NBG - National Bank of Greece

[Guest hellsten]

This must be one of the best or worst contrarian plays available on the market, so I had to take a look at what has been written about NBG.

 

My confidence in analysts is not any better after reading what they had to say about NBG and Greek banks between 2007 and 2011  >:(

 

Nomura on Greek banks (2011):

Risks that may impede the achievement of the target price NBG's operating performance is affected by the Greek/European

economic environment. In addition, with a material amount of equity allocated to SEE and Turkey, NBG is particularly vulnerable

to market sentiment in respect of Eastern Europe and Turkey, with potential for economic and political concerns.

http://xa.yimg.com/kq/groups/17389986/517074174/name/Nomura%20Greek%20Banks.pdf

 

Nomura had a buy-rating on NBG from 2008 to 2010, and neutral rating since 2010. They are/were bullish on the sector.

The table with Nomura's price targets is a sad sight to say the least.

 

 

UBS on Greek banks (2009):

Greek banks well positioned to withstand the storm; we prefer NBG

…

We single out NBG as our top pick, as it has strong liquidity (loans/deposits at 91%), a tier 1 of 10.9% and a high pre-provision earnings buffer of 300 bps.

…

We still like the Greek banks in a European context. We believe that system

liquidity is sufficient and capital is adequate for the Greek banks to weather the

forthcoming challenges.

…

NBG still screens well in a European context

 

Under these circumstances, we believe that NBG (Buy, €16) is the most attractive stock. NBG has certain defensive characteristics which screen very well in a European context:

(1) Strong liquidity, with loans to deposits at 91%, and an untapped balance sheet;

(2) Good capital ratios, with tier 1 at an estimated 10.9% (post government prefs) and core tier 1 at 7.3%;

(3) Further cost containment potential in Greece;

(4) Defensive Greek portfolio consisting 40% of prime residential mortgages;

(5) Low relative exposure to potentially high risk regions such as Romania and Bulgaria;

(6) High pre-provision margins to act as a cushion for capital against credit losses (see charts below for comparison with its Greek peers).

…

 

The main risks associated with NBG are the state of the Turkish economy and

the Turkish lira (TRY), the extent of ECB rate cuts (we forecast another 100 bps

by end-2009) and its relatively high valuation in terms of price to tangible book

value (currently at 1.0x). In addition, parliamentary elections could potentially

affect top management assignments.

…

Nevertheless, Greece still enjoys a number of benign attributes:

…

- Healthy banking sector, with no exposure to toxic assets and related writedowns.

- Absence of a housing bubble and limited reliance of household wealth on

housing prices (no buy-to-let market, immaterial exposure to home equity

products).

…

Turkey is by far the most important in terms of Greek

exposure, due to NBG’s extensive presence (19% of loans, 28% of earnings).

…

We value NBG using a Gordon growth model (GGM). We adjust sustainable

ROE to 11.2% from 14.6%, in line with our forecast revisions.

http://web.xrh.unipi.gr/attachments/136_UBS%20GREEK%20BANKS.pdf

 

Goldman Sachs on NBG (2007):

National Bank of Greece (NBGr.AT): Growing on balance sheet; adding as Conviction Buy

 

We believe NBG offers attractive exposure to this theme given: a strong deposit franchise and unleveraged

balance sheet; exposure to structural high-growth markets such as Turkey and SEE; restructuring potential in

its domestic network; pure retail exposure with limited gearing to CIB and AM revenue; and limited exposure

to structured products and US market.

…

Our 12-month SOTP price target is €51.1, implying 26% potential upside to current level.

http://www.borsaitaliana.it/mediasource/star/db/pdf/63253.pdf

 

I guess you could say GS had conflicts of interests:

http://www.spiegel.de/international/europe/greek-debt-crisis-how-goldman-sachs-helped-greece-to-mask-its-true-debt-a-676634.html

 

One of the clearest examples of cross-border

rating differentials is Finansbank in Turkey,

which Fitch currently rates at BBB-.

National Bank of Greece (NBG), which owns

95% of Finansbank, is rated just CCC.

…

There is still a strong case for retaining

the cross-border model, especially in western Europe where home markets look set to

be slow growing for some time. In an economic downturn, flows through the retail

banking, wealth management and investment banking activities in one country all

tend to fall together, says Hubert Bastide,

head of the EMEA financial institutions

group at Nomura in London.

…

“Valuations show that entering new

geographies in retail or corporate banking is

the only diversification that is consistently

successful, delivering benefits from nonaligned economic cycles between different

countries for more than 20 years,” he says.

http://www.ey.com/Publication/vwLUAssets/New_map_for_global_banks_strategy_and_regulation/$FILE/New_map_for_global_banks_strategy_and_regulation.pdf

[Guest hellsten]

National Bank Greece's Management Discusses Q1 2013 Results - Earnings Call Transcript:

The broad themes I would like you to take away from our Q1 2013 results are the following. First, we’re seeing clear signs of a return to profitability, as first quarter pre-provision earnings at €363 million, up plus 47% year-on-year were supported by the bottoming out of debt decline in NII in Greece and the absence of trading losses.

 

In fact, attributable, PAT, profit after taxes before the one-off impairment of our shares in Eurobank came in at €186 million as we reduced loan provision charges in line with improvement in delinquency formation in Greece were coverage and change from the last quarter. Notably, this is the second quarter in a row where we achieved a positive bottom line. It is important to note that Finansbank continues to perform well, contributing over €150 million in profits in the first quarter, an increase in excess of 20% compared to the Q1 of last year driven by exceptional core income growth.

 

Second, we continue to rationalize our cost base. In Greece, we are essentially executing a complete rebasing of our operating model. Operating expenses are down 7% year-on-year and 24% compared with the equivalent period in 2010. There is more to come on the personnel side, if you consider the VRS program detailed on the last conference call pending approval by the authorities and the new collective agreement signed recently. All in all, we expect a decrease in personnel expenses going forward of about another 20%. Likewise, in SEE, we continue to keep a vigilant eye on costs, OpEx are down another 5% year-on-year and down over 20% from their peak.

 

Third, we can now talk about the (inaudible) moderation in domestic delinquency formation, which has had compared with the first three quarters of the last year. Since rather still, we continue to prudently provision our portfolio with a best-in-class coverage ratio of 53% domestically and 54% group wide.

 

Four, on the liquidity front, the group loan to deposit ratio is nearing the 100% mark is actually at the 104% as we continue to gather deposits at a good pace across the group. Of note in Greece Q1, we experienced inflows which brought our loan to deposit ratio to a best-in-class 95% at the end of Q1. Finally, our pro forma core Tier-1 stands at 9.3%.

http://seekingalpha.com/article/1460691-national-bank-greece-s-management-discusses-q1-2013-results-earnings-call-transcript

[SharperDingaan]

Good time for shopping  ;)

[SharperDingaan]

Partial sale of 40% of Finansbank. Keep in mind that there will also be a gain attached to this, & a sum-of-parts valuation of their remaining stake.

 

http://in.reuters.com/article/2013/07/18/greece-nbg-idINL6N0FO13L20130718

 

SD

[king888]

Hi SD,

Can I ask why do you interest in NBG share right now  ? Because from P/BV standpoint. It is trading at fair valuation. Here is the book value calculation from SeekingAlpha's commet

 

The book value you need in order to calculate the P/BV ratio of NBG is the book value owned by common shareholders only. For NBG you have to adjust the reported number of -1968mn euros as per 1Q13 IFRS , for the 1350mn euros of state prefs and about 400mn of US listed prefs (there is a pending VTO for those but let’s ignore it for the moment). In regards to the above the book value was -1968-1350-400= -3718…then toy add the 9756mn of the recap increase and you get to 6038 post money book… These figures gives a P/BV ratio of 0.94 times which is compared to 0.4-0.5 times of the European average. If you need to go further and calculate the Tangible Book value, then you take 2.1bn off from the 6038mn. So market cap 5.7/6= 1.22…or in TBV terms 1.5x or so. Extremely rich valuation comparing to Alpha Bank (ALBKY.PK) or Piraeus Bank (BPIRY.PK) which are the main competitors.

 

So it is trading at 0.94 P/BV.  Finansbank is trading at 0.93 P/BV in Turkey exchange. So even if the sale of 40% portion is successful in current market price. That will not raise book value of NBG if they can't sell Finansbank above book value.

 

 

[SharperDingaan]

We have a long term (5-7 year) view.

 

We are also assuming that the NBG cost base is well below the +.93 BV valuation of Finansbank. As they are selling at a rich valuation (relative) we should see cash proceeds, and the maximum possible gain on sale that will flow direct to capital. We would then expect them to maximize the regulatory capital bump by using the gain to offset loan write-offs (high risk weight), & the cash to fund high-quality new loans (low risk weight). It is not just a sale ... it is the operational risk reduction as well.

 

We also want the highest quality possible, & are willing to stump up for it (NBG is still very cheap). 5 years out Alpha & Piraeus may end up absorbed (ironically by NBG), & they will not benefit from any foreign buying via the ADR market. Our best laid plan could easily get wiped out prematurely - simply because we were cheap.

 

SD

 

 

 

 

[SharperDingaan]

http://www.nbg.gr/wps/portal/en/the-group/Press-Office/Press-Releases/content/Press-Releases/probank

 

The absorption of Probank’s assets will be accompanied by a respective capital injection by the HFSF, while in the next phase independent auditors will carry out an assessment of Probank’s balance sheet items. If it transpires that there is a difference between the current estimation of the value of transferred assets and liabilities and the final amount as determined by the assessment, the said difference will be covered by the HFSF in line with the established procedure, and will result in the provision of additional liquidity

 

... At todays price (4.17) why would I not think that the Finansbank sale just cleared some hurdles?, there is nice gain, & that the capital release is conditional on taking on Probank's assets. Then add in that they will be very conservative in their valuation assessment; which will result in as healthy cash injection, the removal of junk assets - and the release of significant amount of regulatory capital for future expansion.

... And if it works once, why would you not 'rinse & repeat' 12 months out - following a years worth of positive earnings, & regulatory capital release from improving asset quality?

 

SD

 

[LC]

Paulson moves into Greek banks:

 

http://www.cnbc.com/id/101090421

[NewbieD]

Why is NBG up so strongly today, any news?

Neither Alpha or Piraeus have moved.

[gary17]

http://www.cbc.ca/news/business/greece-forecasts-gdp-growth-in-2014-for-1st-time-in-6-years-1.1928398

[SharperDingaan]

We have done very well by NBG, but we’re out.

 

Given that a market participant would appear to be establishing a significant position, we will also withhold disclosing our reasons until the weekend.

 

SD

 

[LC]

Interesting...I'm looking forward to your reasoning, SD.

[SharperDingaan]

We remain as long-term bullish on the European banking sector as we previously were, but have reinvested our NBG proceeds in Banco Santander (SAN). The underlying business case remains improving economy, lower quarterly provisioning requirements, etc.; but we are also making a big demographic bet on the Spanish speaking world - via one of the top tier firms of that world.

 

Multiple reasons for the change …

 

SAN has a far better capital level at 11.1% vs 9.2%, & pays a 0.15 Euro quarterly scrip dividend (roughly an 8.5% cash yield). We have essentially moved up the quality curve, we have a very large number of shares (for a retail client), & we could not have afforded it were we not looking at what we think are multi-generational lows. It is one of our punch card bets, & we would not have attempted it without a 35% risk reducing house money contribution from NBG.

 

We think the SAN vs NBG discount is now heavily in favour of SAN. At a cost base < $3.00, NBG was compelling; at $5.35 it is much less so. Over our 5-6 year horizon NBG remains a good choice; but we think SAN is likely to get us there sooner, & more reliably.

 

SAN is big, diversified (as much a European bank as it is a South American one), & it doesn’t have the stigma of being Greek. To get appreciation, we need both higher earnings & a higher multiple; sad to say it – but we think the combination will be much easier to obtain with SAN versus NBG.

 

We are not crazed with the presence of FFH or Paulson in NBG, & far prefer a SAN where such big weightings are much harder to obtain. While it is nice to have big friends, we think it far safer to be in a saloon where everybody is big - & we’re just the mouse in the corner. No disrespect intended.

 

We view SAN vs NBG management as being broadly comparable, but give the balance of the doubt to SAN. We see them both as being somewhat akin to finalists playing for the Stanley Cup; they have both survived the meltdowns of the century, but unfortunately only 1 can win the cup.

 

If you are not a large fund trying to buy in a big stake (from very limited investable choices), NBG is probably the bottom 1/3 of the pack; SAN is the top 1/3. Hopefully, quality & time will prove us right.

 

Re valuation …

 

We see SAN as equivalent to the average Cdn Sched-A bank; 2.5x the size, but with a capital ratio of 11.1% in line with the average 11.2% Total Tier 1 Capital of the 5 major Cdn Sched-A banks. SAN’s current price is also around the average 50bp ROA of Mediterranean banks x the average 11.25 P/E multiple applicable to the 5 major Cdn Sched-A banks. However … SAN’s 8.5% (scrip) dividend yield is 2x that of the current 4.14% average of the 5 major Cdn Sched-A banks.

 

As Spain improves, we would expect the average 50bp ROA to rise to the average 70bp ROA of most major European banks. Revaluing at 70bp ROA, suggests that we have a position at roughly a 30% discount relative to what we should have paid. However; given what SAN has survived, we think today’s SAN is a more efficient bank - & 70bp may well be too light.

 

In short; we think we have an equivalent Cdn Sched-A Bank bought at 30%+ off, & paying a cash yield of 2x what we might otherwise expect. Hardly surprizing that net of house money, we see the net risk/reward as a no brainer.

 

SD

 

[muscleman]

We remain as long-term bullish on the European banking sector as we previously were, but have reinvested our NBG proceeds in Banco Santander (SAN). The underlying business case remains improving economy, lower quarterly provisioning requirements, etc.; but we are also making a big demographic bet on the Spanish speaking world - via one of the top tier firms of that world.

 

Multiple reasons for the change …

 

SAN has a far better capital level at 11.1% vs 9.2%, & pays a 0.15 Euro quarterly scrip dividend (roughly an 8.5% cash yield). We have essentially moved up the quality curve, we have a very large number of shares (for a retail client), & we could not have afforded it were we not looking at what we think are multi-generational lows. It is one of our punch card bets, & we would not have attempted it without a 35% risk reducing house money contribution from NBG.

 

We think the SAN vs NBG discount is now heavily in favour of SAN. At a cost base < $3.00, NBG was compelling; at $5.35 it is much less so. Over our 5-6 year horizon NBG remains a good choice; but we think SAN is likely to get us there sooner, & more reliably.

 

SAN is big, diversified (as much a European bank as it is a South American one), & it doesn’t have the stigma of being Greek. To get appreciation, we need both higher earnings & a higher multiple; sad to say it – but we think the combination will be much easier to obtain with SAN versus NBG.

 

We are not crazed with the presence of FFH or Paulson in NBG, & far prefer a SAN where such big weightings are much harder to obtain. While it is nice to have big friends, we think it far safer to be in a saloon where everybody is big - & we’re just the mouse in the corner. No disrespect intended.

 

We view SAN vs NBG management as being broadly comparable, but give the balance of the doubt to SAN. We see them both as being somewhat akin to finalists playing for the Stanley Cup; they have both survived the meltdowns of the century, but unfortunately only 1 can win the cup.

 

If you are not a large fund trying to buy in a big stake (from very limited investable choices), NBG is probably the bottom 1/3 of the pack; SAN is the top 1/3. Hopefully, quality & time will prove us right.

 

Re valuation …

 

We see SAN as equivalent to the average Cdn Sched-A bank; 2.5x the size, but with a capital ratio of 11.1% in line with the average 11.2% Total Tier 1 Capital of the 5 major Cdn Sched-A banks. SAN’s current price is also around the average 50bp ROA of Mediterranean banks x the average 11.25 P/E multiple applicable to the 5 major Cdn Sched-A banks. However … SAN’s 8.5% (scrip) dividend yield is 2x that of the current 4.14% average of the 5 major Cdn Sched-A banks.

 

As Spain improves, we would expect the average 50bp ROA to rise to the average 70bp ROA of most major European banks. Revaluing at 70bp ROA, suggests that we have a position at roughly a 30% discount relative to what we should have paid. However; given what SAN has survived, we think today’s SAN is a more efficient bank - & 70bp may well be too light.

 

In short; we think we have an equivalent Cdn Sched-A Bank bought at 30%+ off, & paying a cash yield of 2x what we might otherwise expect. Hardly surprizing that net of house money, we see the net risk/reward as a no brainer.

 

SD

 

Thank you SD. What is your thought on SAN vs American banks like BAC and RF?

[SharperDingaan]

We don't invest in US banks so cannot comment on the relative merits.

 

That said; we would suggest that most folks have a very strong bias to their own domestic banks - simply because they interact with them almost every day. Telling an American to buy other than a US bank for the long term, is a pretty long stretch. Even in our case, we're comparing to the best of Canada's banks; & investing only because we think the quality is comparable, & we have obtained SAN at what we think is a very favourable price.

 

SD

[SharperDingaan]

You may want to look a little closer at SAN  ;)

 

NBG is now priced at the average 50bp ROA of major Med banks x the 11.2 P/E of the major US banks. It is 70bp for the average major European bank .........

 

SD

[nnayyar]

Moody's upgraded NBG and Alpha Bank debt:

 

http://www.streetinsider.com/Credit+Ratings/Moodys+Raises+Five+Greek+Mortgage+Bond+Program+Ratings+(NBG)/8958981.html

 

I was looking at the historical duration of financial crisis's through history and Greece is one of the longest duration. Based solely on this, I am looking at NBG and ALBKY as a speculative but possibly multi-bagger potential. NBG seems to be quite followed but does anybody have in depth thoughts on ALBKY traded here on US exchange OTC?

[nnayyar]

ALBKY one of largest positions at Greenlight RE

 

http://www.greenlightre.ky/FinancialInformation/InvestmentReturns.aspx

 

 

As of 28-February-2014, the largest disclosed long positions in our investment portfolio are Alpha Bank A.E., Apple, gold, Marvell Technology, Micron Technology and Oil States International; our investment portfolio is approximately 118% long and 71% short.  All exposure information is calculated on a delta adjusted basis and excludes credit default swaps, interest rate swaps, sovereign debt, currencies, commodities, and derivatives on any of these instruments.

 

A lower risk way to play might be to purchase GLRE.

[indythinker85]

I have been looking at this cant find out size info its not filed in Greece and not on BBG anyone know if there is a way to find out? I only noticed here http://www.valuewalk.com/2014/03/david-einhorn-alpha-bank/

[nnayyar]

Piraeus Bank looking to price bonds:

 

http://www.ft.com/intl/cms/s/0/a6dc437e-a544-11e3-8988-00144feab7de.html?siteedition=intl#axzz2vCJooM2M

 

 

[nnayyar]

Some interesting data and presentations from a few months ago here:

 

http://forums.capitallink.com/greece/2013/

 

Interesting that Marathon, FIG, and York are on the ground floor in Greece already. I suspect might still be a bit early as they seem to be providing loans to solid business that banks can't. Eventually (or hopefully) money finds it way out the risk curve into the equity.

[nnayyar]

ALBKY earnings out along with their presentation on capital raise. Some quick thoughts:

 

http://valuecaptrader.wordpress.com/2014/03/10/greek-bank-updates/

 

The market seems to love NBG and selling ALBKY on the news but seems ST pain for LT gain..

 

[kai99]

I folks, i am new here. Just wondering if anyone could share which valuation model is the best to apply to something like NBG. I bought it at 5.00+. I currently also hold BCS and also interested in other EU banks such as SAN,BBVA, DB and UBS in hopes of an EU recovery.

 

Anyone can advise me on what else to look out for? thx in advance!

[yadayada]

Any thought on Hellenic bank? It is a small cyprus community bank. It is trading to a huge discount of equity. Cyprus is hit hard, but  it seems they came through that the best. And it seems that cyprus stocks completly collapsed, and are very hated. So cant hellp thinking that there might be a couple bargains in there.

[kai99]

seems like there are lots opportunities ard tt area, esp now with Greek construction improving.

ANy one looking at Turkey also?