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NBG: A Long-term Turnaround Opportunity That Just Kicked Into Gears

Report Summary

NYSE Symbol: NBG (National Bank of Greece)

Opinion: BUY (4)

Price as of 11/03/2013: $5.67/ADR


National Bank of Greece (NYSE: NBG), is a Greece-based financial institution which primarily offers a range of integrated financial services, including corporate and investment banking, retail banking (including mortgage lending), leasing, stock brokerage, asset management and venture capital, insurance, real estate and consulting services. The bank owns the largest national network of about 570 branches and 1,500 ATM throughout the country. After acquisitions in SE Europe and Eastern Mediterranean, the bank's network overseas includes 1,189 units. On February 20, 2013, the company acquired a 84.35% stake in Eurobank Ergasias SA. In September 2013, state-owned Hellenic Financial Stability Fund acquired an 84.39% interest in the company1.

From January 2008 to July 2013, NBG suffered from a 5-year long price drop from $135.90 to $3.05 primarily due to the subprime debt crisis in the international market and the aftermath in Greece economy. Nearly $320B market value was evaporated, but now there is a great opportunity to play a turnaround game after such distress.

Macro-Economic Context

Fitch just revised Spain's economic outlook from negative to stable, which means the fourth largest economy in Eurozone is straggling out of the recession2. And epicenter of the Eurozone crisis-Greece has already be stabilized for the previous 6 month2. OECD has forecasted Greece's 2014 GDP growth of -1.2%, which is the highest from 2009 and a huge leap from 2013's disappointing -4.8% recessions. Even with bumpy roads ahead, I believe that Greece is starting recovery of their negative growth for the last 7 years.

From the political perspective, the biggest barrier for economic recovery seems to be the lack of political determination and support from the people wherever in Europe or the U.S. No long ago, the political fight between republicans and democrats nearly sent the US economy over the fiscal cliff. Meanwhile in Europe, the German's tough request of austerity measures for Greek government and the incapability of keeping up the promise to its citizens drag projected recovery in Greece back to the recession from 2010 to 2012. Seeing the austerity not solving problems, Germany is back down and gives Greece the time to restructure the economy. And the social unrest becomes more and more controllable in 2013.

Overall, the Greek economy is on the right trajectory to recover despite of possible landmines in political unrest.

Can NBG go bankrupted?

The biggest concern about distressed stocks is the potential of bankruptcy. But I am not convinced that NBG will go bankrupted. Here is a list of reasons I say so.

First, NBG ranked No.1 in asset among Greek banks totaling €112B as of 09/30/2009. And its closest competitor EuroBank and Alpha only have €84B and €68B in asset3. Even after 5 year's turmoil, the market value of NBG is still $13.6B comparing to EuroBank's $9.0B and Alpha's $0.53B.

Secondly, NBG's business is intensively diversified. As mentioned above, NBG reaches a variety of segments of the financial services, such as corporate banking, investment banking, retail banking, stock brokerage, insurance, real estate. Meanwhile, it also expands into neighboring market such as Turkey through its subsidiaries.

Thirdly, from the operation perspective, NBG's revenue stream is stabilizing and earnings turned into positive territory. In 1Q and 2Q of 2013, NBG achieved revenues of $2.05B and $2.08B, which are 2.0% and 3.2% growth from 2012. And earnings numbers are even better. I would estimate the earnings in Fiscal year of 2013 to be in the range of $2.4-3.2 range based on $0.40 and $0.89 quarterly data in 1Q and 2Q 2013. And remember that, it was achieved with Greece's -4.8% economic recession in GDP.

Fourthly, the management adopted a good strategy against the market recession. Rather than cutting down the size to save expense, NBG actually actively acquired its competitor Eurobank's and some state-own financial institutions in the last 12 month to stay on top of the game. Such smart acquisition utilized the undervalued market price of each asset, and I have reasons to believe NBG is the most adequate acquirer to integrate all purchased business into its own. When the economy goes back on track again, these acquired assets will result in a significant gain.

With all above being said, NBG won't go bust. Quite contrary, it positioned itself in a dominate place in national market and start to have a healthy balance sheet; the management is doing everything right to ensure its future growth when the economy is stabilized.

A historic comparison of U.S. market amidst the 2008 Financial Crisis

Just as U.S. straggling its way out of the 2008 global financial crisis, there will be a way out of the Eurozone crisis. But much can be learned from the U.S. equity market during that period. Let's take Bank of America (NYSE:BAC) as an example. BAC had a price range of $46-52 per share before 2008 crisis and was blew to $3.14 in 2009. With a reassuring -0.08% and 2.39% GDP growth in 2009 and 2010, BAC recovered to $17 per share in later 2009 and early 2010. Then, affected by the fiscal dilemma and European crisis, the share price of the bank was dropped back down to $5.17 in late 2011 with a declining 1.97% GDP growth in 2011. After 2 years of healthy growth, BAC is finally on its foot and retains about $14 per share.

Even though the market conditions in Greece and US are quite different, I do think the recovery of NBG will mimic what BAC has achieved. As NBG is adapting to the harsh regulation requirement and the liquidity condition in Europe is getting better, NBG is fitting itself into a friendlier business environment than one year ago. Besides, the competition from close competitors is much reduced through NBG's active acquisition and the restructuring effort of the market.

As BAC dropped -94% of pre-crisis price level ($3.14) and bounced to 34.7% ($17.00), dropped again to 10.5% ($5.17) and bounced again to 28.5% ($14.00), I would estimate the price for NBG in 12 month to 36 month could bounce back to around 30% of the pre-crisis price level, which is about $40.50 per share.


In the near term, investors may consider letting the market digest the recent gains from $3.05 to $6.20. From technical analysis, there is a bearish engulfing pattern in the daily candlestick chart which indicates a strong support line around $4.73, and a minor support line around $5.35. The resistance line draws around $6.40, but it can be broken through as the strong up-side trend holds in long term.

As Greece and Eurozone economies stabilize, which appears to be inevitable, NBG's competitive advantages should slowly emerge. Current market growth in Turkey for NBG's subsidiaries maintains a good momentum and the local business may ride along with the economic recovery.

Over the next two years, investors and consumers should expect more efforts by NBG to release its reserves to the lending market and create earnings. Essentially, bank's clients are the local business and bank's performance is largely dependent on the performance of local businesses. With the correct policy from Greek government, certain sectors of the market will start to strive for a positive profit and growth plan. Privatization of nationalized assets adds another opportunity to stimulate the competition and vitality of the business sector. Nonetheless, Greek general public is still suffering from the economic recession and trying to stand on its own feet, but financial sector, especially NBG, has already shift its gears toward profit and growth.


I'm long for NBG and I have positions in NBG, but no plans to initiate additional positions within 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.





Disclosure: I am long NBG.