Judging Greek equities’ rise today (+3.4%) and in the last four sessions (+8.1%) we understand investors are optimistic that Greece will soon (within May) strike a deal with its creditors and avoid defaulting on its payments; If this is the case then Greek stocks and especially banks, which are down by more than 60% in the last 6 months (vs. 34% for ASE Index), are up for a rally; actually it has already started with banks up 27% if we count today’s +8.0% rise. Fast money will have a stroll but we cannot say the same for long-term oriented investors – not until we see tangible signs of reforms implementation and normalization; Greek Banks face so many issues (DTC; liquidity; quality; growth) and 2015 seems to be a ‘’lost’’ year. From a fundamental point of view we will continue to avoid the sector.

We downgrade 2016 sector earnings estimates by 22% (now at E2.7bn) as we expect sovereign uncertainty to cast its shadow for the remaining of 2015, hindering liquidity, deposit rates, lending growth and overall economic growth prospects. Normalization has been pushed back with banks unable to resume their intermediary funding role, let alone generate decent RoTE anytime soon. We downgrade our rating on …to access this report contact@researchgreece.com

We cut our 2016E net income by 18% driven by Greek NII; sector trades 0.67x TBV 2016E and 6.2x P/E following recent sell-off, on 10.8% RoTE. We upgrade NBG on valuation grounds (PT at E2.5); superior PPP and implied RoTE; asset quality/coverage capacity; uncovered NPLs at 93% of TE (lowest among peers); biggest upside to PT as shares trade 0.59x TBV and 4.5x P/E 2016E; Greek business valued at 2.66x P/E 2016E at current prices and if assume 1.0x TBV 2014E for Finansbank and zero value for rest of SEE ops.

ECB/EBA AQR and stress tests; DTA conversion into DTC can be a real game-changer adding E10bn/+42%/+430bps to CET1 capital in Q2 FL B3 terms. Short term we expect equities to trade lower on volatility caused by politics, the risk of early elections and negotiations with the Troika over public debt. Long term we expect asset quality and write-offs to be the no.1 catalyst; our note attached includes our estimates over the DTC impact and our own AQR and stress test exercise; we downgrade Eurobank to DOI; estimates and price targets unchanged.

Net income at E164m in Q2 turning to losses of E384m (E331m in Q1) if we strip out various one-offs including additional DTA recognized; NII +4.4% qoq as NIM expanded +15bps at 2.7% but lower other income and higher costs pushed PPP -3.5% qoq ; NPL ratio at 38.5%or +60bps qoq (Greece 38.9%, +70bps) with coverage unchanged at 51%; CET1 transitional at 15.0% offering E5.7bn buffer against ECB adverse stress test threshold; we made small changes to our model;  PT and rating unchanged.