Monday, November 23, 2015

Buy Greek Banks! Velly, velly cheep!

Macropolis published 2 very informative articles about what's happening in the current phase of recapitalizing the four large Greek banks (here and here). What really stands out is how cheap these banks really are!

One caveat: market capitalization (i. e. the total value a bank according to its share price in the stock market) does not mean that one can buy a bank at that price. On the contrary, a bank or company normally achieves a hefty premium over the stock price whan a large portion and/or majority is sold. On the other hand, there are cases where investors are only prepared to buy if a hefty discount is offered. The Greek banks are one such example; and an extreme example, at that!

Get this: the new private investors offered prices for the Greek banks with discounts over stock market ranging from 34% (Alpha) to 94% (NBG). These discounts are so unbelievable that I would consider them erroneous if the source of this information were not Manos Giakoumis of Macropolis.

Wonna buy a bank with over 80 BEUR in assets, almost 20.000 employees in over 1.000 branches and 5,7 million customers? Well, withdraw 177 MEUR (millions, not billions!) from your savings account and buy Piraeus Bank. Its market capitalization is 177 MEUR.

Correction! If you have more confidence in orderly bookkeeping and certified financial statements than in the Greek stock market, then you would have to come up with 6,7 BEUR (billions this time, not millions!) to buy Piraeus because that is what the bank is worth according to its financial statements per September 30, 2015.

Many banks 'sell below book' (i. e. their market capitalization is below equity book value) but to sell 97% below book is a rather unique situation. Particularly when it is a bank where bankruptcy can essentially be ruled out unless the entire state goes bankrupt and/or leaves the Euro. Hard to imagine a situation where investors won't make a good return on their investment: if you pay virtually nothing for an investment, even a small profit is a huge return!

In defence of the private investors: they deserve to make some good profits on Greek banks because they have taken enormous losses in the last 5 years. Life is unfair because the Greek state and European tax payers won't be so lucky: their original 25 BEUR (again billions, not millions!) capital investment in the Greek banks has been all but wiped out and they are only participating minimally in the current recapitalization. In short: the state got all the downside in exchange for very little of the upside potential.

I guess the moral of the story is: the all-important thing is to subsidize private investors because they can generate market confidence. But they will leave as soon as the next hurricane appears on the horizon whereas the state which foots their profits will stay around forever, with or without market confidence.


  1. "..a bank with over 80 BEUR in assets.."

    Does anybody actually believe that the assets of Greek banks are worth their book value? Imho they are worth not even one tenth of it.

    Like the real-estate market (and the Greek economy in general, including the crappy businesses that the Greek banks had financed so recklessly) the truth is that once financing from abroad came to a halt, their fundamental was exposed to be zero.

    Sad but true.

  2. Wired times...