Good morning, everyone. Today, our CFO, Gloria Hernández , will comment on the main highlights of the EVO acquisition we had just announced. We will follow up with a Q&A session later on. Thank you.
Okay. Thank you, David. Good morning, and welcome to this webcast presentation. Yesterday, Bankinter announced its acquisition of certain assets from the EVO group in Spain and Ireland. We will be presenting now the main features and impacts of this transaction. The presentation will be followed by a Q&A session. As usual, you may send in your questions throughout the webcast. This presentation has been filed with the CNMV and is available on our corporate website. As mentioned in the introduction, Bankinter is acquiring from Smart Holdco, a company owned by some funds managed by Apollo, certain EVO Bank assets linked to its Spanish retail business and its fully owned subsidiary, Avantcard, in Ireland. The transaction specifically excludes other assets, such as EVO's point-of-sale financing and credit card business.
This transaction presents an excellent opportunity for Bankinter to further develop its growth strategy in key target areas, consumer finance and new digital banking model. Moreover, the financial terms of the transaction are beneficial for a sound and profitable business with a structure in Spain that is a perfect fit for Bankinter's digital operations. The deal is expected to be closed before the end of April next year. The relatively small size of the transaction has very limited impacts on the group's balance sheet, earnings, and capital. It also bears a very positive impact in the group's liquidity. Bankinter will acquire two specific assets from EVO group as part of the transaction. EVO Retail's banking business in Spain, EVO Banco, and its consumer finance business in Ireland, Avantcard.
The acquisition of EVO Banco's business in Spain will reinforce our digital banking model, allowing us to consolidate a leading banking proposition for digital customers in Spain, and to increase our value proposition for younger digital native or self-service customers. Acquiring Avantcard presents a unique opportunity to grow and diversify our consumer finance operations abroad, and is a further step in Bankinter's international expansion. The favorable financial conditions of this acquisition make the deal earnings accretive after the first year and is expected to deliver a double-digit return on invested capital in the medium term. The rationale for the transaction has to do with two facts. On the one hand, it will help us further develop our leading digital offering in the Spanish market and gain scale by adding a business that has been significantly de-risked and downsized. In joining forces with COINC, it will be primed for growth.
On the other hand, in addition to the expansion of Bankinter's digital capabilities, the acquisition of Avantcard in Ireland is a new step into its international expansion. Bankinter Group is now operating with a full bank in Luxembourg, a branch network in Portugal, and will be operating through a full consumer finance subsidiary in Ireland. The contribution to Bankinter of both businesses is clear. Concerning EVO Banco, its customer-focused franchise will lead to rapid customer growth, more than 450,000 new clients, and market share gains for Bankinter Group. It will accelerate by three or four years our actual business plan for a new digital offering for native digital and self-service customers. It will act as a catalyst to develop new products and increase service quality with high customer satisfaction and increased customer referrals.
Concerning Avantcard, this business already has a high return on capital, a robust portfolio, and very low levels of delinquency. It has an expected sustainable growth potential. It will significantly improve the geographical diversification of our group's consumer finance loan book. Finally, we will take advantage of its high-quality management and staff with extensive experience in the local market and the country itself. All in all, we can say that the strategic fit with Bankinter is high and a good starting point for organic growth prospects in both markets. The digital banking model of COINC, combined with the one from EVO customers, will incorporate the best of the two business models. It will offer several products from mortgages to advisory tools, digital account management, voice self-service, big data, and CRM services, rapid money transfers, et cetera.
Joining forces with third parties such as Amazon, Línea Directa, Holaluz, Booking, El Tenedor, Rentalcars.com, et cetera, will enlarge the range of services we can offer to both customers. Bankinter launched a pure digital banking model, COINC, back in 2013. It provides a high level of service quality and a wide range of products, and became a leading digital banking player in Spain, multiplying by three its customer base. EVO Banco has also an excellent digital platform that has almost doubled its customer base since 2013. It enjoys a very strong brand name in the new digital self-service population. Joining forces, we will complement and enlarge product and service offering, provide more convenience through a truly multi-channel distribution, and increase our commercial productivity leveraging in big data and CRM capabilities. The EVO Banco customer base is younger and more self-service oriented than the Bankinter one.
Its product cross-selling ratio is still very low, and we believe it can be substantially improved by applying Bankinter's business model, which aims to be present in the whole financial cycle of individuals, from lending to insurance. In the consumer finance business, acquiring Avantcard allows Bankinter Consumer Finance to increase its loan book by 15%-20%, or EUR 300 million, and improve its balanced business model in terms of geographic and product diversification. According to the pro forma balance sheet, Spain will represent 78% of the loan book, Portugal around 6%, and Ireland 16%. To offer you a better understanding of the transactions perimeter, we present here the key EVO Banco figures as of June 2018. Total assets of EUR 3.4 billion, with a loan book of EUR 1.2 billion, of which 67% are residential mortgages and 15% consumer finance. The loan book's NPL ratio is 0.7%.
EVO Banco customer deposits amounted to EUR 3 billion, and assets under management reached EUR 400 million, mainly mutual funds, pension funds, and equities. It has only five branches and 229 full-time employees, servicing over 456,000 customers. Finally, with EUR 34 million operating income and EUR 31 million of operating expenses at the end of last June, it is almost a break-even P&L account. Avantcard figures are small in size, less than EUR 400 million in total assets, but with high profitability and return on equity, a low NPL ratio of 2.2%, and only 145 full-time employees in Ireland servicing more than 150,000 customers. Avantcard is the specialized consumer finance leader in Ireland. It comes from the former MBNA Ireland. Its market share is 15%, behind only the two largest Irish banks.
Its P&L account as of June this year shows EUR 7 million in earnings before taxes or a 39% implicit ROE, with gross operating income amounting to EUR 24 million and operating expenses of EUR 13 million. The transaction is small for Bankinter's size and will have no material impacts. On the current slide, we present the main figures and management ratios at an individual level and the impact on the combined entity. This data for Bankinter and EVO Banco is from June 2018. In total, both businesses will add some EUR 1.5 billion in net credit and loans, which represents around 3% of Bankinter's loan book. The combination will obtain EUR 56 billion in credit and loans. The new business is more liquid than Bankinter, with EUR 3 billion in customer deposits or 6.3% of total deposits in Bankinter. The combination will have a total amount of EUR 51 billion in customer deposits.
As a result, the 114% loan-to-deposit ratio in Bankinter at the end of June will improve by four percentage points to 110%. Non-performing loans will marginally increase and remain at EUR 2 billion, whilst the combined NPL ratio will improve slightly to 3.2%. Balance sheet assets under management will increase by 1.4% and reach EUR 24 billion. Retail banking customers will grow by 456,000 or 50%, and consumer finance customers will add 151,000 or 13% more. Finally, employees and branches will increase by 374 and five, respectively. All in all, as you can see, it will have a small and very manageable impact at group level. As a result of the attractive financial conditions and the restructuring effort already carried out in the franchise, the transaction will bear accretive earnings after the first year with a sustainable ROIC in the medium term of over double digits.
Now on capital. The transaction will bear a very small capital consumption in CET1 fully loaded terms, 29 basis points, bringing the pro forma CET1 fully loaded ratio as of June this year to 11.26%. The estimated capital consumption of the business acquired amounts to EUR 99 million, split between EUR 119 million negative impact of the risk-weighted assets increase. A negative impact coming from intangible assets of EUR 35 million from Avantcard, and the positive impact of EUR 55 million of goodwill coming from EVO Banco. The goodwill of the acquisition will be fully allocated to finance the acquisition. Excess capital post transaction in the consolidated group will be of approximately 414 basis points over the CET1 SREP capital requirement of the group.
No dilution is expected for Bankinter shareholders, thus adding value from the very beginning. In liquidity terms, the group's commercial gap will improve by EUR 1.5 billion due to the positive difference between deposits and loans. In the following slide, we present the tentative transaction timeline. After signing yesterday, the seller will initiate a project to carve out operations included in the transaction from those retained by the seller, that is EVO Finance. We also expect to have all regulatory approvals in Spain by the end of this year. Full regulatory approvals in Ireland will take more time. They are expected by the end of April next year, after which the deal will be closed. Finally, to summarize, the transaction will enable Bankinter to take another step in its successful international expansion since it acquired Barclays in Portugal in 2016 and created a new bank in Luxembourg in 2012.
In addition to extending its efficient consumer finance capabilities into the Irish market, acquiring EVO Banco will reinforce the bank's strategy to have a leading digital proposition in the large Spanish banking customers market. Bankinter has a proven track record of integration and organic growth, as demonstrated recently by its profitable Portuguese operations. The strategic fit with the acquired digital-oriented business is very high and reinforces our strategic focus on efficient growth in affluent and mass affluent segments, which are where Bankinter has greater capabilities and expertise. It also increases our value proposition to younger digital native and self-service customers. The very favorable financial conditions of the deal, as well as the funding structure with a small impact on capital and a positive effect on liquidity, assure that Bankinter will create shareholder value from the first year and a recurring return on investment over double-digit in the medium term.
All the impacts from the transaction are small and manageable for the size of Bankinter and will not impact our current dividend policy. This is all from my part. I am ready now to take your questions.
Thank you, Gloria, for the detailed explanation. Obviously, we have received a few questions already. As usual, we will try to group questions in topics, in the interest of time. Let's start with the financials. For example, we had a few questions regarding the price of the transaction or the multiple we have been acquiring this business.
Thank you, David. As you have observed in the presentation, no price is mentioned. The reason for this is that the seller has requested us not to disclose the financial conditions of this private agreement until the closing date. This has to do with the fact that the seller is a private equity firm, is not a bank as we are. That's one of the reasons. Another reason has to do with the fact that they will do the carve out of EVO Finance before the closing, and at this stage, they don't know how this carve out is going to be done. In any case, what we can now confirm is that the final price to be paid is including a significant discount over the net asset value of the acquired businesses.
You can notice in the information that we have disclosed that the deal has generated a goodwill around EUR 55 million, reflecting this discount. Additionally, looking at the impacts on capital ratios, the capital consumption of this deal is very small, EUR 100 million. This is equivalent at 29 basis points in our ratio, which can give you an idea about the price of the deal. Finally, as I mentioned in the previous text that I have read to you, this will be funded organically with no dilution for shareholders, which also gives an idea about the small size of the transaction and the small price.
Understood. Do you have any comments on the expected return of these investments or the contribution to P&L that you will provide in the next couple of years?
I will differentiate between Avantcard and EVO Banco. In the case of Avantcard, you have the P&L, the first semester P&L. You can Calculate what is going to be the impact in the P&L of the group next year apart from this amount in the presentation. It's going to be very profitable business. In the case of EVO Banco, we have presented also the first semester P&L. That means that EVO Banco is, this year, gaining EUR 10 million, more or less, but this figure includes some benefits or some revenues coming from the financing of the rest of the group, and this will disappear next year.
On the one hand, I would say recurring income coming from EVO Banco next year will be close to breakeven. They will have extraordinary revenue coming from the goodwill of around EUR 55 million that will be used to finance the integration costs that are not going to be of such a high amount, but are going to be financed by this. In short, in EVO Banco next year, we are waiting for more or less breakeven P&L, and from 2020 onwards, we are waiting for recurring profit. The deal will be accretive from that moment.
All right. Still on the P&L. Are we expecting any significant cost savings coming from this integration, from this acquisition, on the EVO underlying business.
Okay
Are we expecting any significant investments we have to make for the business?
Okay. Again, I will have to differentiate between Avantcard and EVO Banco. In the case of Avantcard, the recurring operating cost are more or less EUR 25 million per year. As we are not operating nowadays in Ireland, we are not expecting significant synergies in this franchise. In any case, we forget that Avantcard has a ROE of 39% with this cost structure. No problems in our view in maintaining these operating costs in this franchise. In the EVO Banco case, the situation is a little bit different. They have now operating cost amounting to EUR 65 million. Two third of this amount are general expenses, and in this area, we are planning a lot of synergies because, as you can imagine, all the central operations will be done by the group. We will analyze any possible operational and process redundancies at the corporate level.
At the same time, we will try to operate through a single banking license in the medium term. This will reduce our cost basis a lot. At the same time, we have to identify redundant or common suppliers. This also creates some efficiencies in the medium term. In any case, at the same time, what this acquisition will allow us is to reduce some of the expenses that we have planned for continue developing COINC, because our intention is to integrate these two digital platforms. This can improve service, above all, it can generate cost efficiencies going forward.
Okay. We are also getting questions on whether we're buying any bond portfolios in this transaction. Are there any bonds included on this balance sheet?
Yes, in the transaction. Well, the balance sheet, as you have seen in the presentation, total assets are EUR 3.4 billion.
Okay.
The total loan book, adding up EVO Banco and Avantcard is EUR 1.5 billion. Apart from this, they have an ALCO portfolio, around EUR 700 million, which is really good ALCO portfolio, good quality ALCO portfolio, very close to the one that Bankinter has and that you know very well. Out of this total loan book, EUR 800 million are mortgages. Then we have in the EVO Banco book, 15% are personal loans and another 15% are public sector lending, not the ALCO portfolio. Apart from the ALCO portfolio, they have some good public sector companies included in the loan book. I don't know if you want any other-
It's clear. Okay, moving on to the rationale and the strategic views. Can you elaborate on why we are buying consumer lending in Ireland and not in Spain?
Well, in the case of EVO Finance in Spain, the reason is that when we analyzed the model of this business model, we realized that it was based mainly on point-of-sale financing. As you know very well, this is a kind of business that we decided to stop doing last year in our own franchise, Bankinter Consumer Finance. For us, it has no sense to buy something that is doing a kind of business that we have stalled in Spain, in our group. Concerning Ireland, the situation is really very different. As you know, Avantcard Ireland is the heir of MBNA business in Ireland, and is a highly profitable franchise nowadays with strong prospects for future growth after a long period of deleveraging. Why Ireland?
Well, because the IMF, the European Commission, and every analyst that has studied the country has realized that the Irish economy has recovered very well since the financial crisis, and it is expected to significantly outperform the rest of Europe in terms of GDP, in terms of job creations, and in terms of consumer demand growth. That's why we think that the consumer lending business in Ireland will give us the chance to grow in one of our strategic and most thriving business lines, while diversifying our risk geographically. Additionally, the portfolio of Avantcard Ireland is a very sound one that has been in runoff for the last few years, and that allows us to increase our balance sheet in Bankinter Consumer Finance by an additional 15%-20%.
Finally, the IT platform that Avantcard owns is a really very good one, international one, very adaptable, and this platform will allow us to operate in other countries without having to move there. All in all, in our view, this is a very good fit with Bankinter strategy and Bankinter targets.
Okay. Thank you. Just one quick question. We do have any U.K. exposure on that portfolio?
No, not at all.
Moving on to the EVO brand now. What are the strategic plans regarding this portfolio of customers and these brands?
Well, the ideas are the following. First of all, what we will do, logically, is to integrate EVO Banco in the group, in Spain. We will integrate what is called a core platform, the core technological platform in the core business platform of Bankinter in Spain. We will maintain the EVO brand, which has been acquired as part of the perimeter of the transaction because this is a very well-recognized brand, and the idea is that this brand will absorb the COINC brand to further strengthen our digital banking proposition. From that moment, what we will do is to implement a multi-brand strategy in the medium term, under a single banking license.
That means that all the clients that are purely digital customers will be operated through EVO Banco. The rest of the clients of Bankinter and the rest of the businesses of Bankinter will be operated through the Bankinter brand.
Okay. One more question on EVO Banco clients. Under Bankinter standards, how many clients are we acquiring this transaction? Can you give some color on the profile of the clients?
Well, considering the Bankinter criteria for clients, a client is considered when it maintains an account with balances above 0 EUR. In that sense, all of these 455,000 customers are homogeneous with Bankinter criteria. Apart from this, we have analyzed whom of them have also payroll accounts. In this sense, 105,000 clients have payroll accounts, so are more valuable, I would say, customers. Okay? Another point here is that 55% of this total of 455,000
are young people below 35 years, which is a segment very interesting for Bankinter. This is really new for us. The added value of these clients is in this segment because the penetration, the cross-selling ratio in this segment is really very low now for EVO. Bankinter is very good in improving the cross-selling. This is the main reason why we consider that this transaction could add some added value by being managed by Bankinter.
Okay. Very good. That was the last question. Many thanks everyone for joining us today. Obviously, for any further questions or queries, please contact our investor relations team. Thank you and goodbye.
Thank you, David.