National Bank of Greece Undervalued

National Bank of Greece (ETE, Financial),(NBGA, Financial),(NBG, Financial) is a global banking and financial service company with its headquarters in Athens, Greece. The bank offers financial products, and services, brokerage, insurance, asset management, shipping finance, leasing and factoring markets. It was founded by Swiss banker Jean-Gabriel Eynard and George Starvros in 1841 as a commerical bank. From its inception until the establishment of the Bank of Greece in 1928, it had the right to issue banknotes. The bank listed on the Athens Stock Exchange right after its founding in the 1880s.

Company history and operations

The bank was formed in 1841 in Athens, making it the oldest bank in the country. It wasn't government owned from its inception, but it had the right of note issue, which it lost in 1928 when Greece established its own central bank. The bank in 1899 aquired the Privileged Bank of Epirus and Thessaly. At the beginning of the 20th century, the bank began its international expansion. In 1953 the bank aquired the Bank of Athens, which was at the time the second-largest bank in Greece. The bank in 1965 aquired the Greek Tapeza Epagelmatikis Pristis (Professional Credit Bank). In 1966 bank governor Georgios Mavros founded the National Bank of Greece Cultural Foundation. Since 1999 the bank has been listed on the New York Stock Exchange. It sold all its operations in Canada to the Bank of Nova Scotia in 2005. The next year the bank sold its U.S. arm, Altantic Bank of New York, to New York Community Bancorp for $400 million (EUR 331 million) in cash. It used the proceeds from these sales to finance aquisitions in Southern Europe. The National Bank of Greece has suffered since the the Greek Government Debt Crisis. It had to write off more then $19 billion in debt. The bank has over 500 branches in Greece, Australia, Egypt and the United Kingdom. It has banking subidiaries in Albania, Bulgaria, Cyprus, South Africa, Turkey, etc.

Finances

The bank has an 8% capital adequacy ratio and new additional limits of 9% and 6% for Core Tier I and Common Equity ratio in accordance with the new rule established by the Central Bank of Greece. In June 2013 the bank recapitalization was completed through the share increase of EUR 9.756 million of which EUR 1.079 million was contributed by private investors and the rest by HFSF. The bank's deposits increased by EUR 5 billion in 2013, but because of the Greece Debt Crisis the bank is restricted from access of liquidity from other Financial Institutions. That means the Eurosystem remains a major source of liquidity for the Bank. As of November 25, 2013, funding the European Central Bank has decreased to EUR 21.9 billion.

Balance Sheet

Cash Flow Statements

For the three months ending in March 2014, interest income decreased 8% to EUR 1.29 Billion and net interest income after loan loss provision decreased 17% to EUR 384 million. Net interest income after loan loss provision reflects Turkey Operations segment decrease 24% to EUR 254 million and retail banking segment decrease 19% to EUR 142 million.

Valuation

Earning per share Over the Last 10 years

The banks average 10-year EPS of -9 per share. 2013 EPS of 3.48 euros is an improvement from the last two years of losses. But the bank's earning per share over the last 10 years has been all over the map. It has a Return on Equity of 48.65% and a Return on Assets of 0.52%. The price-to-book value of 0.80 reasonable for the simple reason that no financial institution should sell above book value when its return on assets are below 1.0. For this reason the bank is undervalued and should trade up to at least book value giving the investors at least a 20% return. It sells for about 2.0 times earnings which reflects the state the Greek banking sector is in. This is an opportunity for investors to make the kind of profits and returns that Prem Watsa (Trades, Portfolio) and other investor made when they invested in the bank of Irland.