Political and financial turmoil in Greece in 2013 brought big losses to international investors. But the FT's Miles Johnson argues that the time might be right for anyone bold enough to bet on Greece's beleaguered banks.
Produced by Filip Fortuna. Filmed by Rod Fitzgerald.
Is now the time to buy Greece's banks? Back in 2013, during the heady days of the European debt crisis, the most daring hedge fund trade on offer was to take a punt on shares in Greece's banks. The famed US investor John Paulson, who made billions shorting the US subprime bubble, was convinced a Greek banking recovery would become his "Big Long." Sadly, for the funds and their investors, this apparently great idea was derailed by renewed political and financial turmoil in Greece, and their hedges ended up booking a nasty loss on the trade.
Four years later, however, there are signs that maybe, just maybe, this time it could be different for anyone bold or crazy enough to bet on Greece's beleaguered lenders. This year, there have been steadily-mounting signs that the Greek economy may be starting to turn after years of painful depression and reforms. The most recent IHS Markit Purchasing Managers' Index reading showed the highest headline figures since August 2008, with the rate of jobs growth being the most in over 17 years.
At the same time, the Greek government also managed to sell debt to international investors in July for the first time in three years, while the yield on the Greek 10-year government bond has fallen from 7.1% at the start of the year to 5.6% by this month.
Generally speaking, when a country emerges from a protracted recession, one of the main beneficiaries should be highly-economically sensitive sectors such as banks. Yet today, largely ignored by long-departed sell-side analysts and viewed with suspicion by previously-burned international investors, Greece's lenders appear still to react to this apparently good news.
Alpha Bank, one of Greece's largest lenders, is trading only slightly over 0.3 of its tangible book, almost half of the value than when the hedges made their ill-fated bets back in 2013. Piraeus, a smaller lender meanwhile, trades at just 0.15 on this measure. Both now have common equity Tier 1 ratios of over 17%, which is a measure of their financial strength. They are also operating in a highly-consolidated banking sector, where four players control almost the entire market, meaning all should in theory generate good returns on equity and be profitable in a more normal economic environment.
A large amount of non-performing loans and the possibility for renewed political turmoil are clearly risks, meaning only those with a strong stomach should bother to apply. But four years on, it may be time to revisit a trade that was simply far too early.