2019 Elections - Part 5. Greece: New Democracy Promises Magic Makeover

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Thematic (Sector/Industry)

Greece Financials / Thematic (Sector/Industry)

In this insight, we take a look at Greek banks and place them in the context of an improving pre-COVID 19 economy, a supportive post-COVID-19 monetary system, and a potential game-changer in "HAPS", a GACS equivalent (Italy's Guarantee on Securitization of Bank Non-Performing Loans).COVID-19 comes as a cruel blow to all of us but Greece can feel especially aggrieved after taking measures at enormous cost "to put its house in order" during a torturous decade of economic and social depression. With the opening of the economy and dismantling of  bureaucracy by New Democracy,  green shoots were appearing and confidence was on the rise prior to COVID-19 while NPL-ridden banks were preparing strategies to use "HAPS", the Hellenic Asset Protection Scheme, modeled on GACS in Italy in order to strengthen their suffocated Balance Sheets. "HAPS" requires demand for risky assets and the latest global risk-asset car crash is just what the banks did not want.As always, we look at things through a valuation lens. The market is pricing in that "HAPS" does not get done in full or at least is very partially excecuted and/or Greek banks will require more capital from somewhere: in recent years, they have been active users of the international debt markets. We believe that this may be too pessimistic though delays are probable. The key known unknown is of course COVID-19 and the duration of economic lockdown. Greek banks are cheap: as you would expect. However, valuation is accompanied by fundamental progression - a good sign- though we stress earnings quality could be better.<div class="content-highlight">On a Franchise Valuation, Greek Banks are lowly rated.</div>    Piraeus Bank 1%    National Bank of Greece 2%    Alpha Bank 2%    Eurobank 3%<div class="content-highlight">On a P/B basis, Greek Banks are lowly rated.</div>    This shows a deep risk of growth and growth of risk.       Piraeus Bank 0.1x    Alpha Bank 0.1x    National Bank of Greece 0.2x    Eurobank 0.2x<div class="content-highlight">PH Score™: rankings are positive in general</div>Piraeus 10Eurobank 7.3Alpha 7.2National Bank of Greece 4.6<div class="content-highlight">The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. </div>

In this insight, we take a look at Greek banks and place them in the context of an improving pre-COVID 19 economy, a supportive post-COVID-19 monetary system, and a potential game-changer in "HAPS", a GACS equivalent (Italy's Guarantee on Securitization of Bank Non-Performing Loans).COVID-19 comes as a cruel blow to all of us but Greece can feel especially aggrieved after taking measures at enormous cost "to put its house in order" during a torturous decade of economic and social depression. With the opening of the economy and dismantling of  bureaucracy by New Democracy,  green shoots were appearing and confidence was on the rise prior to COVID-19 while NPL-ridden banks were preparing strategies to use "HAPS", the Hellenic Asset Protection Scheme, modeled on GACS in Italy in order to strengthen their suffocated Balance Sheets. "HAPS" requires demand for risky assets and the latest global risk-asset car crash is just what the banks did not want.As always, we look at things through a valuation lens. The market is pricing in that "HAPS" does not get done in full or at least is very partially excecuted and/or Greek banks will require more capital from somewhere: in recent years, they have been active users of the international debt markets. We believe that this may be too pessimistic though delays are probable. The key known unknown is of course COVID-19 and the duration of economic lockdown. Greek banks are cheap: as you would expect. However, valuation is accompanied by fundamental progression - a good sign- though we stress earnings quality could be better.On a Franchise Valuation, Greek Banks are lowly rated.    Piraeus Bank 1%    National Bank of Greece 2%    Alpha Bank 2%    Eurobank 3%On a P/B basis, Greek Banks are lowly rated.    This shows a deep risk of growth and growth of risk.       Piraeus Bank 0.1x    Alpha Bank 0.1x    National Bank of Greece 0.2x    Eurobank 0.2xPH Score™: rankings are positive in generalPiraeus 10Eurobank 7.3Alpha 7.2National Bank of Greece 4.6The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. 

Greek Banks: It's All About "HAPS" And that Requires Risk Appetite