Wednesday, June 16, 2010

If You Were a Greek Rich Guy, What Should You Be Doing?

John Hempton fills us in:

There really is only one big problem with National Bank of Greece – and that is Greece. Lurking in the balance sheet you will see about 20 billion euro of “due-to-banks”. This is interbank funding due to other European banks (presumably German). Offsetting this is about 16 billion in investment securities. Note 22 covers those – and they are mostly Greek Government Bonds – and if they not “Hellenics” then they are credit conditional the Greek Government anyway…

Take the investment securities away – and throw in the deep recession that is likely if the Government defaults – and it is pretty hard to see how NBG gets out of this.

The last quarterly conference call was one of the saddest things I have ever listened to – because the management seemed – certainly by the standard of regional bankers – to be a very fine group of individuals. They ran a darn tight ship – a bank that should be OK and indeed I quite like. Certainly NBG is one of the better run banks out there. Most of the conference call was about running day-to-day banking and how you operate in what is a very tough environment. [The tough environment] of course was the one credit that they could not “manage” – the local Sovereign. And the management stated that they were “the best credit in town”. This line is a paragon of wishful thinking.

Alas if Greece defaults it looks likely that NBG goes with it – as would any other Greek bank (except probably Emporiki where the losses will be borne by Credit Agricole)...

If you were a Greek rich guy with substantial deposits what would you be doing? Short answer: run at par. You can get out at par something that is ultimately credit risk Greek Government without any penalty.

Deposits are falling in Greece. Not a lot – but the fall in the first quarter results was just under 2 billion euro. This is not seasonal… Rich Greek guys of course know about capital flight (they have done that before) but they are only doing it a little – indeed it surprises me that there are not violent runs happening... [contra possibility: the rich guys were never in Greek banks at all…]

NBG is a good bank. But if the Sovereign defaults, it is in deep trouble. Sovereign default will mean that NBG cannot pay back its interbank obligations. None of this should be a surprise to anyone watching the stock price. NBG has not been a good stock. The German banks will lose not only on their holdings of Greek sovereign securities but on their NBG inter-bank funding as well.

1 comment:

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