EGFEY - Eurobank

[muscleman]

I think he probably made enemies going through with the deal. So you call an election hoping the nation is on your side.

 

The election would kick the opposition out of office. 

 

Normal strategy is a parliamentary democracy.

 

Yea - I'm quite confused by the whole thing. It seemed like Greece had all of the leverage, a national vote, and the IMF saying no to bailout arrangement without necessary debt relief. He won a ton of concessions, but then kept pushing until he eventually folded and gave the Greeks a way worse deal than what was originally on the table. Now he resigns.

 

I would be surprised if the Greeks re-elect him with the about-face he took in the negotiations. I'm just floored and confused by this whole thing. I've got limit orders out for more shares of EGFEY just because if this ever unwinds in a semi-positive way, then there's no reason it should be trading in the $0.02 range. After averaging down at $0.06, $0.04, and hopefully at $0.02 I'll be done building a 2-3% position in the name and will just hold and wait for whatever outcome results from the recapitalization that is coming.

 

I would be cautious to buy any bank shares right now. We know capital increase is coming, and the further the current share price drops, the more damage the capital increase will do to current shareholders, and the more the share price will drop in expectation of a massive dilution. Therefore it is a self fulfilling prophecy at this moment.

 

You might be right. There's no way for me to know. The stock is so illiquid it's difficult for any sizeable investor to get a toe hold without significantly moving the market. There is the possibility that whatever recap comes is actually at a premium to the current value as a recognition of that fact and the panic selling that seems to be happening. There's nothing that says the recap price has to be based off of recent trading activity. Anyways, the price could easily recover to $0.04-$0.06 in that period of time at which case you kick yourself for not picking it up at $0.02.

 

I think $0.02 is ridiculous and am comfortable with the uncertainty surrounding the recap.

 

Well, of course there is nothing that says the recap price has to be based on the recent price. But from what I observed in the numerous in the past few years of US and EU banking recap, the price is most likely a discount to the current market price, in order to attract enough investors.

 

Whether 0.02 is ridiculously cheap or not is entirely based on how much additional capital must be injected and how much dilution will happen. Therefore it is a pure gambling than an educated bet for me. Maybe you have some edge on this.

 

 

 

 

[EricSchleien]

What's the intelligent rational for buying at 2 cents. What if it's worth 1 cent or a half penny? How is one to know. This is out of my circle of competence and am curious if someone has a real handle on this they could help me come up with some intrinsic value for this.

[muscleman]

What's the intelligent rational for buying at 2 cents. What if it's worth 1 cent or a half penny? How is one to know. This is out of my circle of competence and am curious if someone has a real handle on this they could help me come up with some intrinsic value for this.

 

How much is it worth depends on the extent of dilution. The lower the price, the more severe the dilution. Therefore the current price would go even lower in expectation of a massive dilution.

This is a self-fulfilling prophecy and therefore there is a big uncertainty element in the formula of predicting the bottom of the price.

[EricSchleien]

Interesting, thanks!

[TwoCitiesCapital]

http://www.valuewalk.com/2015/08/wilbur-ross-correction-is-in-the-sixth-inning/

 

Brief comment by Wilbur Ross at the end of the clip. Not much new.

[MrB]

Wilbur again

http://www.bloomberg.com/news/articles/2015-09-14/ecb-is-off-the-charts-in-greek-bank-review-wilbur-ross-says

http://www.ft.com/cms/s/0/e557686c-5afc-11e5-a28b-50226830d644.html#axzz3lo951T2F

 

[TwoCitiesCapital]

Wilbur again

http://www.bloomberg.com/news/articles/2015-09-14/ecb-is-off-the-charts-in-greek-bank-review-wilbur-ross-says

http://www.ft.com/cms/s/0/e557686c-5afc-11e5-a28b-50226830d644.html#axzz3lo951T2F

 

I kind of agree with him. Historically, he as a very strong point that a recapitalization is probably not necessary, the worst case scenario won't happen, and that having a committed backstop without forcing a massive capital raise will probably work out better given the hindsight we've had on other banks.

 

That being said, Europe has done everything in it's power to penalize the Greeks regardless of the efficacy of the policies and I'm not certain that they'll be any different here. Certainly still interested at buying more at the right price, but have been extremely picky with my entry points and holding dry powder to participate after the recap depending on the situation.

[Eye4Valu]

I wonder what Prem has to say?

[Eye4Valu]

https://uk.news.yahoo.com/greek-bank-recapitalisation-must-not-alienate-investors-eurobank-122906884--sector.html#eFiLbN6

 

[TwoCitiesCapital]

http://www.bloomberg.com/news/articles/2015-09-20/syriza-is-headed-for-victory-in-greek-election-exit-poll-shows

 

Can't imagine this being good for the recapitalization efforts as I imagine that European politicians probably don't like the guy.

 

Surprised to see him win given the absolute failure in negotiations in the 180 degree about face AFTER the greek people said they wanted didn't support the creditors' plans.

[walt373]

I'm not clear on what the upside is. Doesn't a recap all but guarantee a lower price? I think expecting a recap at a price close to or even above market price is overly optimistic at this point. It's not like investors are itching to get into Greek banks but just can't because of liquidity, probably just the opposite. It's going to be tough to attract investors so a big discount will be necessary.

[TwoCitiesCapital]

http://www.reuters.com/article/2015/10/20/eurozone-greece-banks-idUSA8N11H02B20151020?feedType=RSS&feedName=governmentFilingsNews

 

Recap seen at less than EUR 20B for nation's banks.

[MrB]

Oct presentation

http://www.eurobank.gr/Uploads/pdf/Eurobank_Presentation_October2015.pdf

[Eye4Valu]

http://www.reuters.com/article/2015/10/31/greece-eurobank-ceo-idUSA8N12U00120151031

 

[constructive]

The banks only have 5 days to create their plans to raise equity. We'll see if Watsa and Ross are willing to put up even more money. I expect the majority will have to come from government bail-out, not shareholder bail-in.

[TwoCitiesCapital]

http://www.valuewalk.com/2015/11/wilbur-ross-on-u-s-foreign-economies-and-2016-politics/

 

Wilbur Ross on Eurobank. Around 3 min mark.

 

Seems optimistic about Eurobanks future, mentions it was the best bank in the recent stress tests, will be subscribing to the capital raise, and that the dilution will likely happen at the expense of the government's stake and not private shareholders.

[MrB]

Nov presentation

http://www.eurobank.gr/Uploads/pdf/Presentation_TradingUpdate3Q2015.pdf

[TwoCitiesCapital]

Nov presentation

http://www.eurobank.gr/Uploads/pdf/Presentation_TradingUpdate3Q2015.pdf

 

Thanks for posting. Anybody seen any word on the pricing of the EUR 2 billion issuance? Evidently, it will only be available to institutional investors so current investors will have to increase their stake on the open market to mimic participation. Just curious what the pricing will look like to know if the current shares are good value.

[constructive]

the dilution will likely happen at the expense of the government's stake and not private shareholders.

 

Not quite accurate. All existing shareholders will be diluted equally. Ross is predicting that private shareholders will take up over 65% of the new shares, so the proportion of private shares will increase.

 

This investment depends on the macro situation in Greece over the next 2 years coming in much better than the stress test. And Europe is known for having lax stress test assumptions compared to the US.

[MrB]

Nov presentation

http://www.eurobank.gr/Uploads/pdf/Presentation_TradingUpdate3Q2015.pdf

 

Thanks for posting. Anybody seen any word on the pricing of the EUR 2 billion issuance? Evidently, it will only be available to institutional investors so current investors will have to increase their stake on the open market to mimic participation. Just curious what the pricing will look like to know if the current shares are good value.

Was asked that on the call and essentially said we will know next week, when they start with book building.

[TwoCitiesCapital]

Nov presentation

http://www.eurobank.gr/Uploads/pdf/Presentation_TradingUpdate3Q2015.pdf

 

Thanks for posting. Anybody seen any word on the pricing of the EUR 2 billion issuance? Evidently, it will only be available to institutional investors so current investors will have to increase their stake on the open market to mimic participation. Just curious what the pricing will look like to know if the current shares are good value.

Was asked that on the call and essentially said we will know next week, when they start with book building.

 

Updated presentation is now available: http://www.eurobank.gr/Uploads/pdf/Presentation_TradingUpdate3Q2015_Updated.pdf

New press release too: http://www.eurobank.gr/uploads/pdf/Press_16112015_GR.pdf <- Lowers the offering amount by about 4%.

 

About 22% of the offering is spoken for by Fairfax, WL Ross, Highfields, and Brookfield. They have the right to increase their allocations by an additional 6% meaning total could be closer to 28-29% of the total offering. The board of directors will also be contributing EUR 80mm which is an additional 4%.

 

A sizable ownership by the government/bailout fund could be back in the cards.

 

[Eye4Valu]

http://www.bloomberg.com/news/articles/2015-11-17/eurobank-alpha-plug-capital-holes-as-greece-gets-bailout-deal

 

[TwoCitiesCapital]

So I'm having trouble understanding the results of the shareholder meeting:

 

I see the following:

Capital to be raised: EUR 2,038,920,000

EUR 1,338,000,000 will be in the form of convertible bonds.

The remaining EUR 700 million will be split between equity and Contingent Convertible bonds.

 

What I'm confused about is the following:

1. Reduce rising to € 4.412.362.962,60 the Bank's common share capital € 4.368.239.333,10 (with corresponding amendment of Articles 5 and 6 of the Statute of the Bank)by simultaneously

(i) increase of the nominal value of the ordinary registered share of the Bank and reducing the total number of common shares through link together with proportion cent (100) existing shares to one (1) new common registered shares (reverse split), and

(ii) reduction of new nominal value of the ordinary registered share (derived from the reverse split) to € 0,30, with order to absorb losses carried forward by the formation of a reserve equivalent to offsetting according to Article 4 para. 4a of CL 2190/1920. Furthermore, authorization was given to the Board for the liquidation of the Bank of the common shares that formed by the aggregation of fractional shares that may result from the above increase and decrease, and the performance of the proceeds to the beneficiaries and to perform any relevant or necessary adequate action

 

Obviously this is announcing the 100-to-1 split, but what does it mean to reduce the nominal value of the share capital to € 0,30? Does that mean there will be a 100-to-1 split, but you lose 70% of the value of your current share ownership in the process?

 

Also, the pricing for the deal wasn't announced, but they did say:

The issue price of new shares be determined by book building process (bookbuilding) and will not be less than the par value of its ordinary shares Bank after the completion of the above reduction of the share capital (ie € 0,30 per New Share)

 

So, after the 100 to 1 split, they minimum price of the offer will be EUR 0.30 (or EUR 0.03 for current shares). This is 50% above the current price and is certainly not anywhere nearly as bad as some thought in the potential for using the prior average trading price.

 

Obviously, i need understanding the nominal reduction in share value to fully understand what's going on here, but the pricing and total amount of issuance don't seem anywhere near as bad as the worst case scenario I envisioned.

[morningstar]

So, after the 100 to 1 split, they minimum price of the offer will be EUR 0.30 (or EUR 0.03 for current shares). This is 50% above the current price and is certainly not anywhere nearly as bad as some thought in the potential for using the prior average trading price.

 

Obviously, i need understanding the nominal reduction in share value to fully understand what's going on here, but the pricing and total amount of issuance don't seem anywhere near as bad as the worst case scenario I envisioned.

 

EUR 0.003 for current shares. That's probably closer to where the book building is likely to price.

[TwoCitiesCapital]

So, after the 100 to 1 split, they minimum price of the offer will be EUR 0.30 (or EUR 0.03 for current shares). This is 50% above the current price and is certainly not anywhere nearly as bad as some thought in the potential for using the prior average trading price.

 

Obviously, i need understanding the nominal reduction in share value to fully understand what's going on here, but the pricing and total amount of issuance don't seem anywhere near as bad as the worst case scenario I envisioned.

 

EUR 0.003 for current shares. That's probably closer to where the book building is likely to price.

 

Yes...I see. My mistake on the math. Far worse than I expected then...

 

Just did some searching and found out what the nominal value means too. It's not a 70% reduction in value as the nominal price is totally meaningless relative to the trading price. It's just the floor price in which the company can list equity - so basically it's a hint at where the offering will likely price in calculating the dilution of the EUR 700mm offering.