Greece’s banks cap a remarkable comeback

The European IPO window is inching open with some difficulty, if the slump of Germany’s Douglas on its stock market return is any indication. But in one European country, shares have been flying off the shelves.

Greece’s bank bailout fund last month sold 27 per cent of Piraeus Bank for €1.35bn. It received enough demand to cover the secondary sale soon after opening the book, and priced the deal at a slight premium to the share price before it was announced. This followed the initial public offering of Athens airport in February. At the end of last year, the government sold stakes in National Bank, Eurobank and Alpha Bank.

Greece is an unlikely market darling. But the country has staged a remarkable recovery following the financial crisis, with wages falling, competitiveness improving and gross domestic product growing healthily. The domestic stock market index, the ASE, is up almost 40 per cent over the past year, outperforming the S&P 500. Its 10-year debt yields 3.2 per cent, well below Italy’s at 3.6 per cent and the UK’s at 4 per cent.

This recovery has benefited its banks, in particular. The sector has cut its cost base to well below the European average. Non-performing loans have fallen to 5 per cent, down from a peak of perhaps 40 per cent. Returns on equity are in the double digits, trending towards the European average.

This, coupled with valuations at about 6 times forward consensus earnings, and a 15 per cent discount to the European average, explains why investors have been so keen on recent stake sales.

Greek banks, with floating loans and sticky deposits, have benefited from rising interest rates. They may be less sensitive to the coming downcycle. There are signs that some hedging has been put in place, pushing out the pain point. Indeed, net interest income is expected to be flat this year, says Jefferies. And, arguably, Greek banks, which operate in a consolidated market with four main operators, deserve a structural premium to their peer group.

That, of course, assumes the Greek economy continues to do well. The country remains highly indebted and reliant on tourism revenues, which boomed post-Covid. But with EU funds worth 17 per cent of GDP earmarked for its reconstruction and recovery, and a highly regarded government in place, the country may well produce sunny newsflow in the coming year, too.

camilla.palladino@ft.com

Letter in response to this article:

GDP growth and rising wages — Greece steps up / From Professor Costas Milas, University of Liverpool Management School, Liverpool, UK