Whether International Banks Are Worth The Gamble

by: Brian Gorban

It has been no secret at all that economies world-wide are pretty much either in a recession or experiencing a serious decline in growth. Among the worse areas has been Europe with Greece leading the charge. However, many times this is when stocks trade at prices five years later we kick ourselves saying why didn't we just pull the trigger. Are these stocks to buy now?

1. National Bank of Greece (NBG) is one of the largest banks headquartered in what is now the country with the lowest credit rating unfortunately. This stock is trading at under $1/share, a far cry from the nearly $14/share they fetched in the beginning of 2008 and $8/share towards the end of 2009 when news started to surface about Greece's potential insolvency. It's fellow counterpart, Alpha Bank (OTCPK:ALBKY), also has a similar dismal chart and while these seem to have some value, they seem to be more for the speculator. National Bank trades at about .3x price/book, while Alpha trades .25x price/book, which would have a lot of value investors jumping in as a bank's book value is usually a strong indicator of its net proceeds in the case they were to go into a liquidation. However, as is most things happening with Greece recently, this is the unusual where one has to strongly question the true value of their assets as it seems that everyday people are having less and less value in Greek-denominated assets which these two banks hold a lot of. It's true that these don't have much more to go down, but it doesn't matter if you buy a stock at $1,000 or $1/share when it hits zero, since a 100% loss is a 100% loss. I can very well be wrong as we saw National Bank have a 30% one-day pop on August 29th, but it has since given up all those gains and then some. I can't place a value on these two banks and when that's the case, I simply look for the next pitch.

2. Banco Santader (STD) seems to be more appealing as while Spain is in bad shape, it's not nearly as bad as Greece, and more importantly, this bank is well-diversified world-wide, particularly in Latin America. The stock is trading at less than .5x price/book, 7x price/earnings, and just over 1x price/sales. Add in the nearly 8% dividend yield, I think this stock is a buy here at $7.50/share.

3. Banco Bilbao Vizcaya Agentaria (NYSE:BBVA) is another massive Spanish bank with over $22 billion in revenues. The valuation looks nice as well trading at .7x price/book, under 5.5x price/earnings, and a little rich at 1.5x price/sales. It's understandable though how this is trading at a premium compared to Banco Santader as this company has considerably higher operating margins at 39% against 34% and higher returns of equity of 14% against 10%. They have a respectable 6% dividend yield as well and coincidentally this stock is trading at the same share price and I think a buy at $7.50/share as well. Wouldn't be a bad move to split your position in half with between these two Spanish banks and get free diversification.

4. Banco Macro of Argentina (NYSE:BMA) moves us to the less depressed South America region. this bank is far smaller at right about $1 billion in revenue, but the valuation metrics look compelling as it trades just over 5x price/earnings, a very healthy return on equity over 27% and profit margin almost at 30%, and most eye-popping a 9% dividend yield. What's best is that it's payout ratio is just under 50%, leading me to believe it's not only secure, but the management will continue to raise its annual dividend. It just hit its 52-week low here and looks as though this gem is just being pulled down with the other banks. I think it's a buy here at $21.50.

5. Itau Unibanco of Brazil (NYSE:ITUB) is a financial behemoth in South America with over $35 billion in revenues. This country is one of the strongest financially and has this company benefiting. It trades for just under 9x price/earnings, sports a nice return on equity of over 23% and profit margins of almost 24%, however it trades at a rather expensive 2x price/book and a miniscule .5% dividend yield. With these other banks above trading for much less and far higher dividend yields, I don't see a reason to jump into this bank at $16.50/share. In fact, I'd rather have Citigroup (NYSE:C), even though it has a tiny .1% yield, as it trades under .5x price/book, about 8x price/earnings, and a fantastic CEO in Vikram Pandit who has done well in cleaning up the balance sheet. It's a buy here for the long-term at $26.50/share as John Paulson, Bill Ackman, and other very astute investors continue to load more.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in STD, BMA, C over the next 72 hours.