Reportedly, the government is considering applying a 10% consumption tax on KINO targeting >E200m in proceeds: the tax would raise cost per column by E0.05 yielding E225m on 4.5bn columns played in 2014; numbers do not add up (E2.01bn sales in 2014 imply 4.02bn columns played and not all sales are generated in Greece) but the ’message’ we believe is clear: OPAP looks like a sitting duck in the eyes of a Greek government struggling to balance its budget; we downgrade our rating to DOI; PT unchanged at E9.1 until visibility clears.

ECB CA 2015 results (AQR + 2.5YRS stress tests) revealed a capital shortfall of E4.4bn (baseline) and E14.4bn (adverse); hardly a surprise given latest speculation in the press and overall expectations; Alpha and Eurobank scored better and theoretically enjoy an easier task accessing private investors; their equity proposition at baseline (2017) 0.39x TBV/2.5x PPP and 0.31x TBV/1.7x PPP (post money) on our calculations compared with 0.66x TBV/3.2x PPP for NBG and 0.62x TBV/4.6x PPP for Piraeus (see details inside our research note); baseline P&Ls imply weak RoTE 2017 < 4% for either bank; next steps: a) banks will submit capital plans by Nov 6; b) GR government will announce CoCo portion and preferred stock treatment in HFSF injections; c) recap will take place by year-end (book-building process).

In this RG F4T we focus on the recapitalization of the Greek banks. Our aim is to outline the most important aspects of this process which authorities aim to complete by year-end and before the bail-in directive kicks in. As per most recent press stories the recap amount will not exceed E15bn – i.e. much lower than the E25bn reserved in the 3^rd bail-out, with banks seeking c. E5bn of private money. We are not happy with such an amount; we believe more funds would be needed to enjoy bigger chances of cleaning up bad loans -> lowering loan rates -> resume lending -> help Greece grow. Deposits would then return into the system. If press reports are right and banks raise E5bn of private money under baseline assumptions and the rest as contingent capital, this would actually turn to be an ‘important privatization’ by the Syriza-Independent Greeks coalition government, against their pre-election rhetoric. In the meantime we expect DTC and preference shares (NBG, Eurobank) will, at some point, backfire. Alpha Bank screens better than its peers, which was also the case in 2014 stress tests. All in, we fail to see how the no.1 problem of NPLs is addressed. We do not rate the banks. More to follow as stress test results are published this Saturday.

With this note we focus on the upcoming election (Greek roulette) and possible outcomes – provide our view on the banks – we screen our non-bank universe for FCF and earnings in 2017 and 2018. Election day, +1; Will ND and Syriza team up? If yes, the government commands … If they don’t team up – Syriza and or ND will join forces with … Our non-banks universe is hardly cheap… Two names screen better than most – If ND wins the election on Sunday we would also OWN two more…to access this report contact@researchgreece.com

Stress test assumptions have not been disclosed yet therefore we are assessing banks’ capital needs using our own AQR (NPE & Collaterals), PPP (mitigating) and DTC (cap % TBV) scenario. Alpha and National screen best (expected). We believe banks should exploit the full E25bn recap money as the second best thing to a bad bank that could bring normalization closer; adjustment program targets up to 2017 look more realistic than ever; a solid government coalition emerging from next week’s elections would be the best bet towards a sovereign recovery. We are not rating the banks.