Citi keeps EUR 17 price target on Greek Postal Savings Bank

Citigroup analysts have upgraded their rating on Greece’s Postal Savings Bank (PSB) to Buy (1H) from Hold (2S) as the expected total return is now over 20%. “We leave our estimates and EUR17 target price unchanged. We reduce our risk rating as the company has disclosed its alternative assets exposure, which looks manageable,” note Citi analysts.

Postal Savings Bank (PSB) has underperformed the European bank sector by 14% over 1 month and 17% over 3 months (to Friday 17 August). In absolute terms, the stock has lost almost a quarter of its value over the past 3 months. The stock has lost is M&A premium and reflects considerable balance sheet concerns.

PSB’s alternative asset portfolio has attracted concern, but we believe the risks are manageable. CDOs that include collateral with exposure to US residential mortgages only amount to EUR55 mln compared to PSB’s EUR2 bln market capitalisation, notes Citi.

The recent credit market turmoil has increased the value of deposit rich franchises: end 2006, PSB had a 45% loan-to-deposit ratio. While PSB’s deposit surplus is declining, it is attractive to banks rapidly growing their loans in the attractive Greek/SEE markets.

It was announced last week that the next Greek general election will take place on 16 September. Following the July divestment, the State directly owns 35% of PSB. The re-election of the current administration would make a full divestment in 2008 likely.