Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Thematic (Sector/Industry)

Piraeus dedicates itself mainly to corporate credit (64% of loans) but also to the consumer segment (36%), backed by CASA funding (71% of deposits) and wholesale markets. The bank commands a 31% and 29% share, respectively, of Loans and Deposits in Greece. Piraeus is especially strong in Northern Greece where it holds a 40% share of all credit.The bank endured a torrid 2020 with Capitalization coming under renewed pressure and modest progress in bringing Asset Quality under better control : true, Asset Quality is much better than at the NPE peak in 2015. FY20/19 results show adverse fundamental momentum and trends with deterioration in Profitability, in NIM, in headline Asset Quality, in Provisioning, and in Capital Adequacy though Efficiency and Liquidity both improved. Management states that it in phase 3 of a strategic plan which now focuses on digitalization, credit expansion, operating efficiency, and a “radical” NPE clean-up.  Management believes that in this phase with the support of shareholders, the bond market, and the government, it can reach sunnier climbs. The bank’s "Sunrise Plan" targets a single-digit NPE ratio over the next 12 months and a share capital increase of some €1.0 billion. The group plans to achieve a single-digit NPE ratio in the next 12 months and &lt; 3% in the medium term. The aim is to get NPEs to about €3.6 billion in the next 12 months and to €1 billion in the medium term from €22.5 billion at FY2020. The NPE reduction plan depends on securitization and derecognition of NPEs with an estimated gross book value of up to €19 billion, including the Phoenix and Vega projects. The incremental NPE securitizations, Sunrise 1 and Sunrise 2, totaling €7 billion and €4 billion, respectively, will be carried out using Greece's Hellenic Asset Protection Scheme 2. Senior notes of roughly €6.5 billion from the “HAPS” transactions will be retained by Piraeus Bank, while it may distribute the majority of the mezzanine and junior notes to shareholders of Piraeus Financial Holdings. The group also intends to sell up to €1.5 billion of NPEs outside “HAPS” to further de-risking initiatives. To complement the aforementioned €1 billion non-preemptive fully marketed offering of shares, the group also plans to issue as much as €600 million of Additional Tier 1 bonds. Piraeus Bank SA also agreed to carve out and sell its merchant acquiring business unit to Euronet Worldwide for €300 million, which will also bolster capital further. Looking ahead, Piraeus is shooting for a CAR of &gt; 16% and a ROTE of &gt; 10%.<div class="content-highlight">A FV of 1% and a PBV of 0.05x are in the global bargain basement. The bank has a bottom quartile PH Score™ (2.2). News flow on a dilutive capital raise have reduced RSI to quite low levels and share price underperformance versus better quality peers is now extreme. If management executes its plan, shares in this rich franchise will be worthwhile at some stage this year with a long-term patient mindset.</div>

Piraeus dedicates itself mainly to corporate credit (64% of loans) but also to the consumer segment (36%), backed by CASA funding (71% of deposits) and wholesale markets. The bank commands a 31% and 29% share, respectively, of Loans and Deposits in Greece. Piraeus is especially strong in Northern Greece where it holds a 40% share of all credit.The bank endured a torrid 2020 with Capitalization coming under renewed pressure and modest progress in bringing Asset Quality under better control : true, Asset Quality is much better than at the NPE peak in 2015. FY20/19 results show adverse fundamental momentum and trends with deterioration in Profitability, in NIM, in headline Asset Quality, in Provisioning, and in Capital Adequacy though Efficiency and Liquidity both improved. Management states that it in phase 3 of a strategic plan which now focuses on digitalization, credit expansion, operating efficiency, and a “radical” NPE clean-up.  Management believes that in this phase with the support of shareholders, the bond market, and the government, it can reach sunnier climbs. The bank’s "Sunrise Plan" targets a single-digit NPE ratio over the next 12 months and a share capital increase of some €1.0 billion. The group plans to achieve a single-digit NPE ratio in the next 12 months and &lt; 3% in the medium term. The aim is to get NPEs to about €3.6 billion in the next 12 months and to €1 billion in the medium term from €22.5 billion at FY2020. The NPE reduction plan depends on securitization and derecognition of NPEs with an estimated gross book value of up to €19 billion, including the Phoenix and Vega projects. The incremental NPE securitizations, Sunrise 1 and Sunrise 2, totaling €7 billion and €4 billion, respectively, will be carried out using Greece's Hellenic Asset Protection Scheme 2. Senior notes of roughly €6.5 billion from the “HAPS” transactions will be retained by Piraeus Bank, while it may distribute the majority of the mezzanine and junior notes to shareholders of Piraeus Financial Holdings. The group also intends to sell up to €1.5 billion of NPEs outside “HAPS” to further de-risking initiatives. To complement the aforementioned €1 billion non-preemptive fully marketed offering of shares, the group also plans to issue as much as €600 million of Additional Tier 1 bonds. Piraeus Bank SA also agreed to carve out and sell its merchant acquiring business unit to Euronet Worldwide for €300 million, which will also bolster capital further. Looking ahead, Piraeus is shooting for a CAR of &gt; 16% and a ROTE of &gt; 10%.A FV of 1% and a PBV of 0.05x are in the global bargain basement. The bank has a bottom quartile PH Score™ (2.2). News flow on a dilutive capital raise have reduced RSI to quite low levels and share price underperformance versus better quality peers is now extreme. If management executes its plan, shares in this rich franchise will be worthwhile at some stage this year with a long-term patient mindset.

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul class="">
<li>The new CaixaBank has established the composition of its Board of directors, which will be the largest domestic bank in Spain.</li>
<li> The independent expert (BDO) has endorsed the exchange ratio,
<ul>
<li>
0.6845 new CaixaBank shares for each Bankia share.</li>
</ul>
</li>
<li>The FROB believes that the operation will have a positive effect on the recovery of the aid.</li>
</ul>
I recommend keeping an eye on the spread.
<ul>
<li>It closed on 27 October at 1.66% (gross), not far from the maximum reached on 20 October of 1.73%, and in any case an interesting level for a deal that will certainly close (est. March 2021).
</li>
</ul>
Further catalysts post-merger are (increased) dividend payouts and the exit in the short to medium term of the Kingdom of Spain from the capital of the merged entity.
M&amp;A consolidation seems as a reasonable way to reduce costs and protect profits. These can be among domestic banks or, much to the liking of the ECB, between banks domiciled in different EU countries that share common markets, and would create European champions (see list of banks that appear in many rumours at the end of the note).


The new CaixaBank has established the composition of its Board of directors, which will be the largest domestic bank in Spain.
 The independent expert (BDO) has endorsed the exchange ratio,


0.6845 new CaixaBank shares for each Bankia share.


The FROB believes that the operation will have a positive effect on the recovery of the aid.

I recommend keeping an eye on the spread.

It closed on 27 October at 1.66% (gross), not far from the maximum reached on 20 October of 1.73%, and in any case an interesting level for a deal that will certainly close (est. March 2021).


Further catalysts post-merger are (increased) dividend payouts and the exit in the short to medium term of the Kingdom of Spain from the capital of the merged entity.
M&amp;A consolidation seems as a reasonable way to reduce costs and protect profits. These can be among domestic banks or, much to the liking of the ECB, between banks domiciled in different EU countries that share common markets, and would create European champions (see list of banks that appear in many rumours at the end of the note).

Bankia - CaixaBank: Merger in Progress, Spread Attractive

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Continued crowding-into US$- denominated credit is the likely outcome of the Fed’s Secondary Market Corporate Credit Facility.  The details of the SMCCF are important to determining its likely impact. We find as follows:<ol>
<li>$250 billion in corporate bonds may be purchased in the secondary market if all bonds are investment grade at the time of purchase.</li>
<li>non-investment grade bonds will be bid in the market as the Fed primarily focuses on purchasing investment grade corporate debt.</li>
<li>high-yield bonds may be purchased by the Fed at the margin.</li>
<li>bonds of non-US based companies will be bid in the market as the Fed purchases US company-based bonds.</li>
<li>
investors are left to crowd-into US bank holding company debt.  As this debt gets bid away, investors will be pushed into non-US bank debt.</li>
</ol>However, the Fed is not the only game in this town. US Money Market Funds remain US$ 1 trillion higher than before the Coronavirus crisis drove risk-off sentiment into these assets.  Invested almost exclusively in US$ government securities, these assets represent dry powder available for re-investment into risk-assets.In this note, the first of a trilogy on expectations for Asia-headquartered bank credit performance during the second half of 2020, we examine the forces pushing investors back into the market and we consider the potential negative and positive implications for financial markets broadly.

Continued crowding-into US$- denominated credit is the likely outcome of the Fed’s Secondary Market Corporate Credit Facility.  The details of the SMCCF are important to determining its likely impact. We find as follows:
$250 billion in corporate bonds may be purchased in the secondary market if all bonds are investment grade at the time of purchase.
non-investment grade bonds will be bid in the market as the Fed primarily focuses on purchasing investment grade corporate debt.
high-yield bonds may be purchased by the Fed at the margin.
bonds of non-US based companies will be bid in the market as the Fed purchases US company-based bonds.

investors are left to crowd-into US bank holding company debt.  As this debt gets bid away, investors will be pushed into non-US bank debt.
However, the Fed is not the only game in this town. US Money Market Funds remain US$ 1 trillion higher than before the Coronavirus crisis drove risk-off sentiment into these assets.  Invested almost exclusively in US$ government securities, these assets represent dry powder available for re-investment into risk-assets.In this note, the first of a trilogy on expectations for Asia-headquartered bank credit performance during the second half of 2020, we examine the forces pushing investors back into the market and we consider the potential negative and positive implications for financial markets broadly.

Crowding-In and Asia Bank Credit: The Context for H2 Expectations

In this insight, we take a look at Greek banks and place them in the context of an improving pre-COVID 19 economy, a supportive post-COVID-19 monetary system, and a potential game-changer in "HAPS", a GACS equivalent (Italy's Guarantee on Securitization of Bank Non-Performing Loans).COVID-19 comes as a cruel blow to all of us but Greece can feel especially aggrieved after taking measures at enormous cost "to put its house in order" during a torturous decade of economic and social depression. With the opening of the economy and dismantling of  bureaucracy by New Democracy,  green shoots were appearing and confidence was on the rise prior to COVID-19 while NPL-ridden banks were preparing strategies to use "HAPS", the Hellenic Asset Protection Scheme, modeled on GACS in Italy in order to strengthen their suffocated Balance Sheets. "HAPS" requires demand for risky assets and the latest global risk-asset car crash is just what the banks did not want.As always, we look at things through a valuation lens. The market is pricing in that "HAPS" does not get done in full or at least is very partially excecuted and/or Greek banks will require more capital from somewhere: in recent years, they have been active users of the international debt markets. We believe that this may be too pessimistic though delays are probable. The key known unknown is of course COVID-19 and the duration of economic lockdown. Greek banks are cheap: as you would expect. However, valuation is accompanied by fundamental progression - a good sign- though we stress earnings quality could be better.<div class="content-highlight">On a Franchise Valuation, Greek Banks are lowly rated.</div>    Piraeus Bank 1%    National Bank of Greece 2%    Alpha Bank 2%    Eurobank 3%<div class="content-highlight">On a P/B basis, Greek Banks are lowly rated.</div>    This shows a deep risk of growth and growth of risk.       Piraeus Bank 0.1x    Alpha Bank 0.1x    National Bank of Greece 0.2x    Eurobank 0.2x<div class="content-highlight">PH Score™: rankings are positive in general</div>Piraeus 10Eurobank 7.3Alpha 7.2National Bank of Greece 4.6<div class="content-highlight">The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. </div>

In this insight, we take a look at Greek banks and place them in the context of an improving pre-COVID 19 economy, a supportive post-COVID-19 monetary system, and a potential game-changer in "HAPS", a GACS equivalent (Italy's Guarantee on Securitization of Bank Non-Performing Loans).COVID-19 comes as a cruel blow to all of us but Greece can feel especially aggrieved after taking measures at enormous cost "to put its house in order" during a torturous decade of economic and social depression. With the opening of the economy and dismantling of  bureaucracy by New Democracy,  green shoots were appearing and confidence was on the rise prior to COVID-19 while NPL-ridden banks were preparing strategies to use "HAPS", the Hellenic Asset Protection Scheme, modeled on GACS in Italy in order to strengthen their suffocated Balance Sheets. "HAPS" requires demand for risky assets and the latest global risk-asset car crash is just what the banks did not want.As always, we look at things through a valuation lens. The market is pricing in that "HAPS" does not get done in full or at least is very partially excecuted and/or Greek banks will require more capital from somewhere: in recent years, they have been active users of the international debt markets. We believe that this may be too pessimistic though delays are probable. The key known unknown is of course COVID-19 and the duration of economic lockdown. Greek banks are cheap: as you would expect. However, valuation is accompanied by fundamental progression - a good sign- though we stress earnings quality could be better.On a Franchise Valuation, Greek Banks are lowly rated.    Piraeus Bank 1%    National Bank of Greece 2%    Alpha Bank 2%    Eurobank 3%On a P/B basis, Greek Banks are lowly rated.    This shows a deep risk of growth and growth of risk.       Piraeus Bank 0.1x    Alpha Bank 0.1x    National Bank of Greece 0.2x    Eurobank 0.2xPH Score™: rankings are positive in generalPiraeus 10Eurobank 7.3Alpha 7.2National Bank of Greece 4.6The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. 

Greek Banks: It's All About "HAPS" And that Requires Risk Appetite

Liquidity changes everything. Liquidity dominated global credit markets this week creating a FOMO (fear of missing out) investor environment, despite a rising real economy impact from the novel coronavirus (nCov-2019). As the week ended, the US Labor Department reported that wages rose by only 3.1% year-over-year. The moderate level of wage growth suggests no need for the Fed to guide interest rates higher in the near term. With liquidity and rates driving credit markets, there may be bigger risks than the coronavirus for investors this year, such as the US elections. Nonetheless, the snap back in risk sentiment suggest to us that long-term credit buying opportunities remain but may be fleeting. In the primary market, debt issuance remained tepid in Asia although <a href="https://www.smartkarma.com/entities/cssc-hong-kong-shipping-co-l" target="_blank" rel="noopener" data-smartkarma-citation="entities:28068:1">CSSC (Hong Kong) Shipping Co Ltd (3877 HK)</a> and <a href="https://www.smartkarma.com/entities/indian-railway-finance-corporation" target="_blank" rel="noopener" data-smartkarma-citation="entities:28417:1">Indian Railway Finance Corporation (INFZ IN)</a> priced deals in the US dollar market. This could lead to more deals next week. Concurrently, <a href="https://www.smartkarma.com/entities/malayan-banking-bhd" target="_blank" rel="noopener" data-smartkarma-citation="entities:600:1">Malayan Banking (MAY MK)</a> brought a three-tranche deal worth ¥61billion ($556 million) into Japan’s Samurai market. Among high yield debt issuers, the Republics of Ghana and Turkey took advantage of risk-on sentiment to attract demand for their B3 and B1 rated bonds, respectively. However, the clearest signal that the market may be drowning in liquidity comes from <a href="https://www.smartkarma.com/entities/alpha-bank-ae" target="_blank" rel="noopener" data-smartkarma-citation="entities:22601:1">Alpha Bank AE (ALPHA GA)</a>.In this week's report, we assess recent credit spread movements, compare Hong Kong bank Additional Tier 1 bond performance and highlight bank debt capital new issuance that may have implications for Asian bank debt.

Liquidity changes everything. Liquidity dominated global credit markets this week creating a FOMO (fear of missing out) investor environment, despite a rising real economy impact from the novel coronavirus (nCov-2019). As the week ended, the US Labor Department reported that wages rose by only 3.1% year-over-year. The moderate level of wage growth suggests no need for the Fed to guide interest rates higher in the near term. With liquidity and rates driving credit markets, there may be bigger risks than the coronavirus for investors this year, such as the US elections. Nonetheless, the snap back in risk sentiment suggest to us that long-term credit buying opportunities remain but may be fleeting. In the primary market, debt issuance remained tepid in Asia although CSSC (Hong Kong) Shipping Co Ltd (3877 HK) and Indian Railway Finance Corporation (INFZ IN) priced deals in the US dollar market. This could lead to more deals next week. Concurrently, Malayan Banking (MAY MK) brought a three-tranche deal worth ¥61billion ($556 million) into Japan’s Samurai market. Among high yield debt issuers, the Republics of Ghana and Turkey took advantage of risk-on sentiment to attract demand for their B3 and B1 rated bonds, respectively. However, the clearest signal that the market may be drowning in liquidity comes from Alpha Bank AE (ALPHA GA).In this week's report, we assess recent credit spread movements, compare Hong Kong bank Additional Tier 1 bond performance and highlight bank debt capital new issuance that may have implications for Asian bank debt.

Asian Bank HY Credit Weekly: Liquidity Overpowers Coronavirus in Credit

Greece

Alpha Bank SA provides commercial banking services. The Bank offers lease financing, insurance, corporate banking, asset management, private banking, investment banking and securities brokerage, venture capital, portfolio management, payment systems, consulting, and real estate management services.

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Alpha Bank AE (ALPHA GA)

Piraeus: Goodbye 2020, Hello Sunrise

Piraeus struggled in 2020 and news of a capital increase have clobbered shares. We do though see deep value over the long-term - if they execute on...

Paul Hollingworth

Bankia - CaixaBank: Merger in Progress, Spread Attractive

I recommend keeping an eye on the spread. It closed today (27 October) at a gross 1.66%, an interesting level for a deal that will certainly close...

Jesus Rodriguez Aguilar

Crowding-In and Asia Bank Credit: The Context for H2 Expectations

Continued crowding-into US$- denominated credit is the likely outcome of the Fed’s Secondary Market Corporate Credit Facility. The details of the...

Hank Calenti, CFA

Greek Banks: It's All About "HAPS" And that Requires Risk Appetite

In this insight, we take a look at Greek banks and place them in the context of an improving pre-COVID 19 economy, a supportive post-COVID-19...

Paul Hollingworth

Asian Bank HY Credit Weekly: Liquidity Overpowers Coronavirus in Credit

Liquidity changes everything. Liquidity dominated global credit markets this week creating a FOMO (fear of missing out) investor environment,...

Hank Calenti, CFA

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