E F G EUROBANK ERGAS (OTCMKTS:EGFEY) is a Greek Bank that Wilbur Ross and Fairfax Financial Holdings Ltd (OTCMKTS:FRFHF) Like
E F G EUROBANK ERGAS (OTCMKTS:EGFEY) is one of the many Greek lenders that could be adversely impacted if Greece decides to pull out of the euro-area economic bloc. On the flipside, the bank and its Greek peers stand to gain from multiple upside potentials if the economically troubled Greece chooses to stick with the Eurozone counterparts. So far, the performance of Eurobank has shown that the bank is on the right track despite its numerous challenges courtesy of Greek debt troubles.
If Greece abandons the Eurozone, Eurobank will be left with a lot of problems to handle, including mismatched liabilities and assets. However, the bank could reap massively if the country remains part of the European economic bloc and a number of large investors are betting on the country staying in the eurozone.
Fairfax Financial Holdings Ltd (OTCMKTS:FRFHF)(TSE:FFH) and Wilbur Ross are not only some of the largest shareholders in Eurobank, but they are also among the investors that have continued to show love and confidence in the future of the lender even in the face of economic reform uncertainties in Greece.
Fairfax increases stake in Eurobank
Fairfax Financial Holdings Ltd (OTCMKTS:FRFHF) has continued to show its love for Eurobank and other Greek stocks even in the face of reform uncertainties in the country. The investor boosted stake in the bank recently, topping its 13.6% that it acquired in the lender courtesy of its participation Eurobank’s bailout. Fairfax also seemed to show confidence in Eurobank despite the massive deposit outflow that hit Greek banks as fears escalate over the standoff between the Greek and its European counterparts.
Fairfax’s CEO, Prem Watsa, recently stated that he has high hopes that Greece will reach a deal to remove the prevailing deadlock. Watsa seemed to speaking for an insider standpoint in the situation because he went on to disclose that they meet with government officials in a routine basis, allowing he to gain insight about possible developments in the economic reform talks.
Fairfax’s bet on a Greek debt deal goes far beyond E F G EUROBANK ERGAS (OTCMKTS:EGFEY). The firm is also bullish on other Greek companies like real-estate investment firm Grivalia Properties and Mytilineos, a Greek industrial group. Both Mytilineos and Grivalia Properties have seen their shares take a hit amid the debt deal stalemate, but Fairfax believes that their future alongside that of Eurobank is bright, which supports buying more shares in the companies.
Fairfax is not new to making what might seem to be risky bets. The firm put its money in the Bank of Ireland back in 2011 and the investment paid off handsomely. In Bank of Ireland, Fairfax placed its bet on the bank’s turnaround in much the same manner it is doing in E F G EUROBANK ERGAS (OTCMKTS:EGFEY).
Wilbur Ross misses opportunity
Wilbur Ross of WL Ross & Co. is equally bullish about the turnaround of E F G EUROBANK ERGAS (OTCMKTS:EGFEY). The investor hinted he wanted to buy more shares of the Greek lender but couldn’t close a deal yet because of a lockout period. It is currently unclear whether Ross was eventually able to raise his holding in Eurobank of not, but what is clear is that the billionaire investors has high hopes that the Greek debt situation will be resolved in a manner that favors Eurobank and other Greek companies.
Steeply discounted stock
Shares of E F G EUROBANK ERGAS (OTCMKTS:EGFEY) have tumbled since when Fairfax and Ross made their initial investments in the bank at about 30 euro cents a share. The bank is currently trading at a steep discount to that level, which is explains why Fairfax and Ross have continued to accumulate more shares or show interest in increasing stakes in the company.
At the moment Eurobank’s Tangible Common Equity is about 4.4 billion euros while its tangible book value is 0.30 euro a share according to the most recent data. (Special note: Eurobank’s ADR EGFEY trades at a ratio of 1 ordinary share to 0.5 ADR)
Eurobank’s accelerated provisioning remained alive in 4Q14, leading to coverage ratio of 56.3%. Additionally, the most recent quarter has shown continuing progress with core pre-provision income going up nearly 49% YoY and 9.8% QoQ. The progress was attributed to improving commissions and better deposit costs.
Other performance highlight
E F G EUROBANK ERGAS (OTCMKTS:EGFEY) has also continued to impress on other performance fronts despite its many challenges thanks to the Greek debt woes. The bank registered net interest income (NII) gain of 4.1% QoQ in the most recent quarter at a time when commission income rose 11.4% QoQ, further indicating potential strength in the company when situation in Greece stabilizes.
On the expenses side, the bank is gaining growth with cost cuts, managing to push its operating expenses down 10.1% YoY in the latest quarter.
Eurobank has found a way to offset the adverse impact on its mortgage operations through improvements of its international and consumer operations. Mortgage, consumer and international operations should be able to strengthen once Greece reaches a debt deal with its creditors, which is why much of the bet in Eurobank is based on the success or failure of the debt reform negotiations.
Greek Exit is bad news
Although large investors like Fairfax and Ross have hopes that a deal will be reached and the prevailing concerns about Greece will be eliminated following a deal, Eurobank stands to face tough operating environment if a deal fails to come through. The lender may not only suffer adverse impacts in many of its operations that have currently hedged weaker ones, but might be forced to dilute its shares further to raise more money for operations and investments. That explains why the issue of Greek Exit is a major overhang for Eurobank and its investors at this juncture.
The other thing that doesn’t make E F G EUROBANK ERGAS (OTCMKTS:EGFEY) impressive is its large Texas Ratio. The bank’s current Texas Ratio is around 110. A ratio that is larger than 100% is considered to be a warning sign.
Texas Ratio is derived from dividing non-performing assets and loans by the tangible capital equity and loan loss reserve.
The bottom-line is that E F G EUROBANK ERGAS (OTCMKTS:EGFEY) is well-situated to raise its performance profile in the event of a favorable outcome in the Greece debt reform talks. However, things might worsen for the company if Greece decides to part ways with its European counterparts in the eurozone economic bloc.
Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.
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