Market announcement

Title

LHV to acquire the Danske Bank’s unit involved with Estonian corporate and public sector credits

Message

AS LHV Pank, a subsidiary of AS LHV Group, and Danske Bank A/S have signed an
agreement according to which LHV will acquire Danske Bank's business unit
operating the Estonian corporate and public sector credits, that as at the end
of April amounted to approximately 312 million euros.

LHV Pank and Danske Bank have reached an agreement on the price of the
transaction, according to which a discount of 19 million euros will be
subtracted from the volume of the portfolio as calculated at the moment of the
transaction. The transaction will be finalised in October of the current year
and then the final scope and price of the transaction will also be determined.
The volume of the portfolio is anticipated to amount to 280 million euros at the
moment of finalising the transaction. The Competition Authority of the Republic
of Estonia will have to grant permission before the transaction can be
finalised. The agreed transaction is not a transaction between related parties.

The business unit acquired by LHV consists of the credit portfolio of Estonian
corporate clients and the public sector, the volume of which is 312 million
euros. About 42% of the portfolio consists of corporate loans and 54% consists
of loans to local governments. According to LHV's assessment, this is a strong
credit portfolio with relatively low capital requirements for the loans involved
with local governments. The business unit will be acquired with employees. The
exact number will be determined when finalising the transaction.

With the transaction, LHV Pank will take over from Danske Bank the servicing of
about 670 business clients and 85 public sector customers.

The financial impact of the transaction

The transaction will have a significant impact on the financial situation of
LHV.

As at the end of April 2020, the loan portfolio of LHV Pank amounted to 1,746
million euros. By acquiring the business unit, the portfolio will grow by about
280 million euros. In addition to the existent deposits, LHV will raise a total
of 250 million euros to finance the transaction. Due to the deposits of Estonian
customers growing at an exceeding pace, the transaction can be financed in the
long-term through local Estonian deposits.

In the short term, central bank financing programmes and, if needed, deposit
mediating platforms will also be used as sources of financing. Using the
facilities provided by the central bank entails borrowing money from programmes
offered by the ECB, that sets part of the acquired credit portfolio as a
guarantee. It should be noted that the interest rates of the central bank are
lower than those of the deposits.

The rest of the financing will be involved through deposit mediating platforms
where Raisin and Deposit Solutions are the principal partners of LHV. Through
these platforms LHV acquires the deposits of German, Austrian, Dutch and Spanish
private individuals.

When finalised, the additional profit from the portfolio aquired through the
transaction, will be 4.0 million euros per year. On average, the transaction
will improve the return on equity (ROE) of LHV by approximately 0.4 percentage
points per year. The discount included with the transaction will be reflected in
the accounts through the interest income over the lifespan of the portfolio.
Should a significant change or termination of the loan contracts occur then LHV
will include the discounts related to the contracts in the income statements for
the same period.

Provisioning the portfolio and re-registering the guarantees and other one-off
costs will be taken into account at the beginning of the transaction.

Acquiring the business unit of Danske Bank involved with the loan portfolio of
Estonian corporate customers and the public sector requires in total 22 million
euros of own funds from LHV. At least 15 million euros of this is Tier 1 own
funds and 7 million euros of which is Tier 2 own funds. In May, LHV Group
included 15 million euros of additional Tier1 capital that will also finance
this transaction. It is possible that LHV will need to raise 15 million euros
worth of share capital through an additional share issue. The exact amount is
still to be specified and depends on the depreciation of the existing loan
portfolio the impairments and the issuing of new loans to customers.

Comments by LHV

"This is an important event for us. As a result of realisation of this
transaction the loan portfolio of LHV will grow by about 15% and the importance
of the public sector as part of LHV's business will increase by leaps and
bounds. We continue to follow our strategy and grow our business even when the
times are tougher," Madis Toomsalu, CEO of LHV Group said.

"After acquiring this portfolio, LHV has financed about 85 local governments or
their business entities, including several of the bigger cities in Estonia. We
consider that a bank based on Estonian capital could be a good and flexible
financial partner for the local governments. To all our customers we offer our
recognized best customer service and comprehensive banking services - in
addition to loan products and payment services also point-of-sale terminals, our
nation-wide ATM network and handy internet bank and mobile app," Madis Toomsalu
added.

LHV Group is the largest domestic financial group and capital provider in
Estonia. LHV Group's key subsidiaries are LHV Pank and LHV Varahaldus. LHV
employs over 460 people. LHV's banking services are used by 219,000 clients, and
pension funds managed by LHV have 178,000 active clients. Additionally, LHV's UK
branch offers banking infrastructure to more than 120 financial service
providers, that in turn intermediate LHV's payment services to their customers
around the world.


Priit Rum
Communication Manager
Phone: +372 502 0786
Email: [email protected] (mailto:[email protected])