Despite trading in the $3 range (as of this writing at least, Lloyds Banking Group PLC (ADR) (NYSE:LYG) has been challenging the $4 mark lately and may break through again), Lloyds Banking Group PLC (ADR) (NYSE:LYG) is still valued at around $70 billion. This is due to share dilution resulting from the bailout but no reverse split being conducted, resulting in a total of 17.8 billion outstanding shares. While shares are not in any immediate danger of being de-listed in the U.S., it is possible that Lloyds Banking Group PLC (ADR) (NYSE:LYG) may conduct a reverse split for cosmetic reasons, allowing more funds to purchase the shares (this would be similar to what Citigroup Inc (NYSE:C) did).
But to give an example for how much more confidence investors have in the safety of Lloyds Banking Group PLC (ADR) (NYSE:LYG) compared to NBG, we can look at the preferred stocks of each. Lloyds Banking Group Plc 7.75% Public Income NotES (PINES) currently trade above liquidation value whereas National Bank of Greece SA Sponsored ADR representing trade at a little over half of liquidation. Much of this is due to the elimination of the dividend on NBG preferred stock as the bank tried to conserve capital, but another part is investor confidence in the securities. NBG launched a tender offer for its preferred shares at $12.50 per share, which was considered “distressed” by certain ratings agencies while Lloyds appears to be continuing to make progress towards emerging from partial government ownership.
Two very different banks
National Bank of Greece and Lloyds Banking Group each present contrasting financial situations in European banking. Lloyds represents safer investment judged by a lower state ownership stake and a less volatile share price. On the other hand, NBG offers American investors one of the few available ways to play a rebound in the Greek financial system. While lower share prices do not necessarily mean a cheap stock, it does mean that moves in either direction are often larger on a percentage basis due to the differences in how the market treats low share prices versus high ones. For bank investors, Lloyds and NBG may be worth considering to diversify a portfolio internationally while choosing one’s risk level appropriately.
Alexander MacLennan has no position in any stocks mentioned. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security.The Motley Fool has no position in any of the stocks mentioned. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Two Different Financial Situations for Two European Banks originally appeared on Fool.com is written by Alexander MacLennan.
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