National Bank of Greece (NBG) was down over 12% in Athens yesterday, after the announcement that the bank will be proceeding with plans to raise 2.5 billion euros (~ $3.45 billion). This despite the original plan of the bank not to resort to a new capital increase (and issue shares), but instead use other means at its disposal, to raise the required funds as per the BlackRock asset quality review of the Greek banking system. Obviously whatever was on its mind to raise these funds did not ferment.
While we do not yet know the price that the shares will be offered at, speculation here in Athens is that the offering will be priced between 2.70 - 3.3 euros per share. My estimates are that the new shareholders will probably get about 37% of the bank - which also means that older shareholders will be diluted by the same percent.
Obviously, this is not good news for current shareholders. But the question is, should current investors participate in this new offering?
The last time I reviewed the bank I told you not to buy the stock (Why You Should Not Buy National Bank Of Greece). In addition to all the reasons stated in that article, however, this time we also have the BlackRock review to consider.
The capital shortfall that the bank has to replenish is based on the baseline scenario of the BlackRock report. Below are some of the parameters of the report.
As you can see, in order for the baseline (or base case, as per the report) scenario to hold up, unemployment in Greece has to fall to 10% by 2023. Greece had 10% unemployment at the best of times. Being here on ground zero (Athens, Greece) I do not see that as a possibility.
Furthermore, the base case scenario calls for real estate prices to increase by 3.2% in 2018, up to 3% in 2013. With about 150,000 new unsold dwellings on the market today (and no one is sure how many older structures are on the market for sale), I doubt very much real estate prices will move up even the slightest for at least the next decade.
Also, the base case scenario calls for GDP to rise by about 3% on average from 2015 to 2023. Being on ground zero, I can tell you that with the exception Europe drops about 50 billion dollars on Greece in some form a of Marshall Plan, the growth projections in the report (as the base case scenario) is not going to happen.
I do not know if NBG will need another round of fundraising in the future, thus diluting shareholders once again; however, my opinion is that the base case scenario in the BlackRock report is simply too optimistic.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.