Bank stocks revert to the levels of the last share capital increase

The completion of the second bailout review has led credit sector stocks to 12-month highs. The new agreement between Athens and its creditors has put banking stocks back on investors’ radar screens as expectations that this could mean the crisis is bottoming out have strengthened.

Having suffered huge losses in recent years, as the recapitalizations sent old shares down to zero, bank stocks could be at the forefront of the market reaction should expectations for an economic recovery prove correct. The gains of the last few months effectively constitute the recovery of ground lost rather than real gains, as bank stocks remain more or less at the price levels during the last recapitalization of late 2015.

National Bank closed at 0.344 euros on Tuesday – i.e. above the 0.30-euro level of the share capital increase, and Alpha closed at 2.18 euros, against 2 euros upon recapitalization. Eurobank and Piraeus are close to their share capital increase level, with the former at 0.97 euros on Tuesday from 1 euro upon recapitalization, and the latter at 0.221 euros against 0.30 euros when it increased its shares.

The low valuations of Greek lenders compared to their European peers are an attractive feature that could lead to a strong rise in prices, particularly if the economy offers some positive developments.

Analysts estimate that domestic bank stocks will trade on a price-to-book ratio of 0.2-0.4 in 2018, while the ratio for European lenders is almost twice as high. On the other hand the huge pile of nonperforming loans is a major headache, because if banks fail to meet their targets for reducing NPLs they may find themselves in trouble ahead of the 2018 stress test.