No, I didn’t mean joining a fraternity nor did I mispell the National Bank of Kuwait. I meant Greece, the country. Basically what is going on in Greece is alarming, yet intriguing. The Athens Stock Exchange shed -8% today on market fears that Greece wouldn’t be able to meet its May debt payments and would take a “hair-cut” on its debt. Althought the EU and IMF announced a plan to bail-out Greece, the market is currently in a “show-me-the-money” mode. German Chancellor Merkel hit the campaign trail yesterday and talked politically by stating that Germany wouldn’t simply hand money to Greece to maintain a standard of living way above their means. This sparked an orchestra of claps by her supporters. However, what is more significant than this statement is the excuse she gave herself to eventually bail-out Greece by stating that Germany can’t allow the Euro to continue getting hit.
Greece will not default for several reasons. According to BIS data, French-based banks have $75 billion of exposure to Greek debt, and German banks have a $45 billion exposure. Greece’s debt stands at $395B, so these two major EU nations are directly exposed to 30% of Greece’s debt. Further, 99% of Greece’s government debt is held abroad. The current situation is fueling a credit death spiral for the PIGS (Portugal, Ireland, Greece, and Spain) with downgrades starting to pop-up. The Euro has also suffered as it is down 13% in 6 months.
Lets get down to the reasons I recommend buying the National Bank of Greece (the ticker for the ADR is NBG). The bank is one of the four largest in Greece and is currently trading at $2.65; down 70% from its mid-October 2010 highs of around $9. The bank trades at a mere Price to Book of 0.32x. Compare that to Boubyan Bank’s P/B of 6.6x! I know one can’t compare apples to oranges, but I just wanted to illustrate the deep discount. Even if Greece takes a 50% haircut on its debt (unlikely), the bank should trade at least at a 0.50x P/B multipe resulting in an upside potential of at least more than 50%. German Chancellor Merkel can’t waiting until her May 9 elections to bail-out Greece and must “show-us-the-money” right now. It could be seen as catching a falling knife, but for the more cautious I advise buying in 1/3 increments (now, at 2.3, at 2.1). Soverign-debt crises always end-up resolved. Dubai and Ireland are prime examples. Do you know how much return you would’ve made by buying The Bank of Ireland (ticker: IRE) only 2 months ago? nearly 100%. I believe (NBG) could be the next (IRE).
To Merkel I say in the words of the great economist John Maynard Keynes, “If I owe you a pound, I have a problem, but if I owe you a million, the problem is yours.”
(1 votes, average: 1.00 out of 5)
Loading ...Tags: Greece, Greece Sovereign Debt, Kuwait, National Bank of Greece, NBG, Sovereign Debt
Once you bailout Greece you’ll have the PIGS waiting in line. Forget the exposure, Lehman took the beat.. why wouldn’t Greece also take it.
[Reply]
Keynesian Reply:
April 28th, 2010 at 6:39 pm
Once u bail-out Greece, the credit markets would return to their normal operation and you wouldn’t need to bail-out anyone else (at least for the ST).
As for this bank, I really like 2 more things that I didn’t include: It owns 77% of a fast-growing and highly profitable Turhish bank. The market value of this share is around $5 billion. NBG’s marketcap is currently at $8.5B. Thus, this state constitutes 60% of NBG’s current share price. This means you are only paying around $1 for the Greek bank! This Turkish bank is expected to contribute 45% of NBG’s expected profit for this year.
Moreover, NBG has low leverage with a loan/deposit ratio of only 1.
[Reply]
I really like the article, however I would like to point out that loan/deposit ratio of 1 is not that low. As an example, the Central Bank of Kuwait’s maximum loan/deposit ratio for Kuwaiti banks is 0.85
Thanks again
[Reply]
Keynesian Reply:
April 28th, 2010 at 8:00 pm
Thanks! I didn’t know this piece of info; very interesting. I guess I was comparing it to other highly-levered European entities.
[Reply]
Great call! NBG is up 14.63% today and Spain is downgraded by S&P!!
[Reply]
Keynesian Reply:
April 30th, 2010 at 1:06 am
Thanks. Great game
[Reply]
Far off Keynesian…
id rather keep my eye out for opportunities in our blooming regional banks than in a defaulting organization with all types of risks involved (Credit, political, currency risks to mention the least)…
Not trying to convince anyone to chicken out, but i think its more mature to look for investments that you can regularly monitor rather than placing a bet on German generosity.
[Reply]
Keynesian Reply:
April 29th, 2010 at 6:01 pm
As of now, NBG is up 25% since I recommended it 2 days ago. If you annualize that return, you would rack in 4575%! Not bad ;P
Jokes aside, every risk has a price and everything is a matter of risk vs return. Part of any diversified portfolio is a range of equities: some risky, others not. I wouldn’t place all my money in NBG. My recommendation tries to capitalize on an arbitrage opportunity. I would never own a huge chunk of NBG, but a nickel that could turn into a dollar.
It is also imperative to acknowledge that I’m recommending buying a stake in a greek bank, NOT buying greek bonds. Mind you, one that will generate 45% of its 2010 profits from Turkey but was down 70% in a few months.
[Reply]
Good call Keynesian!
Sounds like a “Fabulous Fab” kinda deal !!
[Reply]
Lets make the national bank of Greece and Boubyan bank more comparable, as in apples to apples. What is NBG’s ROE?
[Reply]
online gambling ireland…
[...]Go Greek: Buy the National Bank of GREECE « Alpha Dinar- talking Gulf finance[...]…