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Greek bank shares rally in February as long-only investors increase positions

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Greek bank shares rally in February as long-only investors increase positions

Shares in Greece's "big four" banks rallied in February due to expectations of benign changes to the country's bankruptcy law, and a handful of high-profile, long-only investors increasing their positions, analysts said.

The share prices of Alpha Bank AE, National Bank of Greece SA, Eurobank Ergasias SA and Piraeus Bank SA all rose over the course of the month, with Piraeus leading the way with shares climbing from 57 euro cents at close Feb. 1 to €1.23 on Feb. 28. The rally extended into March, too, as Piraeus stock increased 12.9% to €1.40 on the day of March 6, while National Bank of Greece was up by around 7.4% and the other two rose by more than 3%.

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For Jonas Floriani, director at Axia Ventures Group, investors may have been reacting reacted favorably to forthcoming bankruptcy legislation that will replace Greece's so-called Katseli Law.

The Katseli Law, or Law 3869, came into effect in 2010 in the immediate aftermath of the global financial crisis, and gave Greek debtors certain protections against losing their primary residence. The law, intended to protect vulnerable households, was a temporary provision and reached the end of its life at the end of February. The government is now finalizing a new law, which has involved a delicate balance of giving leeway to certain categories of indebted borrowers — with a view to turning their underwater loans into performing ones — on the one hand, and deterring strategic defaulters on the other.

News reports suggest that banks have come to an understanding with the government about the new framework, although full details of the revamped Katseli Law have yet to be made public. So far, it appears that debtors who have gone into arrears will be eligible for a haircut on their loans when their loans exceed 120% of the value of their primary residence, according to a Feb. 15 report from Reuters. The government will also be subsidizing some of the most vulnerable borrowers to the tune of around €150 million in 2019, rising to €200 million per year in subsequent years, according to the report.

Expectations for a positive impact on banks from the new bankruptcy law are "universally high," according to a Feb. 25 note from the team of analysts at Morgan Stanley.

Stricter criteria

Criteria for debtor protection under the new law may become stricter — with lower thresholds for household income and property value and automatic loss of protection after three missed payments — but the new legislation may be expanded to cover business loans that use a primary residence as collateral, according to Morgan Stanley. But on balance, the new law is shaping up to be a positive for Greek banks, the note concluded.

Greek banks are still shouldering a major burden of toxic debts, with nonperforming exposures totaling €88.6 billion as of the end of June 2018, according to Bank of Greece data. This is equal to 47.6% of overall loans in the the Greek banking sector.

But another less obvious factor may have lifted Greek bank shares in February, according to Floriani: An increase in positions by long-only investors.

British-based RWC Asset Management LLP's holding in Eurobank reached 5.23% of ordinary shares on Feb. 21, the bank said Feb. 28. This compares with 0.92% of shares held by RWC in Eurobank as of end-June 2018, according to S&P Global Market Intelligence data.

Schroders PLC's holding in Alpha Bank also crossed the 5% mark, increasing its position to 5.03% of total voting rights, according to a Feb. 12 bank statement. This compares with 2.96% as of end-December 2018 (split between Schroders PLC-controlled Schroder Investment Management North America Inc. and Schroder Investment Management Ltd.), according to S&P Global Market Intelligence data.

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Greece's "big four" banks tend to have an international base of shareholders. Alpha Bank has 36 U.S.-based shareholders holding 11.57% of common outstanding shares between them and 21 U.K.-based, holding 4.23%, compared with 17 Greek-based shareholders holding 3.32%, according to S&P Global Market Intelligence data. Eurobank has 32 U.S.-based shareholders holding 19.01% of common shares outstanding, and 14 U.K.-based shareholders owning 2.90%, compared with 16 Greek shareholders controlling 3.15%.

"We saw quite a lot of trading volume in February, including a handful of transactions from hedge funds that weren't participating in the market at all before," Floriani said in an interview.

Investors may have taken a decision to get into the "relatively cheap" shares of Greek banks in anticipation of positive developments in the market, he said.

Eurobank is the first of the big Greek banks to report full-year 2018 results, with results due in the afternoon of March 7.