Shorting banks exposed to Eastern Europe
Wed, 2011-05-04 17:34
Investing in mature markets has been rewarding this year as investors chased dividend income and quality in uncertain times. But, with habitual heroes like Apple, Google and Amazon admitting to headwinds in recent announcements, is it any easier finding growth in Eastern Europe? We’ll look at the most shorted banks in Hungary and Poland as well as companies like Renault (EPA:RNO) and various banks who have exposure to the former communist countries such as Raiffeisen Bank (WBAG:RBI), Alpha Bank (ATH:ALPHA), Piraeus Bank (ATH:TPEIR), National Bank of Greece (ATH:ETE), OTP (BDP:OTP), Polska Kasa (WAR:PKN), Unicredit (BIT:UCG), Soc Gen (EPA:GLE) and Vodafone (LSE:VOD).
I spent Easter travelling around Romania and seeing how life is for a country 22 years free of the shackles of communism. Sadly, they are still very affected by the credit crunch with unemployment at 30% (officially) while you are charged low teens to borrow money. We saw thousands of unfinished houses owned by people (often the migrant workers building properties back in their homeland) who geared up only for the economy to collapse in 2008. I would imagine that banks that lent money to Romanians are owners (as mortgage collateral) of masses of half built concrete houses worth next to nothing – a situation reminiscent of Ireland?
Greece’s main banks are a common sight in Romanian towns. A quick update on the stock on loan in these names (even though the legality of short selling remains uncertain) shows that some investors have reduced their borrowing in Piraeus Bank to 1% of all shares from 5% in February. It is a similar situation in Alpha Bank (1.25%) and National Bank of Greece (0.7%) even though their share prices are generally at new 6 month lows.
Austria’s Raiffeisen Bank was often seen in between spartan, non refrigerated concrete shops against a backdrop of the stunning Carpathian mountains. Interestingly, this bank has short interest at a six month high of 3.5% of the shares outstanding, despite the shares falling to new lows. The short interest ratio is 27 days according to the Bloomberg/Data Explorers ratio of monthly volume divided by the quantity borrowed. When the short interest was last this high, in September, the shares proceeded to gently rise for 6 months.
The opposite investor sentiment can be observed in Hungary’s OTP Bank – although we didn’t see much evidence of its branches. A very large short position has come down from 15% to 5% of total shares since September, as the share price has risen. Italy’s UniCredit is unlikely to care too much about some bad loans in Romania given its size. Short interest is about 1.5% if we adjust for some dividend related borrowing of late. BRD is a Romanian bank owned by Soc Gen. 2.2% of its shares are on loan. Yesterday, BRD reported a 39% fall in Q1 profit – more than expected.
Meanwhile in Poland, some are betting against the recent rebound in Bank Polska Kasa with four new loan transactions since the end of March versus none prior!
With debt an issue for many people, at least Renault is offering a reliable and cheap car for the masses in the form of the omni-present Dachia. The locals would rather it was made by the Germans (VW) but this has not stopped them buying them en masse. I don’t know how important the Dachia is to Renault but, in any case, few profited by the recent slide from EUR 50 to 36 in February and March. The recent rise in demand to borrow Renault looks related to the 13th May dividend.
Finally, a tank of fuel (around EUR30) may be a tenth of the monthly minimum wage but the younger generation all have telephones and the occasional iPhone. The UK’s Vodafone is the dominant network and no one is shorting VOD!
