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After Success in Ireland, Prem Watsa Eyes National Bank of Greece Investment

March 14, 2013 | About:
Holly LaFon

Holly LaFon

262 followers
After nearly doubling his money supplying a capital infusion to the Bank of Ireland (BIR.IR)(IRE), Prem Watsa is eying an investment in another troubled European financial institution, National Bank of Greece (NBG). The bank this morning informed investors that it is “considering alternative options” to meet requirements to recapitalize Greek systemic banks, with Watsa’s company, Fairfax Financial (FFH), among them. “FAIRFAX HOLDINGS, among others, has expressed interest in participating in the recapitalization of the enlarged NBG Group,” the bank said.

The deadline for Greece’s three major banks to recapitalize is end-April. Together, they must raise 27.5 billion euros ($37 billion) through common equity and convertible bonds, 10% of which must come from private investors to prevent becoming government owned, Bloomberg reported.

National Bank of Greece's market price has declined 69% over the past year and trades for $1 per share on Thursday.

The announcement of interest from Fairfax comes a week after National Bank of Greece, the nation’s largest bank, issued a tender offer for the shares of Eurobank Ergasias, the nation’s second-largest bank. The merger aims to expedite recapitalization, “streamline operating costs, contain loan impairments and realize significant synergies worth approx. €3 billion in terms of net present value,” National Bank of Greece said in a statement.

Combined, the new bank will have total assets of 177.7 million euros, total loans of 109.7 euros and deposits of 87.9 billion euros, and a footprint in Turkey and southeastern Europe.

National Bank of Greece at the nine months ended September 2012 had core Tier I ratio pro forma of 10.3%, an increase from 9.5% a year previously, and its pro forma total CAR stood at 11.9%, boosted by almost $10 billion worth of infusions from the Financial Stability Fund in May and December, deferred tax and its participation in a Greek government bond buyback program from the Public Debt Management Agency on behalf of the Hellenic Republic.

Amidst the deep recession in Greece, the bank also saw its fourth consecutive quarters of increases in loans 90 days or more past due. Past-due loans reached 18% in the third quarter, up from 11% in the third quarter of 2011, for the group as a whole, and reached 21.9% in the third quarter of 2012, up from 11.8% in the third quarter of 2011, for Greece.

Total deposits in Turkey and southeastern Europe, however, both increased sequentially and year over year. Greek deposits held flat sequentially, at $36.7 billion euros, their third consecutive quarter of positive results.

When asked in a February interview in NBG’s magazine whether the recapitalization programs would help attract private investors, CEO Alexandros Tourkolias responded: “I think that clarification or supplementation of the terms of the recapitalization of Greek banks will eventually serve to attract private investors. I can assure you that everyone involved in the formulation of this framework has understood the issue, and I hope soon we shall reach a level of shared understanding regarding the private nature of banks.”

Watsa’s previous publicized European financial recapitalization took place last year, when he purchased Bank of Ireland stock for $0.10 per share, along with Wilbur Ross, Fidelity and other investors. The stock has since traded up to $0.17 per share on Thursday afternoon, including a 50% rise year to date.

Read more about what compelled Watsa to do the Bank of Ireland investment in his interview with GuruFocus here.

Also, see Prem Watsa’s portfolio here, or check out his Undervalued Stocks, Top Growth Companies and High Yield stocks.


Rating: 4.3/5 (19 votes)

Comments

Cornelius Chan
Cornelius Chan - 1 year ago
Is negative book value considered cheap? LOL!

Can anyone figure out NBG's book value? As usual, google finance is bereft of any bank financials while yahoo is N/A. Gurufocus lists book value as -3.67 for last June.

While I do place a large emphasis on low P/B, a negative value is highly troubling and put in the too hard pile by default I think. I don't think anyone can convince me what Prem Watsa is doing here with cheap European banks is anything but speculation. An investment grade stock should at least have a positive fraction for P/B yes?
vgm
Vgm - 1 year ago
"Watsa’s previous publicized European financial recapitalization took place last year, when he purchased Bank of Ireland stock for $0.10 per share, along with Wilbur Ross, Fidelity and other investors. The stock has since traded up to $0.17 per share on Thursday afternoon, including a 50% rise year to date."

I think I'm right in saying that Watsa and Wilbur bought at €0.10, not $0.10. The stock is currently around €0.17.
vgm
Vgm - 1 year ago
"I don't think anyone can convince me what Prem Watsa is doing here with cheap European banks is anything but speculation."

CWR -- there's no-one more cautious, careful, and risk averse than Prem Watsa! The herd could not understand when he and Wilbur Ross took huge stakes in Bank of Ireland, either.

In cases where brilliant value investing minds, with long track records behind them, are doing something which is surprising to us mere mortals, perhaps we should ask ourselves 'What can they see that I cannot', and do our utmost to discover the answer(s).
Cornelius Chan
Cornelius Chan - 1 year ago
"In cases where brilliant value investing minds, with long track records behind them, are doing something which is surprising to us mere mortals, perhaps we should ask ourselves 'What can they see that I cannot', and do our utmost to discover the answer(s)."Yes, this is a good point to keep in the back of one's mind when going over one's stock watchlist. NBG is in one of my lists and I was formulating a strategy last year to invest in cheap Greek bluechips and emerging bluechips to play the crisis. However, I cannot make heads or tails of the financial condition of this bank and it is effectively inscrutable to me. So it is in my too hard pile.

The same goes for Bank of Ireland (IRE) and Royal Bank of Scotland (RBS) which were also in my cheap famous names list. I was very tempted to put my money into RBS in the middle of last year to play the ultra cheap nature of this famous former bluechip stock. However, I still cannot make myself invest in a company based on the number and/or quality of guru names buying. To me, this is still too much like speculating.

I will modify my initial statement: while a guru like Prem Watsa may be able to invest in NBG, I will only be able to speculate - not enough knowledge... unfortunately.

Thanks for your rebuttal. It helped clarify my thinking on this topic.

AlbertaSunwapta
AlbertaSunwapta - 1 year ago
Countries eventually have to go all out to save their national banks and restore them to health. It's the currency risk that can kill you.
Cornelius Chan
Cornelius Chan - 1 year ago
Reasons people keep money in bank:

1. It is safer than under their mattress

2. Online bill paying

3. Establishes a credit rating

Other than that, if the Greeks take to heart the Cyprus "depositor haircut", won't there be a run on the banks? including NBR?

Alberta,

I am still learning about currency risk. I am all ears on this topic.
sapporosteve
Sapporosteve premium member - 1 year ago


I hold NBG and so far down 62% (I will be buying more NBG) but for now it is a small part of my portfolio. I also hold IRE and I am up 54%. I am ahead by 19% on SAN, 80% on BAC, 33% on C, 12% on AIG

I bought because of Berkowitz (BAC/AIG/C) and Watsa/Ross on IRE.

The way I see it is that there is/was an enormous opportunity for an asymmetrical outcome (little downside and a lot of upside).

Berkowitz's arguments regarding BAC, AIG and C just makes sense to me and I was fortunate (lucky) to buy them really cheap. I think his arguement explaining BAC's place in the US banking system can be applied elsewhere.

The same with IRE and SAN. I dont know what they are worth but if they were going to go bust then I figure they should have by now. The EU troika indicated that basically they would stop the rot. Yes there will be fights, scares and tense moments, but I think in 5 years when they have finally sorted it out these banks will be very good investments (being good companies is another matter).

But I know that Watsa and Ross and Berkowitz are extremely smart and thorough investors.

But as Munger likes to say "invert always invert", so I dont have a clue what they are worth. But I know that they are not worth.

I think and will probably invest soon in RBS.

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