Status Update

Mar 27, 2020

Press Release

Hello, and welcome to the Operational Update and Impairment of Spanish Loan Portfolios. Throughout the call, all participants will be in a listen only mode and afterwards, there will be a question and answer session. Today, I am pleased to present Klaus Anders Nisbian, Christe Johansson and Andreas Lindholm. Please begin your meeting. Hello, everyone. This is speaking. I'm speaking from my home office I guess many of you are also present in your various homes. So thanks for taking the time today to to see us on this call. Together with me today, I got two colleagues, Christo and Andreas, and I think they're in Stockholm. Christo, are you there? Good afternoon. I'm in Stockholm. That's right. Exactly. And Andreas, how are you in the operations? Good afternoon. So there you go. That's the team today. So what I thought we could do today is just, first of all, briefly update you on on how things are going with with Hoist Finance in this rather demanding times for for the world, I guess. And then we can go into the more specifics and talk about the recent disclosure that went out this morning, and we can comment on few of the important topics afterwards. But let me first say that, obviously, in these very demanding and challenging times, our most important priority in voice finance is, of course, to protect our people and their loved ones and make sure that we support the various measures taken by the governments in the markets where we are present. That's, of course, number one. But I guess, secondly to this, which is that we're very closely connected to our core business, is that since we are the experts of dealing with financial crisis for people, we are prioritizing regard, staying in close contact with our 6,500,000,000 customers in our 10 markets on a day to day basis. In other words, to ensure business continuity. And I have to say that I'm extremely proud of the work that we have been able to do over the last couple of days and weeks. It's been amazing. The effort has been, that that's been observed in all our markets where we have been able to acquire a few 100 laptops, tank them with the right software, make sure that we can work from home remotely in a secure and safe way and a compliant way, I have to say, so that we can still interact on a daily basis with all our customers. So presently, on this Friday afternoon, I think more than 1,600 people of a total staff of 1,700 are working from home remotely, still in contact with the drivers, still in contact with core collection platforms, still able to do good conversations with our customers. So that's that's a really important thing for us, of course, a very high priority. We did, of course, execute on our business continuity plans, and I'm very happy and very pleased and very proud that the Hoist organization has been able to deliver on this in a very short time. In terms of production, the operations is ongoing as it should in all markets. We have very little downtime. We have very little technical issues. It's working the way it should, and we are able to conduct a business in an ordinary and orderly fashion. That feels, of course, very good for us. The consequences of the corona crisis, it's felt differently in different markets, of course. I mean, we for those of you who follow in the news, it's it's really I can confirm that that that perception is is quite relevant also for our work. I mean, in in South Of Europe where the crisis is biggest biggest, like in Spain or Italy, it's more felt than Southern North where the crisis is perhaps a few weeks, what we have seen in other markets. So there is a difference from market to markets. The crisis is more south than North. Having said that, I think you should expect production to be reasonably in line with expectations for the first quarter. But of course, we have seen towards the end of the quarter that there is more an impact on our operations and in production as the courts are closing and people are having more difficulties than before. Our priorities, apart from business continuity, have been to protect capital and liquidity, and I guess Kristi can talk more to that in a second, to protect our cash flow, to deliver the best we can in terms of collection performance. And we are, of course, in the needless to say almost, going through the cost base to make sure that we are as efficient and effective as we can be in these challenging times. And last but not least, we are also preparing for what happens after the crisis so that we are as ready as we can be and as as progressed as we possibly can be so that when when things things turn, we are ready to to to capture the the tide as as the what's as as the crisis pass. So I guess that that's that's enough for me as an introduction, And then I leave it to Kristo to just briefly talk through some of the effects that we have disclosed today in our in our release. So, Kristo, if you can talk us through the key effects in the Yes. Thanks, and good afternoon. I wish to briefly cover two topics, starting with Spain and then moving on to a few treasury items. Starting with Spain, it's fair to say that performance has been below our expectation for some time for a year. And we've taken a number of measures to address this. It's fair to say also that those efforts have come with various degrees of success. And in light of the recent development in the Spanish market, we do no longer expect these efforts to close the performance gap. So for this reason, we have revised our outlook. And in practice, this comes with two components. So to start with, we've seen a collection shortfall in Spain in Q1, and this is a realized shortfall. But then we have also then changed the outlook, and this translates into an impairment of the book value in Spain. We expect these items combined to impact Q1 earnings by around 120,000,000, with a bit more than twothree being related to the future projections. Moving on to the treasury side. We've seen rather volatile financial markets. And looking at the quarter as a whole, we've seen interest rates come down, and this has had a negative impact on the accounting value of our interest rate swap because we are protecting ourselves from sudden increases in interest rates. And in this case, that has not paid off then. We have also seen spreads widen, and this has been in March specifically. And this is normally not something we would pay a lot of attention to because our liquidity portfolio is invested exclusively into government bonds and AAA rated covered bonds. That said, I guess these are not normal times, and we have, in fact, seen a negative impact on market value of these assets, and they are held at fair value. So for that reason, this translates also into an accounting loss. Now I should add that this loss is unrealized, and we don't plan to realize it. And as such, this should unwind over time. Finally, and I just want to reiterate that our balance sheet is robust. Our liquidity is very strong. Cash collections in Q1, I expect those to be an all time high. And as such, our financial position remains strong despite the disclosures that we've made today. So with that, I've covered the key items, and I hand back to Lars Anders for questions. Yes. So thanks for that, Kristian. So we are then open to take your questions. Thank you. And our first question is from Ermin Kurch from Carnegie. Please go ahead. Your line is open. Thank you and thanks for taking my questions. The first one would be on the Spanish business and your view on it more long term. I mean, you say you've struggled there for a while and your exposure to the market is quite small. It doesn't really go with the strategic market reasoning you've had overall for the group. Could you actually withdraw from the market? And how many employees do you have? So could you say anything on the prospects for that? Yes, of course. I can understand and appreciate your questions and your comments. I think you're right about that our operations in Spain is subscale, and it's not it doesn't have the size, the critical mass that we would like it to have. We had plans to grow the Spanish business through, I guess, m and a for some time, and and but that hasn't been easy to do. We in 2019, as you're you're painfully aware of, we we worked really hard to deal with regulatory issues and couldn't really prioritize doing a lot of M and A in that year. And right now, I'm quite disappointed about our performance in Spain. It is not what it should be. We have we have carried out a number of initiatives to to bring it back to the levels that we expect, but hasn't been hasn't been happening to the speed that we were hoping for. And now, of course, with the corona crisis in in Spain, we we just simply feel that it's prudent to to make a revaluation and to make sure that we don't carry a problem forward. But of course, we will take a close look at a way forward for our Spanish business. I think the Spanish market has developed quite, I would say, almost in a negative direction. For some time, it's been quite competitive and and kind of crowded. I think others have been struggling also in the Spanish market over the last couple of years. I think longer term, Spain would be an interesting market to be in. It's a large market. It's professional market. We have banks being regular sellers and and the business so the business structure there in terms of how the value chain works in financial services is is a good one. So I think it's a I think it's a good market to be in, but we have to have the size. And, obviously, if you don't have the size and and the relevance, maybe it's better to to to withdraw. But I haven't said anything about that now. I'm just saying that we are going to look for ways to improve our operations, but we also, of course, as always, we do take a strategic view, and then we just have to decide. Okay. Thank you very much for those insights. We just move on to Italy and Greece, you mentioned that you've seen a slowdown out towards the end of the quarter. And I appreciate it's very hard to sort of quantify, but I think what the market is most concerned about it is sort of where is the run rate currently if we extrapolate that to Q2? So what could we expect then? Yes. You're right. It's difficult to be very precise. You know, it's it's it's that time of the year. It's it's in that period where we can't disclose too much. Right? So you just have to to bear with me. So what we're what we're trying to say in our disclosure is that, okay. Maybe maybe, you know, the the collection isn't perfect at this point in time. But what we have seen also in previous times is that even in a downturn, their collections typically typically holds up pretty well. Right? Even when things are rough and and difficult and and challenging, collections has hold up reasonably well and and but with a time lag. And we saw that very clearly in the financial crisis. We have actually seen it in crisis before that in 02/2001. Even even if you go back to the nineties with the mortgage crisis in in The Nordics, we we even saw in the numbers then, that there will there will be a delay, but collections will then eventually pick up again. So currently, I I can't really give you a precise number on on this call. What we see is a bit of a slowdown. I think in Italy, we are fortunate in a way that our business work there is that it's primarily unsecured consumer. Right? It's not like it's a big a big secured book there. It's primarily unsecured consumer. And 50% of all our collections in Italy is Cambiali. And Cambiali is the safest of everything. It's the most reliable, the most predictable. That's where you will see the slowdown released. So in that sense, feel that we are in a reasonably good spot given the circumstances in Italy. So that feels to me pretty robust and pretty resilient. But of course, the crisis in Italy and all definitely in Spain is, of course, of a different magnitude and with a different different impact than what we have seen previously. It's like a shutdown or lockdown. But but, anyway, thousands and thousands and thousands of of of customers. I mean, we have six and a half billion customers. We have, you know, 200,000 interactions all the time with our customers. All our channels are open in terms of contact center, digital. Thank god for the work that we've done on digital that we are able to keep the shop open twenty four seven, three sixty five. That that that, of course, helps us a lot even in these times. And and the fact that other banks, other companies are now working so hard to shift the customers onto digital platforms. It's kind of helping us too. We are kind of piggybacking a little bit of the developments that that we see. So, yeah, sorry for not being even more precise, but I'm just trying to say that, you know, given the situation in Italy, we are we feel reasonably in a in a good spot. Okay. That's that's very helpful. And and actually, if you could just maybe elaborate even more on that. So in terms of your day to day work and communication with debtors, has that changed to any extent? I suppose you always need to have a balance sheet between trying to protect your cash flows and understand the situation of the debtor. But now in these circumstances, does that become even harder? Are you still working actively on setting up new payment plans? Or is it mainly making sure the ones already up keep on running? Yeah. Good question. So so I think collections principally is decided by two factors. One is the willingness to pay, and the other is affordability then or ability Right? So those two factors are very decisive. Right now, I think we haven't seen at least I mean, we we do check-in every day. Right? So so honestly, at this at this point in time, we haven't seen a reduction in willingness to pay. Right? And that's great. People still want to have an a good relationship with those finance that are trying and and having given up on their payment plans. So that's that's good news. The other factor is affordability. Right? And and and obviously, we do have customers who have who have who do feel an impact in in their affordability. And for us, then it's important to have a dialogue to to find out what is the what is your new situation? Do you need to to postpone something? Do we need to to reduce your monthly installment somewhat? And if so, we will find an amicable solution for that. And have in mind that average payment for for us on a monthly basis is around €50. And also have in mind that our customers typically are the ones who experience financial difficulties throughout their lives more than the average person. Right? So it's not like many of our customers are unused or not being used to having some kind of a challenge, financial challenge. So and somehow they they also, they know how to cope, know how to get by. And and reality, spending alternatives for a lot of people have have actually come down. I mean, pubs are closed. Restaurants are closed. The newsroom parks are closed. Cinemas are closed. So from that point of view, they cannot spend that much money on on a lot of alternatives currently. So, hopefully, what we will see is is that people can stay on their plans and that the monthly installments won't be too much affected. I think there will be a delay. How much? I'm I'm not ready to give give any guidance on. Great. Thank you. I'll get back in line. And our next question is from Matthias Thorn from Lambsdan Partners. Please go ahead. Your line is open. Hi, guys. Thank you for that. Just a question. Considering the recent Spanish Supreme Court ruling on revolving credit cards, I wonder if after your write down today, does the company have any residual exposure to to WeSync or other revolving card card issuers, both in terms of carrying book value and and also of potential contingent liabilities pertaining to these declared onerous terms on these on such cards? Thank you very much. Yes. We have, of course, seen the the recent the recent verdict from the court about the leasing portfolios and and similar similar portfolios. I guess it's reasonably public knowledge. At least if you go to the Spanish market, you could probably find out that we have been buying some of these portfolios. It's not it's not something which is, you know, at least a secret in in the industry. We and others have been buying some portfolios from from those companies, from from that bank and similar banks, so there is an an exposure there. What I can say today is that we have done a a revaluation of the Spanish book of the of the bank that we have disclosed, and I think I will stop there. We're we're rather not comment on specific portfolios. Portfolios. Our next question is from Martin Bungemeier from who is a private investor. Please go ahead. Your line is open. Thank you. Thank you for taking my question. I was just wondering, you're saying you have a very strong cash position and the cash collections are still strong. Would you say that you are overcapitalized? And if there's some measures you are considering in terms of you have the stock down in SEK 20 by buyback or other programs that you see that some of your competitors are doing as well? I was just wondering if you're thinking about that and if you consider yourself overcapitalized at this point. Thank you for that question. Kristo here. Think in terms of stability in a situation of like a crisis like this one, both having a strong balance sheet and having ample liquidity will serve Hoist Finance well. So coming into this crisis with a strong starting point is beneficial to us, And I don't see us taking actions that would sort of jeopardize that strong starting point. Thank you. Have you seen any changes in kind of hoist spar behavior? Are people taking out money or still putting in money? Or what are you what are you seeing there? We've actually not seen any particular flows in recent weeks here, positive or negative. So the liquidity position is holding steady, and we haven't seen anything actually. All right. Thank I used to be CEO for a bank in the financial crisis, and I learned the hard way how difficult it was when liquidity dried up. So at the moment, I think we have a very comfortable situation in terms of liquidity, and that feels good at this point in time. So, yeah, we don't see an issue from that point of view. We have a very strong balance sheet and a very favorable liquidity position at this point in time. So due pace to me from that point of view. Sounds good. Thanks. And our next question is from Ermin Kitch from Carnegie. Yes. Thank you. Just two follow ups. On the cost side, could you talk anything about that? Sort of what should we think about this being more flexible and possible to adapt to lower activity? Is it mainly the part you classify as collection costs? And then second also, with regards to your long term cost program, does anything change with execution of that one sort of timing wise? Thank you. So in terms of costs, of course, if courts close down, this will have a this will reduce the short term spending on litigation, so legal fees, although that is, of course, a spend that we would rather have. So in that sense, it's not what we seek. Other than that, we have as Gosandis elaborated on, we have our full workforce still working and still being in contact with our debtors. So one should not expect any big changes on the cost side as a direct result of the current situation. Taking a longer perspective, we can certainly see profitability coming under pressure. And in that context, I think it will make a lot of sense for us to look even harder on the cost base and potentially increase our ambition, which is to save SEK 300,000,000 in run rate savings by 2021. I think that ambition level is something that we need to consider. Okay. Thank you. The second question was sort of on the investment side. Has that market completely sort of dried up now? And how do you see on the opportunities going out of the crisis? I've heard some talks about Italy possibly looking to give banks some tax advantage to divesting in pales and so on. Could you give us any details on that? Yeah. So in terms of our current trading current transactions, it dried up, I think it's fair to say. I mean, just practically speaking, it's it's very difficult to do any business these days. You cannot go to meetings. You cannot really go and see the banks, the sellers. It it's hard to do the diligence. But so just from that point of view, it's it's it's tougher to do business. And and, also, I think the banks who are sellers of non performing loans, they have all the things to do at this point in time. So and, of course, uncertainty is is very high. So I think you should expect, and and I think that goes for the whole industry, a slow q one, typically a slow quarter anyway. I think q two is going to be slow also, which is in many ways fine. And then I think, hopefully, that that things will pick up again after summer. That that leaves my my best judgment at this point in time. And and also, right, in in this industry, and for every crisis we've had, we see that yields are coming up, and and the volume is coming up after the crisis. So I actually expect us to see more volume coming to market and hopefully also with better returns. At least that's what we've seen in the past, and that's what we are ready to take our lion's share of that growth. So I certainly hope that, that's going to happen, and I think it will based on what we have seen in the past. And just also to reiterate what Krista said, there's an old quote that says, Never waste a good crisis. And of course, we are not wasting our time on the cost side. We are using this opportunity to go through everything again and to see if we can speed things up or ramp things up and be focusing on executing on our cost program and potentially expanding it going forward. So that's a very high priority for us. And and and and also, I just think that longer term, and with this this crisis, they're going to learn the world new ways of working. And from that point of view, it could be new learnings for for us also in in this that that that can have a good good impact long term. So we are we are we are are, of course, thinking about the short term, sort of business continuity, customer interactions, making sure that we work with them in a sustainable well way that that we take the coronavirus very seriously. Then we're also thinking about our business longer term, right? How can we ramp up digital? How can we work differently, etcetera. Perfect. Thank you. Thank you. And just as a final reminder, if you do wish to ask a question, please press 01 on your telephone keypad now. And our next question is from Ramirez from Citi. This is Jorge Ramirez from Citi. Firstly, thank you very much for you your making your time available for a call and also for the pressure for the press release. It's greatly appreciated. I have a very quick question. There has been some news from European bank regulators on forbearance regarding capital requirements and potentially, like, decreasing capital buffers. Have you had any could you is there any details you could provide on potential forbearance? Thank you. Sure. So the regulators, they've been quite active, as you've seen, and they've done a few things. For example, they have reduced the so called countercyclical buffers, and this reduces the capital requirement for hoist by 0.3%. And as you might remember, our capital targets are related to the capital requirements. This also means then that the capital targets have come down 30 basis points. Other than that, they have also issued a bit of clarification on how to deal with forbearance. This is then primarily relevant for the performing loans, which we have. Now in reality, the performing loan book that we have is rather small. It's below 1,000,000,000. So I don't see that as having a significant impact on us. Understood. Very clear. Thank you very much. Thank you. Thank you. And as there are no further questions, I will hand you over back to the speakers for any final comments. All right. Well, thanks, everybody, for being on this call. Appreciate that. And I can assure you that we're doing everything we can to to stay in in close contact with our customers, to find and make well friendly solutions with them, and to protect both cash flows and profitability and capital. So thank you, and, you know, wash your hands, stay calm, and stay healthy. And have a great afternoon and a good weekend. Bye bye.