How Greece’s banks became the darlings of foreign funds

The current market value of shares of the five largest Greek banks held by foreign institutional investors is estimated at 6 billion euros, which represents about 23 percent of their total capitalization. Such investors have been steadily increasing their positions in Greek banks since last year and demand remains strong, coinciding, recently, with a proliferation of reports by foreign investment houses that have been steadily increasing the share target prices for the banks. The strong interest was evidenced by the successful placement by the government of its remaining 7.46 percent interest in the National Bank of Greece (NBG) on Thursday. The offering was oversubscribed within four hours of the opening of the book-building procedure and was more than twice oversubscribed in the end. This strong interest is not surprising, given Greek banks’ large growth potential. The banking system’s degree of penetration in the economy is significantly lower than the European Union average. Total lending as a percentage of gross domestic product (GDP) is about 66.3 percent, against an EU average of 116 percent. Corporate lending stands at 40 percent of GDP (against 67.6 percent) and consumer and mortgage credit represent 26.3 percent of GDP (against 48.4 percent). Moreover, Greek banks have invested heavily in the neighboring Balkan countries which have promising growth prospects. Foreign institutionals and banks already own about 30 percent of Alpha Bank, 25 percent of NBG, 23 percent of Piraeus Bank, 18 percent of EFG Eurobank Ergasias and 7 percent of Emporiki Bank. In most cases, their holdings exceed those of domestic institutional investors and their interest looks to be rising. The trend poses a number of serious implications for Greek banks, as the foreign investors have high expectations regarding performance, consistency, transparency and principles of corporate governance. It is no doubt a challenge for Greek banks to make their investors retain the shares in their portfolios. To be sure, Greek banks have not been lying idle in recent years, with them all giving considerable weight to briefing foreign investors, particularly by way of roadshow presentations in Europe, America and Asia. Fears overcome The foreign funds that systematically began buying Greek banks last year have been realizing good profits and this has naturally attracted more of them. Meanwhile, the uncertainty regarding the success of the Olympic Games which once cast its shadow on the Athens bourse has now gone. Many funds, despite recognizing that Greek banks were more or less an oasis of growth in Europe, shied away, fearing failure of the Games or a possible terrorist attack. After the spectacular success of the Games, and with the credibility of the country vastly improved, they are making haste to take up positions at an even higher cost than previously. And, given the low liquidity of the Greek market, even moderate placements lead to considerable rises in share prices. Investment bank JP Morgan began monitoring Greek shares last summer, Credit Suisse First Boston inaugurated its Greek section a few days ago, Merrill Lynch has strengthened its analysis section of Greek banks and Keefe Bruyette & Woods is also reported to have placed Greece on its roster. Investors see convergence with the European Union average, which can translate into hundreds of millions of euros in the next three years.