Monday May 28, 2018


Recent dollar strengthening, rising US treasury yields, rising oil prices and the combination of high debt levels (mainly foreign denominated debt) and large current account deficits are clearly impacting Emerging Markets (EM) - with Turkey’s markets suffering the brunt. The continuing freefall of the Turkish lira lately reflects market concerns about the agility and autonomy of its central bank application of prudent financial policy (if not just common sense) given Erdogan’s resistance to high interest rates. Investor confidence has recently dwindled given the threat of politics trespassing into capital markets – probably overtly but certainly covertly. In the wake of further deterioration in sentiment, in a belated response, the Turkish central bank finally raised rates last night in an attempt to arrest the currency’s decline, with the CBRT hiking the late liquidity window lending rate by a whopping 300bps to 16.5%. Notwithstanding recent commentary such as Paul Krugman tweeting about a potential Emerging Market crisis, we are of the view that EM equities could be in for a relief rally as US Dollar strength maybe showing signs of a short-term breather. Although there are indeed individual countries facing significant difficulties (i.e. Brazil, Turkey, Argentina) there does not appear to be a uniform headwind in the sector. LXM therefore agrees with many of our clients, as well as Mark Mobius’ recent comments, that selectivity is key and that there are good opportunities for investment. Such a market – where stock picking based on local insight guides profit - suits us and our clients well. This article originially appeared on
Monday May 21, 2018


In a busy week to come, representatives from the ECB, ESM and IMF returned to Athens on Tuesday to resume talks on the 4th MoU review, with the objective of reaching a Staff Level Agreement (SLA) by the 24 May Eurogroup meeting. Initial negotiations at the Euro Working Group meeting on Monday focused on prior actions, debt relief and the requirement for a precautionary credit line post the expiration of the bailout programme. A bone of contention in recent discussions concerns debt relief measures. Germany has appeared to harden its stance recently by insisting on parliamentary approval before granting debt relief. Conversely, IMF representative Poul Thomsen reiterated the IMF view that for the Fund to participate in the programme, Greece’s debt should be considered sustainable, implying generous debt relief. He added that for IMF inclusion in the programme before its expiration in August, debt relief measures must be agreed by the 24 June Eurogroup. In this way Greece continues to suffer on a macro level in a similar way to its domestic maladies: just as the systemic banks need to push harder for debt restructuring measures on SME loans, supranational lenders are similarly disjointed in their approach. Greece’s post-bailout era continues to be characterised by two approaches: either relying on the market to impose fiscal discipline (though premised on a sizeable €20bn cash buffer covering the country’s funding needs until early 2020), and/or the country’s creditors working to maintain some form of conditionality after the bailout. Notwithstanding, recent positive Greek bank stress test results, combined with the expected successful conclusion of the 4th MoU review, should provide adequate conditions for lifting capital controls entirely in the medium term. This should ensure that Greece remains on a path to recovery after August this year. Furthermore, adding conditions to debt relief on strict ex-ante compliance sets a positive tone. Our view is that the market will respond positively to the achievement of a SLA at the 24 May Eurogroup. Debt relief, combined with post-bailout surveillance, expected rating upgrades and further tapping of capital markets will send a strong message that Greece is back from the brink. This article originally appeared on
Monday May 14, 2018


Last Saturday the positive stress tests for the banks removed the key short-term risk of a painful equity dilution for shareholders. Such a result is reason for cautious optimism. However we expect the share price recovery to be gradual, highly volatile and non-linear across the systemic banks. Our constructive outlook is underlined by the implementation of long-awaited legislation for the resolution of circa €96 billion of non-performing exposures (NPEs) in the last quarter of 2017. This has rightfully intensified pressure on strategic defaulters, with banks conveying a significant increase in borrowers willing to reach a settlement since its enforcement. Furthermore, Greek banks have recently increased their provisioning levels, post the implementation of the new IFRS 9 accounting standard, to a level that provides more flexibility to pursue a cohesive solution for both their balance sheets and borrowers. Banks in the coming months will continue with the Herculean challenge of reducing NPEs by €33 billion by the end of next year, of which €11.6 billion will be achieved by the sale of loans. The outcome of the tenders for the sale of NPE portfolios in the next few months will be considered a litmus test for similar disposals in the future. The banks are only one corner in the maze that Greece has to negotiate its way out of this year. Exiting the labyrinth will involve the conclusion of the fourth review, debt relief discussions that should intensify in June and July, government bond issuance as the country builds a €19bn buffer and the upcoming exit from the bailout program in August. Cautious optimism is justified; complacency is not. This article originally appeared on
Tuesday April 24, 2018


Greek newspaper recently interviewed Petros Mylonas, Head of Southern Europe at LXM Group. He spoke about the attractiveness of Greece as an investment destination for foreign investors and resolving the country's burden of non-performing loans, amongst other topics. Read the full article here.
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%.