National Bank Of Greece Preferreds: The Devil We Know

| About: NATL BK (NBGGY)
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The epic fall of the stock market of Greece, represented by the Athens Stock Exchange General Index, must be one of the most spectacular stock market collapses in modern history, rivaling even that of the Great Depression. To see what's in store for the future of Greece's stock market, It is probably instructive to look back at past market crashes in various countries and in this respect, the longer term prognosis is good. Generally, by and large, while individual stocks can go bust, entire countries and economies usually recover.

Of course, looking at the Greek economy now, there is still little to suggest that recovery is imminent. Indeed, the data indicates that the GDP contracted severely, and there is little hope for recovery until at least 2013. However, GDP is a lagging indicator and it is unlikely to show any improvement until recovery is well underway.

As it stands now, Greece has been in recession for 5 years already and is clearly in contention as one of the longest recessions in history. At this point, I would like to suggest that the Greek stocks have bottomed or at least are very close to one. As the birthplace of democracy, I have great faith that the people of Greece will finally make it through and sort out their numerous current (and future) problems and return the country to a growth path again.

There are many ways to go if one has a positive view of the Greece stock market. A good way may be to buy shares of the Greece 20 ETF (NYSE: GREK) which was recently launched. However, I have not done much research on this ETF and would welcome any information or comments on this ETF. Most of the time, however, I am skeptical of any kind of (new) structured/packaged product and would prefer to own individual securities with a longer listed history instead, figuring that it is probably better to go with the "devil you know."

National Bank of Greece

I believe that the National Bank of Greece (NBG), being the oldest bank in Greece, will finally weather the storm and survive this crisis. However, I am wary of owning its common shares, fearing that in a recapitalization exercise, common stockholders will be diluted to oblivion. Therefore, I feel a better way is to own its preferred shares, listed as NBG-PA in the NYSE. This security's dividend has been suspended for quite a long time already and is currently selling at about $6, far below the par value of $25.

The low for NBG-PA is just above $3, and in the past months the price trend has been in a firm uptrend. This is likely due to the fact that other preferred securities of similar seniority had been the subject of a tender offer by NBG. Notwithstanding this, a tender offer for these preferreds does not seem likely because dividends on these preferreds are not compulsory and non-cumulative. The advantage of these preferreds however, is that these are less likely to be diluted like the common stock can. Thus, I believe they are an interesting speculation.

In addition, the tender offer allows us a glimpse into what the bank thinks these securities are possibly worth. Even at 45% of par, these securities are worth at least $11.

Interestingly, the widely anticipated sale of Finansbank is not going ahead. How NBG is going to plug the big capital hole created by the huge haircut of its holdings of Greek government debt is anyone's guess but the fact that they had said they would not sell Finansbank suggests to me that they may have something up their sleeve. In any case, it seems that NBG is not as desperate as widely believed and will likely survive. In this scenario, these preferreds will likely be worth something in a couple of years.

Disclosure: I have bought NBG-PA all the way from $9 to the current level.