Lets focus on the evidence for a marginal change in the economy and government policy. The economy is actually fore casted to return to marginal growth in 2014.
At the same time, the macroeconomic environment is improving: GDP in 2013 fell by 3.9%, which was the result of a continuous deceleration in the rate of decline of GDP throughout the year, while the initial projection for GDP growth for 2013 was -4.2%. According to the latest estimates, in 2014 Greece will return to positive rates of growth after six years of deep recession. In the years to follow Greece is expected to experience robust growth rates that will gradually rise.
Confidence is being restored. The economic sentiment indicator has reached the highest level in the last five years. The spread of the Greek 10-year government bond compared with the German bund has fallen below 550 basis points, whereas at the peak of the crisis it surpassed 3,000 basis points. In January, the purchasing managers' index (PMI) exceeded the threshold of 50, indicating expansion for the first time since August 2009. Two of Greece's four systemic banks have just raised almost €3bn of fresh capital.
The gradual recovery of economic activity is further captured by several short-term indicators including retail sales and industrial production. On the external side, exports of goods and services in 2013 grew by 1.8%. Net tourist receipts rose by 18.1%, while international tourist arrivals exceeded the target of 17 million that was set for 2013.
Another problem the Greek economy had was too much government ownership of industry and government influence in the economy. This is both inefficient and unproductive. As a condition of the various bailouts the country has received it has been privatizing various industries such as the postal service, the electric utilities, and the national lottery in a bid to reduce its crushing debt. The country is not out of the woods yet and I do not expect Greece to become a beacon of capitalist innovation. However for my thesis to work out it only needs to shift at the margin so that investor perceptions change enough for a revaluation of these banks.
Now lets shift to my thesis on why the Greek banks look like a decent speculation at this time. As in most western countries the big banks are hooked in politically and have the support of government. Most governments go out of their way to keep their banking system from collapsing. The same is true in Greece as the banks have received massive support. In addition the number of big banks in Greece has shrunk from ten to only four. These four banks control around 90% of the market currently. These banks are still plagued with non performing loans and have been shrinking their asset bases while becoming recapitalized. This also has led to the banks actually becoming stronger and in a good position to meet the Basel 3 Tier 1 ratios. My thesis for speculating in Greek banks is as follows.
- Greek banks non performing loans begin to recover and reserves set aside to account for NPL's are released book value goes up
- Greek banks will soon begin to move on foreclosures, something they have not been able to do due to the crisis book value goes up
- With economy improving, loan origination should improve along with projected increase in mortgage origination's
- Greek banks also have huge deferred tax allowances. If and when these are reversed the bank' s book value should go up
National Bank of Greece (NBG)
Piraeus Bank (BPIRY)
Alpha Bank (ALBKY)