Fitch Ratings is closely monitoring Eurobank's ongoing transaction to acquire shares of the Hellenic Bank. The full ramifications of this acquisition will only be clear once all transactions, including the mandatory public offer, are completed. Nevertheless, Fitch remains optimistic about the integration, foreseeing a smooth transition despite the potential risks associated with large-scale acquisitions.

Last week, Eurobank made two significant announcements:

1. They've entered an agreement to acquire a 17.3% stake in the Hellenic Bank from American Pimco at €167.9 million.

2. They'll also be purchasing a 1.6% stake from Senvest Management LLC for €15.5 million.

Upon regulatory approval, these transactions will bolster Eurobank's ownership in the Hellenic Bank from 29.2% to 48.1%. Moreover, in compliance with Cypriot law, Eurobank will make a public offer for all remaining shares of the Hellenic Bank post these transactions.

Fitch notes that Eurobank's intention to further its stake in the Hellenic Bank aligns with its broader strategy: to strengthen its foothold in crucial foreign markets like Cyprus. "We believe there's a strong chance Eurobank will secure majority control of the Hellenic Bank post the mandatory offer," Fitch observes.

While the final ownership percentage and the financial impact of the acquisition remain undetermined, they will depend on the final number of shares acquired, the purchase price, and any potential negative goodwill arising from this deal.

To put the acquisition in perspective, as of March's end, the Hellenic Bank's assets totaled €20.2 billion, constituting 20% of Eurobank's combined assets, which stand at approximately €100 billion.

Fitch believes that this acquisition, if finalized, will refine Eurobank's business model by enhancing geographical diversification and striking a more balanced ratio between retail and corporate banking activities.

Currently, Eurobank has a non-performing loan (NPL) ratio of 5.9%, with loans under securitization excluded. In contrast, the Hellenic Bank's NPL ratio is 3.4%, excluding loans covered by the Asset Protection Scheme. However, Fitch emphasizes that the improved NPL ratio post-acquisition might not drastically influence its evaluation of the combined asset quality.

Based on the acquisition price paid to Pimco and Senvest (€2.35 per share), Fitch's estimation suggests that Eurobank's full acquisition of the Hellenic Bank will likely cost around €700 million. This equates to 10% of the CET1 capital ratio as of June's end, or 50% of Eurobank's projected profits for the first half of 2023—a financial move Fitch deems manageable.