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JPMorgan: Do not rush to purchase Greek banks, they might never recover from the economic crisis

27 May 2010 / 09:05:40  GRReporter
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The largest Greek banks have to announce in the up coming days their results from the first three months of 2010 and expectations are that they will not be pink at all. First started the National Bank of Greece, which announced today an overwhelming decline in profits, which is neither less nor more than 93 per cent. This greatly exceeds the anyway dark forecasts which GRReporter already informed you about. The profit of the bank for the first three months of 2010 is 21 million euro as compared to 317 million for the first three months of 2009. The results are attributed to the reduced income from crediting and to the deepening of the recession in the country. However, the profit of the subsidiary of NBG the Turkish Bank of Finansbank has increased, and it registered an increase of 32 per cent and its net profit has reached 122 million euro.
    Dramatic picture of the local financial institutions grows according to the forecasts of the international analysts as well. JPMorgan lowered the ratings of all Greek banks which it monitors and maintained its negative outlook for their development. The investment bank believes that the local financial institutions might end the year 2010 with a loss and despite the substantial decline in the prices of their shares it estimates that the risk-eventual profit ratio is such that it does not recommend investing in them.
    Bank analysts believe that the likelihood of mergers of banks, change of owners and transforming of their capital is constantly increasing. "With or without rescheduling of Greek national debt Greece is in the process of ever-deepening recession. The crisis in the Greek economy will negatively affect and will reduce the profits of Greek banks in the next 2-3 years. Do not hurry to buy Greek banks and rely that they will recover," recommends the analysis of JPMorgan.
    An analysis of the Bloomberg agency also predicts a large decline in the profits of the Greek banks. According to the analysts of the agency the profit Alpha Bank will decrease the most - by 53%, of Eurobank EFG and the National Bank of Greece with 52%, of Piraeus Bank - by 28%. Even darker picture draws HSBC, according to which the National Bank of Greece will register a profit of 50 million euros for the first three months of 2010 as compared to 317 million for the same period of 2009. About Eurobank EFG the institution forecasts a profit of 37 million euro instead of 81 million which it registered for the same period in 2009. For Alpha Bank the expectations are for a profit of 45 million euro as compared to 86 million for the same period last year. Results for Piraeus Bank, about which rumors anyway say that it is one step away from bankruptcy are quite discouraging. Expectations are for a profit of just 1 million as compared to 52 million for the first three months of 2009.
    "In case the Greek government bonds do not bump the balance sheets of domestic banks risks will only limit to the recession, which will accompany the Greek economy in the coming years, to the damage of the bad loans granted, and to the very limited opportunities for profit. By 2011 the Greek economy will shrink by about 10 percent of the real GDP of the country," says the analysis of Citi Group, which also lowered the ratings of seven Greek banks.
    The concern among the business community in Greece caused also the announcement of the Bank of Greece, that for the first three months investments have been withdrawn from the country for the amount of 10.6 billion euro. Experts explain the withdrawal of capital from the country with the uncertainties about the public sector in Greece, rumors of bankruptcy of the country and the recession, which reduced profits and income of the entrepreneurs. Central Bank of Greece reported that at the end of March investments in banks were at the amount of 227.2 billion euro from 237.8 billion that were at the end of December 2009. The decrease is with 4.5 percent or 10.6 billion. It was most significant in January - 5.1 billion, in February it was 3.3 billion and in March - 2.2 billion.
    Unpleasant news came from abroad as well. Deepening of the recession by the end of 2011 and unemployment, which will reach 14.3 per cent forecasts for Greece the Organization for Economic Cooperation and Development. According to OECD the stringent financial measures, which the Greek Government undertook will impact negatively on the economic growth and the implementation of radical reforms it assessed as "extremely imperative". Meanwhile, the Organization has warned that the failure of the measures provided for in the memorandum signed with the European Commission and the IMF would mean further sinking of the Greek economy. Recession for 2010 will be 3.7 per cent, and for 2011 and 2.5 per cent, due to great cuts in the public sector, strict financial constraints and the overall negative climate in the eurozone.

Tags: economic crisis Greek banks withdrawal of investments economy
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