In this note we are addressing the main themes surrounding Greek Banks. Part of the note is in Q&A form. Themes include new lending, DTA, interest rates and valuation. We present our estimates for 2022-2024 in the spreadsheet attached.
The power of momentum. What GR banks lack in mass, they make up for in velocity. They have stormed into 2022, with their share prices up by an average 25% YTD. Out of all the possible reasons why, none is more convincing to us than their low P/TBV multiples at the end of 2021 and the so-called ‘January effect’. The fact they are all up by the same rate, implies they are treated like a single investment case.

This note is about investing, not trading or event-driven ideas. We believe our OI rated stocks will outperform the market on a risk-adjusted basis in the next 12-18 months. We recommend you own OPAP, Jumbo, PPC, Alpha Bank and ADMIE. We downgrade OTE given it is trading at our target price. We assume the pandemic will be less of a risk; we consider the end of free money and elevated costs and reiterate cash flow conversion as our #1 criterion.

What’s new? Alpha Bank was the last GR bank to report Q3 results yesterday. General picture: Banks are doing a good job with NPEs, which are going down (securitized) fast, while new NPEs are negligible. Normalizing CoR drove annualized pre-tax RoTE at 8%. However, a good part of pre-tax income reflects NPE and TLTRO income, to go missing in 2022. Loan balances are not moving despite gross disbursements (banks blame repayments) and DTA weight on TBV and CET1 continues to look bad. The recent Covid-Omicron-variant correction means banks are now trading 0.44x TBV 2022 with Eurobank (0.60x) and Piraeus (0.31x) standing out. Eurobank thanks to foreign earnings contribution and Piraeus due to weak CET1 (in our view). Banks insist on reinstating dividends. We consider this quite tricky, given the large amounts of DTA and state guarantees. New loans remains the real catalyst, in our view.

With Eurobank we round up the Q2 results season, which as we wrote in our most recent RG Banking Blog, held zero surprises compared to Q1 when it comes to the fundamental story of the sector. Most notable points include stronger fees driven by credit cards (pandemic) and asset management (churn from deposits). We will repeat our view that new lending is the single most important number to follow. Q2 was not the beginning of a surge in new loans. We count E1.5bn for the sector in Q2 with Eurobank close to zero. We are talking about net new loans, excluding refinancing. Business plan targets remained pretty much the same. There is a challenging task to replace NPE and TLTRO related income, with Eurobank being the least exposed with 18%/27% of clean NII/PPP against 33%/56% on average for the 4 banks. A good reason for this has to do with contribution from foreign operations.

The next time you feel like mocking equity analysts on the ambiguous and/or arbitrary valuation assumptions backing their stock recommendations, do yourself a favor and go through the equity valuation of Cairo Mezz (CM) and Phoenix Vega Mezz (PVM) performed by Big 4 accounting/consulting firms. In the context of NPE securitizations, Eurobank and Piraeus Bank (respectively) established entities with the objective to hold mezzanine and junior notes that were not sold to third parties; they distributed the shares of these entities to their shareholders for free; and they floated them into the Greek stock market. Following PVM’s recent floating, investors asked our opinion about these entities and what we believe their worth is. Our view is they are not worth much (if anything at all). Investors should treat them as highly speculative trades. CM trades 0.64x TBV while PVM trades 0.82x TBV; the former at par with Eurobank’s own P/TBV; the latter at a huge premium to Piraeus P/TBV. We find this simply inconceivable.