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Western EuropeNovember 1 2016

Moneta Money Bank awaits GE Capital’s final European move

As US conglomerate GE widely withdraws from banking in Europe, its latest and last beneficiary has been renamed Moneta Money Bank, which has reworked itself for the local Czech market. Stefanie Linhardt reports.
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Once a shareholder in banks across large parts of central, eastern and western Europe, GE Capital is now withdrawing – and the door to its Czech bank will be the last significant one to close behind it. In May 2016, Czech GE Money Bank started the decoupling process from GE Capital with its initial public offering (IPO) of 260.61 million ordinary shares on the Prague Stock Exchange.

The listing came with a reduction in GE ownership to a 48% stake in the business and a new name for the bank: Moneta Money Bank. But there is more to come. General Electric, which was bound to a 180-day lock-up agreement, was granted permission by the underwriting banks to break the agreement earlier.

This saw the US conglomerate sell another 24.5% of Moneta Money shares in an accelerated bookbuild on September 29 at a discount to trading levels. Moneta Money’s share price has again jumped higher, and expectations are now for GE to sell down its remaining 18.05% stake before the end of the year, when it aims to have divested most of its non industrial-related banking businesses.

This would make the procedure similar to the conglomerate’s exit from its GE Money Bank in Switzerland, which went public in November 2013. GE then listed about 68% of the bank, renamed Cembra Money Bank, and sold the remaining stake in an accelerated bookbuild in May 2015.

Why the exodus?

But what lies behind GE’s exodus from the banking business?

Once a budding international banking business catering to consumers, industrials and more, during the financial crisis GE Capital required financial assistance from the US Federal Deposit Insurance Corporation, when it asked for $130bn of government loan guarantees.

The increased regulation and capital requirements introduced after the crisis saw GE Capital designated as a systemically important financial institution (SIFI) by the Financial Stability Oversight Council of the US Treasury in 2013. This distinction came with significant costs, as GE Capital’s activities fell under the supervision of the US Federal Reserve and were subject to prudential standards, including minimum regulatory capital and liquidity requirements, and the obligation to submit annual resolution plans and follow regulatory reporting requirements.

In a strategic overhaul, GE decided in April 2015 to exit all finance businesses that were not directly related to one of its industrial product businesses, as “a result of the transformation of GE Capital into a smaller, safer financial services company that meaningfully contributes to the success of GE’s industrial businesses”, according to GE Capital’s then chairman and chief executive, Keith Sherin.

Even before then, GE Capital had reduced its ending net investments from $538bn in 2008 to $363bn at the end of 2014 – with the help of divestments of its GE Money Banks in Denmark, Germany, Norway and Sweden to Spain’s Santander, as well as the sale of Budapest Bank to the Hungarian state. With April 2015’s plan, the company aimed for the divestment of another $200bn of assets by the end of 2016.

In Europe, this meant further sales of GE Money Bank brands. This included Poland (where Bank BHP’s core bank was sold to Alior in April), the UK (GE Money Home lending portfolios were sold in several transactions), and France (sold to private equity firm Cerberus in June). This was in addition to more specialised operations in Germany and Italy, and most recently the sale of a prime mortgage portfolio in France to Austria’s Bawag PSK in August. GE then noted that it had signed agreements for approximately $192bn-worth of assets earmarked for divestment, of which about $169bn of sales were closed.

And it seems that GE’s efforts are paying off. In June, the conglomerate won a small victory when it was delisted as a SIFI, thus relieving it of strict financial and regulatory oversight. “We are rapidly shedding the remainder of our overseas assets not aligned with GE and once complete we will go forward with a business portfolio that is properly capitalised and directly aligned with GE’s industrial businesses,” Mr Sherin said at the time.

Reviving the Czech business

Meanwhile, for Moneta Money Bank, GE’s withdrawal plans mean the rare opportunity of a new direction, growth and additional investment. Chief executive Tomas Spurny was hired in October 2015 to prepare the bank for a sale or initial public offering and to develop a three-year strategy. “This is a bank that invented unsecured consumer lending in the country and obtained a leading position in that category,” says Mr Spurny, who is also chairman of the board. “Today we serve 11% but have lent money to probably one-third of the Czech households in the past.”

He notes that GE did not want to grow the retail business from 2010 onwards but focused more on industrial financing, adding: “We are trying to reset the strategy to really keep up with the market on the retail front.”

In the past five years, GE has declined to participate in the mortgage market, despite this sector having had the strongest growth prospects within the Czech Republic. During this time, on a country-wide scale mortgage portfolios grew by 7% a year, while GE Bank’s contracted.

“We have reversed and stabilised this,” says Mr Spurny. “We are back serving the mortgage market and we are very proud that systematically we have been taking about 20% of the new market production in terms of consumer lending in 2016 and we are holding very well in the realm of financing small businesses. This is very good anecdotal evidence that the bank is able to garner and maintain pace to return back to growth.”

And the new Moneta Money Bank has further targets for the next three years. Plans to prepare the bank for the digital age will see a total of €22m to €24m invested, according to Mr Spurny. Already, Moneta Money’s mobile-based application Smart Bank saw 50,000 clients using it in eight weeks.

Change is also coming in the spectrum of small and medium-sized businesses (SMEs) and corporates serviced by the bank. Where GE focused mainly on medium-sized businesses after its decision to align its banking businesses more with its industrial business, Moneta Money is seeking to build its presence and recognition among SMEs, which typically have a turnover of €2m or less, according to Mr Spurny.

“We feel there is still sufficient room on the market to create a good business model to serve this segment, and at the same time this is a way to leverage the retail capabilities of the bank, mainly in unsecured financing,” he says.

Local hero

The change that Czech customers have so far seen, apart from the new mobile application and reinvigorated emphasis on retail banking, is the bank’s new, more local-looking brand. Moneta Money’s branding uses the national colours, the leadership (in Mr Spurny) is Czech, and the bank’s listing on the domestic Prague Stock Exchange are all aspects that seem to attract customers, as shown by an increase in the writing of loans and the level of deposits since the rebranding.

“We feel that localising the colours and name has actually made us more attractive to people who like the fact that there is a Czech bank that is traded on the stock market and that looks and feels pretty solid,” he says.

One consequence of being a publicly listed company is that Moneta Money Bank can now measure its success not only among customers but also with shareholders. Having gone public with an initial share price of Kcs68 ($2.77) in May, the stock climbed to a Kcs80.30 high the day before GE sold another 125 million shares at the end of September. The offering of about one-quarter of the stake in the bank at Kcs75 per share saw the share price drop to Kcs76.60, before recovering to a new high of Kcs80.55 on October 11.

And Moneta Money’s three-year plan also comes with specific financial targets including a minimum return on tangible equity over the next three years of 14% (18.3% in the first six months of 2016); a cost-to-income ratio below the mid-40s (42.2% at June 30); the risk-adjusted yield on loan portfolio to maintain at 6% (8% in 2015); and portfolio growth in 2016 at gross domestic product growth level, which is expected at 2.2% (1.6% at half-year). In addition, medium-term growth to outpace the market, especially by maintaining a share of between 17% to 20% of new consumer unsecured loans in the Czech Republic; and a loan to deposit ratio of below 95% (94.8% at June 30).

“The organic growth strategy is key for the next 18 to 24 months as we have to gain credibility with our shareholders that we can deliver ‘organic promises’,” says Mr Spurny. “The Czech banking market is as stable as the German market but a lot more profitable. We would like to be a dividend opportunity for investors going forward.”

These words should be music to investors’ ears, and the (so far) positive share price development suggests investors believe in Moneta Money Bank’s potential to deliver – with or without GE Capital ownership.

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