Today's Buy Opportunity: National Bank of Greece

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It was a little more than four months ago that our Motley Fool Global Gains research team first highlighted National Bank of Greece (NYSE: NBG  ) as one way to profit from the Greek crisis. Since then, the bank's stock is down 25% even though investors have more insight into how Greece's debt crisis is going to play out. That would make sense if the situation looks worse for Greece today than it did on April 1, but the fact is that it looks better. This makes National Bank of Greece an even better buy today than it was back then, and that's the reason why it's today's "11 O'Clock Stock."

Fast facts on National Bank of Greece

Market Capitalization

$8.5 billion

Industry

Banking

Price/Book Value

0.9

Dividend Yield

N/A

Source: Capital IQ, a division of Standard & Poor's. N/A = not applicable.

Why I'm not worried about the worst-case scenario
The problem facing NBG back in April was that it held more than $23 billion worth of Greek sovereign debt on its balance sheet, and the world feared the Greek government would fail to make good on the $25 billion worth of debt payments it had to make by the end of May. Thanks to some help from the EU, however, the country was able to meet its obligations. And while Greece continues to face a significant debt load, the country is making good progress getting its financial house back in order. The country achieved the June targets imposed on it by the EU and the International Monetary Fund, and the consensus is that thanks to efforts such as improved tax collection, Greece is doing better than expected.

The reason this matters for NBG is because of that Greek sovereign debt it holds. If Greece were to default, NBG would have to write down the value of those assets, making the bank undercapitalized by regulatory standards. That would cause a recapitalization, likely via the issuing of new shares, which would wipe out existing investors. So long as NBG can avoid this fate, the bank's operations should recover with the Greek economy. Although the bank's first-quarter results in Greece weren't spectacular -- non-performing loans increased to 6.9% of total loans, for example -- the company collected more than $1 billion in deposits, which is evidence that there is not a run on Greek banks.

And then there was Turkey
Further, this drama in Greece is masking what has been some impressive growth by NBG of its operations in fast-growing Turkey. Loans grew 14% year-over-year in Turkey on the back of rising consumer spending and credit cards. The company also saw improving asset quality and invested significantly in branch expansion. This bodes well going forward because, as we saw evidence of in the steady ARPU numbers and rising postpaid subscriber share reported in Turkcell's (NYSE: TKC  ) recent results, the Turkish economy appears to be on a strengthening trajectory.

Why this is an opportunity
All told, if you believe that National Bank of Greece can continue to exist, it should be worth substantially more in three to five years than it is today. Consider, for example, that while trailing price-to-book multiples aren't the best way to analyze an industry with as many potential landmines as banking, National Bank of Greece stock is about as cheap as it gets when it comes to buying a large banking franchise in either the U.S. or Europe.

Company

Home country

P/B

M&T Bank (NYSE: MTB  )

United States

1.4

Banco Bilbao (NYSE: BBVA  )

Spain

1.4

Banco Santander

Spain

1.3

Wells Fargo (NYSE: WFC  )

United States

1.3

BB&T (NYSE: BBT  )

United States

1.1

National Bank of Greece

Greece

0.9

Royal Bank of Scotland (NYSE: RBS  )

Scotland

0.7

Bank of Ireland

Ireland

0.1

Data from Capital IQ.

Yes, banks in Scotland and Ireland look cheaper, but they are both significantly more troubled than NBG and don't have the same fast-growing emerging-markets exposure.

Put it all together and provided you can handle some volatility and potential political turmoil, National Bank of Greece looks like a rewarding long-term buy.

Tim Hanson is co-advisor of Motley Fool Global Gains. Follow him on Twitter. He does not own shares of any company mentioned. Turkcell Iletisim Hizmetleri AS is a Motley Fool Global Gains pick and a Motley Fool Income Investor selection. The Fool's disclosure policy recommends a research trip to Greece.


Read/Post Comments (10) | Recommend This Article (66)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 11, 2010, at 12:24 PM, plange01 wrote:

    todays sell nbg!

  • Report this Comment On August 11, 2010, at 1:24 PM, shivy1 wrote:

    So basically the reason you think NBG is a good buy is because you believe in some turnaround story. You think NBG won't go bankrupt so its a good buy? This is by far the riskiest 11:00 stock pick so far. Greece may not default, but the share price could go down and stay down for a very long time.

  • Report this Comment On August 11, 2010, at 1:51 PM, susan400 wrote:

    contrary play- yes- but Greece is bankrupt,

    lack oputput, contruibution..

    aviod

  • Report this Comment On August 11, 2010, at 7:55 PM, cdulan wrote:

    Yeeeshhh.... you guys are scaring me.

    Do you believe everything is going well with Greece because the ECB president says so on the first report card? Did you read that the austerity measures do not take effect until Q3 and they are already underperforming on GDP growth measures? 2yr CDS on Greece have not come down from 6% after the $1T Save the Euro fund. Give me a break.

    Save me the stinky stuff and just say this is another "Central Bank put" play. As long as the ECB keeps Greece on life support, the company will avoid riots and mass unemployment. There is strong incentive for the ECB to hold them up. It is even a cheap bill to pay considering the alternative in a cascade of sovereign writedowns. So I think your position is viable and has a 40% chance of success. Not for my money though.

  • Report this Comment On August 12, 2010, at 1:21 AM, BenhamFool wrote:

    Sorry, but I gave up...a FORMER advisor bought this in my account at about $50 per share in OTC pink sheets. It went down like a rock. I finally bailed at $16 & change. That was up from an even lower level. Greek islands are beautiful, but not so sure about NBG!

  • Report this Comment On August 12, 2010, at 3:30 AM, ChrisFs wrote:

    The bank's name scares people. National Bank of Greece is no more Greece than Bank of America is the Fed.

    The question is simple. Are they going to go bankrupt soon? No. then the only way to go is up. will it double next month, No, but it's got a good deal of business coming form outside of Greece and Europe holding up the Greece end, so this is a waiting game that will eventually go up considerably.

  • Report this Comment On August 12, 2010, at 8:16 AM, shivy1 wrote:

    ChrisFS,

    Just because a company won't go bankrupt does not mean there share price will go up immediately. For all you know, it could go down to 50 cents a share and stay there for months, even years. That is a very bad way of thinking. In the amount of time that could happen, I could have put my money in another investment with a higher ROI. So don't assume all stocks go up if they won't go bankrupt.

  • Report this Comment On August 12, 2010, at 11:24 AM, satwa wrote:

    The one thing about Greece's austerity measures is that Greece has a very generous social safety net, which has been much abused. This could indicate that significant cuts could be made thus increasing efficiency without harming productivity. Unlike the US who's social safety net is already bare bones. I wonder if Greece is more like the US at the end of 1970s when cuts could be made to increase efficiency.

  • Report this Comment On August 13, 2010, at 9:33 AM, TMFAleph1 wrote:

    As this write-up makes very clear, the assumption that Greece won't default on its government debt is key to the 'buy' case for National Bank of Greece. As such, investors are effectively making an binary bet on that outcome when they purchase the shares.

    Unfortunately, it's a near certainty that Greece WILL default on its debt, whether on a unilateral or negotiated basis.

  • Report this Comment On August 18, 2010, at 3:08 PM, artheen wrote:

    In the best case scenario, over the next two year Greece will restructure its sovereign debt 30%-60%, if not 80%. The $23bn NBG has on its books, with the above hair-cut, will wipe out between $7bn (@30%) and $14bn(@60%). It presently has $7.25bn cash which will be wiped out in the best of the best case scenario. Greece will not default and NBG will still stand but, its book value at that time will be near zero if not less. In the best case scenario NBG will stand and should be available at a much steeper discount for its present/future expected growth outside of Greece and probably the only one standing in Greece and because it has outstanding loans to customers based on 80% of its deposits.

    (The worst case scenarios being Greece defaults 100% or is out of the EU. In these cases NBG will become irrelevant) . But, at today's prices its a sell.

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