Shares in National Bank of Greece (NBG) are down 15% or so today, reportedly on news that the bank will sell a minority stake in its Turkish banking subsidiary, Finansbank, in order to shore up Finansbank's capital to meet Turkish regulatory requirements. The announcement comes on the heels of a €2.5 billion stock offering by NBG earlier this month which was also done to shore up NBG's own capital.
The Finansbank announcement was somewhat of a surprise (to me at least), because I thought that the bank would have used the proceeds from the earlier capital raise to inject capital into Finansbank. (It is possible that NBG's intentions were discussed in the prospectus for the recent share offering, which I have not seen, mostly because of NBG's policy to exclude U.S. investors from its public securities offerings.)
In any event, investors in NBG are now responding to the effects of two dilutive events: the early May offering and the proposed Finansbank share offering (which is expected to take place later this year). The Finansbank offering is also significant because Finansbank's profitability has offset losses in NBG's other operations in Greece and central Europe. After the Finansbank share offering, NBG investors will have a smaller interest in Finansbank's earnings.
Nevertheless, taken together, the new equity will clearly give NBG a much stronger capital base, which should give it a greater ability to weather future economic turbulence. While dilution does matter, the ultimate recoveries for NBG shareholders will almost certainly depend more on the bank's ability to return to profitability, which in turn depends upon the ability of the Greek economy to recover. Those prospects did not change today and while there are still significant challenges ahead, NBG's shares (like the rest of the Greek banks) still have significant upside potential.
Disclosure: I am long NBG.