Archive for February, 2014


Greek banking & tourism

Tuesday 18 February, 2014

I attended a Greek Investor Forum & learned some interesting things sitting in on sessions on banking & travel/tourism.

BANKING:  The Hellenic Financial Stability Fund has committed €40B of which €26B has been used, with a €10B buffer, which has increased investor confidence.

Banks are setting up functions to deal with non-performing loans,, but GDP must start growing 1.5-2% again.  NPL’s typically peak 1 year after the economy starts growing, which should be next year.  There is still work to be done on consolidation as this is already 1 of the most concentrated markets.  There is lots of movement in the pace of consolidation.  Regulatory reform is coming to all of Europe, not just Greece.

Recapitalization has been implemented successfully, but is that compatible with Europe?  They are ahead of others in consolidation,  taking steps to attract investment, & on track to become solid.  Non-performing loan resolution is important.  The question is to sell or rehabilitate?  This sector can perform well in the future, but it’s still far from over.

Eurobank is taking advantage of agreement with the troika (IMF, World Bank, ECB) to raise further private capital, & actually rolling this out as we speak.  Nowhere else in the EU is there such concentration.  They are optimistic that the worst is over.  Workouts accelerate as the economy improves.  Margins are widening as concentration increases & funding costs fall.

Foreign ownership is an issue.   There is no short term-a few foreigners are excited.  Institutional & portfolio investment is up.  Banking is like fashion in that it always moves in cycles.  The focus is on local-there are few global players.  The most interest is from funds.  European financial investors are interested in assets, but only when there are no constraints, which is resulting in the 1st wave of interest.  There is large & growing interest from institutional investors.  In times of great change, it’s difficult to spread out new regulations, & there are penalties for doing that. Many see changes in the regulatory structure.  Citi never left Greece.  International banks paid a heavy price.  No new entrants are seen in the forseeable future.

Greece must fully stabilize & the risks be normalized.  There is little interest in the next 2 years-Greece is no different from other stressed banks/economies.  It’s not just the stigma-it’s relative to the the regulations today.  They need to install their own national regulator.  But there is still no true bank union. There is still no M&A activity because of regulatory uncertainty.  Assessing risks, returns, values today, & valuations are impossible.   Sensitivity to buying above book values is still limited.  Greek banks trade @ a premium to book value.

In the mid-90’s Greek banks followed clients overseas, to Turkey, & elsewhere.  Now they are de-leveraging by selling non-Greek assets, but they want to keep footholds in growth, like Spain in Latin America.

There is a reluctance to write off loans.  They run a portfolio of loan exposures, use auctions to sell minority stakes, & manage/support non-performing loans to de-risk investments.  Growth is needed for a turnaround, but they don’t want to price assets @ $.50 on the $.  Better workouts are being done on the wholesale side.  With a recovery, owners will put more money into their own businesses.  Tax legislation has an impact on strategic defaults too.  Those who can pay should.  This all requires systematically viable solutions, but they are coming out of enormous stress.

TRAVEL & TOURISM:  McKinsey updated a 2 year old study found that international arrivals to Greece stagnated while travel spending per capita fell, while @ the same time these doubled in Turkey.  In 2013, travel & tourism arrivals were up 11%, comprised 17% of GDP, & 19% of employment & added 30K jobs because stability returned.  In the next 10 years, Greece should return to become a Top 10 destination.  This requires a plan.  The target is to reach 22-24M tourists by 2022 by 3.5% faster than the global growth rate.  They need to extend & smooth the tourism period, diversify the product, eliminate the seasonal disadvantage, so that they offer more than just sea & sun.

Greece has 6 core products:

  1. sun/beach
  2. nautical
  3. city break/Athens
  4. medical tourism (to neighbors)
  5. cultural/religious
  6. MICE-conferences

They need to revitalize cultural offerings by segmenting & targeting.  They will extend museum hours & raise prices.  Golf & 2nd homes will be emphasized.  Transport & connectivity should grow with airport infrastructure & local airlines.  Investors require stability, fair tax treatment, & transparency.  The state tourism organization will get a state-of-the-art website.  An aggregator platform will be built.  Municipal destinations will develop their own brands.

Air transport needs to be overhauled.  It must be functional, well-managed, & dedicated to the region.  Infrastructure will be privatized & upgraded.  They can no longer rely on a government budget.  The Greek carriers are too small, so they must consolidate, as Aegean & Olympic have now joined, but they’re still only 1/3 the size of Portugal.  Greece has the lowest % of incoming carriers.  The quality is good, but they’re too small.  They are expanding in 2013-2014, & not just in Athens.