Sector Update. March 10, 2015

Transcription

1 Equity Research Banks Persisting Liquidity and Funding Pressures The political turmoil over the past three months has created a supressed operating environment for the Greek banks; deposits have reached their lowest point since the outbreak of the crisis and banks have no access to interbank borrowing. Moreover, following the ECB s decision to exclude as of Feb 11 Greek securities as collateral for open market operations, most of the existing ECB funding was converted into ELA, making the latter the only lifeline for Greek banks to replace lost liquidity. The Eurogroup agreement on February 20 and subsequent list of Reforms has given some fragile breathing space to the Greek banks (deposits have stabilized). ELA Funding Capacity Subject to the ECB Despite the c 17bn deposit outflows in Dec-Jan, we are comfortable over the sustainability of the provision of ELA, since Greek banks are solvent and adequately capitalized. That said, the current ELA threshold at c 69bn (vs Apr 12 highs of 124bn) or total Eurosystem funding at c 110bn, and its increase on a present-needs basis, is a clear indication that the ECB will continue to place strict controls on the supply of liquidity to the Greek banks, until the review of the extended arrangement is successfully concluded and a follow-up arrangement is properly in place. Execution of Restructuring Plans Impaired We believe that the disruption in the economy and the significant decline in investment activity since early December 14 will weigh on the banks financial performance and hold back the planned disposal of non-core assets. We, thus, expect the Greek banks to focus on more aggressive cost containment as a means to offset the higher funding costs and current deteriorating asset quality. Despite our significant EPS downgrades, (below) we still see healthy e capital buffers of c 2-5bn (incl. DTA), before the banks would need to raise money under the recent stress test scenarios e EPS Cuts of c30-70% reflecting (a) the weaker core income generation due to increased funding costs on the use of the high-cost ELA (1.55% vs ECB at 0.05%) and the tight liquidity conditions negatively affecting banks lending capacity, and (b) the current deterioration in asset quality on worsening macros and payment culture (due to the ongoing discussion on debt forgiveness) that should lead to higher provisions. Our forecasts for aggregate net profitability for the sector are c20-30% below consensus estimates over e. Attractive Valuation Having lost c20-50% y-t-d, the Greek banks now trade on x their 2015e TBV vs 0.9x for their EU peers. The big discount is a reflection of the political and macro uncertainties, concerns over the liquidity and even solvency conditions of the banks, and downside risk to consensus estimates. We Expect a Bumpy Road Ahead on increased short-term risks, including the potential impact of any new NPLs resolution law on the banks capital, the pending approval of the Reforms list by end-april and the successful completion of the extended arrangement s review. That said, we are cautiously optimistic that Greece will successfully conclude the current review and reach an agreement over a new Program after June that should help the Greek banks gradually return to normality. In our view, the key negative investment risk lies with any potential renewed political uncertainty in the current period and after the expiration of the four-month extension agreement. Reiterate O/W Rating, Cut TPs by c35-60%; Alpha and NBG our Top-Picks Alpha (superior capital position & coverage) and NBG (better asset quality, liquidity & ROEs, strong Turkish franchise and increased capital enhancing potential from corporate actions) have outperformed their local peers and should continue to do so in the current volatile environment. That said, in a recovery scenario, we expect Eurobank (strong anchor investors & highest free-float vs relatively weaker profitability, capital quality and NPL coverage) and Piraeus (highest NPL book vs strong turnaround potential) to outperform Alpha and NBG. MCap Current TP ( ) Rating Upside Stock Performance (%) P/TBV (x) P/E adj. (x) Core Banks Ticker ( m) Price ( ) New Old (%) 3M 6M Y-t-D 2015e 2016e 2015e 2016e Alpha Bank ALPHA GA 4, O/W 38% -34% -52% -31% Eurobank EUROB GA 1, O/W 36% -53% -68% -41% n.m National Bank ETE GA 4, O/W 68% -27% -54% -19% Piraeus Bank TPEIR GA 2, O/W 64% -62% -72% -53% Source: Euroxx Research. Prices are as of March 9 Maria Kanellopoulou Financials kanellopoulou@euroxx.gr Vangelis Karanikas Head of Research vkaranikas@euroxx.gr Sector Update Greek Banking Sector Bumpy Road Ahead Please refer to important disclosures in the Disclosure Appendix.

2 Table 1. Greek Core Banks Key Estimates and Ratios e 2015e 2016e 2017e Alpha Bank Tangible Common Equity 7,129 7,859 7,998 8,447 9,182 Net income (adj.) (1) Adj. EPS ( ) (1) Adj. EPS Old ( ) NIM 2.51% 2.65% 2.65% 2.78% 2.91% RoTE (adj.)* n.m. n.m. 1.8% 5.5% 8.3% Cost/Income 60.4% 63.8% 50.9% 47.1% 43.8% (Net) Loans / Deposits 121.6% 117.7% 120.2% 121.9% 122.9% NPL ratio 32.7% 33.8% 33.5% 32.0% 28.9% Cost of Risk 3.56% 2.60% 1.60% 1.20% 0.90% Core Equity Tier 1 (CET1) ratio 16.1% 14.7% 14.9% 15.1% 15.3% Adj. P/E (x) n.m. n.m x 8.9 x 5.4 x P/TBV (x) 0.50 x 0.53 x 0.52 x 0.49 x 0.45 x Eurobank Tangible Common Equity 2,949 4,427 4,312 4,447 4,901 Net income (adj.) (1) -1,166-1, Adj. EPS ( ) (1) Adj. EPS Old ( ) NIM 1.78% 1.99% 2.01% 2.13% 2.24% RoTE (adj.)* n.m. n.m. n.m. 3.1% 9.7% Cost/Income 67.5% 57.8% 55.1% 51.2% 46.9% (Net) Loans / Deposits 109.8% 100.2% 102.2% 103.0% 105.0% NPL ratio 29.4% 33.9% 33.6% 32.1% 29.3% Cost of Risk 3.79% 4.20% 1.90% 1.50% 1.00% Core Equity Tier 1 (CET1) ratio (2) 11.3% 14.6% 14.1% 13.7% 11.5% Adj. P/E (x) n.m. n.m. n.m x 3.6 x P/TBV (x) 0.20 x 0.37 x 0.38 x 0.36 x 0.33 x National Bank Tangible Common Equity 4,052 7,598 8,056 8,834 9,996 Net income (adj.) (1) ,162 Adj. EPS ( ) (1) Adj. EPS Old ( ) NIM 2.93% 2.79% 2.78% 2.85% 2.95% RoTE (adj.)* 8.3% 2.6% 5.8% 9.2% 12.3% Cost/Income 68.2% 58.7% 54.2% 51.2% 47.9% (Net) Loans / Deposits 97.5% 94.3% 95.4% 97.0% 98.2% NPL ratio 22.5% 23.6% 23.4% 22.2% 19.5% Cost of Risk 2.31% 2.15% 1.60% 1.30% 1.00% Core Equity Tier 1 (CET1) ratio (2) 11.2% 15.6% 15.9% 16.1% 14.5% Adj. P/E (x) 15.9 x 27.2 x 9.2 x 5.4 x 3.6 x P/TBV (x) 2.28 x 0.55 x 0.52 x 0.48 x 0.42 x Piraeus Bank Tangible Common Equity 7,374 7,170 7,298 7,767 8,608 Net income (adj.) (1) -1,837-2, Adj. EPS ( ) (1) Adj. EPS Old ( ) NIM 2.05% 2.24% 2.28% 2.44% 2.61% RoTE (adj.)* n.m. n.m. 1.8% 6.2% 10.3% Cost/Income 76.7% 59.5% 54.7% 47.1% 41.4% (Net) Loans / Deposits 114.9% 103.1% 104.5% 105.0% 105.8% NPL ratio 36.6% 39.3% 39.0% 37.5% 34.2% Cost of Risk 3.50% 4.90% 1.30% 1.10% 0.90% Core Equity Tier 1 (CET1) ratio 13.9% 12.9% 13.2% 13.5% 14.0% Adj. P/E (x) n.m. n.m x 5.3 x 3.0 x P/TBV (x) 0.29 x 0.36 x 0.36 x 0.33 x 0.30 x Source: Euroxx Research (1) Excl. the negative goodwills of recent acquisitions, non-recurring income/integration costs, DTA and one-off capital gains. (2) For Eurobank and NBG we have assumed that the State preference shares repayment will take place within 2017e. Euroxx Research / Greek banking sector 2

3 Table of Contents Investment Thesis... 4 Q4 14e Results Preview... 8 Government s Policy on Greek Banks: Pre and Post Elections Top Management Reshuffling Subject to SSM Approval Potential Change of the Operating Model of the Greek Banks The HFSF Capital Buffer Returned to the EFSF Special Purpose Development Banks Funding & Performance Issues New NPLs Legal Framework Under Construction Extension of the Moratorium on Mortgage Repossessions Liquidity and Funding Conditions Under Pressure Deposits at Lowest Point Since the Outbreak of the Crisis Squeeze on Interbank Borrowing / Increased T-Bills / CHF Impact Greek Banks Blocked from Regular Funding Operations Greek Banks to Continue Depending on ELA Funding in the Short-Term Weakening Asset Quality Recovery Earnings Update Valuation Update COMPANY SECTIONS Alpha Bank Eurobank National Bank Piraeus Bank APPENDIX EU-Wide Stress Test IMPORTANT DISCLOSURES... 4 Euroxx Research / Greek banking sector 3

4 IMPORTANT DISCLOSURES Analyst Certification The analyst identified on the front page of this report and the Head of Research (Certified Analyst) certify that the written views about each company and security they cover reflects only their personal opinions and estimates and their compensation are not linked to any investment banking services provided by Euroxx. Risks and sensitivity The views and recommendations for all the companies that Euroxx Securities covers or refers to in the daily report have various levels of risk depending on company, industry and market events. Furthermore, our estimates for each company we cover are affected by various factors such as interest rates, inflation, local economic environment, market volatility, currency, management continuity or other company specific events. Investors should be informed that the investment strategies discussed or recommended in these reports may not be realised and each company may fail to reach its targets or the analyst s targets. Recommendation System Our recommendation system is based on the unbiased personal views of our analysts. The target prices have a time horizon of one year. Euroxx Securities S.A. aims in updating the covered companies on any new future material that may lead to a different recommendation but does not have a regular policy to update reports Rating Explanation Coverage Universe (#) in the last quarter Coverage Universe (%) % Companies covered that are investment banking clients Overweight Expected total return >10% 15 65% 0% Equalweight Expected total return betw een -10% and +10% 2 9% 0% Underweight Expected total return < -10% 0 0% 0% Under Review Recommendation and Target Price are subject to revision 6 26% 0% *The target price and rating have a time horizon of one year Investment recommendations are determined by the ranges described above at the time of initiation or review of coverage. Furthermore, the aforementioned ratings and target prices are subject to constant changes. Any unauthorised use, disclosure, copying, distribution, or taking of any action in reliance on these reports is strictly prohibited. Euroxx Securities S.A. and its employees are neither liable for the proper and complete transmission of these reports nor for any delay in their receipt. Euroxx Securities S.A. and its employees do not guarantee the accuracy of the research reports, while they are not responsible for any possible errors or omissions. Under no circumstances Euroxx suggests any buying or selling activity through this document. In producing its research reports, Euroxx Securities SA research departments may have received assistance from the subject company such as access to the company s sites, visits to certain operations of the subject company, meetings with management or employees and the handing by them of historical data regarding the subject company, as well as of all the publicly available information regarding strategy and financial targets. Other Important Regulatory Disclosures The information and opinions in this report were prepared by Euroxx Securities S.A., which is member of the Athens Exchange S.A. and regulated by the Hellenic Capital Market Commission. There is a separate location of analysts from Investment Banking, Capital Markets and Sales and Trading employees and research reports are produced away from them. The communication between the Research Department and the other departments of Euroxx Securities S.A. is restricted between the different departments. Note that "EUROXX Securities S.A. is regulated in Greece by the Hellenic Capital Market Commission, License No. 45/ /3. Valuation Method We value banks with a Gordon Growth Model. We assume that the adjusted P/BV should be equal to the theoretical P/BV, which is calculated as P/BV = (ROE-g)/(r-g), where ROE is the adjusted Return On Equity, g is the growth rate equal to the nominal growth of Greek economy and r is the required rate of return (Cost Of Equity). Disclosure checklist for companies mentioned in this report 1. As of the aforementioned date, Euroxx Securities S.A. does not own 5% or more of any common equity securities. 2. As of the aforementioned date, no listed companies own 5% or more of a class of common equity securities of Euroxx Securities S.A. 3. Euroxx Securities S.A. does not act as a market maker for any listed company. 4. Euroxx Securities S.A. may have provided investment services to the company and/or any of its shareholders during the last twelve months. Analysts and other persons participating in this research report have not been involved in the provision of such investment services and have not received any remuneration connected thereto. 5. Euroxx Securities S.A. has not sent the research report to the company prior to publication for factual verification. 6. Following 5, Euroxx Securities S.A. has not changed the contents of the initially sent research report. 7. Euroxx Securities S.A. has not received compensation from the company for the preparation of this research report. Euroxx Research / Greek banking sector 4

5 Rating History Alpha Bank 29/11/2011 Equalweight /4/2012 Equalweight 1.07 U/R 4/6/2013 Equalweight U/R 30/7/2013 Equalweight /11/2013 Equalweight /5/2014 Overweight /10/2014 Overweight /03/2015 Overweight Eurobank 21/11/2011 Equalweight 0.57 U/R 29/11/2011 Equalweight /4/2012 Equalweight U/R 20/3/2013 Drop of coverage Not Rated 19/5/2014 Overweight /10/2014 Overweight /03/2015 Overweight National Bank 1/12/2011 Equalweight /4/2012 Equalweight 1.78 U/R 4/6/2013 Equalweight 4.52 U/R 30/7/2013 Equalweight /11/2013 Equalweight /5/2014 Overweight /10/2014 Overweight /03/2015 Overweight Piraeus Bank 30/11/2011 Equalweight /4/2012 Equalweight U/R 4/6/2013 Equalweight U/R 30/7/2013 Equalweight /11/2013 Equalweight /5/2014 Overweight /10/2014 Overweight /03/2015 Overweight Euroxx Research / Greek banking sector 5

6 Research Vangelis Karanikas Maria Kanellopoulou Vangelis Pilios Sales George Polites Lambros Papadopoulos Ilias Dimitros George Lymberopoulos Christina Papakastrisiou Euroxx Securities S.A 7 Paleologou Str , Athens Euroxx Research / Greek banking sector 6