Friday April 13, 2018


The timing of the stress tests is very important for the Greek systemic banks ahead of the intense debt relief negotiations in June/July and negotiations for the country’s exit from the 3rd bailout programme in August 2018. The Greek government has reiterated its desire for a “clean exit”, whilst EU officials frequently state that a precautionary credit line could be preferable. At the same time, the Public Debt Management Agency aims to create a buffer of €19bn from bond issues, which would facilitate debt repayments of €28bn until the end of next year. Press reports suggest that the Single Supervisory Mechanism (SSM) has invited Greek banks to meet on 18 April in Frankfurt, where they will reportedly be provided with optimistic stress test results. Recall that the stress test results will be formally released in early May 2018. LXM Group understands that these dates are in line with the schedule that Greek banks had received for the stress tests. LXM Group recently met with the Greek systemic banks and all remain conservatively optimistic that the stress tests will not result in additional capital needs for Greek banks. This is also the consensus view of most press reports, however some claim that whilst all banks will indeed pass the stress tests, they will be asked to submit capital plans in the first quarter of 2019 and capital raises may follow in late 2019. This may seem contradictory, but the rationale is that the quality of Greek banks’ capital is low given the large level of DTCs, thus banks may be asked to boost capital levels further. Please see below the components of the CET-I ratio, which provide some more details about its quality.     It is also important to note that other newspapers such as Greek daily Kathimerini suggest that Greek and EU officials have been working on a more effective approach to reduce the burden of non-performing loans (NPLs) after the stress test results are published in early May. According to reports, the Bank of Greece, Hellenic Financial Stability Facility (HFSF) and European Central Bank (ECB) have been holding talks with the heads of the four systemic banks on how best to approach the challenge. The Greek press suggests that the HFSF has prepared a study looking at the main tools available to banks so they can make greater inroads into their NPLs. The study reportedly sets out five methods that lenders can turn to, including the creation of a bad bank or an Asset Management Company (“AMC”). There has been much talk recently regarding the establishment of a bad bank, however without clarity on where the capital needed for its creation would come from. Proposals appear to be focusing on the creation of an Asset Protection Scheme (APS) that would use public money to guarantee part of the NPLs on the banks’ books. Reports note that circa €20bn of unused funds set aside for bank recapitalisations in late 2015 under the third MoU program could be repurposed to set up an APS. Furthermore, according to other press reports, the SSM, ESM and ECB have concluded that €1-2bn from these unused funds should be set aside to cover any possible recapitalisations of the non-systemic banks, given they believe that none of the systemic banks will have any meaningful capital shortfalls. Finally, we expect further news with regards to the French and ESM debt relief proposal that will link Greece's economic growth until 2050. The proposal includes the extension of loan repayment periods, an interest rate limit and linking debt relief to economic growth. The same proposal reportedly also envisions that Greece will be allowed to forgo some interest payments if the 5 year average GDP growth falls below 2.8%. Partial repayment will be necessary if growth ranges between 2.8-3.4% and full repayment will be required if growth is higher than 3.4%.
Wednesday February 21, 2018


Petros Mylonas, Head of Southern Europe at LXM Group, was recently interviewed for He spoke about LXM's membership of the Athens Exchange, matching global investment appetite with opportunities in the Greek market and provided commentary on non-performing loans sales in Greece. Read the full article here.
Wednesday January 31, 2018


European Banking Authority Stress Test

The Athens Stock Exchange and in particular the Greek banking index (closed 4.3% higher today) moved today to the rhythm of newsflow vis-à-vis Greek bank stress tests, as the main macroeconomic assumptions were leaked to the press. The European Banking Authority (EBA) is expected to release macroeconomic assumptions at 17:00 UK time. Assuming that there will be no changes in the formal announcement today, the assumptions on a first read appear reassuring. However projections related to commercial and residential real estate prices call for a cumulative drop of 16.6%, both under the Adverse scenario, despite the obvious signs of stabilisation especially in commercial real estate prices. Below we provide an overview of the assumptions as referred to in press reports today, along with the assumptions adopted under the 2015 stress test. Importantly, the EBA announcement today will signal the formal commencement of the stress tests next month, with preliminary results expected in mid-April and an official announcement on results expected around 5 May 2018. In terms of comparative data, the stress test conducted in 2015, which consisted of an Asset Quality Review (AQR) and a stress test, resulted in a total AQR impact of €9.2bn and an incremental stress test impact of €4.5bn (post capital mitigating measures), resulting in an overall hit of €13.7bn. Note that we had the opportunity to meet with the four systemic banks last week in Athens, and our read through based on our assessment is that the better macroeconomic backdrop combined with the stronger CET-1 ratio starting point (as displayed below in historical chart), should provide additional comfort that the upcoming stress test will result in a more manageable situation for Greek banks. Source: EBA Interactive Dashboard 3Q 2017 More specifically, we note the following:
  • No AQR will be included in the 2018 stress tests, as the same EBA methodology will be applied on a Pan European basis. Recall that the 2015 stress tests resulted in a new round of recapitalisations in late 2015, with the AQR exercise resulting in a capital impact of €9.2bn and the stress test with an incremental impact of €4.5bn post capital mitigating measures (benchmark CET-I ratios stood at 9.5% under the Baseline scenario and 8% under the Adverse scenario).
  • Leaked stress test parameters: The main assumptions used in the stress test appear more lenient than the assumptions used in the previous stress tests, which should imply a lower capital impact. Note that GDP assumptions under the Baseline scenario call for a cumulative expansion of 7.5% for the next 3-year versus 1% contraction for the 2015 stress test, while the Adverse projects a relative mild contraction of 3.2% versus 6.2% cumulative contraction under the 2015 stress test.
  • There will be no pass or fail: Compared to the 2015 stress test where we had an immediate impact on Greek banks that failed the test, the results will now feed into the SREP ratio. As the Greek programme expires in August and there are still ca. €20bn that have been put aside from the third bailout programme (out of €86bn programme), it would make sense to ask the Greek banks to cover any capital needs before August 2018. However, we believe that this will be purely a political decision that will form part of the wider negotiations on debt relief and a possible precautionary line after the end of the Greek programme.
  • Capital Adequacy: Greek banks have created a strong capital buffer and are in a much better position versus 2015 (refer to chart above).
  • Greek banks have deleveraged from international operations and divested non-core assets, and as a result have met all DG Comp approved restructuring plan requirements since the last stress tests.
  • IFRS-9 seems to be manageable both in terms of magnitude and capital hit in 2018-2020, that is the timeframe for the 2018 stress test exercise. Assuming for conservative reasons a 250bps impact for Alpha Bank, Eurobank and NBG, and a 300bps impact for Piraeus Bank given its lower relative coverage ratio, then the total impact stands at ca. €4.7bn on 3Q17 figures. This translates to a ca. €9.5bn capital buffer for the four systemic banks based on the minimum SREP of 8.75% or ca. €3.0bn on total SREP of 12.25% (note that Piraeus Bank total SREP stands at 13.0%). Importantly, the IFRS 9 impact will be amortised over a five year period and for the purpose of the stress tests a 5% impact will apply in 2018, 15% in 2019 and 35% in 2020. Note that the 2015 Comprehensive Assessment resulted in incremental €4.5bn stress test impact (post AQR and mitigating measures) with much more pessimistic stress test parameters, implying that Greek banks remain well placed in view of the requisite minimum and total SREP ratio.
  • Note that as per latest Bank of Greece data, real estate indices for both commercial (office & retail) and residential have shown signs of improvement.
Source: Bank of Greece  Clearly investors need to remain cognisant of risks vis-à-vis final stress test assumptions and in particular the additional hit for collateral valuations, expected to be adopted by the EBA, but overall we think that the Greek banks are better placed for the upcoming stress test exercise.
Friday January 19, 2018


LXM Group has acted as joint bookrunner in the recent fully subscribed private placement of 12,000,000 Terna Energy S.A. shares, at a price of €4.35 per share. Petros Mylonas, Head of Southern Europe at LXM, said: “LXM is delighted to have brought our market knowledge and network to this deal. Evidently market sentiment towards Greece is improving and the large participation by international investors underlines the quality of Terna Energy as a company and more broadly the growth prospects of the Greek economy. We foresee much more appetite for global investment in Greece over the coming year.” LXM’s involvement in this deal and its successful completion underlines the Group’s strong commitment to Greece and the growing confidence in the recovery of its economy. LXM will continue to support corporates in raising their global profile over the coming year. Terna Energy, which is Greece’s largest renewable energy company, has 941 MW of installed capacity and a further 208 MW under development. With approximately 85% of the total shares placed with international investors, the transaction enhances the free float and marketability of the shares whilst also providing additional equity to be invested in new renewable energy projects (targeting 2,000 MW over a long-term horizon).   DOWNLOAD (PDF)
Thursday November 30, 2017


LXM Group is delighted to announce its membership of the Athens Stock Exchange (ATHEX). Petros Mylonas, Head of Southern Europe at LXM, said: “We are convinced that the Greek economy is reaching a crucial turning point, given recent strong fiscal performance. Membership demonstrates LXM’s confidence in the Greek recovery process and our commitment to Greece. We look forward to working with the Athens Exchange and leveraging our membership to bring more investment into the country.” LXM’s membership will take the number of foreign entities registered with Exchange to seven, joining the ranks of UBS, Bank of America Merrill Lynch, Citigroup, Credit Suisse and Deutsche Bank.   DOWNLOAD (PDF)