Finding Opportunities in Foreign Bank ADRs

by: David Hunkar

Some of the large foreign banks are listed as sponsored ADRs on the OTC markets. Though their trading volume is low on a daily basis and are not followed by many analysts, investors can find a few investment opportunities in them. For example, two of the large French banks Societe Generale (OTCPK:SCGLY) and BNP Paribas (OTCQX:BNPQY) trade on the OTC markets.

Erste bank (OTCPK:EBKDY) of Austria received a government bailout in 2008 by issuing non-voting securities which were non-dilutive to existing shareholders. The bank followed that by raising additional capital last year to shore up its balance sheet. Last year Erste bank shares rallied strongly from a low of $4 to reach about $19. Despite this increase, the stock holds upside potential as all the bad news is already priced in and the bank has strong franchises in Austria and Central and Eastern Europe. As of September 2009 the Tier 1 ratio stood at 8.3% above the minimum requirement of 8%. Unlike its competitor, Raiffeisen (OTC:RAIFF), it does not have heavy exposure to the former Soviet republics such as Ukraine. However a few Austrian banks are still suffering from losses to their exposure to Eastern Europe. Last month Austria nationalized Hypo Group Alpe Adria, its sixth-biggest lender due to heavy losses in Eastern Europe.

The complete list of foreign bank stocks listed on the OTC markets:

Company Ticker Dividend Yield as of Dec 31,2009 Country Returns in 2009
Australia and New Zealand Banking OTCPK:ANZBY 4.82% Australia 99.50%
BNP Paribas BNPQY.PK 1.72% France 94.90%
Commerzbank OTCPK:CRZBY n/a Germany -13.00%
DBS Holdings OTCPK:DBSDY 3.67% Singapore 69.60%
Erste Group Bank EBKDY.PK 2.40% Austria 68.60%
National Australia Bank OTCPK:NABZY 5.27% Australia 74.20%
Societe Generale SCGLY.PK 2.37% France 49.20%
Swedbank OTCPK:SWDBY n/a Sweden 117.80%
United Overseas Bank OTCPK:UOVEY 1.99% Singapore 59.60%

Singapore banks United Overseas Bank and DBS Holdings remained strong during the credit crisis and rebounded well last year. UOB’s Tier 1 Capital Adequacy ratio was 13.5% at the end September 2009. DBS Holdings continues to expand in emerging Asian countries. The Tier 1 Capital Adequacy ratio stood at 12.5% as of 3rd quarter 2009.