Greece is known for a lot of things: the birthplace of democracy, a site of early intellectualism, and (in my opinion) some of the best food in the world. But today, Greece is also known for the financial crisis stemming from its unsustainable debt load. After receiving hundreds of billions of euros in bailouts from the European Central Bank, Greece is still in a recession but looks less likely to exit the eurozone than in previous years. With the possibility of a Greek economic recovery, contrarian investors may be interested in investing in this nation once again. And for this, we turn to National Bank of Greece (ADR) (NYSE:NBG).
Does it get much more contrarian?
When the words “Greece” and “Bank” are put together, most investors would run away as fast as they can–and so far this has proven to be a smart bet. A view of National Bank of Greece (ADR) (NYSE:NBG)’s 10 year stock chart is enough to make any investor cringe, with shares falling from a split-adjusted 2007 peak of over $600 per share to the $5.03 per share they closed at on June 10, 2013. The losses on this chart even beat out those of wounded American financials Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C), and even the bailout poster child American International Group Inc (NYSE:AIG). With losses like this, a fair share of both investor bravery and risk tolerance is required to get involved in an investment in National Bank of Greece (ADR) (NYSE:NBG).
Recapitalization
After being told to raise billions of additional euros in capital, National Bank of Greece (ADR) (NYSE:NBG) set about the process by launching a rights issue allowing current shareholders (but not ADR holders) to buy additional shares of the bank. In the end, the result has been massive share dilution and a 1 for 10 reverse stock split, giving the stock a new 52 week low. As part of National Bank of Greece (ADR) (NYSE:NBG)’s financial engineering, it is also making an offer to repurchase its NBG Preferred Shares for $12.50 per share, or half of their liquidation value. S&P has already said this to be a distressed purchase, but with NBG Preferreds rebounding off their low in the $2 range from around a year ago, buyers at the bottom already are sitting on multi-bagger returns.
But we have seen a similar story play out at another bank in another country that received an ECB bailout. Bank of Ireland (ADR) (NYSE:IRE) watched as investments in the Irish housing market blew up, putting huge holes in not only its own balance sheet but also in those of other banks making similar bets, including Allied Irish Banks and Anglo Irish Bank. Like National Bank of Greece (ADR) (NYSE:NBG), B of I underwent a recapitalization, massive share dilution, a rights issue, and a 1 for 10 reverse stock split. Shares of B of I are still nowhere near their pre-crisis heights, but have shown some life after the initial fall following the recapitalization. After languishing in the $5 to $6 per share range for several months following the recapitalization, shares have seen a strong gains briefly topping $10 per share before settling back into the $9 range.
