is the details of the recapitalization framework. These could get to be determined and will play critical role in attracting the private resources necessary to keep the Greek banks under private sector management. This we will be clarifying soon I hope after the elections at the latest.
The return to growth of the economy requires a well-functioning banking sector to provide credit efficiently to Greek firms and households. The recapitalization is a necessary first step. However, and its consequences created conditions for a significant change in the banking sector landscape.
Let’s turn now to NBG. NBG has been proactive in the crisis. It has implemented a strategy whose aim has been to enhance capital inequity buffers, reinforce the balance sheet through aggressive provisioning and tighter underwriting processes and improve operational efficiency. Regulatory capital has been increased by about €3.5 billion during the past 20 months including €1.8 billion rights issued in October of 2010, €1 billion increase in preference shares issued to the Greek state December of 2011, liability management for €300 million January of 2012 and the retail placement of subordinated debt €450 million August of 2010.
In addition we have reduced risk weighted assets by deleveraging both domestically as well as in South Eastern Europe i.e., loan reduction domestically by €4 billion on a net basis during the past two years by minus 9%, and by €1.5 billion in South Eastern Europe during to the same period, i.e. 16.5%.
NBG has added €2.8 billion of loan provisions only increased during the last two years and €3.4 billion at the group level, bringing the total cost of provisions at 8.7% of the domestic loan book. As a result, NBG has the highest domestic provision coverage among its peers standing at 61% and 58% for the group as a whole.
The results of the BlackRock exercise underline NBG’s conservative loan approval processes and provision policy, as well as its prudent loan restructurings as it has resulted in no additional capital requirements.
It has to be noted that NBG has consistently being conservative regarding provisioning and accounting and tax policy. For example, it took additional provisions of €1.2 billion of non-PSI sovereign related exposures in 2011 and did not take a tax break associated with PSI+ related losses amounted to €1.3 billion, so you’ve got both year ending up to a nice figure of €2.5 billion, I’m sure that Anthimos will elaborate on this later on.
In terms of operational efficiency, operational cost increase have been flat by €250 million during the past two years and amount which presents 15% of 2009 cost base and favorable significant cut as planned for 2012 and beyond. The top line has been supported by the pricing of loans especially on the corporate side and increase in the spread of 250 basis points. As well as balanced and moderate pricing of deposits especially in view of our competitive advantages and on deposit gathering gaining markets in deposits even in these tough environment.
Looking forward, NBG plans today a significant further capital, so as to reduce its recapitalization needs. So this end, submitted a capital plan for the Bank of Greece. It comprises from the sale of a minority stake in Finansbank once the market conditions permit. The creation of a Holding Company and its subsidiaries to the (inaudible), we call it NBGI followed by a minority sale in the Holding Company. The sale of non-core assets most importantly the Astir Palace hotel complex, further liability management exercises and finally the reduction in this weighted assets through various measures including further deleveraging.
To conclude, 2012 will be the critical year for the Greek banking sector and for (inaudible) significant structural changes. NBG is the strongest bank in Greece with a longstanding track record. It’s has been the fore front of change, we’ll continue to do so in the future.
I will now hand over to Anthimos for a more detail overview of our 2011 annual results.
Thanks you, Apostolos. Let me welcome you on this call and thank you for being with us in a – on a very somber day in the history of NBG. As you’ve seen we have posted stupendous €12.4 million losses. PSI clearly dominates our numbers who have conservatively taken a pre-tax charge of €11.7 billion on a nominal amount of €14.8 billion worth of Greek government bonds and state guaranteed loans. This represents an 80% impairment of the nominal on a pre-tax basis.
Let me stress at this point that we have not recognized associated deferred tax assets amounting to $1.2 billion as of December 31st for technical reasons. The accounting most significantly be regulatory treatment of this deferred tax assets will be revisited in the first quarter results.
In addition to the PSI losses we have taken a series of one-off charges to claim this late. We have taken 540 million worth of after-tax charges on other sovereign related exposures ex-PSI outside the perimeter of PSI, as well as another 630 million of non- sovereign related exposures mainly securities of Greek banks, stock we own in Greek corporates and as certain tax losses that we feel that we may not be able to recover soon.
Finally, we have accrued 135 million of after tax charges for several indemnity payments related to the recently passed law that introduces significant flexibility in the labor market. In total 1.3 billion of additional impairment charges proactively taken to address the need for increased transparency ahead of the upcoming recapitalization season.
With regard to their capitalization plan as you heard from Apostolos, the details of the process and the mechanics of the private sector participation are in the final stage of being iron out by the official sector and will most likely be concluded after the 6th of May election. Clearly the guiding principle of the recap trading work is to provide significant incentives for private investor participation, so that the major, the systemic and viable banks in Greece remain firmly on court in the hands of the private sector.
What we can also say at this point, is that the official sector and the Bank of Greece, have approved a backstop capital advance of €6.5 billion foreign (inaudible) through Hellenic financeable, financial stability fund.
This is as you probably have you heard from our colleagues in other banks that there are reporting today. This is a preamble to their full recap which will follow soon. As we stick, the bank’s business and capital plans, together with the loss estimates from the BlackRock diagnostic are being assessed or under final stages of assessment by the Bank of Greece, in order to arrive at the final capital plug.
For NBG – although DZB exposure clearly has dealt a big blow to our capital base. We are staggering with the results from the BlackRock. So that we anticipate little if any impact on our capital – overall capital so forth out of the ongoing assessment of our business and tecto-plus.
So we’re going to be talking on this capital shortfall issue soon, and hopefully we will have the opportunity to detail you the exact action plan that we’ll be taken in order to cover the shortfall. In the mean time we continue to execute our capital plan with a singular focus as markets permit. I’m just repeating what you might have seen. We have completed a liability management at the beginning of the year of €300 million worth of additional core equity.
We took another €1 billion worth of state preference shares in the beginning – at the end of last year. And all this taken together pro forma for €6.9 billion backstop of capital adequacy stands at 8.2%. In the next two weeks, as the recap framework crystallizes, we expect to be able to provide more details on our plan to further strengthen the capital adequacy within the context of the framework.
Our categorical stated objective is to minimize the need for government support, safeguard the private character of the bank and overtime, reduce our dependency on state aid. And we are confident that the track record of this bank, its fundamental value and its prospects in Greece and abroad will be sufficient to master the support of our loyal shareholders base in Greece and abroad.
Going to the organic underlined earnings dynamics of the group. Profit after tax before the PSI and the one-off charges just detailed, came in at a negative €300 million, €289 million to be precise. On the back of increased provisions, we jacked our provision by 48% year-on-year, probably the 7% is quarter-on-quarter. For the full year, close to €2 billion, as obviously the conditions in Greece continue to weigh heavily on our books. Still, the Group continues to generate significant pre-provision earnings. At the tune of 2 billion for the full year, it’s a pretty good result on the back of resilient organic revenues and drastic declining of operating expenses.
As you heard from Apostolos and I will repeat that a few times in this presentation, over the last two years, this group has managed to slash operating expenses in Greece by a pretty significant number €250 million, 15% of the total OpEx base. And this is, there is a lot more to be seen under from as the full impact of the adjustment process in Greece is being felt in the banking sector as well. On the international front, our international subsidiaries, especially Finansbank continue to support the Group’s bottom-line contributing close to €370 million worth of profits, obviously Finansbank being the bulk of it.
Considering the fact that the Turkish lira has depreciated by 18%, the Finansbank number plus contributions of €65 million, it was a pretty good result. On the asset quality front as I mentioned before, delinquency flows deteriorated significantly in the quarter, as a result, the direct result of the dramatic contraction on the Greek economy as well as a few lumpy corporate accounts in Bulgaria and Romania. Overall, the group’s 90 days delinquency climbed to 12.2% pretty much in line with our expectations and guidance.
With regards to liquidity, post PSI completion the acute deposit range that we have experienced since the beginning of this crisis has significantly slowdown. As a matter of fact, since the beginning of second quarter we have seen an increase in customer deposits in Greece as panic has clearly faded away. Nonetheless, our reliance on our Eurosystem funding is still significant, but stable at just over €31 billion.
Turning to page three, a very quick look at the revenue growth and revenue developments on the – for the growth. Group income declined by 6% to €4.4 billion in the year, stripping away the effect of the Turkish lira evaluation that I just mentioned. The group income is practically stable, a decline by just 1%. Similarly NII is held up, that’s 4% year-on-year down. On a group basis, the margin is pretty healthy 377 basis mostly due to the resilient top line performance in Greece and Turkey.
In Greece and its worth nothing, NII was slightly up for the quarter at €635 million, NIM picked up 30 basis to 330 basis. Please note that this is a real NIM, has been adjusted for the sharply lower into the selling assets at the end of the year as a result of the PSI adjustments. So it tracks the true dynamics and obviously is explained by ongoing pricing and continuing support over the bank from the Eurosystem.
In Turkey, NII increased to TL21 million to TL550 million. As we continue to grow in the high yielding segments and re-price the asset side responding to the one other conditions in the country. NIM continuous to expand, it’s picked up 10 basis climbing all the way up to 510 basis, clearly the highest margin performance among all of our private sector peers in the country.
In South Eastern Europe, both NII and NIM declined in the quarter at pretty decent from the 77 basis of margin, impacted by the continuing deleverage orbit moderate of our loan book in the region.
On page 4, on OpEx, I have just mentioned that, that’s the third time we say that €250 million worth of OpEx declined during the past two years. It is worth noting that increase domestic personnel is down 8% year-on-year, G&A is 9% and as I mentioned before this is only a case to what is to come as the full impact of the structural reform is at the start of – start effecting the banking industry.
In Turkey, OpEx was flat year-on-year, obviously held by the depreciation of Turkish lira. In constant lira exchange terms, it’s gone up 16%, which is tied and pretty much in line with the expansion mode of our business in Turkey with loan growth of 16% and continuous increase of our footprint with new branches and operating capacity.
In SEE, we continued to stream line expenses and OpEx are down as you know maybe we can see it by 3% year-on-year. On the core asset quality front, delinquencies in page five and if I’m not mistaken delinquencies have gone up in the quarter. Delinquency flow hit a new high at €776 million in the quarter coming mostly from our Greek loan books. As a result 90 days ratio recorded another steep rise of 120 basis to 12.2 for the Group.
In Greece, in page six you can see the delinquencies have reached 13%, up 123 basis, a rate of growth similar to that of the previous quarter against a backdrop of a very, very sharp contraction in the last quarter of 2011. Cost of risk is doubled to 530 basis entirely as a result of our increased cash coverage to reach a best of class 60% with pretty wide margin with the rest of the peers.
In Turkey, at the end of the last quarter delinquencies declined to 4.8%. Cost of risk decreased down to 106 basis in line with our expectation for provision it normalize closure 200 basis. Cash coverage at 77% is exactly where it should be for this point in the cycle.
In SEE the 90 days ratio stood at 16.5 and if one obviously takes into account the effect of the leveraging up by 48 basis points.
As I mentioned at the beginning that was driven by few lumpy corporate accounts that became delinquent. I think we are in the Bulgaria and Romania and that sort of took the brunt on our delicacy metrics.
On the deposit front on page seven, group wide loss of deposit 109, improved by two percentage points versus Q3. In Greece, loss of deposit is firmly at 106% and obviously not a small feat given the deposit depletion that we have suffered since the beginning of this crisis.
In spite of big uncertainty we continue to defer our market share in core deposit franchise without surrender into pricing pressures. Though overall deposit have declined by 70% year-on-year we have managed to increase market share in savings side and time deposits in 2011. As I mentioned quarter-to-date we are seeing a much more stable picture, deposit in flows and a lot more stable customer behavior which may be a signal of normalcy coming back to this country especially if the political concerns abate post elections.
In Turkey total deposits are up 22% year-on-year. In 2011 we gained about 50 basis of market share at local currency deposits and 30 basis in total deposits, pretty much what we were aiming at, as regard deepening our front size value in the country. In SEE, our deposit decreased marginally, but hedge since the end of the year increased nicely by 6% to €5 billion as of mid-April. Most significantly loan-to-deposit ratio has come down at full 16 percentage points as a year ago, 232% which is a huge improvement to the liquidity profile of the front size in the region.
As a matter of fact the front-end GAAP in the region has decreased to less than €300 million from over a €1 billion a year ago and probably close to €2.5 billion a few years as the businesses well on its way to funding sub sufficiency.
Page eight, on the capital hit, no need to repeat the numbers. €11.8 billion of pre-tax impairment on PSI had installed in our capital base. As I said, we proactively rolled off another €540 million on sovereign related exposures of which around €200 million came from loan guaranteed – state guaranteed loans and another balance came from our debt loss exposure.
We took another €480 million worth of hit on debt loss despite the fact that we are out of the belief that this is a unique type of transaction which makes it less susceptible to any further restructuring and bilateral action by the republic.
In accessing the amount of impairment, we took a write-down on all loans to third parties with explicit guarantee of the Greek State that bare or bore ex evidence of impairment the delinquency or applied the modest loss rate as of the end of last year for the Hellenic Republic which was say 30% probability of default at end date pretty generous 75% estimated loss should default tax base loss given the profit.
On the recap, we currently stand, as I said at the beginning, at 8.3% Tier 1, Core Tier 1 at 6.3%. We expect very little, as I said, from BlackRock and the capital actions we have taken together with pre-provision earnings capacity of the Bank should be sufficient to recap the bank going forward.
I don’t want to spend more time on this presentation. Allow me to reinforce a few points on how we are navigating through the crisis. As you heard from Apostolos, our first priority is to restore our capital base to levels that will allow us through continue our systemic role in the Greek economy. We cannot speak at this point in more detail about the recap process, but as you know we do have a plan and will have been executing on it diligently. Our goal continues to be to minimize the state support and overtime reduce reliance on state as possible.
Secondly, we will remain focused on broadening the deposit base across the group, thereby improving our liquidity profile in each and every region we operate. Thirdly, we’re tightening the bolts on managing delinquent portfolios through even more effective collection mechanism and restructuring programs. And finally, we continue to rationalize our expense base, is a key objective of course, what regions we operate, but by foremost Greece as believe that this current crisis gives us a unique opportunity to reorganize the group and rebase their business model of our bank domestically.
We are ready to take your questions.
Thank you. (Operator Instructions) And we have a question from the line of Stefan from Citigroup. Please go ahead.
Stefan Nedialkov – Citigroup
Hi, guys. Stefan from Citi. I’ve got two questions. The first one is when you take a more fundamental look PSI aside, sovereign GS aside et cetera, et cetera, when you look at your loan book, what is the sector in Greece that you’re saying expanding today and looking three year from now, which sector will be contributing strongly to grow from 2015 to 2016. Everyone is talking about growth returning a few years from now.
I just want to concretize it a little more being a leader in Greece, I hope it has some use on this? And my second question is just as a remainder what are the minimum requirements for the Bank of Greece as they exist currently under Basel II and the accelerated ones, the September benchmark and December of 2013 benchmarks. We have been hearing a few different numbers, so I just want to clarify? Thank you.
Let me start with the first one. You are correct that there need to be a refocus of the Greek economy to more tradable sectors. Oh, the most obvious sector is Tourism in the broad sense. We have lots of very small moment pop type hotel business. It needs to be a more larger groups – financial groups.
There is lots of land, we need to deregulate the use of land, but there is a great potential for capital to come in and to exploit the land resource of Greece not just for the two months of August and July, which is where most of the tourists coming these days, but for the eighth months of the year that we have good weather business tourism is part of that.
Retirement home is just part of it, so that’s one sector with large potential. Greece has a trade (inaudible) for the landlord countries of the North, is another of course which we haven’t developed. Agro business again the larger players can lead to better exports. Those are – I can go on and on, but I think that we are here to talk about NBG, so I’ll stop there and we can have a – if a bilateral chat if you want on the potential of growth of Greece going forward on some time.
If I can add, I think there are some other sectors which possibly will be off great interest and not only for Greek investors but also for foreign ones, as you know the energy sector is a sector, which is going to attract a lot of attention, water supply management, also waste management as well, and I’m sure that you’ll recognize that the insurance sector is going to change completely due to the (inaudible) that is taking place in the pension system in the country. So, I think what Paul said, these four sectors will continue to – also a little opportunity for investment.
Taking your second question, the recovery has already taken place either back step advance that was offer to Greek banks, so the four major banks this morning serve the purpose of ensuring the continuing access of the banks to the Eurosystem. I’m making sure that under no circumstance in the bank’s capital is fair below 8%.
The target, there will be however, 9% core equity is defined by EBA as of end of third quarter and this will go up to 10%. In 2013, again under the same definition. I remind you that the difference between core equity as defined by Basel III and EBA is predominantly the inclusion in the letter of the State aid, the banks in Europe have received. So that’s where we should be aiming at.
Let me take the opportunity to walk you through the process again on how this threshold will be met. The banks have asked and have submitted detailed business plans which have been scrutinized by the Bank of Greece and I will say the official sector at large.
These business plans serve the purpose of producing a reliable estimate of conservative product estimate of re-impairment earnings which then are informed with the results of the BlackRock Diagnostic so that the Bank of Greece and the official sector has a detailed view of the each bank’s ability to generate capital which obviously factor in the initial position which you’ve heard this morning from – this afternoon from all the banks workout to a capital shortfall.
This capital shortfall will be covered by effectively three ways. They internally – the any further capital actions that the banks may wish to take or may be able to take, the private sector participation in upcoming capital raising and failing or any shortfall, any domain shortfall by the Hellenic Financial Stability Fund, which as you know will be amply funded by the through the second program to complete this objective.
As far as NBG is concerned, whatever we said is that this is a bank that has suffered a lot out of the PSI. But thanks to pretty consistent underwriting standards, policies and practices and a very generous and consistent provision and policies over the few years, thanks to get practically no further re-impact from its loan books through the block of diagnostic and it is well known that it is a pretty strong pre-impairment capacity in a year of ultimate challenge.
We managed to clock €2 billion worth of pre-impairment income. So that’s shows a lot about our ability to shoulder and absorb the cycle, the asset cycle and to ensure that there should be used down the road, the bank’s position will be fully restored and fully private.
From a timing point of view, we’re expecting to have some more definitive numbers on the capital requirements within the coming – I suppose 15 days to 20 days at the maximum. So we’ll know exactly within sure how much money or further capital each bank is going to require.
Stefan Nedialkov – Citigroup
Okay. Thank you very much for this. Very helpful.
Thank you. (Operator Instructions) Okay. And we have a question from the line of Heiner Luz from Goldman Sachs. Please go ahead.
Heiner Luz – Goldman Sachs
Hello. Sorry. Sort of have been (inaudible) quickly, so apologies if the question already had been asked. But quickly on firstly on your ECPs usage, can you split how much of that is from the ELA and sort of secondly given sort of looking at your overall setup, are you sort of planning any sort of additional sort of the either debt buybacks, I know you already moved up one step at one stage of buying debt which was not sort of Tier 1 or Tier 2 or sort of any measures which you can probably already outline and give some guidance to basically close that capital gaps. Thank you very much.
We – Hi. We presently absorb €24 billion from the ECB and approximately a little excess of €7 billion from the ELA.
Yeah. This is effectively strange that the total non-ECB exposure we have on the Eurosystem. We have no other known regular operations or net operations. And the point that Luz just demonstrated is that, after the upcoming recap this bank is going to be free from ELA and we’re going to make the first step to normalcy by shifting all our risks with the exposure to normal ordinary operations and hoping that we’re going to see better days on deposit inflows and eventually GDP growth and monetary growth in this country.
Gradually, we believe that by 2014 we should be able to reduce our overall – you should be exposure down to 10% to 15% of our total assets. This is a cornerstone metric and objective under which we plan our business in the next two years.
As regards further debt by banks, I am afraid that cannot – we are not affiliated to make announcements at this point in time and we will let you know as soon as we can take practical steps to that effect.
Heiner Luz – Goldman Sachs
Okay. Thank you very much.
Thank you. (Operator Instructions) And we have a question from Antonio from KBW. Please go ahead.
Antonio Ramirez – KBW
Hello, good afternoon. Maybe if you can clarify a little on the capital definition, you just mentioned that for the EBA Core Tier 1, which is the definition that will be used by September that would include state ad.
So my understanding is that would be the €1.35 billion of preferred shares that would be considered and then I would assume the backstop facility obviously would be include as well, but I would assume you will try to reduce as you said utilization of this backstop facility? And then as you said that for next year, I don’t think I got it right, what will be definition for Core Tier 1 to get 10% next year. Would it be EBA as well or would it be already on a Basel III ratios?
Antonio Ramirez – KBW
And then maybe if you can – I mean, you just mentioned that you don’t expect any material impact on capital from BlackRock, but then to get to the 9% obviously you will need more than €6.9 billion backstop recap. So, considering all the more impact I guess is too early, you don’t want to give us a broad indication of what’s the capital shortfall you’re considering.
And then I understand there are still uncertainties regarding the tax treatment of the PSI losses. So you have now recognized that totality of these DTAs and also the treatment of the valuation adjustment on the PSI losses that are not related to the nominal haircut. So is there any color you can – even I know is not definitive, can you tell us your views on how you think this could play at the end.
Okay on the EBA definition, yes, you’re right. I think the key difference between mainstream core equity definition and the EBA one is going to be in our case, the €1.350 billion worth of state preference shares that we have issued.
On the backstop what we’ve said is we didn’t – we’ve said – we didn’t say that we’re going to not need or reduce this need. We will need this capital, we need this capital and we’ll take it. What we would say is we will try to reduce the state dependency i.e. substitute, the state dependency, the state capital with private sector capital. This is one.
Second, we have an ambitious pretty drastic capital plan. Again I apologize for not being at liberty to disclose the details of the capital plan, but we have discussed and Thomopoulos gave you a very good flavor of what is coming up, which will also contribute in reducing the dependency to state aid. So we’ll get those €7 billion worth of capital and what negotiated upon will be decided in the next few weeks as the recap framework crystallizes and then, we will try to work with capital down through internal capital generation, capital productions, and eventually private sector in government for participation in the capital ratio that we will do.
Now on the shortfall, you’re right if you do simple math, we’ll probably need another €1.7 billion to reach the 9% threshold. Clearly, we have a €1.3 billion of deferred tax assets, which we have not recognized that gives us short by €400 million. But again, I want to convert this discussion because I don’t want to give you a commit, the regulatory his own views on how the – what the short fall of the bank should be. But we are not well aware, my gut feel – it is only my gut feel, shares that we should not be far away from what we are receiving from HFSF this morning.
Well, if I can add, I think Anthimos said it correctly. We don’t know the exact figure, but it’s going to be very close on what he disclosed unfortunately. We are still in discussions with the Central Bank, actually these days are examining our business plans and there is a back and forth discussion and therefore the numbers could not be crystallized yet.
But I see worst case scenario is the number that Anthimos just mentioned. Over and above, as you may know, the deferral taxation issue is an issue which is at this very point at the top of the agenda of the discussion of the Greek state, the Ministry of Finance and the (inaudible) discussion and it seems that possibly right move is going to come out within short and if this is going to be the case, as you can understand this is going to impact a lot of our official results by good €1.3 billion which can reduce obviously the overall capital requirement. So I think possibly next week, we’re going to have a lot more to say on that front.
Antonio Ramirez – KBW
You are noted to some sort of ability to shelter some of the losses, particularly the NPV losses beyond the nominal level. There has been a lot of discussion, I don’t think we should be placing too much reliance on some of those ideas. I think, they will end up, we’re where we are, clearly investors and market participants will soon realize that as long as Greece stays in the state now and mixed obligations that 25% or 21% NPV losses will gradually roll up in our P&L as these bonds will become safer and safer assuming that we continue as I said perform as a country. But in terms of the much discussed trade enhancements from these losses, I wouldn’t be that hopeful at this point.
Yeah, I mean, chances are rather poor, at least as we speak, something – so things are changing from negative to the positive very quickly but we don’t want to give you some hopes which are false.
Antonio Ramirez – KBW
Okay. Thank you very much.
Thank you. And our next question comes from the line of Paul from JP Morgan. Please go ahead. Please go ahead.
Paul Formanko – JP Morgan
Good afternoon, gentleman. Just a couple of simple questions, in respect to HSFS funds can they take form of core common equity? And then the second question, how long will these funds be available for the Greek banking system, is it for the next three years?
Clearly it’s going to come – the money from HSFS or whatever part of the sales force is covered by the HSFS will come in at highest quality possible. It is embedded in the framework that is already exists in the broad brats framework in the Greek legislature that will be in the form of common equity. So, there is no doubt about that.
Paul Formanko – JP Morgan
So, this will be new shares, new, new shares issuance?
Yes. I don’t want to get into the...
Mechanics as voting rights, not voting rights, are built to buy back, this will plan out soon. But in terms of quality of capital, it will be of the highest possible quality, full loss absorbed in common equity. And the timeframe that we’ll say is at least five years will say definitely by this. There is no – as a fact there is no timeframe for loan expiry for that matter. Thank you.
What we have seen so far in the legislation that is this is simply change of voting rights over a five-year period. So they don’t expire, they are not redeemable at least as far as we know.
We could have a chance possibly to buy them back earlier on. We will know more about that within sort, I think the chances are quite high in banking sector to buy that back earlier, but defiantly for the next five years you can counter that on that – of that amount.
Paul Formanko – JP Morgan
And can you take this form of equity in different trenches let’s say by September you’ll take x, about 18 months later you could still take y.
We just don’t know. I think it is better not to speculate at this stage. This is a very technical discussion as they are very different constituencies involved. Let’s wait a couple of weeks until everything gravitates to a something that we could reasonably discuss with you guys and investors a lot.
Paul Formanko – JP Morgan
Thank you. We have no further question coming through. So I’ll hand the call back to you to conclude.
Okay. From Athens, thank you very much for joining us for this call. I’m sure that you have a lot of questions so do we. Hopefully, we’ll get answers in the next few weeks on the capital framework and I’m sure we’ll be discussing with you the developments as they come our way. Thank you very much and good night.
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