NBG - National Bank of Greece

[ericd1]

Someone said to offer up their opportunities...Here's my first for the new year...

 

"Buy when there's Blood in the streets"

 

There's plenty of blood here, but the National Bank of Greece is going to make it through Greece's economic turmoil. I'm sure there's more than enough risk here to scare many off, but the risk/reward ratio is appealing enough to make it a small position in a diversified portfolio. The National Bank of Greece is the oldest and largest bank in Greece. The bank expanded into Turkey and Eastern Europe which gives it diversification beyond Greece's economy. Turkey's economy is strong and growing, while Eastern Europe remains problematic.

 

Here are the highlights of the NBG's 3Q report.

 

Net profits in 9M.10 reached €259 million. Net interest income amounted to €3,108 million, up +7% yoy. Net Interest margin remains stable at c. 4%. Increased provisions totalling €991 million, up +35% yoy. The provision coverage ratio stands at 63%. Strong liquidity, with the Group loan-to-deposit ratio 99%; Greece: 87%. Following the recent share capital increase, the Group’s Tier Ι capital adequacy stands at 13.1%, among the strongest in Europe.

 

Greece: - Core income shows resilience in this time of crisis: €2,161million, up +3% yoy.

- Losses total €181 million compared with profits of €593 million in 9M.09.

- Bond portfolio losses total €338 million compared with €318 million gains in 9M.09.

- Provisions up by +68% to €725 million.

Finansbank: - Net profit in 9M.10: €369 million (up +4% yoy). (90% owned by NBG)

- Dynamic growth in business: +22% in lending and +30% in deposits yoy.

SE Europe: - Profit before provisions in 9M.10: €218 million (up +6% yoy).

- Net profit in 9M.10: €67 million (down -11% yoy)

 

In an effort to maintain adequate capital NBG issued add'l shares and convertible notes totaling 1.8B euros, which were over subscribed by 80%. This brought Tier I capital to 13.1%, making it one of the highest capitalized banks in Europe. The bank is moving to sell 20-25% of its Finansbank holdings this year and expects to receive $1.0 billion euros further strengthening its capital position to a projected 14%+. The Finansbank (Turkey) business is strong and the Turkish economy is growing.

 

The stock has been beaten up and is down 63% over the last 12 months and is trading near it's 52-week low.

 

I believe the worst is behind NBG and the EU will continue to support Greece. I expect the bank to earn $0.15 per share this year, $0.20 in 2011 and $0.25+ in 2012. A P/E ratio of 10x would put the stock at $2.50 per share, ~50% gain.

 

The bank also has a preferred A series paying $2.25 dividend (15% US tax rate). It is trading at ~$18.50 for a current yield of 12.2% -- I expect it move to $22.50 over the next 12-18 months. That's 21% + ~11% dividend = 31% total return.

 

It's not a slam dunk, but worthy of consideration...I am long both the ordinary and preferred shares.

 

Prices 1/3/11

NBG $1.70

NBG-A $18.50

 

Prices 2/15/11

NBG  $2.08   +15.7%

NBG-A $20.40  +10.3%

 

Prices 2/28/11

NBG  $1.88   +5.9%

NBG-A $20.84  +12.6%

 

Prices 3/31/11

NBG  $1.77  +4.1%

NBG-A $19.20  +3.8%

[prunes]

The yield of the preferred is actually less than the yield on a 10-year Greek government bond (12.59%). Any thoughts there?

 

Also, I would be very afraid of investing in anything related to Greece, but especially Greek financials. I think recent events have shown that there is a culture of permissiveness in Greece when it comes to, well, lying. (Being half Greek I feel OK saying that ;) ). What understanding do you actually have of what bad loans this bank might have made? What if the European debt situation continues to deteriorate? I would need a huge margin of safety on this one and I just don't see what assurance there is that it truly exists.

[PlanMaestro]

I feel much more comfortable analyzing and investing in financials that your usual value investor. However, I have one rule of thumb: NEVER invest in a bank in a fixed exchange regime country. I even had thoughts of shorting the NBG preferreds - maybe hedging with NBG common long - but quickly fought the temptation: why complicate things when there are so many safe and cheap American banks.

 

Now, if Germany wants to go to a full integration with e-bonds included. Yeah, right.

 

There is an excellent book "And the Money Kept Rolling in ... and Out" that tells the Argentinian disaster (you might have heard of the corralito). For people that think that all can be solved with fiscal discipline you might want to check the extremes that Cavallo went to balance fiscal accounts and see how that worked.

[ericd1]

PlanM - You raise some very good points and I could be totally wrong about NBG, but my sense is that the EU can not and will not allow the largest bank in Greece to topple. If it did (or Ireland, or Spain, or whatever country's banks) we'd be facing another credit crisis and I don't believe the central bankers will allow that to happen, no matter how much they dislike the situation of the PIGS. Especially when you consider that most of Greece's debt is held outside of Greece (France, Germany, etc.)  That's my margin of safety. Fortunately we're not dealing with a SA country.

 

I like the 15% tax rate for the NBG pfds over Greek bond income.

 

My experience suggests soverign-debt crises get resolved -- but it could be different this time

 

 

[benhacker]

Eric,

 

...but my sense is that the EU can not and will not allow the largest bank in Greece to topple.

 

I think the problem with this line of logic is that by buying the preferred or equity, you are only (very) tangentially betting on this outcome.  Why any of the truly insolvent banks' equity, preferred and junior bonds don't take haircuts I can only guess, but there are many ways for an institution to live on and the preferred and equity get obliterated, and on occaision the government in control even act rationally and do so...

 

Fannie, Freddie, IRE, etc are all examples.  None have failed yet, but equity has been dominated.

 

I personally am amazed that NBG hasn't seen a run yet given there is a chance depositors wake up one day with their accounts in a non-Euro currency.  That said, it appears to me from a brief scan of the financials recently that NBG is actually a decently run bank FWIW.

 

Ben

[PlanMaestro]

 

I personally am amazed that NBG hasn't seen a run yet given there is a chance depositors wake up one day with their accounts in a non-Euro currency.  

 

That said, it appears to me from a brief scan of the financials recently that NBG is actually a decently run bank FWIW.

 

Ben

 

1. I read around June that their deposits were under pressure, have not looked at their numbers lately. In Argentina, runs were late in the game and IMF observers were surprised that it did not happen sooner.

2. NBG is a great franchise, one of the best banks out there. However, this is one of those situations where being the best, most profitable and diversified geographically does not provide a margin of safety.

[PlanMaestro]

but my sense is that the EU can not and will not allow the largest bank in Greece to topple.

 

Eric, as Benhacker mentions equity wipeout and too large too fail are not mutually exclusive type of events.

[Ballinvarosig Investors]

I think recent events have shown that there is a culture of permissiveness in Greece when it comes to, well, lying. (Being half Greek I feel OK saying that ;) ). What understanding do you actually have of what bad loans this bank might have made? What if the European debt situation continues to deteriorate? I would need a huge margin of safety on this one and I just don't see what assurance there is that it truly exists.

This is the exact kind of culture that's pervasive in Ireland. Financial institutions in these countries are run for the benefit of management, insiders, and cronies, rather than shareholders. Here in Ireland in 2007 our banks looked the picture of health, announcing record profits. Despite that, the share price started to tumble, even though all public information suggested that our banks were in perfect health. At all times, the banks maintained that there were no impaired loans and that there was nothing wrong. 2 years later, 4 of 6 of our financial institutions have been nationalized and the other 2 are tethering on the brink.

 

May I remind you, ordinary investors weren't the only people who were fooled. Warren Buffett lost $200 million investing in Irish banks in 2008. What Warren Buffett never conceived was that the Irish Financial Regulator could be in cahoots with the banks, allowing them to cheat, lie, and steal.

[ericd1]

I don't disagree - NBG's equiity and pfds could be wiped out. However, the EU has already acted once to support Greece, which I believe is because their debt is widely held by other EU countries and the ripple effect would cause larger problems for the EU. Obviously this is politically difficult for the individual EU countries, but it is the right thing to do. Had the support not been provided I would pass. It also appears the Greek economy is not falling off a cliff.

 

Besides a lower stock price for a better margin of safety, what would make NBG attractive? 

 

I might add that's it's a small portfolio position because of the risks involved. Some of my biggest winners have come from distressed situations like this.

 

Good discussion!

 

 

 

 

 

 

 

 

[Ballinvarosig Investors]

However, the EU has already acted once to support Greece, which I believe is because their debt is widely held by other EU countries and the ripple effect would cause larger problems for the EU.

In Ireland, the equity holders were wiped out while bond holders (i.e. French and German banks) were saved. Like it has been stated, these two events are not mutual exclusive; indeed, they are the precedent that has already been set.

[PlanMaestro]

I don't disagree - NBG's equiity and pfds could be wiped out. However, the EU has already acted once to support Greece, which I believe is because their debt is widely held by other EU countries and the ripple effect would cause larger problems for the EU. Obviously this is politically difficult for the individual EU countries, but it is the right thing to do. Had the support not been provided I would pass. It also appears the Greek economy is not falling off a cliff.

 

Argentina 2000 also had its sugar daddy (the IMF) and the contagion effects were also a concern after the Russia 1998 experience.

 

Given the system the country’s only adjustment instruments are

(a) additional tightening

(b) competitiveness enhancing structural reforms

The former will impose further contractionary pressures.... The latter cannot compensate in any meaningful manner in the period ahead for the significant real effective exchange rate appreciation

- El-Erian, PIMCO internal e-mail on the Argentina 2000 situation from "The Money kept Rolling in ... and Out"

 

In other words, where is Greece’s growth going to come from without monetary stimulus, fiscal stimulus or currency adjustments?

 

Without growth, Greece has not enough tax income to pay for such high cost of financing.  interest rate > nominal growth rate =>  debt  goes out of control slowly but surely in a fixed exchange rate country. NBG is a very good bank but all roads go through Germany big time and the probabilities do not seem that good.

 

 

[PlanMaestro]

I personally am amazed that NBG hasn't seen a run yet given there is a chance depositors wake up one day with their accounts in a non-Euro currency.  That said, it appears to me from a brief scan of the financials recently that NBG is actually a decently run bank FWIW.

 

 

The real mystery to me was why anybody left deposits there. I remember kidding Ken, who has this paper titled ‘Seven Mysteries of International Finance’ that I got a puzzle that beats all the other - Carmen Reinhart, deputy to IMF’s chief economist Ken Rogoff on Argentina 2000 from "The Money Kept Rolling In... and Out"

[Ballinvarosig Investors]

I personally am amazed that NBG hasn't seen a run yet given there is a chance depositors wake up one day with their accounts in a non-Euro currency.  That said, it appears to me from a brief scan of the financials recently that NBG is actually a decently run bank FWIW.

 

 

The real mystery to me was why anybody left deposits there. I remember kidding Ken, who has this paper titled ‘Seven Mysteries of International Finance’ that I got a puzzle that beats all the other - Carmen Reinhart, deputy to IMF’s chief economist Ken Rogoff on Argentina 2000 from "The Money Kept Rolling In... and Out"

Even if there was a major run, the ECB runs an emergency liquidity repo facility that allows banks to exchange trash for cash. Some of our Irish banks have LTV's of 200%+ (and rising) because of this :)

[PlanMaestro]

When the unthinkable becomes the inevitable? It is weird to be in the same line of thought of Krugman. As I said, there are few international macro books as good as "The money kept rolling in ... and out"

 

http://www.nytimes.com/2011/01/16/magazine/16Europe-t.html?hp=&pagewanted=all

[PlanMaestro]

Results from the 75% bond haircut. NBG's almost €11bn of impairments cut its core tier one ratio to 6.3%

[PlanMaestro]

http://www.ft.com/intl/cms/s/0/4ede1c48-9096-11e1-8adc-00144feab49a.html#axzz1tRodPccd

 

On a roadshow in London last week, Apostolos Tamvakakis, chief executive of National Bank of Greece, launched a last-ditch attempt to fend off a wipeout of private shareholder control, widely considered inevitable across the banking system as lenders struggle to absorb losses on their government bond holdings and other bad debts.

 

“We have to have a privately controlled banking sector. And there need to be long-term investors, not speculative ones,” Mr Tamvakakis insisted in an interview.

 

Analysts said that was a noble desire, but not necessarily a realistic one. “There are many uncertainties ahead of the election and the macro environment is extremely challenging,” said Antonio Ramirez at KBW in London. “For the time being, I don’t see much sign of interest from investors in buying into Greek banks.”

.......

 

“Heavy dilution is inevitable,” Mr Tamvakakis told the Financial Times. “[but] we need an economy with less state involvement, not more.”

......

 

 

Besides raising fresh funds, Mr Tamvakakis believes he can generate substantial capital through other measures. NBG is planning to sell a minority stake in Turkish subsidiary Finansbank; it is bringing its Balkan affiliates in five countries into one subsidiary, a share of which it could sell; it is pledging more liability management to convert poorer quality debt to equity; and it will sell non-core holdings such as the Astir Palace hotel complex. Together market observers suggest such moves could raise as much as €2.5bn.

 

NBG believes that although it has the biggest capital deficit, it is also the most cautious – with a 58 per cent ratio of non-performing loans already covered by provisions – and has the greatest potential profit stream. It is convinced that an exercise by fund manager BlackRock to predict future “excess credit losses” will not add to its woes.

 

 

 

 

 

 

 

 

[mrvlad0]

'Canada's Warren Buffett' Interested in Greece's Top Bank

 

http://www.cnbc.com/id/100551627

 

Greece's biggest lender, National Bank (NBG), said on Wednesday that Canadian investment fund Fairfax Holdings was interested in acquiring a stake in it by taking part in a planned recapitalization.

. . .

Asked by Reuters to comment on NBG's statement, Fairfax Vice President for Operations Paul Rivett said the company did not comment on specific investments but that it did participate in recapitalizations and was interested in Europe.

 

"We've demonstrated that we will participate in recapitalization, we've done that with the Bank of Ireland, which has turned out to be a tremendously successful investment with a great bank," Rivett told Reuters.

[mrvlad0]

After Success in Ireland, Prem Watsa Eyes National Bank of Greece Investment

 

http://www.nasdaq.com/article/after-success-in-ireland-prem-watsa-eyes-national-bank-of-greece-investment-cm227332#.UUI_dRkR4mU

 

After nearly doubling his money supplying a capital infusion to the Bank of Ireland ( BIR.IR )( IRE ), Prem Watsa is eying an investment in another troubled European financial institution, National Bank of Greece ( NBG ).

 

The bank this morning informed investors that it is "considering alternative options" to meet requirements to recapitalize Greek systemic banks, with Watsa's company, Fairfax Financial ( FFH ), among them.

 

"Fairfax Holdings, among others, has expressed interest in participating in the recapitalization of the enlarged NBG Group," the bank said.

 

 

[jrallen81]

Hi guys,

 

Unless I don't understand the terms of the recap, it seems like this could get even worse before it gets better. In my reading the recap price is at least a 50% discount to the 50 day MA from the  day before they actually announce the recap. As they haven't yet the stock is in a self-reinforcing downward spiral. Am I wrong about this?

 

I'm, actually looking for a speculative way to play a rebound in Greece, so I am interested.

[blainehodder]

Predicting bottoms is impossible.  Buying what is cheap today is not.  Therefore, Prem doesn't waste time trying to call bottoms.

[jrallen81]

Predicting bottoms is impossible.  Buying what is cheap today is not.  Therefore, Prem doesn't waste time trying to call bottoms.

 

I'm not trying to call a bottom, I'm trying to determine how non-existent the margin of safety may be....

[mrvlad0]

NBG: Fairfax Holdings΄ interest remained at an initial phase

 

http://english.capital.gr/News.asp?id=1752106

 

Greece΄s National Bank said on Friday Fairfax Holdings΄ interest in taking part in its recapitalisation had stalled because the Canadian investment fund wanted certain changes to the terms that were beyond NBG΄s control.

 

NBG,said in a bourse filing that Fairfax had expressed interest for up to 1.5 billion euros, which amounts to 10 percent of a capital raising to increase the bank΄s solvency to levels required by the central bank.

 

"The expression of interest remained at an initial phase because Fairfax asked for changes in the framework of the recapitalisation that are beyond National Bank΄s control," NBG said in the filing.

 

 

[BargainValueHunter]

I read somewhere that the dilution necessary to properly recap the bank would crush the equity down to ~€0.25 per share.

 

Since the shares will get hammered what is the best way to participate in a "Fairfax fuelled" upside surge?

[compoundinglife]

I read somewhere that the dilution necessary to properly recap the bank would crush the equity down to ~€0.25 per share.

 

Since the shares will get hammered what is the best way to participate in a "Fairfax fuelled" upside surge?

 

Any idea how to figure out what might happen to the series a prefs? They tendered some prefs at %45 of par last year: http://www.reuters.com/article/2012/01/03/nbg-bonds-tender-idUSL6E8C30LO20120103

 

The market is assuming around 75 percent haircut on the prefs currently.

 

 

[BargainValueHunter]

http://www.theoptionsinsider.com/unusualactivity/?p=100011878&qcABC=1

 

National Bank of Greece (NBG) options volume is running 8.5X the (22-day) average, with 21,000 contracts traded and call volume accounting for 88 percent of the volume.

 

http://www.foxbusiness.com/news/2013/03/27/big-greek-banks-post-steep-2012-losses/

 

Despite Greece's international creditors insisting that the capital boost takes place by the end of April to help stabilize the economy and allow for increased lending, NBG's deputy CEO Petros Christodoulou said the deadline "may be extended".

 

"We have made all the arguments why it should be extended to mid-June, so I expect it may be at the end of May or early June," he said.