EGFEY - Eurobank

[TwoCitiesCapital]

So it would appear we're the closest we've been to Grexit/default in this entire scenario, and the stock is still 44% off it's lows in USD terms. Markets are interesting that way...

[Txvestor]

Either that or the market is overlooking the rhetoric as gamesmanship. Syriza will not be able to survive in power if there is a Grexit and they likely know that. I think the likelihood remains an agreement at the EU leaders summit at the end of the month.

The consequences of a Grexit for Greece are worse. And that should help serve as motivation. Only radicals would bring on those consequences. I could be wrong but Tsipiras doesn't stike me as a radical. Time will tell.

[muscleman]

http://www.zerohedge.com/news/2015-06-17/greek-debt-committee-just-declared-all-debt-illegal-illegitimate-and-odious

 

two months ago Greek Zoi Konstantopoulou, speaker of the Greek parliament and a SYRIZA member, said she had established a new "Truth Committee on Public Debt" whose purposes was to "investigate how much of the debt is “illegal” with a view to writing it off."

 

Moments ago, this committee released its preliminary findings, and here is the conclusion from the full report presented below:

 

    All the evidence we present in this report shows that Greece not only does not have the ability to pay this debt, but also should not pay this debt first and foremost because the debt emerging from the Troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and odious.

 

[influx]

Wilbur again: http://www.cnbc.com/id/102761862

Just to add confidence to this topic, optimism :)

Of course one may say he is biased. Bottom line it is a personal (subjective) conviction, and eventual insight into the political process

[influx]

Alternative scenarios..

I do think a strong/deep/fierce isolation may follow, or it is already in the process and they (greece) are being  told/threatened to "block" them thru swift or other such systems

http://brontecapital.blogspot.com/2015/02/dear-eurozone-officials-mr-putin-is.html

 

 

 

The FT has a remarkable story today about how Eurozone officials are worried about Greece. To quote:

" the fears of eurozone officials that the Greek government was unaware of the precariousness of its financial situation"

 

This is kind of amazing. There is an old adage - which is that if you owe someone $100 you have a problem. If you owe someone a $100,000,000,000 they have a problem.

 

Greece's debt (and hence the German/Eurozone problem) is somewhat larger than that.

 

Moreover Greece runs a primary budget surplus. The only reason the Greek government needs money (ever) is to roll existing debt.

 

If they default on existing debt that problem goes away.

 

Paul Krugman summarised the problem with devastating clarity.

 

Bluntly he points out the Troika (and the above worried Eurozone officials) can't hurt the Greek Government by denying incremental finance because the Greek Government does not need incremental finance.

 

--

 

Krugman does however point out that the Greek banks require finance. As Krugman puts it:

 

"the power of the creditors over Greece comes via the ability to crash the Greek banking system, which is heavily dependent on the ability to borrow at need from the ECB. Cut off that support, and Greece suffers banking collapse. So yes, the creditors have a large club they can use on a recalcitrant Greece."

But Krugman overstates that club. It is entirely within Alexis Tsipras's power to default to the ECB too. Indeed the pattern for government defaults is to simultaneously force a private sector default.

 

How about this for a negotiating position... we will pass a law to make it illegal for any Greek bank to repay the ECB. Period.

 

Then have a one week banking holiday, re-denominate all remaining Greek bank assets and liabilities in Drachma, and if a default event passes any court we will nationalise the Greek banks as-per-Washington Mutual - leaving the obligations in some stripped-down shell from which there is nothing to collect.

 

Finally, in this environment, depositors will receive shares in the new Greek banks in proportion to their deposits. Those shares will be worth a lot because an obscene amount of bank liabilities will be wiped out.

 

--

 

This will crash the Greek economy? You make me laugh. We are already at Great Depression levels and removing the burden of your silly debt schedules will be incredibly stimulative.

 

Sure we will lose access to clearing but Vladimir Putin is lending us a few billion dollars and we have a clearing arrangement in Singapore. [They will do this for anyone from Libyan dictators down...]

 

Moreover I was once told by Capital One - a respected US credit card company - that recently bankrupted people make the best credits.* After all their past debts have been cancelled and they are by definition solvent. It won't take two years and the financial markets will be happy to lend to us again.

 

--

 

Finally we are not a wildly interconnected economy. Its not like Finmeccanica - the Italian company which makes components for Boeing Dreamliners and thus needs the global financial and payments system to function. We do simple stuff, sell olive oil and feta cheese and lots of tourism services.

 

It won't take long but we expect our beaches to be overrun with fat often drunk German tourists. And we kind of like it that way. The fatter the better. At we will sell them Retsina. It will be cheap and they might learn to like it. You Germans like to drink, don't you.

 

--

 

So what do I want?

 

Enough money that I am allowed to run primary deficits. Fairly large ones. 1.5 percent of GDP would be nice but I will settle for 1 percent. And of course you know we are never going to repay it.

 

I don't care how you do this. You can do it as a direct subsidy, you can do it any way you like. But as we are not going to repay it so at some stage you are going to suck it up. For political purposes you probably want to dress it in some "equalisation scheme" so it is less obvious what you are doing. But that is your problem. You know what I want.

 

[Eye4Valu]

Getting closer. Vote in Parliament this weekend?

[influx]

To resolution you mean?

[TwoCitiesCapital]

http://www.bbc.com/news/world-europe-33296839

[NormR]

Looks bad  :(

[Zorrofan]

Looks bad  :(

 

extension refused......

 

http://www.bbc.com/news/world-europe-33300543

 

Sleep walking to a new economic crisis? 

 

cheers

Zorro

[VersaillesinNY]

After wasting 6 months "negotiating" and destroying the Greek economy, these elected clowns' real intention is a return to the drachma.

Let's hope that the Greek people makes the right choice and kicks them back in the opposition. In the meantime, it's going to look really nasty next week.

[tombgrt]

Jup, quite dramatic. Also another huge potential loss for Watsa & co. Betting on next worldwide crisis yet putting big bucks on Greek recovery etc. Being contrarian is one thing but being right is what counts. :x He'll have to hurry to get that 15%/year he is aiming for since 2010/2011. /endrant

 

Funny tweet by Barbarian Capital:

[karthikpm]

How big is Watsa's exposure to EGFEY?

[randomep]

After wasting 6 months "negotiating" and destroying the Greek economy, these elected clowns' real intention is a return to the drachma.

Let's hope that the Greek people makes the right choice and kicks them back in the opposition. In the meantime, it's going to look really nasty next week.

 

While I agree with your accessment that it will get nasty next week. I don't agree with your pessimism. I am thinking hard about Templeton's advice: "buy at the point of maximum pessimism"

[frommi]

While I agree with your accessment that it will get nasty next week. I don't agree with your pessimism. I am thinking hard about Templeton's advice: "buy at the point of maximum pessimism"

 

I don`t think anyone can value a greek bank at the moment, so regardless of what you pay you can not be sure to make a profit even if greece stays in the €-zone. You can be sure that the banks need to be recapitalized after the chaos.

[Packer16]

This is worse than most expected.  The Greek government is a joke with academics like the finance minister running the negotiations.  Hopefully, the Greeks will vote for the proposal (otherwise their savings will be devalued significantly) and Syriza will banished to the scrap heap of history with their like minded allies Golden Dawn.

 

I think banks are at ground zero and may be worth less than their current share price.  Fortunately, Intralot has removed most of its cash from Greece.  There may be some interesting bargains in the coming days.

 

Packer

[NormR]

There may be some interesting bargains in the coming days.

 

This.  The banks might not survive, but other businesses should be able to make it through a currency conversion. 

[tombgrt]

Yes, glad I sold out of eurob at a Profit. Have you looked at jumbo Packer? Not leveraged as you like them but cheap, growing and some business outside of greece already. I'll bite if it gets close to 2012 lows as it would trade at just few times earnings. What is your current thinking on opap?

[Packer16]

Jumbo does look like a really nice company, a toy company/retailer with 25%+ EBITDA margins who would have thought?  It has about 80% of its business in Greece so a devaluation will hurt profitability but a nice company to watch.  I can check the Greek bond on Monday and see what the implied new currency rate would be.  Fairfax purchased Jumbo in the last swoon and sold for a nice profit in the subsequent rally.  Like Jumbo, OPAP is another interesting one to watch (Baupost owns them) however I think a devaluation could have a good sized hit to both these firms.

 

Packer

[karthikpm]

Packer,

 

Jumbo is on my watch list too.  What is OPAP ?

[Cardboard]

When a country that owes money to its eye balls tries to negotiate a retirement age of 67 starting in 2020 vs something like 2017 then they are getting what they deserve. I may have the years wrong but, I was shocked when I read over how little they were arguing.

 

Portugal and Ireland and to a lesser extent Spain and Italy, have taken seriously their financial troubles. On the other hand, since the Greece crisis became front page in 2011, they have done near nothing. They have taken Europe hostage with threats about leaving the Euro zone instead of implementing sound reforms. They use themselves as an example as to what could happen next to other countries in the periphery such as Italy and Spain. Unfortunately for them, we are not in 2011 and the bond market seems to understand that very well with Spanish and Italian bonds trading at very low yields.

 

Other than for geopolitical reasons (Russia), I think that it would be positive for Europe and the markets to let Greece go. It is always the bus that we have not seen that hits us.

 

Cardboard

[tombgrt]

Jumbo does look like a really nice company, a toy company/retailer with 25%+ EBITDA margins who would have thought?  It has about 80% of its business in Greece so a devaluation will hurt profitability but a nice company to watch.  I can check the Greek bond on Monday and see what the implied new currency rate would be.  Fairfax purchased Jumbo in the last swoon and sold for a nice profit in the subsequent rally.  Like Jumbo, OPAP is another interesting one to watch (Baupost owns them) however I think a devaluation could have a good sized hit to both these firms.

 

Packer

 

Glad to see you agree with my views on Jumbo. They also did quite well in 2014 despite poor macro conditions. Over the longer term I see them doing very well on improved macro economics. I did not know Fairfax once bought them, thanks.

 

While the risk of a Greek exit and return to the Drachma is more likely than ever, I still believe there is a good chance it gets averted in the end. Either the referendum gets cancelled out of fear/further negotation or the people vote 'Yes' and the eurogroup is friendly enough to keep it going a little while longer, forcing Greece to a deal in the end. I have a hard time seeing most Greeks voting 'No' and saying "F*ck it all". But history has shown that people as a group can do very irrational things so time will tell. There is also the possibility that Europe takes irreversible action before or after the referendum because they are fed up or don't see any other option at this point.

 

Expect future academia to talk about this Greek tragedy like they do now about the Great Depression, the 1987 crash, Dot Com bubble, subprime mortgage crisis etc. (I know I have a dog in this fight which makes me biased but) I'm surprised by the general lack of interest from this board on this subject, both on the macro level and on the individual Greek securities. Styles differ of course...

 

In any case it will be hard for me not to buy stocks like Jumbo should they go down 50%+ from here as long as there is a chance that Grexit doesn't happen. Needless to say Intralot would be preferred in any case. I sold some 25%+ of my position in the last few weeks as I was shocked a deal didn't happen. Greek markets closed tomorrow but hopefully they open again later this week.

 

Packer,

 

Jumbo is on my watch list too.  What is OPAP ?

 

http://www.opap.gr/en/web/corporate.opap.gr/144

 

I believe we have a thread about the company on the board, look it up. ;)

[NormR]

How big is Watsa's exposure to EGFEY?

 

About $250 million CAD as of Friday's close according to my local terminal.

[argonaut]

Packer,

 

If Autohellas gets knocked down because of this weeks tug of finance; perhaps there may be another place to enter a position even with a Greek exit?

[tombgrt]

How big is Watsa's exposure to EGFEY?

 

About $250 million CAD as of Friday's close according to my local terminal.

 

Believe the original cost was €400M last year.  They also hold a €200M position in Grivalia (Europroperties) and smaller stakes in Praktiker Greece and Mytilineos. I assumed the total was higher and closer to €1B. Still costly of course if things don't pan out.