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National Bank of Greece Is a Favorite of Analysts (Update1)
May 03, 2010, 4:33 AM EDT
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(Updates with share move in second, sixth paragraphs.)
By Niklas Magnusson
May 3 (Bloomberg) -- National Bank of Greece SA, the worst performer on Bloomberg’s index of European financial stocks this year, is a favorite of analysts, who say those betting on a Greek default have got it wrong.
National Bank rose 24 percent in three days last week as the European Union and International Monetary Fund worked out a 110 billion-euro ($146 billion) rescue for Greece, and gained as much as 5.8 percent in Athens trading today. Yesterday, officials said the bailout would include a 10 billion-euro fund to make sure Greek banks stay adequately capitalized.
“Greece won’t default on its debt, not at all, and while Greek bonds and stocks have been hammered, the banks can recover,” said Vassilios Vlastarakis, an analyst at Beta Securities in Athens who rates National Bank “overweight.” “Greek banking stocks will thrive over the next two to three years.”
National Bank received “buy” ratings from 68 percent of analysts since the start of 2010, data compiled by Bloomberg show, even as the stock fell 32 percent in Athens trading through the end of last week. Only five of the 52 companies on the Bloomberg Europe Banks and Financial Services Index got higher marks.
Beta predicts National Bank will climb to 19 euros from 12.35 euros, where it closed in Athens trading on April 30. Should bad loans show a larger increase than Beta estimates in the first quarter, the broker may cut its rating to “equal- weight,” Vlastarakis said.
Turkish Profits
The stock was up 20 cents, or 0.7 percent, to 12.44 euros by 10:14 a.m. National Bank trades at 0.84 times book value, compared with 1.16 times for Oslo-based DnB NOR ASA, the European bank rated highest by analysts, and 0.96 times for the Bloomberg Europe banking index.
Greece’s largest bank may weather the crisis in part because of its unit in Turkey, which accounted for 46 percent of the Athens-based company’s profit in 2009. While National Bank had a net loss of 194 million euros in Greece in the fourth quarter, earnings in Turkey amounted to 93 million euros. The Turkish unit is its “most valuable asset right now,” Vlastarakis said.
Nikos Koskoletos, an analyst at EFG Eurobank Ergasias SA, raised his rating on National Bank to “buy” from “hold” on April 21, saying in a note to clients that the bank’s liquidity and margins will underpin its profit before provisions. Eurobank has a 17.9-euro share-price estimate on National Bank.
Cut to Junk
Founded in 1841, the company operates in Turkey through its Finansbank unit, and also has units in Albania, Bulgaria, Cyprus, Egypt, Romania and Serbia.
An “extended geographic footprint outside Greece is also deemed as positive,” Koskoletos said in the note.
Standard & Poor’s lowered Greece’s credit rating below investment grade on April 27, and cut National Bank, EFG Eurobank, Alpha Bank and Piraeus Bank SA to junk as well. The rating company said the banks are at risk because of their holdings of government bonds. Asset quality and profitability will remain under pressure as the economy shrinks and drives up loan losses, S&P said.
The extra yield that investors demand to hold Greek debt over German bunds surged to 826 basis points on April 28 after the S&P rating cut. It eased to 594 points on April 30 as signs of an agreement emerged. The Portuguese spread jumped to the most since at least 1997 last week and the premium on Spain climbed to the highest since March 2009.
European policymakers are trying to avoid a Greek debt restructuring and stamp out signs of a contagion.
Bank Support Fund
The Greek bailout includes a support fund for domestic banks, which are likely to face mounting bad loans as the economy contracts, officials from the EU and IMF said yesterday.
The objective “will be to ensure that the Greek banks are well capitalized at all times,” Servaas Deroose, deputy director general of the European Commission’s economic and financial affairs department, said yesterday.
“The Greek banking system is actually quite well capitalized,” said Poul Thomsen, the IMF European Department deputy director. “But clearly, with this dramatic program, the contraction in nominal GDP, we do expect to see an increase in non-performing loans.”
The bailout will give Greece time to fix its budget before returning to the market to borrow, which it wants to do “as soon as possible,” Finance Minister George Papaconstantinou said in Athens yesterday.
Greece’s fiscal deficit stood at 13.6 percent of gross domestic product last year, the EU’s statistics office said last week, higher than the government’s April 7 estimate of 12.9 percent. Greece agreed to budget cuts of 30 billion euros, or 13 percent of GDP, including wage reductions and a three-year freeze on pensions, Papaconstantinou said yesterday. Greece’s main sales tax rate will rise to 23 percent from 21 percent.
Of the 25 analysts covering National Bank, 17 have “buy” ratings, four advise holding the stock and four counsel selling. The company had a fourth-quarter net loss of 87 million euros on higher loan-loss provisions.
--With assistance from Maria Petrakis in Athens. Editors: Frank Connelly, Stephen Taylor
National Bank of Greece Is a Favorite of Analysts (Update1) - BusinessWeek
