Seeking Alpha

Central bank: Greek lenders need to boost capital by €6.8B

  • National Bank of Greece (NBG -2.8%) - the country's biggest lender - has a shortfall of €2.18B, according to the Bank of Greece, while the 2nd largest, Piraeus Bank (BPIRY, BPIRF), needs to raise just €425M. Alpha Bank (ALBKF, ALBKY) needs to raise €262M.
  • Separately, Piraeus has plans to raise €1.75B to repay €750M of preferred shares and boost its ratios as non-performing loans stand at 36.6% of total loans.
  • Related ETF: GREK
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Comments (25)
  • DeepValueLover
    , contributor
    Comments (9135) | Send Message
     
    NBG can simply issue more debt.

     

    There is a worldwide shortage of yield and any new debt is snapped up rather quickly.

     

    The Deflationary SuperStorm continues...
    6 Mar 2014, 03:59 PM Reply Like
  • salvatort
    , contributor
    Comments (344) | Send Message
     
    What? This is an EQUITY shortfall. How can it be replaced with debt?
    6 Mar 2014, 04:44 PM Reply Like
  • Dmitry Kovalchuk
    , contributor
    Comments (383) | Send Message
     
    I've been long Piraeus Bank for a while. Looks like the results for Piraeus are butter than anticipated. I see an enormous potential for this stock.
    6 Mar 2014, 05:17 PM Reply Like
  • keithrmiller
    , contributor
    Comments (5) | Send Message
     
    I agree with mikdns. Don't own Piraeus, but all there Greek banks still standing are officially too big to fail. How do I buy Piraeus?
    6 Mar 2014, 09:03 PM Reply Like
  • Dean Plassaras
    , contributor
    Comments (102) | Send Message
     
    I am not sure you want to own Piraeus @ the moment. Their plan means dilution for existing stockholders.

     

    The way to think about it Pireaus is owned 15% by private equity (including future you) and 85% state. The state in order to discharge its holdings is using warrants (meaning options) whose exercise allows a holder to buy additional shares from the state (roughly 1 warrant gives you the right to buy 8 shares which the state owns @ predetermined prices). Each time the state allows the warrants to be exercised (every 6 months) a new batch of shares floods the market diluting existing shareholders.

     

    This move by Piraeus need to be watched closely because if Piraeus is successful in raising 1.7 Bil. euros it means all existing shareholders (state included) are diluted. So I am not quite sure what the plan is. Piraeus says that improving bond rates would allow it to float a new bond issue for 500 Mil. euros which is o.k. provided they get a good rate and could repay maturing obligations which are at higher rates.

     

    If you want to understand how warrants work then read this:

     

    http://bit.ly/1fKEWaP

     

    and also some planned changes:

     

    http://cnb.cx/1fKEZDq

     

    If you are still interested then look at ALBKY which the other stock other than NBG which could be found in OTC:

     

    http://bit.ly/1fKEZDr

     

    Hope this helps.

     

    P.S. As long as the state owns the great majority of Greek banks you have to be careful because the game favors the state. An 85% ownership by the state implies all Greek banks are practically nationalized. Each time the state attempts to sell a portion of its stake then existing shareholders would suffer a bit. You have to follow developments closely and for obvious reasons news are not exactly forthcoming.
    6 Mar 2014, 09:43 PM Reply Like
  • Dmitry Kovalchuk
    , contributor
    Comments (383) | Send Message
     
    I actually took part in the last capital increase and already hold those warrants that gave me more than 100% return so far. I will also take part in the next capital increase, if private investors get that option.

     

    In my opinion Piraeus is a good buy, because after the smoke settles it has high chances to become Greece's top bank. Greece cannot exist without banking system and during the crisis Piraeus has acquired operations of ATEbank, Geniki Bank, Bank of Cyprus, Cyprus Popular Bank and Hellenic Bank. It also has a strong presence in eastern Europe.

     

    Though I understand that it might take longer than expected to get there.
    7 Mar 2014, 03:20 AM Reply Like
  • Dean Plassaras
    , contributor
    Comments (102) | Send Message
     
    You may consider not which will be the biggest bank rather which one would be the most profitable.

     

    Looking at one year performance of Piraeus the one year return showed in this snapshot is about 10%:

     

    http://bloom.bg/1geyhke

     

    On the other hand the return over the same period for Alpha Bank is 134%:

     

    http://bloom.bg/1geyhAs

     

    I am not sure how the warrants pricing works (you said 100%+ return in your case) but a Greek article here suggests that the warrant value might be negatively affected (use your Google translator). It suggests a warrants value close to zero for Piraeus which I find a bit alarmist but here it is:

     

    http://bit.ly/1geyhAu-στα-1,71-ευρώ-η-τιμή-...
    7 Mar 2014, 07:27 AM Reply Like
  • Dmitry Kovalchuk
    , contributor
    Comments (383) | Send Message
     
    That warrant can be either traded on Athens stock exchange or in Frankfurt.
    http://bit.ly/1igJvqJ;indicatorsBelowChart=

     

    Here you can see the development of the price since inception. If I sell it today, together with my Pireaus position, I would be around 110%.

     

    Here you will find the official information on how these warrants work:
    http://bit.ly/1igJt24~/media/Com/Downloads/...

     

    As for Alpha, I think it has indeed greatly outperformed Piraeus within the last year, but as we all know it is not an indication for future performance. I actually think that the fact that Piraeus has underperformed ATHEX 20 makes it even more attractive buy as of today.

     

    For Banks size do matter, I expect Piraeus to outperform the broad Greek market, after Greece economy stabilizes little bit more.
    7 Mar 2014, 08:18 AM Reply Like
  • Dean Plassaras
    , contributor
    Comments (102) | Send Message
     
    If you think that the last year performance is not a good indicator then please feel free to compare the relative performance of the 3 major Greek banks (Piraeus, National, Alpha) for the last 5 years. The picture is the same as far as which is outperforming the peer group.

     

    Regarding warrants of course you understand this is a derivative and as such is not indicative of intrinsic value.

     

    When you say I am long Bank X, most people assume you are long the bank stock. Options and derivatives are a completely different play.

     

    If you want to make the case for Piraeus go ahead but focus on the equity side rather than an option play.

     

    Keep in mind that the Greek government, which owns the majority of Greek bank stocks, considers the warrants an obstacle to speedier privatization. Therefore I will not be surprised if some of these warrants are somehow retired or exchanged. The warrants play is not something that it has worked well for the state because it impedes its objective of selling its shares using the fastest way possible and at the best price possible.

     

    The last thing you need as an investor is to be betting against the government or in this case getting in the way of government objectives.
    7 Mar 2014, 08:55 AM Reply Like
  • Dmitry Kovalchuk
    , contributor
    Comments (383) | Send Message
     
    I think you got me wrong. I got those warrants since I was holding the "old shares". The holders of the old shares, who decided to take part in capital increase, received both new stocks and the warrants. On the equity side I am up 10% (was 20% only a few days ago) and on the option side I am up 100%.
    7 Mar 2014, 09:01 AM Reply Like
  • Dean Plassaras
    , contributor
    Comments (102) | Send Message
     
    o.k.

     

    This is an example of what I mean. NBG Securities today says that the target price for Piraeus is 1.41 euro. Not sure if this is right but generally speaking issuance of new shares means dilution. This is why both Piraeus and Alpha stocks are down today. On the other hand NBG stock is up because they said that they will not be issuing new stock despite the fact they have a 2.5 Bil. euro funding gap. The decision not to issue new stock supports value for the existing investors.

     

    So when we say that Piraeus and Alpha have a good future let's make sure we understand that such point of view is primarily from the state's perspective. If these 2 banks are raising private capital which dilutes current holders it's bad for existing investors but it's good for the government because it means that that the government gets to keep the recapitalization cushion of 14 Bil. euros and only use some of it in recapitalizing Eurobank which now needs almost 3 Bil. euros.

     

    http://bit.ly1dz4zsTτεχνική-ανάλ...

     

    Regarding the warrants as you can see today they are down by 7% or so for Piraeus while the stock price is down only by 1.5%. Therefore the warrants side is the riskier side.
    7 Mar 2014, 09:58 AM Reply Like
  • Dmitry Kovalchuk
    , contributor
    Comments (383) | Send Message
     
    Issuance of new shares in my opinion should always be analyzed in context of events. For example capital increase of my other holding "Thomas Cook", was perceived by investors as a positive event, because it helped to lessen the huge debt mountain of the company. This had a positive effect on the share price.

     

    Now lets see what Piraeus is aiming for with this capital increase:

     

    http://bit.ly/O1RMWi
    According to an official announcement, Piraeus Bank BoD decided to call an EGM on March 28 to approve a capital increase of up to Eur1.75 bn through a non pre-emptive issue of new common shares in cash and to give to the BoD the authorization to determine the timing, the specific terms of the issue and the size of the capital increase.

     

    The transaction is expected to be launched and completed in April. The issue is expected to be executed by means of a book building to institutional and selected investors abroad and a public offering in Greece. Piraeus will also consider the possibility of offering preferential allocations of new shares to existing shareholders and warrant holders, to the extent allowed by the regulatory framework.

     

    The capital issue is aimed at the following:

     

    a) meet the capital needs of Eur425 mn (Baseline) and Eur757 mn (Adverse);
    b) repay in full the Eur750 mn govt preference shares, subject to regulatory approvals;
    c) strengthen the bank΄s capital position, with a Basel III fully loaded pro-forma (for the capital increase and the repayment of prefs) end-2013 Core Tier I of c12%;
    d) facilitate access to the funding markets; and
    e) increase of the free float of the bank (from 19% currently).

     

    Moreover and according to an announcement, Piraeus Bank has mandated BNP Paribas, Credit Suisse, Deutsche Bank, Goldman Sachs and HSBC to arrange a series of fixed Income investor meetings in selected European cities commencing next week. A EUR senior unsecured transaction may follow, subject to market conditions.

     

    ______________________...

     

    As for Eurobank, I am sure it will be able to get either all 3 Bil. or at least 50% of it from institutional investors like european/american banks or hedge funds.
    7 Mar 2014, 10:12 AM Reply Like
  • Dean Plassaras
    , contributor
    Comments (102) | Send Message
     
    IMHO, when Piraeus says that they will increase their float from current 19% to say 35% it means only one thing: share price will go down. Law of economics: too many shares chasing too few capital.

     

    My personal view is that we have a deception play here. The main purpose of the new share issuance is the retiring of the Eur750 mn govt preference shares. Both Piraeus and Alpha (I think in their case close to 900+mn) tried to extend the maturity date for such preferred shares but the state was unwilling (perhaps due to Troika issues).

     

    So instead of revealing the true purpose of this forced move by the 2 banks some in the press are trying to recast it as a show of strength. It clearly is not as evidenced by the stock price reaction.

     

    Also keep in mind that the Tier I core for European banks is suggested at 6% which means that both Piraeus and Alpha (with Tier I closer to 12%) are overcapitalized. So, there is another game played here which I am not sure is easily understood. I for one could hardly scratch the surface and I would welcome anyone with better insights to share.

     

    http://bloom.bg/1htZOkF
    7 Mar 2014, 10:26 AM Reply Like
  • Dmitry Kovalchuk
    , contributor
    Comments (383) | Send Message
     
    You might be right about the increase of the free float on the other hand it might mean that the stock will become more liquid.I think that investors will appreciate the fact that the preference shares will be gone, because normally preference shares have negative impact on the normal shares. By the way do you have any information on the rights attached to those preference shares?Generally I think the sooner the bank get rids of the government holding the betterit is for the share holders.
    7 Mar 2014, 10:41 AM Reply Like
  • salvatort
    , contributor
    Comments (344) | Send Message
     
    While I agree with you that the new capital infusion will cause dilution, and that is why I still detest Greek banks (except for Aplha), the warrants give you there right to purchase shares from the Stability Mechanism, so no new shares are issued. Dilution depends on the shares outstanding, not the free float.
    7 Mar 2014, 11:29 AM Reply Like
  • Dean Plassaras
    , contributor
    Comments (102) | Send Message
     
    I generally agree as to Alpha being the best of the lot.

     

    What we mean by float is that each time warrants are exercised for actual shares owned by the state (Stability Mechanism) the number of stock under circulation increases, hence the float increase.
    7 Mar 2014, 11:52 AM Reply Like
  • Dean Plassaras
    , contributor
    Comments (102) | Send Message
     
    I don't have access to it but I could try. My vague recollection is that the preferred was at 9%. The Merrill Lynch report below says that Greek banks hold the preferred at 0% cost (which is a surprise to me).

     

    Merrill Lynch actually says that such moves were unnecessary. It projects the biggest price winner to be NBG @ 25%, Alpha @ 12% and Pireaus @ 2% or so:

     

    http://bit.ly/1kCJ7Yu
    7 Mar 2014, 12:00 PM Reply Like
  • salvatort
    , contributor
    Comments (344) | Send Message
     
    Yes. but how does that dilute shareholders? It doesn't.
    7 Mar 2014, 12:00 PM Reply Like
  • Dean Plassaras
    , contributor
    Comments (102) | Send Message
     
    Think of it this way.

     

    Every six months warrants can be exercised for additional shares.

     

    So say for example the pre-warrant exercise float (shares in circulation) is 10 Mil. shares (hypothetical). Post-exercise the number of available shares for trading assume goes to 20 Mil. So now you have double the number of shares competing for the same investment capital. The result is pressure on the price of the stock which means the stock price goes down.

     

    The state which just sold the new shares received new revenue and lets the market participants sort it out. The warrants exercise is not good for the existing investor. It might be good for the new investor (maybe) and/or the state but certainly not good for the existing investor.

     

    The state has already realized this design flaw and they want to capture most of the warrants in circulation in exchange for new shares. I am not sure if the state has the money to do so (obviously Troika says no) hence this new scheme of asking banks to go for capital increases which might repay the state at least for the outstanding preferred.
    7 Mar 2014, 12:45 PM Reply Like
  • salvatort
    , contributor
    Comments (344) | Send Message
     
    The number of shares in circulation has nothing to do with the % you own. You were entitled to an X% of the company's net income, and you will continue to be entitled to the same percentage. Dilution exists only if the total shares increase (if the warrants required new shares to be issued), so you would end up with Y<X %. a
    7 Mar 2014, 01:04 PM Reply Like
  • Dean Plassaras
    , contributor
    Comments (102) | Send Message
     
    Yes but now you own only 15% of the Greek banking sector (in private hands). The other 85% is owned by the state.

     

    The warrants are nothing more than a mechanism of transferring ownership from the state to private hands. Each time a transfer occurs the private % owned increases. This alone has the same effect as dilution because it causes the share price to go down.

     

    The message I am trying to get across to you is that with the way things are at the moment with Greek banks a typical investor faces 2 dilutions. One possible dilution through issue of new shares and a second certain dilution as the state off loads its shares gradually into the Athens Stock Exchange.
    7 Mar 2014, 01:41 PM Reply Like
  • Dean Plassaras
    , contributor
    Comments (102) | Send Message
     
    Also:

     

    http://bloom.bg/NDozkx
    6 Mar 2014, 10:49 PM Reply Like
  • Dmitry Kovalchuk
    , contributor
    Comments (383) | Send Message
     
    http://bit.ly/1qf1CTw

     

    Bennett got into Piraeus Bank recently.
    7 Mar 2014, 08:51 AM Reply Like
  • Dmitry Kovalchuk
    , contributor
    Comments (383) | Send Message
     
    Greece's Alpha plans $1.66 billion capital increase, underwritten by bookrunners

     

    http://reut.rs/1eb7dSg
    7 Mar 2014, 06:47 PM Reply Like
  • Barron 123
    , contributor
    Comments (8) | Send Message
     
    Thanks for the very informative discussion here,i am a holder of alpha banks stock. My question is does anyone see a reverse stock split ,in there furture? I also hold nbg(national bank of greece) stock ,and the did a reverse stock split last year,thanks for any replys.
    9 Mar 2014, 10:28 AM Reply Like
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