Merrill Lynch keeps neutral rating on three of Greece’s biggest banks

Merrill Lynch kept its neutral rating on Greece’s three largest banks ahead of second-quarter results, saying in a research note on Monday that despite double-digit loan growth, they trade at a premium to EU peers. «We remain neutral on the Greek banks. Despite double-digit loan growth expected through 2006 on average, we believe that Greek bank stocks do not seem to offer a great value to investors,» said Merrill analyst Denise Vergot Holle. National Bank, Alpha Bank and EFG Eurobank, which kick off the second-quarter earnings season later this week, were all rated «neutral.» The bank’s analysts said that with an average 2005 expected price-earnings ratio of 14.4 times, the Greek banks trade at a significant premium compared to the EU retail bank’s average multiple of 9.0 times. Merrill said Greek banks’ 2003-05 earnings per share growth rates of 21 percent were in line with the European retail average, while their average return on equity of 14 percent trailed the European average of 20 percent. «In our view, it is difficult to justify this premium,» the note said. Merrill kept its «sell» rating on shares of Emporiki Bank despite their recent underperformance, saying investors would need to wait until 2006 to see the bank’s turnaround generate a return on equity near 10 percent. «On average, we forecast a 17 percent year-on-year rise and a 7.0 percent quarter-on-quarter decline in second-quarter pretax profit from ordinary activities. Trading income is projected to drop an average 48 percent from the exceptionally strong first-quarter result,» Merrill said, referring to the Greek banking sector. (Reuters)