National Bank of Greece (ADR) (NBG): Recapitalization Plan Sows Confusion but May Offer Big Profits

However, it is clear that NBG’s stock price has suffered since the split. Although this was to be expected, it has wiped out the arbitrage premium that was available to pre-split shareholders.

Long-Term Outlook and Best Moves

Since exchange-rate fluctuations will partially dictate the movement of National Bank of Greece (ADR) (NYSE:NBG)’s U.S.-traded shares in the coming months, it may make more sense for investors to reduce their exposure to volatility by purchasing NBG’s Greece-traded shares. However, investors who wish to play this situation should exercise extreme caution. NBG is an “experts-only” stock that is wildly volatile and subject to many complex market forces. Although it is probably a necessary step that should further increase the strength of its capital reserves, the recent announcement that NBG would buy back most of its U.S.-listed preferred shares at a 50 percent discount must be seen as extremely disappointing. In the near term, this move may put further downward pressure on the company’s stock price and reduce the possibility of quick gains.

Overall, National Bank of Greece (ADR) (NYSE:NBG) is a risky name that continues to deal with serious structural problems. Although its intra-day volatility may offer some opportunities for sure-footed investors, there is no longer a reliable arbitrage opportunity at play here. Likewise, NBG’s long-term prospects look murky. While the company’s stock price could recover over the next few months, it might take some time to digest the recent reverse split. Investors who wish to gain exposure to this situation should take steps to protect themselves before doing so.

Mike Thiessen is short NBG stock, short June 21 NBG $6 Puts, and long June 21 NBG $6 Calls. The Motley Fool has no position in any of the stocks mentioned. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Recapitalization Plan Sows Confusion but May Offer Big Profits originally appeared on Fool.com and is written by Mike Thiessen.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.