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Moody's Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks

Reggie Middleton's picture




 

 From Capital.gr: Moody's
Downgrades Five Greek Banks

Moody’s Investors Service said Wednesday it downgraded the deposit and
debt ratings of five of the nine Moody’s-rated Greek banks due to a
weakening in the banks’ stand-alone financial strength and anticipated
additional pressures stemming from the country’s challenging economic
prospects in the foreseeable future.
[Moody's is late to the party, but their logic is solid, see "Greek
Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on
Fire!
  followed by our forecast of the weaker vs. stronger Greek
banks (premium content subscribers only) - File Icon Greek Banking Fundamental Tear Sheet
]


 The affected banks are: National Bank of Greece (to A2 from A1), EFG
Eurobank Ergasias SA (to A3/Prime-2 from A2/Prime-1), Alpha Bank AE (to
A3/Prime-2 from A2/Prime-1), and Piraeus Bank (to Baa1/Prime-2 from
A2/Prime-1). Moody’s has also downgraded the deposit and debt ratings of
Emporiki Bank of Greece SA (to A3/Prime-2 from A2/Prime-1), but as a
result of a reassessment of the credit enhancement associated with
systemic support for this institution. The outlook on all five banks’
ratings remains negative. This action concludes the review of these
banks initiated on 3 March
2010. [It looks as if Moody's peaked at the blog's subscription
content :-)
]

 

The agency said that the rating actions were prompted by the country’s
weakening macroeconomic outlook and its expected impact on these banks’
asset quality and earnings-generating capacity. Pressures on the
macroeconomic fundamentals have been evident for the past year and are
expected to intensify as the year unfolds, said Moody’s. [Subscribers, see File Icon Banks exposed to Central and Eastern Europe
as well as the links above,
then all readers should reference
The
Depression is Already Here for Some Members of Europe, and It Just
Might Be Contagious!
]
 
Although additional measures taken to address fiscal imbalances at the
national level may have a positive impact over the longer term, Greece’s
fiscal challenges will weigh negatively on economic growth over the
short to medium term. As recently noted by the Bank of Greece, the
magnitude of the economic contraction this year is likely to be more
pronounced than was anticipated at the beginning of the year. Negative
growth will give rise to unemployment, lower consumer disposable income
and reduced profitability in the small- and medium-sized enterprise
(SME) and corporate sectors. Moody’s expects the upward trend in
non-performing loans, which began in 2008, to continue in 2010 and,
possibly, 2011. Combined, these factors will place additional pressure
on the banking sector’s already weakened asset quality and
profitability. 
 
Over the past year, Greek banks have increased their dependence on
short-term market funding as access to the wholesale capital markets has
been limited due to the global financial crisis. This, in turn, has led
to a rise in maturity mismatches. In recent months, negative market
sentiment towards Greece has further constrained the banks’ access to
the bond and interbank markets. As a result, Greek banks have had to
increase their reliance on European Central Bank (ECB) funding by an
estimated 50%. Going forward, the agency expects a rise in the average
cost of funding as banks seek longer-term maturities, which in turn will
pressure interest margins. 
 
Moody’s takes comfort in the fact that the ECB will remain a reliable
source of funding for the banks until market confidence returns.
Continued access to ECB funding has been part of Moody’s mainstream
scenario since the beginning of the crisis...


National Bank of Greece SA 
 
Moody’s downgrade of NBG’s deposit and debt ratings to A2 and bank
financial strength rating (BFSR) to C- (which maps to a Baseline Credit
Assessment (BCA) of Baa1) reflect the deterioration in the bank’s
financial fundamentals, especially its asset quality, earnings and
funding/liquidity indicators. Non-performing loans (NPLs) as a
percentage of total loans have risen to 6.4% in December 2009 (2008:
4.0%); earnings fell by 40% in 2009 on the back of increased provision
charges and slower revenue growth; while the bank has increased its
reliance on short-term market funding, with "due to banks" (including
ECB funding) increasing to 19% of total liabilities. For the current
year, Moody’s expects asset quality to deteriorate further, and access
to the wholesale capital markets to remain limited, with the bank’s
revenue/earnings indicators unlikely to record any material improvement...
 
EFG Eurobank Ergasias SA 
 
Moody’s downgrade of EFG Eurobank’s deposit and debt ratings to A3 was
triggered by the lowering of its BCA to Baa2 from Baa1 and reflects the
deterioration in the bank’s financial performance both in Greece and
abroad. The bank’s BFSR was confirmed at C-. For the year-ended December
2009, the bank’s foreign operations reported post-tax losses of EUR44
million compared to profits of EUR135 million the previous year. Similar
to its local competitors, EFG Eurobank’s credit quality indicators have
weakened, with NPLs rising to 6.7% of gross loans as of December 2009
and provision charges absorbing 75% of pre-provision earnings, while its
reliance on short-term market funding has increased and accounts for
20% of total liabilities. All these issues will likely continue to
adversely affect the bank’s financial performance and funding profile
for at least the remainder of 2010. 
 
Alpha Bank AE 
 
Moody’s downgrade of Alpha Bank’s deposit and debt ratings to A3 were
triggered by the lowering of its BCA to Baa2 from Baa1, and reflects the
deterioration in the bank’s financial performance and its increased
reliance on ECB funding. The bank’s BFSR was confirmed at C-. For the
year-ending December 2009, the bank has witnessed an increase in NPLs to
5.7% - likely to be accelerated further in 2010. Profitability also
fell by 32%. Alpha Bank’s ECB funding increased to 15% of the bank’s
total liabilities; this percentage is the highest among the Greek rated
banks, with the current market conditions indicating that the reliance
on ECB funding is unlikely to be substantially reduced during the course
of the year. 
 
Piraeus Bank SA 
 
Moody’s downgrade of Piraeus Bank’s deposit and debt ratings to Baa1 and
BFSR to D+ (mapping into a BCA of Baa3) reflects the bank’s increased
dependence on short-term market funding and its deteriorating financial
performance. The bank’s "due to banks" (primarily ECB and interbank repo
funding) accounts for approximately 26% of total liabilities as of
December 2009 -- the highest percentage among the big Greek banks --
while its liquid assets and investments account for 21% of total assets,
down from 27% in 2007. Similarly, the bank’s 2009 bottom-line
profitability fell by 36%; for 2010 Moody’s expects continued pressure
on the bank’s asset quality and profitability indicators as the
weakening economy hits the SME sector, which accounts for nearly 50% of
Piraeus Bank’s loan portfolio. 
 
Emporiki Bank of Greece SA 
 
Moody’s downgrade of Emporiki Bank’s deposit and debt ratings to
A3/Prime-2 reflects Moody’s assignment of a lower systemic uplift given
the relatively small size of the institution. Moody’s notes however that
Emporiki’s deposit and debt ratings continue to benefit from a five
notch uplift as a result of parental and systemic support. The
institutions is 91% owned by Credit Agricole SA. 
 
The ratings of the other four Greek banks rated by Moody’s namely,
Agricultural Bank of Greece ( Baa1/Prime-2), Attica Bank
(Ba1/Not-Prime), General Bank of Greece (Baa1/Prime-2) and Marfin
Egnatia Bank (Baa1/Prime-2), are not affected by today’s announcement.

All ratings carry a negative outlook.

 


Of particular interest may be the prospects of the various banks caught
in this interwoven web (premium subscription material). To date, this
analysis have proven to be right on the money:

 
I will soon be releasing the foreign claims model which will reveal all
types of juicy stuff to both subscribers and the public that I am sure
Moody's either overlooked or didn't elaborate on.

For the complete Pan-European Sovereign Debt Crisis series, see:

  1. The
    Coming Pan-European Sovereign Debt Crisis
     - introduces the crisis
    and identified it as a pan-European problem, not a localized one.
  2. What
    Country is Next in the Coming Pan-European Sovereign Debt Crisis?
     -
    illustrates the potential for the domino effect
  3. The
    Pan-European Sovereign Debt Crisis: If I Were to Short Any Country,
    What Country Would That Be..
     - attempts to illustrate the highly
    interdependent weaknesses in Europe's sovereign nations can effect even
    the perceived "stronger" nations.
  4. The
    Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western
    European Countries
  5. The
    Depression is Already Here for Some Members of Europe, and It Just
    Might Be Contagious!

  6. The
    Beginning of the Endgame is Coming???

  7. I
    Think It's Confirmed, Greece Will Be the First Domino to Fall
     

  8. Smoking
    Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer
    Beware!
  9. Financial
    Contagion vs. Economic Contagion: Does the Market Underestimate the
    Effects of the Latter?
  10. "Greek
    Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on
    Fire!
     
  11. Germany
    Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort
    of...
  12. The Greece and the Greek Banks Get the Word "First"
    Etched on the Side of Their Domino

  13. As
    I Warned Earlier, Latvian Government Collapses Exacerbating Financial
    Crisis

  14. Once
    You Catch a Few EU Countries "Stretching the Truth", Why Should You
    Trust the Rest?

  15. Lies,
    Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

  16. Ovebanked, Underfunded, and Overly Optimistic: The New
    Face of Sovereign Europe

 

 

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Thu, 04/01/2010 - 00:12 | 282709 doolittlegeorge
doolittlegeorge's picture

sometimes the hardest thing in finance is to stand by the analysis of "2+2+4."  this is especially true when dealing governments for whom math is not "a number" shall we say.  having said that what you have failed to point out is that the government of Greece is now forcing its banks to buy its worthless debt.  That's why you get the downgrade.  Insofar as Ireland is concerned--that's the latest blow-up.  We'll see if their solution which is completely different from Greece's yields a dissimilar result.  My personal view is that it makes no difference:  the fundamental problem is with the Euro and not with any "policy" that the countries engaged in.  In other words so long as they continue in "the experiement" they will continue to see their government's borrowing costs rise.  "Better to burn out than fade away" in my book if it were me i'm "one of the little guys" i'd be exiting the euro immediately.

Wed, 03/31/2010 - 23:24 | 282670 erik
erik's picture

did the same happen to Irish banks?  or were they downgraded last year?

Wed, 03/31/2010 - 22:59 | 282645 Nolsgrad
Nolsgrad's picture

I buy fear. sell confidence

 "The problem with ignorance is that it picks up confidence as it goes along."

Wed, 03/31/2010 - 18:24 | 282393 Edmon Plume
Edmon Plume's picture

I give a vote of no confidence to ratings agencies.  The essence of ratings is trust, and their MBS poochscrew should have buried them all.  And if it didn't, the ratings agencies' junket to Greece that resulted in miss mary sunshine ratings extend and pretend should have.

The only good thing about them is their pay for play has caused people to - gasp - research and confirm everything they are told.

Wed, 03/31/2010 - 17:12 | 282256 Leo Kolivakis
Leo Kolivakis's picture

Reggie,

When exactly did you downgrade Greek banks? Unless it was before the crisis, you are just as late as Moody's.

Wed, 03/31/2010 - 17:47 | 282329 Reggie Middleton
Reggie Middleton's picture

I warned of Spain and the related boom areas of Europe in 2008,early 2009. 

Wed, 03/31/2010 - 18:01 | 282357 Leo Kolivakis
Leo Kolivakis's picture

Good call, my point is that Moody's and other rating agencies are always the last ones in.

Wed, 03/31/2010 - 18:05 | 282367 Reggie Middleton
Reggie Middleton's picture

It actually wasn't all that good a call. The problems were obvious, and asset prices surged in the opposite direction. It is like your congratulating me for figuring out 2 + 2 equals four, but thank you anyway :-0

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