Deutsche Bank Cuts Target Prices For Greek Banks
Deutsche Bank remains neutral on Greek and Cypriot banks in a report dated August 24, while significantly cutting its target prices for the lenders.
The firm cuts its EPS by 67% in 2010E and 54% in 2011E or by 45-50%, excluding the windfall tax effect. It estimates that asset quality and capital adequacy will likely be the main focus areas and as it expects NPLs to peak in 2011E, the major challenge for the banks should be to stay profitable and safeguard their capital, in our view.
“Marginal liquidity is scarce – and provided only by the ECB – and the banks’ large exposure to Greece means that their creditworthiness is closely tied to the creditworthiness of the sovereign,” it says.
“We view macro conditions and asset quality as the main short-term risks (on either side), with wholesale access and capital adequacy as the main long-term challenges,” DB adds.
More specifically, the new price target for NBG is set at EUR11.80 from EUR21.80 EUR maintaining the ‘hold’ rating, for Alpha Bank to EUR5.30 from EUR9.20 (hold), for Eurobank to EUR5.60 from EUR7.50 euros (hold), for Piraeus Bank to EUR5 (hold), for Bank of Cyprus to EUR3.90 from EUR4.70 (hold), for Marfin Popular Bank to EUR1.90 from EUR2.70 (hold), and for ATEBank to EUR0.30 from EUR1.20
(Capital.gr)
Fitch:
New Greek Law on Household Debt to Front-Load Credit Issues
19 Aug 2010 9:29 AM (EDT)
Fitch Ratings-London-19 August 2010: Fitch Ratings says that the new law on household debt restructuring is likely to front-load defaults and reduce recoveries in pools of Greek residential mortgage and consumer credits.
The precise impact is yet unknown, but is expected to surpass loan restructuring schemes sponsored by Greek banks in recent months.The new law, effective from 1 September 2010, enables over-indebted borrowers to seek debt relief in front of a court. Its enactment follows a prolonged period of public consultation initiated in late 2009, on which Fitch publicly commented ('Fitch: Greek Draft Law Could Increase Loan Loss Severities & Defaults', dated 2 February 2010).
No major amendments were made to the final law compared to its draft version. The agency maintains its cautious view over certain legal provisions, particularly with regards to moral hazard and implementation risks.
In line with Fitch's initial expectations, Greek lenders have since tightened their loan underwriting procedures, effectively restraining credit flow to the economy. Meanwhile, they have also taken action to support debt-burdened borrowers, facilitating loan rescheduling and/or restructuring via designated self-sponsored schemes.
In the new context, consumer loans and high loan-to-value mortgages are the asset classes most at risk. "The new law effectively shifts negotiating power from the lender to the distressed borrower", says Alessandro Settepani, Senior Director in Fitch's Covered Bonds team in London.
"This alone will put pressure on recoveries from Greek loan portfolios, even in cases where the legal route is not eventually chosen by borrowers".
The enactment of the law could further affect the default timing distribution, bringing loan defaults forward. Fitch, however, expects default rates to stabilise again in the short-to-medium term, once the market has digested the new regime.
Positively, the agency notes the broad-based response from the financial sector over the last few months in the form of self-sponsored schemes. Such schemes have gone some way to alleviate the imminent credit pressure on Greek borrowers, pre-empting the new law to a certain extent.
"Compared with courts, lenders are better placed to assess credit, and increasingly willing to restructure loans on a case-by-case basis", says Spyros Michas, Associate Director in Fitch's Covered Bonds Team in London. "In a dysfunctional housing market, default is in nobody's interest".
Fitch received information from the major Greek banks with details on their individual loan restructuring initiatives. Whilst specific terms and eligibility criteria vary with lenders, volumes of restructured loans have invariably increased across the sector in recent months. This has so far left Greek securitisations and covered bonds largely unaffected, owing to active support by originators in the form of loan repurchases and substitutions.
Such mitigants are valid as long as the originator remains a going concern, but cannot be relied upon for higher rating scenarios. In Fitch's opinion, the new law is an explicit manifestation of the increased sovereign risk Greece has experienced, which is in part already addressed by rating caps applied across the universe of Greek programmes and transactions (for further details see 'Fitch Downgrades 17 Greek SF Transactions Following Sovereign Downgrade', dated 13 April 2010).
Fitch will monitor developments over the next few months closely, focusing on the pace of applications from borrowers, and, most importantly, how they are settled in front of the court. The latter will not only drive the loss severity of the affected loans, but will further determine the ongoing appetite of Greek borrowers to apply under the new provisions.
The new law on household debt restructuring is the latest in a series of government initiatives, including changes in the national credit bureau (Tiresias) and the ongoing suspension of auction proceedings. As the state intervention to private sector affairs in Greece intensifies, Fitch will evaluate the various measures on their own merits and inform its rating opinions accordingly.
