This way the government is showing willingness to pay exchange bondholders amid the appeals court ruling against Argentina. I suppose Kirchner will also send Congress a proposal to suspend the lock-law that prohibited reopening the exchange. This would constitute the third swap after the 2005 and 2010 debt restructurings, in which 93% of bondholders participated. Cristina Kirchner specifically said: "the government will submit a bill that would allow investors the option to trade in exchange bonds for local law bonds payable by the local clearinghouse (Caja de Valores) in order "to safeguard those who trusted Argentina". Given that those exchange bondholders who want to collect will surely do so, I believe you should go long Argentinean banks which are trading at an extremely low valuation and have a high correlation to local debt securities.
Here I will analyze three options in order to chose the cheaper Argentinean bank for your portfolio.
Healthy and Cheap
Grupo Financiero Galicia (GGAL), which was once owned by Rob Citrone's hedge fund Discovery Capital Management, owns one of Argentina's biggest private banks by deposits and the fastest growing within the banks that count with national presence. As a matter of fact, according to management, "the bank's estimated market share of loans to private sector was 9.10% growing 56 basis points from a year before and the market share of deposits from the private sector was 8.98% growing 28 basis points in the year."
Despite growing expenses, in local currency terms, the bank's net income improved 16% year-over-year (yoy) while Non-Performing-Loans (NPL) have been kept below 4%. Hence, through Galicia, you can invest in an operationally healthy bank that shall behave in line with government bonds. Trading at 3 times P/E and 75% book value I think Galicia is good bet within the space.
High Exposure to Public Debt
Banco Macro (BMA) has been one of the highest growing banks during the last two decades. One interesting thing about Banco Macro is that the bank owns approximately $400 million of government related securities when the bank's total market capitalization is now just above $1 billion. On the other hand, Banco Macro is growing earnings aggressively at a 39% year over year rate in local currency terms with a very low (and stable) 1.6% NPL rate. Banco Macro is slightly more expensive than Galicia trading at 80% its book value and 3.2 times P/E.
Low Exposure to Public Debt
Banco Frances (BFR), 75% controlled by Banco Bilbao Viscaya Argentaria, is among the biggest banks in Argentina. The bank has the smallest exposure to Argentina's public debt out of the three banks analyzed in the article and presents the lowest pace of growth. That said, its one of the healthiest banks in the country given that it has the lowest NPL ratio and the highest reserve ratio to absorb potential losses. The bank also trades cheaply at 3.5 times P/E and 85% its book value. Being more expensive (although still very cheap relative to the sector's average) and with the lowest liquidity among this group of three, I would exclude Banco Frances from my Argentinean bank portfolio.
The three banks analyzed above are un-leveraged healthy banking institutions growing earnings at great rates. Besides they are all very profitable (returns on equity are above 20% for all of them). That said, Argentina has been out from investor's radar for over ten years and, as a result, they sell at ridiculous multiples. I think an end to an era is coming with a final resolution to Argentina's 2001 default around the corner and the end of the current market un-friendly government. I think its time to go long before the big funds start buying aggressively.