NBG: Greek Banks Approach Final Showdown

Jun 22, 2015

Crushed by the heightened financial crisis in the country, Greeks have resorted to pulling deposits out of their banks accounts at an alarmingly high pace. Earlier this week, weakened Greek banks were pushed to the brink of collapse as a European Central Bank (ECB) official doubted the commencement of bank operations on Monday.

However, yesterday, Europe’s central bank sanctioned a raise in liquidity cap for Greek banks, the second time in three days, reported the Wall Street Journal (WSJ). The ongoing turmoil in Greece is nearing its sixth year, leaving Greek banks dependent on Europe for assistance. Faced with an acute liquidity plunge, Greek banks rely on ECB’s emergency liquidity assistance to curb the deposit drain in the short-term. Through this program, Greek banks can borrow from the central bank, Bank of Greece.

Greek banks battled a severe deposit drain this week, with more than 2 billion euros pulled out, reported the Guardian. Thursday witnessed a record high withdrawal of one billion euros. According to WSJ, the withdrawal continued on the last day of the week to reach a high of 1.2 billion euros in one day alone.

Following Wednesday’s increase of 1.1 billion euros, the ECB licensed another upward adjustment of 1.8 billion euros yesterday. The ECB has decided to meet again on Monday for another assessment of raise for Greek banks.

As events in the Greek saga play out, Greek Bank shares continue to erode market values in the backdrop. Overall, National Bank of Greece (ADR) stock lost more than 13% this week. Owing to yesterday’s increase in emergency liquidity assistance, the stock was seen rising more than 2% to close at $1.12, at a market cap of $3.53 billion. Year-to-date, National Bank of Greece stock has shed 38% of its value. Since the onset of the crisis, shares have lost more than 95%. Other major Greek bank shares, such as Alpha Bank, Piraeus Bank, and Eurobank have lost approximately 96% each.

Analysts from TheStreet, Inc. continue to reinstate their bearish outlooks on National Bank of Greece stock. The team of analysts has rated the stock a Sell with a ratings score of D. The analysts state: "[the rating is] driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company’s weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, poor profit margins and weak operating cash flow.”

According to data collected from Thomson Reuters, National Bank of Greece is projecting considerable weaknesses in growth. Earnings per share (EPS) (trailing 12 months) are expected to growth at negative 96.38% in the next year. Moreover, EPS for the next five years is estimated to grow south of 70.50%. The five-year average Return on Equity is estimated at negative 63.84%. Therefore, National Bank of Greece projects considerable weaknesses that hamper its investor relations.

Meanwhile, the impasse in bailout talks between Greece and its international creditors continues with no clear solution in sight. Greece’s leftist Syriza government refuses to bow down to demands presented by the ECB, the European Commission (EC) and the International Monetary Fund (IMF). A major reason for the standoff in talks if dispute over economic reforms demanded by Greece’s international creditors. Both sides have adopted a hard lined stance, showing no signs of a compromise.

Greece is due to make a lump sum payment of 1.6 billion euros to the IMF at the end of this month. Experts are worried that given the present political turmoil in the country, Greece could most likely be headed for a default; a default would intensify the current crisis. Greece had already missed a scheduled IMF debt obligation earlier this month and instead requested for a postponement, generating criticism from several avenues.

The Guardian quoted a Eurozone official as saying: “If there are no new proposals from Greece to discuss, the ministers are likely to instead talk about how to handle Greece’s default.”

A default would raise the possibility of a looming Greek exit from the Eurozone, more commonly dubbed as a “Grexit." Chief economist at Capital Economics, Jonathan Loynes, told The Guardian: “The failure to reach a deal at last week’s Euro group meeting and the rapid outflow of deposits from Greek banks suggest that a near-term Eurozone exit may now be more likely than not.”

Mr. Loynes also cautioned that if a Grexit takes place it would offset a series of ripples that are likely to pull down growth forecasts for the Eurozone. In fact experts are worried that if Greece leave, it would trigger a domino effect across the Eurozone and pull along other weak economies. More importantly, a Grexit would greatly undermine the credibility of the union. Mr. Loynes said: “We do not buy the view that Greece would slip out of the Eurozone without a ripple.”

Earlier this week, Bank of Greece, for the very first time cautioned that the country could be heading towards a potential exit from the Eurozone. Greece’s central bank warned that if both Greece and its international creditors did not pull back on austere measures, a bailout agreement would not be reached in the future. Without a bailout agreement, Greece could default on its IMF, ECB, and several other payments spread all over the summer.

Greece’s central bank also warned that without economic reforms designed for a revival, the country could fall back into another recession in the second quarter of 2015. The Greek economy also generated a recession in the first quarter of the year. Needless to say, a consecutive recession would only add to Greece’s problems and instill further risk to the banking sector.

The Guardian quoted a statement from Bank of Greece: “Failure to reach an agreement would...mark the painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and – most likely - from the European Union.

Source: Bidness Etc


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