Europe’s Mess Isn’t Over, Here Are Some Risky Bank Plays: National Bank of Greece (NBG)

Groupo Santander isn’t sitting pat; it recently announced that it was consolidating the operations of two subsidiaries. This should help to simplify the bank’s structure and ease the process of solving Spain’s bigger problems by reducing the players involved. The move comes at a financial cost to Santander, but the market seems to like the deal. An additional benefit for investors should be a reduction in costs.

Banco Bilbao, meanwhile, started 2013 off on the right foot when it was able to complete a 1.5 billion euro bond offering. There was so much demand that within two hours of starting the sale, demand exceeded 5 billion euros. More than 400 investors, more than 90% of which were from outside of Spain, were clearly clamoring for the bank’s debt. This debt has a longer term and a lower interest rate than debt issues just a few months ago. The market clearly thinks things are on the mend.

Italy is another large European Union member that would be hard to let fail. With unemployment at a mere 11%, it would appear that the country is on a slightly better footing than Spain. And, perhaps, it is, with the International Monetary Fund expecting just a 1% decline in the country’s gross domestic product versus a 1.5% decline for Spain. Truth be told, neither of those figures is particularly good, but Italy does appear to be less worse off.

Like Banco Bilbao, Intesa Sanpaolo and UniCredit have both been able to access the foreign credit markets with bond issues that were oversubscribed. Clearly bond investors think the banks will survive and continue to pay their debts. Like Groupo Santander, UniCredit is also working to streamline some of its operations to save money. UniCredit’s shares have advanced handily over the last few months, while Groupo Santander’s continue to languish in the single digits. Both, however, would be high risk plays on an Italian resurgence.

Only Aggressive Investors Need Apply
None of the above banks should be on the radar screens of conservative investors. They are high risk plays at best. That said, for more aggressive types, these could be a way to play a turnaround in the Old World. Keep in mind, however, that smooth seas can turn choppy quickly, so small commitments and a willingness to sell quickly would probably be the best approach.


The article Europe’s Mess Isn’t Over, Here Are Some Risky Bank Plays originally appeared on and is written byReuben Gregg Brewer.

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