Is the National Bank of Greece Worth the Risk?

| About: NATL BK (NBGGY)

The National Bank of Greece (NBG), like other Greek banks, has been in disfavor since the Greek debt crisis began. It’s common wisdom that private banks cannot prosper when their sovereign is bankrupt. (I wonder how that postulate would work should the US default on its bonds, but that’s another topic.)

First, some basic chart patterns. The stock has been traded on the NYSE as an ADR since 1999. The all-time low price, in 2003, was $1.14; the all-time high, in 2007, was $12.81. Like all banks stocks, it crashed badly in 2008, reaching a low in 2009 of $1.98 and roaring back to $8.37 later that year. Since then it’s all been downhill, closing Tuesday at $1.50. Quite a roller-coaster.

In its most recent financial statement, the bank concedes that 2011 will also be a difficult year for banking in Greece, as austerity measures further depress the local economy and international investors continue to avoid the country.

But looking at the bank’s actual performance, the stock seems exceedingly cheap. Although it booked a substantial loss for 2010, this was not due to the bank’s operations, which remain profitable, but to the billion-euro impairment charge on its government bonds and other downgraded assets -- and then another 800 million set aside for reserves and hedges.

Although the fiscal situation in Greece remains dire, the Bank has profitable subsidiaries in Turkey and other southeast-European countries. These subsidiaries held some 30% of the group’s loan portfolio and provided half the income for the corporation last year, and remain profitable even after impairments.

So, despite systemic problems, the bank is far from a basket case.

How much is the stock actually worth? I did a valuation comparison between NBG and 24 similar major bank stocks (using the screener on

Valuation measure /

Group median /


Forward P/E















By every measure (except trailing P/E), NBG is valued at a fraction of its peers.

Perhaps NBG holds some dubious assets on its books. Do you know American or other European banks that don’t? Have they written down the assets, reduced leverage, and increased reserves as much as NBG? Without doing a major research project (which is hardly possible, given the propensity of many banks to hide problematic assets off the balance sheet), I’m guessing that NBG’s book is nearly as safe as that of the average big bank. Its earnings may be less secure than those of, say, Deutsche Bank (NYSE:DB) or Bank of America (NYSE:BAC), but — considering that they are diversified across SE Europe and Turkey — how much less, really?

Of course, the value of a stock can’t simply be determined by such formulas; ultimately, stock is as valuable as the market makes it. So what’s the market perception here? Last Friday, there were headlines predicting that Greece would go bankrupt; NBG stock spiked down to 1.35 and closed at 1.40. Monday, S&P downgraded Greek debt to B from BB-; the stock price barely quivered. That outlook had already been priced in. Today, with vague talk of some debt relief, the stock rebounded to 1.50 (+7%). Imagine, then, what would happen if there was a real resolution, not just talk. Imagine if investors perceived Greece with the same sentiment they did in the fall of 2009, when the stock traded for $8.00 and more.

I conclude that the potential upside is well worth the risk.

Disclosure: I am long NBG.

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