Why the National Bank of Greece Is a Buy
by: Alpha Dinar April 27, 2010

Go Greek. No, I don't mean to join a fraternity. I meant Greece, the country. Basically what is going on in Greece is alarming, yet intriguing. The Athens Stock Exchange shed -8% today on market fears that Greece wouldn’t be able to meet its May debt payments and would take a “haircut” on its debt. Althought the EU and IMF announced a plan to bail-out Greece, the market is currently in a “show-me-the-money” mode. German Chancellor Merkel hit the campaign trail Monday and talked politically by stating that Germany wouldn’t simply hand money to Greece to maintain a standard of living way above their means. This sparked an orchestra of claps by her supporters. However, what is more significant than this statement is the excuse she gave herself to eventually bail-out Greece by stating that Germany can’t allow the Euro to continue getting hit.

Greece will not default for several reasons. According to BIS data, French-based banks have $75 billion of exposure to Greek debt, and German banks have a $45 billion exposure. Greece’s debt stands at $395B, so these two major EU nations are directly exposed to 30% of Greece’s debt. Further, 99% of Greece’s government debt is held abroad. The current situation is fueling a credit death spiral for the PIGS (Portugal, Ireland, Greece, and Spain) with downgrades starting to pop-up. The Euro has also suffered as it is down 13% in 6 months.

National Bank of Greece

Lets get down to the reasons I recommend buying the National Bank of Greece (the ticker for the ADR is NBG). The bank is one of the four largest in Greece and is currently trading at $2.65; down 70% from its mid-October 2010 highs of around $9. The bank trades at a mere Price to Book of 0.32x. Compare that to Boubyan Bank’s P/B of 6.6x! I know one can’t compare apples to oranges, but I just wanted to illustrate the deep discount.

Even if Greece takes a 50% haircut on its debt (unlikely), the bank should trade at least at a 0.50x P/B multiple resulting in an upside potential of at least more than 50%. German Chancellor Merkel can’t wait until her May 9 elections to bail-out Greece and must “show-us-the-money” right now. It could be seen as catching a falling knife, but for the more cautious I advise buying in 1/3 increments (now, at 2.3, at 2.1).

Soverign-debt crises always end-up resolved. Dubai and Ireland are prime examples. Do you know how much return you would’ve made by buying The Bank of Ireland (IRE) only 2 months ago? Nearly 100%. I believe (NBG) could be the next IRE.

To Merkel I say in the words of the great economist John Maynard Keynes,

If I owe you a pound, I have a problem, but if I owe you a million, the problem is yours.

About the author: Alpha Dinar
Alpha Dinar (pseudonym) is co-founder of Alphadinar.com (http://alphadinar.com), one of the first English financial blogs in Kuwait and the GCC region. Alpha Dinar earned his Bachelors of Science Degree in Accounting, Finance, and Management with Distinction from a reputable US University. He is also a CFA Level II candidate.

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