ECB’s Governing Council is in a tight spot, as Greece warns that it will default on IMF payment without a deal
Last month, the ECB decided to limit ELA to Greek banks, causing a massive slump of 11% in National Bank of Greece (ADR) (NYSE:NBG) stock. In April, The New York Times reported that ECB had decided to not accept collateral for loans posted by Greek banks at the country’s central bank, unless it was slashed by at least 50%.
NBG is the country’s largest lender in terms of total assets, yet it has lost over 96% of its market value since the financial crisis began. Other key banks including Eurobank Ergasias, Alpha Bank, and Piraeus Bank took a similar hit on their stock price, and continue to show acute sensitivity to the country’s financial crisis. The start of 2015 saw the Greek crisis taking a turn for the worse. A year-to-date (YTD) analysis reveals that most banks in Greece have lost over 60% of their market value.
NBG closed yesterday at $1.40, rounding up the market cap at $5.02 billion, with stock price surfing within the range of $1.39-$1.45. Meanwhile, the 52-week range has generated a low of $0.98 and a high of $4.16. Moreover, yesterday’s trading session produced a total volume of 5.71 million, approximately 45% below the 30-day average of 10.52 million. However, NBG traded up 0.71% in after hours trading yesterday.
If the ECB decides to limit Greek banks’ access to further ELA today, officials of the bank would be risking progress of bailout talks. Indeed, Mario Valli, an economist at UniCredit SpA in Milan told Bloomberg, “It’s very simple: the ECB doesn’t want to be the one that pulls the plug on Greece when political negotiations are still ongoing. As long as there is the chance that Greece will remain solvent that it might receive further European Union aid, then ELA (emergency liquidity assistance) can be given. Should this possibility disappear, then it will have to stop.”
The last few meetings of ECB’s Governing Council have concluded in raising the ceiling on ELA to a present total of 80 billion euros ($89 billion). Bloomberg reported yesterday that according to the terms laid down by the ECB, Greek banks have sufficient collateral to push the cap on ELA to approximately 95 billion euros ($105 billion). However, if the ECB alters its mandate with the introduction of further collateral cuts, Greek banks would have maximum ELA, slashed down to about 88 billion euros ($98 billion).
However, James Nixon, an economist at Oxford Economics Ltd in London, ensured in a statement to Bloomberg, “As long as negotiations are ongoing and taking place in good faith, the ECB doesn’t want to be the one pulling the straws. The ECB will continue to refer to political progress, increase ELA and keep collateral requirements unchanged. As soon as there are signs that political progress is becoming unhinged, the ECB’s stance would change immediately.”
Importantly, if Europe’s central bank decides to withdraw assistance to Greek banks, it would be setting the stage for major losses. The New York Times reported yesterday that the ECB has released a total of over 110 billion euros ($125 billion) to safeguard Greek banks. Henceforth, limiting aid could lead to a default and a complete economic and financial collapse in Greece.
Meanwhile, the Greek crisis continues to affect the performance of European stock markets. The Athens Stock Exchange is presently down 0.92% as of 05:03 AM ET, primarily on the back of negative developments earlier in the day. Greece warned that if a deal with its international creditors was not finalized, the government could potentially default on its International Monetary Fund (IMF) debt payment due on June 5. Greece’s parliamentary speaker Nikos Filis warned today, “Now is the moment that negotiations are coming to a head. Now is the moment of truth, on June 5. If there is no deal by then that will address the current funding problem, they won’t get any money”, reported Reuters.
Separately, analysts from TheStreet, Inc. have rated NBG a Sell and given it a score of D. Analysts backed their recommendation with justifications stating that the stock has prominent “weaknesses”, weighing down its ability to perform. Analysts stressed, “The company’s weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity and generally disappointing historical performance in the stock itself.”
