Runaway bank stocks?

The continuing rally of the shares of the «big five» Greek banks has been defying many analysts and even senior bank staff who have been saying they are overvalued for several months now. National Bank (NBG), Alpha Bank, Eurobank, Emporiki and Piraeus Bank are now trading at an average of about four times their book value, more than double the average valuations in the rest of Europe. How much longer it can continue. Most market pundits believe that such potential is limited, despite the upbeat prospects of further credit expansion, especially in the neighboring Balkan countries, and privatizations in the making. Common sense dictates that bank share prices have been rising for the fourth consecutive year. This cannot go on indefinitely. What is certain is that the rally has been acting as a magnet for speculative capital to the «Greek party.» However, speculative funds are particularly volatile and can create strong and sudden pressures on a market as a whole when they consider they have found better opportunities elsewhere. An additional factor that begs caution is that foreign institutional investors have been building their positions in Greek blue chips since the 2002 market lows – accounting for about 40 percent of NBG’s free float now for instance – and can go on selling for months and still realize a profit. Stock valuations have now risen so much that only small percentage changes in their prices generate profits of millions of euros. For instance, a 5 percent rise in NBG’s share price means an increase of 650 million euros in its capitalization – equal to the current market value of Geniki Bank, a smaller competitor. The share of Alpha Bank, Greece’s second largest, rose about 4 percent on Thursday, which meant a gain of 330 million euros in just one day. Aggressive speculation Eurobank’s share became the object of unusually aggressive speculation (for a bank) at the end of last month, with sharp fluctuations largely caused by rumors that BNP Paribas was eyeing a large stake in it. The speculative run subsided when Eurobank, responding to a letter by the Capital Market Commission during the trading session, issued a statement of denial. Senior bank executives, such as Christos Vassiliadis of Citibank and Jacques Tournebiz of Geniki, recently pointed out that the present high valuations of Greek banks are almost prohibitive for foreign buyers. Others will insist that given the current conditions of abundant liquidity nothing can be ruled out.

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