Hi Sam, after last weekend conferencing, I also try to reevaluate my position on NBG. I need my data updated, before I can complete the calculations. But here are my rough numbers.
1) The good news -NBG management definitely makes me believe that they fight tooth and nail to survive. They just said failure is not an option. “Strong capital position: Group’s tier 1 ratio at 13.1% [€8.96 billion], while its core ratio is at 12.0% [€8.19 billion]. Strong liquidity."
-Sure, Greece corporate loan defaults are up ... no surprise after 3 years of depression. But the expected defaults are covered at 55% of capital, those over 90 days past due delinquencies (NPL). This is cca. EU average coverage, but exceptionally good in Greece.
-Finally, NBG can always sell its 95%+ stake in the hugely profitable Finansbank. It is trading at about €5.0 billion on the Turkish stock exchange. NBG has been planning to sell 25% of its stake for several months, but so far showed no sense of urgency.
2) The bad news:
As one might expect, NBG was a big buyer of Greek souvereign bonds. The bonds time exposure is slowly trailing off, as NBG is no longer replacing maturing bonds, but it’s still a whopping €13.7 billion GGB plus €5.7 billion of “Titlos” bonds.
Take a look at GGBs first. While the bank already took some impairment charges on Greek bonds, its 88% average book value is very optimistic: a five-year Greek bond was trading at 55% last week. And we should assume that a 50% haircut is unavoidable.
This means 13.7B times (0.88-0.50)=5.23B Euros outstanding LOSS for NBG as Greece defaults. This is a huge loss, against 9.0B Euros capital.
There are 2 options:
- They sell all Finansbank. The income is used against the losses. NBG loses its crown jewel, but the bank will survive easy, no dilution, no state ownership. In this case we still have NBG Greece and all Balkan subsid.banks. I expect in 1-1 years $2-3, and in 5 years $5-7 ADR price. This is the best option. NBG just needs some 2-6 months to complete.
-They write down this 5.23B, cca. 60% of of their capital agains the losses. In this case they have to issue new shares for cca. 4B Euros. This is a big dilution. But the bank will survive, current shareholders will need 2-3 years to get back to $2-3 ADR price. This is the second best option.
3) The black swan factor is the Titlos bonds. Unfortunately, NBG is a counterparty in the notorious off-balancesheet swap transaction arranged by Goldman (GS) for the Greek government, in order to hide part of its debt. Goldman arranged a Special Purpose Vehicle called Titlos PLC, which issued €5 billion bonds back to NBG.
NBG has no reserves to cover Titlos losses. I just dont know if GS gave guarantees or not. I dont know if Greece offered special guarantees on Titlos. I dont know Titlos will be included into Greece's debt to haircut. Or special case.
If Titlos is an additional 2.8B (50%) loss for NBG, then the best case is that NBG must sell Finansbank plus lose (and replace) 2.8B Euro capital. This is the worst option. But even in this situation NBG can survive, if it can execute all restructurings in time.
Well, this is my outlook. In case you have any more info, or have latest data, please share.
Compare Q1 and H1 results. Actually NBG exposure to GGB went up. For sure they are not replacing or can not replace as greece is not issuing bonds.
Greece GGB exposure went up by around by at least 1.6B bonds in secondary market and around 1.2B T-bills either directly or in secondary market. In last 3 months total exposure to greece govt went up by 2.8B
Finally I don't if it is good or bad because NBG knows inside news.
Coming to measure and unrest as US citizen residing in greece is talking, greece has primary budget deficit. What ever spending cut they are doing is not for paying to investors. If they don't do cuts, greece needs to borrow 15B/year or 1.3B/Month. Who in right mind can loan greece. It will be harsh and it will tough but greece does not have any option. Even if they default and decided not pay penny on their bonds they need to cut 1B dollars expenses per year.
GDP we are seeing is bloated one but the original one. I borrow money and pay salaries to people who are not needed then every dollar I pay will get added to GDP. When you stop spending GDP will fall which is expected because GDP is bloated by throwing money away. As per estimates around 20% govt employees are redundant which means govt need to fire 160,000 employees. Obviously govt is over paying and firing them 160,000 people + people providing services (may be another 250,000) will get added to unemployee list. Finally govt can not do any thing other than what they are doing. If there is a civil war because of this, either govt is not explaining this or greeks are morons.