National Bank of Greece: Dull Earnings Never Looked So Good (NBG)

National Bank of Greece SA (NYSE: NBG) may be one of the poster children for the troubled banking sector in the PIIGS, but the huge earnings decline is actually good news.  When was the last time a 68% profit drop sounded good?  The company’s loan loss provisions, write-offs, and trading losses all added to the cut in profits.  Still, NBG earned 126 million Euros after a 335 million bad loan loss provision.  The first and second quarter has also seen nearly 250 million Euros in trading losses from Greek government bonds.

If you look through the results, the Greek bank actually has Turkey and its neighboring states to thank for its profits.  The profit and loss items on an attributable profit was 146 million Euros.  Of that 146 million, Greece was -159 million, Turkey was +251 million, and S.E. Europe and Cyprus was +54 million.

Dow Jones had an estimate of roughly 120 million Euros, although we have not seen how many research report that includes.

Here is the issue at hand.  Despite all the woes, despite all the piggies in the PIIGS, despite all the strife in Greece, the bank is still profitable.  The CE) discussed the resilience of its core sources of profits in Greece along with growth of Finansbank in Turkey and a stabilizing economic situation in South-eastern Europe.  He further noted that this “improves the outlook for profitability in the rest of the year.”

Improves the profit outlook?  If you have been watching the banks in the lands of the PIIGS, who would have even really expected a profit?  Really.  This loosely coincides with a fresh analyst upgrade from Goldman Sachs just yesterday.

When you compare the results, this was 126 million Euros in profit on 335 million in provisions versus 391 million Euros profit on loan loss provisions of 260 million.  The trading losses of -249 million Euros in the first half of 2010 also compares to a gain of 272 million Euros during the first half of 2009.

The PDF of the earnings release further notes: “Tier I capital adequacy ratio stands at 10.5% or 10.7% if the recent issue of a €450 million subordinated note is included in calculations, making NBG one of the best capitalized banks in Europe.”

On the stress tests: “According to the results of the stress test, under the worst case scenario the estimated Tier 1 capital adequacy ratio would be in the order of 9.6% in 2011 compared with 11.3% at the end of 2009. After taking into consideration additional impairments totaling €2 billion arising from sovereign risk, the ratio stands at 7.4% at the end of 2011, which is above the minimum 6% required by the ECB exclusively for the purposes of this exercise… According to the results of the stress test, under the worst case scenario the estimated Tier 1 capital adequacy ratio would be in the order of 9.6% in 2011 compared with 11.3% at the end of 2009. After taking into consideration additional impairments totaling €2 billion arising from sovereign risk, the ratio stands at 7.4% at the end of 2011, which is above the minimum 6% required by the ECB exclusively for the purposes of this exercise.”

The loan to deposit ratio was 103% at the end of June, up from 94% a year earlier.  Net interest margin was 398 basis points, down only 10 basis points from 408 a year ago.  Frankly, our own views would have been even more muted on expectations than what Dow Jones noted.  The way this stock has been treated, any earnings at all would have been ‘good enough’ in a world where Doubting Thomas runs the show.

Trading today is evidence of just how slow Fridays can be at the end of August.  The ADRs are trading up 5.2% at $2.63 versus a 52-week trading range of $2.11 to $8.37.  The problem is the underwhelming trading” 1.25 million shares just before noon versus an average daily trading volume of more than 3.5 million.

The stock is now fighting its 50-day moving average of $2.63, but the 200-day moving average is all the way up at $3.84.  The highest this stock went in the July recovery was just above $3.20 and that was technically at the start of August.

Here is the full PDF to show the overall tone of the report.  Tell us what you think in a quick confidential survey: BUY or SELL….

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JON C. OGG