HSBC slashes Greek bank forecasts

Bank of Cyprus is preferred play

The Greek banking sector needs to adapt to an austere environment, dominated by sluggish credit expansion, higher impairment charges, higher retail deposits costs and the fear of a massive capital shortfall in the event of a sovereign debt restructuring, according to a research note by HSBC.
The sector faces huge challenges adapting to austerity, but valuations are already at deep discounts to the European banks’ universe, the report said.
HSBC slashed sector earnings per share (EPS) forecasts by about 80% for 2010, 60% for 2011 and 50% for 2012 on higher loan loss provisions (LLPs), while 2010 EPS estimates are 35% below consensus.
HSBC proceeded to cut the target prices across the board, but kept OW over-weight for Bank of Cyprus (preferred play) and NBG, Neutral for Alpha and EFG, and downgraded Piraeus and Marfin to under-weight UW.
“We cut our target prices for all banks we cover to reflect the hefty earnings estimates downgrade. Bank of Cyprus remains our preferred play on a combination of defensive qualities (relatively less exposed to Greece’s imbalances) and attractive emerging market (Russia) growth potential. Barring the sizeable downside risks from a potential sovereign debt restructuring, we also consider NBG as a strong, long-term fundamental play,” noted HSBC analysts.