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# National Bank of Greece S.A. Message Board

• jpomper jpomper Feb 11, 2011 9:30 PM Flag

## Calculate NBG Projections

Here is why I have a nice position in NBG:

NBG's ROA=0.18% was 2010, while average bank’s ROA=1.0%-2.0% Take the smaller number; then earnings should go up to 5 times. Price should follow.

ROE=2.15% now, while average banks ROE=12-25%.
Take the smaller number; then earnings should go up to 6 times.
(NBG’s ROE was in year 2007 26%).

Book Value is: 3.35/sh; Distressed banks P/B are usually 1.0-1.3 times; P should go to \$3.35 - 4.0.

Normal working banks sell at P/B=2.5-3.0, this projects P should go to \$8.2-10.1

Net profit in year 2007 was 1.6B Euros, or cca. 2.1B USD. In 2006 it was 0.99B Euros.
If they can reach this profitability level again, then at a normal PE=11-13, the bank Market cap should go to \$22-26B, compared to \$9B in febr.2011.
Hence, P should go to \$6.0.

10 year average price of NBG was about \$6.5.
This should be the minimum target in 1-2 years.

Summary: take the above simple projections,
and take the average of it: (10+12+3.5+9+6+6.5)/6=\$7.7
Average expected price target, after the bank is normally working and investors return to normal state of mind: \$7.7/sh

A part of NBG, Finansbank is already working at 2007 level.

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• Typical LONGS, making stuff up, a sign of continued desperation

• never trust any opinion in investment decisions but yours only.
I give my current outlook to help you forms yours.

1) Greece is indebted 150% ratio to GDP. History tells us not all country was able to get out from debt over this ratio (maybe except Japan)
So, forget any positive outcome for Greece now, (I still think there might be a chance of 50% for better outcome)
and consider Greece defaulted.

2) Greece's debt is mostly in the hands of other EU country's banks, and at their home banks. So I think the EU wants a controlled Greece default, and keep them in Euro zone. And for this purpose EU with ECB started a rescue package. This way they will know who has what size of problem, and can work out the best solution. The package for now means they lend cash against GGBs (to any bank, including NBG).

3)The added problem for greek banks is that they are losing business and deposits, so they first used up mostly their GGB's for cash, and are now getting short of them.
Plus, it is hard to manage the survival of 40 banks, so EU and Greece will work to merge banks, in order to improve their liquidity and more easily control the transitory process.

4) This is why the GreekCentralBank opened a new facility Emergency Lending Assistance to keep the country's banks solvent for a time.

5) I think those 2 cash sources should be enough to keep NGB liquid and solvent for the necessery time, like 6-12 more months, when the controlled default could be arranged, with all information in the hand, by ECB, without any banks to go bankrupt.

6) I estimate this time is the necessary preparation time for all banks, to withstand the shock to lose a min. 30%, or max. of 50% of their GGBs value to lose. An EU country should be able to finance themselvs if the debt comes down from 150% to 100% (30%cut) or to 75% (50%cut) of GDP.
In the US media this effort is called "kick the can down the road". I consider this reasonable effort to buy time and get more precise info about the details of the problems.

7) NGB has 13.2B GGB asset according to 1Q2011 report, so after default they might lose 30-50%, a total of 4.0 - 6.6B on their GGBs. Against this loss they have equity cca. 10-10.5B.

8)This is clearly a huge loss, but not lethal. This alone can not bankrupt NGB and probably any greek banks, if some rules are suspended or circumvent.

NGB and other Greek banks probably will get
a) a temporary relief, from EU, to ignore the Basel rules for 3-10 years, so they can recapitalize by issuing new shares (very preferably to current owners) and/or new rights issue.

b) greek banks get a Greek state equity injection, or subordinated loan, or some special bonds, etc. to get close to Basel rules after writing down the above loss.

9) So, in 2 years we might get a dilution. I dont know how big that could be, but from the above numbers I estimate it 40-60%. If it is a subordinated state loan, then NGB will pay it back just like ING does pay the Dutch state.

10)After this reorganisation NGB could be again a strong bank in a healthy country,
with 10-12B equity and cca. \$1B yearly earnings, and a reasonable MarketCap close to \$12B.

I consider this a high probability sequence of events; all other is more pain, more loss. There could be better solutions;
for now I consider this the worst outcome.

Again, this is just my dream. Trust only your own opinion.

Crymorepls, you dont need to comment.

• 3 Replies to jpomper
• Jromper: congratulations. Things came out pretty much as you described only better.

(1) Greece indeed pretty much defaulted and 50% of the GGB value has to be graced;

(2) NBG did get a 1B Euro infusion in preferred shares. Just as you said (and a bit better.);

(3) NBG is immediately using this cash infusion to buy back 1.85B of its obligations at 40-70% of nominal value (and at a premium to the market.)

I do expect the rest of your scenario to come through, too.

Great predictions.

• Good thoughts. A couple of points to add:
- a missing piece is the mounting bad loan provisions. They already reached abnormal levels (>7% if I remember correctly, with norm <1%), and keep creeping up. They are currently killing profits but soon might start cutting into equity. It does not look like we reached the peak yet, more loan defaults are coming in the region.
- Neither GBG default nor mounting provisions can kill NBG, but combined, they might. Most likely, NBG will survive as an institution in the long run, but its common equity might be wiped out or very heavily diluted.
- Given the complexity of the situation and the difficulty of conducting proper due diligence, NBG is a very speculative bet. Ok to invest some pocket change, not ok to bet the farm.

• Very nice work and analysis.

• to enrico.capa

to answer your question of 12.febr:
Yes, I checked the irish banks, AIB in particular;
Here is my opinion:

1) Irish banks are in very different situation compared to NBG.
Why? AIB has exorbitant volume of bad debt; and it may be still increasing:
According their report, they have bad debts (calling them “under watch” up to “nonperforming” quality) in 2007 = 11B, 2008= 14B, 2009= 17B Euros.
Cca. 30-40% of their loan portfolio is suspect; and their loss provisions and reserves are at only 35% to cover the losses. This simply means AIB is practically bankrupt.
NGB has cca. 800-1000M Euros bad debt; they can cover it from one year profit.
This is managable easily, if no new crisis hits.

2)If, and this is big if, their government will keep them alive for at least 4-6 years, and allow them to work off their bad debt losses, then they might come back. But in this timeframe anything could happen. Until then, all shareholders are on the mercy of the Irish (and EU) government decisions, and not on bank business.

3)Remember the story of the Japanese banks. Their stockmarket collapsed, their banks become practically bankrupt. Their government kept the interest rates at 0% since almost 15 years Gave ample time for the japanese banks, and they really needed cca. that many years time to work off bad loans. And are now returning from banktrupcy to normal working state.

Actually, since last year, the Japanese banks are hitting on 4 cylinder; from next year on six, and in 2013-15 on twelve. Check their balance sheet instead of irish banks. Big banks, like NMR, MFG, MTU all look fine to me.

• jpomper, you are a daydreamer Sir!
The Fundamentals are like a girl in a mini skirt you see almost everthing but never the real "Thing".
got GNK ?

• I have one objection, you wrote that

<<Average expected price target, after the bank is normally working and investors return to normal state of mind: \$7.7/sh>>

At the end of 2007 or beginning of 2008 the historical highest capitalization of NBG was €23b. (pre-crisis level)

Plus €3b. from last 2 capital increasing (2009/1.2b. and 2010/1.8b.)
So the currently highest capitalization of NBG (adjusted) should be €26b. (23+1.2+1.8)

The total shares of NBG are 956m. and the current rate of euro/usd is 1.355

€26b. / 956 = €27.20 / 5 = 5.44 X 1.355 = \$7.37

So the adjusted historical highest price per adr is \$7.37

Also before IPO of finansbank the equity of NBG is 9751m.

So the current book value per adr should be as follows

€9751 / 956 = €10.2 / 5 = 2.04 X 1.355 = \$2.765

So the first target for the adr is \$2.765 and the final target should be at least \$7.37

I repeat that all above figures are before the IPO of finansbank.

By \$7.37 adr's price then the book value is 7.37 / 2.765 = 2.67 but historical higest p/bv of NBG was about 4

• Now this is the post i like to read.. Thank you very much

• 1 Reply to zhiyu_mei
• Yes - Projections is good for NBG..

But don't forget this Greek Bank and not American Bank.

And Greek is Bankrupt country.. more than half of populations of Greek work for Greek Bankrupt Gov. and other half of Greek people are Tax evader..?

where is revenue for coming for this BK country when in 2013 they debt load is 149 % of GDP.

Only way is Greek govt sell their country to Turkey & Germany and pay their debt..so atleast their people live debt free..

• Very good analysis. There are people who post here, of fundamentals of this Bank. Instead of clued out nonsense posted by some.

That part of NBG that is working at 2007 level, is a huge factor of the business. The profit that NBG was generating form greece, will soon be made up from the expansion of the Finansbank, which will be twice the bank they were in 2007.

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