Greek Banks Get Upgrade As Big Hedge Funds Pile In

Greek Banks

Greek banks, the subject of long interest from the likes of hedge fund managers David Einhorn, Seth Klarman, Prem Watsa and John Paulson, now have “attractive valuations” amid a recovering Greek economy says equity research from Euroxx Securities.

“Grecovery” is real, say analysts

On May 19 the firm upgraded its view on the sector to overweight, citing the “Grecovery and beyond.” Specifically the research report recommended Alpha Bank A.E. (ADR) (OTCMKTS:ALBKY), National Bank of Greece (ADR) (NYSE:NBG) and Piraeus Bank SA (OTCMKTS:BPIRY) due to “increased visibility” into the Mediterranean country’s recovery, the successful recapitalization of the banks from the private sector, as opposed to government bailouts, and “higher earnings visibility” with a  compounded annual growth rate near 29 percent.  This growth is expected to be driven by lower funding and time deposit costs, with expense reductions from mergers hitting the bottom line in 2015, the report noted.

Greek Banks

“The improving macro and financial environment together with the renewed trust in the Greek economy has generated strong appetite for Greek assets,” the report said.  As a result, banks covered by Euroxx regained access to the debt capital markets for the first time since 2009, as witnessed in March-April 2014 by the two bond issuances of Piraeus (€500m, 3YR, 5.125% yield) and NBG (€750m, 5YR, 4.5% yield) and reduced their reliance on central bank funding.

Value investors find reasons to buy Greek banks

The report noted that the Greek banks trade near a scant 1 times their 2014 earnings estimates and trade at a discount to their European peers despite their strong capitalization. The Euroxx report particularly cited an increase in 2016 earnings per share increase in Alpha Bank A.E. (ADR) (OTCMKTS:ALBKY) and Piraeus Bank SA (OTCMKTS:BPIRY) by 11 percent to 28 percent, with Piraeus potentially benefiting most due to its size. A mitigating factor could be the Greek political situation.

Greek banks 2

As reported in ValueWalk, Seth Klarman, fund manager at Baupost, is bullish on the Greek economy and has benefited from investments in banks, Greek bonds and various private loans.

John Paulson’s Paulson & Co., recently acquired a 5.4% stake in Alpha Bank with a market value of $565 million as of May 6.  As previously reported in ValueWalk, buyers of Greek banks include, Daniel Loeb’s Third Point LLC, QVT Financial, Dromeus , Farallon Capital and York Capital Management. Jon Bauer’s Contrarian Capital gained long exposure to the National Bank of Greece (NYSE:NBG) in the the third quarter last year.

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About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com

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