Sunday, June 27, 2010

Uber Contrarian Trade: National Bank of Greece

Europe Union is engulfed in one of the deepest crisis it has ever seen since its creation, Greece is right in the epic centre of this crisis of national debt.  Inevitably, the biggest lender in Greece - National Bank of Greece (NYSE: NBG), has seen its share price beaten down from a high of $8.37 in Oct last year to just a dime away from its March 2009 down of $2.09 (See chart below). 

The stock is much hated, and bad news just came out that the European bank stress test showed NBG may have to raise up to 5.3 billion euros to recapitalize if the crisis deepens (ie. Greek government defaults on its debt).   The stock is currently trading at around 4x its 2009 earnings, and expect to go up to around 9x its 2010 earnings due to a fall in its earnings. 

The stock fell close to its March 2009 low and bounced back, and now is again on its way to test its March 2009 low.  If the price bounces back successfully from the March 2009 low, then it will be worth considering buying some.  The bank is actually in not so bad shape, 46% of its revenue came from its Turkish operation last year.  Turkey's economy condition is better than Greece, and ranks higher (61st) than Greece (71st) in terms of transparency in banking industry.  The bank's total holding of Greek Government Bond (GGB) is about 19 billion euros. 

Looking at the chart, you may notice the volume peaked on April 27th, 2010 (56 millions), then subsequently contracts to a low of about only 2 million shares per day.  The volume contraction accompanying the price fall is a good sign that the bottom might be close. 

If the stock breaks down from its March 2009 low of $2.09, and continues its downward path, it will be interesting to see when the reversal, or the bottom, will be hit. 

If you buy into this counter, it will be an uber contrarian trade and the potential return may be rewarding too. 

We will re-visit this counter a month from now and see how it has developed. 

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