On Friday, National Bank of Greece (NBG) closed down 2.1% and finished the day at $11.42. It actually opened much lower at $11.30 and climbed back to $11.50 late in the day before some late selling brought it down to $11.42.
The cause? It was reported that Abdullah Gul of Turkey won the first round of the Turkish Presidential elections. Gul is from the Islamist Party in Turkey and that caused a great deal of political turmoil and concern, especially since Turkey has prospered primarily as a Secularist state. A good example of this is Gul's wife wears the traditional Muslim attire, which is banned in many places in Turkey. There was concern not only of this political change, but that Turkey's Army would come into play, as they have several times in the past, to maintain the Secularist control. This entire activity put the Turkish stock markets into an 8% dive and their currency into a 4% nosedive.
For NBG, this seems to be critical considering that they are counting on their acquisition in Turkey to help fuel their growth. Couple this with the NBG announcement that they will be selling up to 583,000 treasury shares of stock, and looks like an immediate sell, right?
First, let's look at the 583,000 share issuance. Dilution is never a great thing, but this issuance represents about 0.1% of the shares outstanding. This is not a big dilution at all - I bet there are more stock grants and options that are issued than that on an annual basis. Additionally, NBG said they will not sell the shares for less than 42.6 Euros, which equates to $11.67 per ADR when you take the currency exchange rate into effect. Yes, companies typically do not sell shares unless they feel they are overvalued, but I think this new issuance is not very dilutive. It may not be great news, but it certainly is not bad news.
Next, the more important event, the situation in Turkey. First, it is important to recognize that stock markets always tend to over-react to geo-political events. Take the recent 8% spike in oil prices during a 5 minute period when a rumor of a US/Iran military engagement came to light. There may be problems in Turkey, but the market has over-reacted to them. Barring some other form of geo-political disaster tomorrow, we should see an upward correction in the Turkish markets and NBG.
Also, the events in Turkey are not too surprising. The country's parliament, that directly elects the President is predominantly represented by the Islamist party. It should come as no surprise that this, at the very least, was not out of the realm of possibility when NBG decided to make a big investment in the country. In short, it may not be the best news for NBG (I am not convinced of this), but NBG likely had intelligent analysts, economists, and geo-political experts outlining various risk scenarios and possibilities. In short, it appears this event has been coming for a while, so it should not come as any surprise.
Gul has also expressed nothing but a desire for 'business as usual' in Turkey and his political career has shown that this is likely the case. Things might get more dramatic if the Turkish Army gets involved and tries to stop the transition, but that is unlikely. The Turkish Prime Minister has spoken the desire and demand to have unity during this time. Additionally, Gul is not an idiot - he knows what Turkey is and would be foolish to change things, especially since Turkey has prospered tremendously the past few years. I do not see that changing. Even if Gul does move towards something more Islamist in nature, it pleases Allah for Muslims to prosper in business and accumulate wealth.
Long story short, the fundamentals for NBG remain strong and nothing situationally has changed and I still see NBG doubling within the next 2-3 years and reaching the mid/high teens by the end of 2007.
Disclosure: Author is long NBG
NBG 1-yr chart