Thursday, November 23, 2017

Greek Banking: The Fat Lady Sings

It ain't over till the fat lady sings.  

I am not a huge fan of opera, but the dramatic gyrations of financial markets from boom to bust and back again are  melodramatic.  And just like in opera, there are plenty of signs that the show is over, one way or another. The key is to know the clues.

The worst that can happen to you in the opera house, if you are not an aficionado, is a mild case of embarrassment when you applaud all by yourself before the proper time. But markets can be extremely punishing if you join a show too late or too soon, by going long near the top or short at the bottom.

So, let's look for a "fat lady" clue in banking.

Here's what a complete boom-bust-boom cycle looks like for US commercial banks. Net income as a percentage of assets (ROA) started collapsing in late 2006 (yes, that's when I started Sudden Debt!) and bottomed out two years later.

Picking JP Morgan as an example, its stock performance tracks closely with the above chart. You definitely did not want to buy late in 2006 or be short in 2009.

Notice the time lag between ROA and stock performance: ROA started going down before JPM's price peaked in 2007 and started rebounding sharply before the stock bottomed out in 2009.  In other words, the fat lady started singing and giving notice well before the "boom" and "bust" cycles were over. 

 So.... How about Greek banks? Is there a "fat lady"?

I'll look at one of the four big systemic banks - again, I won't mention its name because (and I stress this very strongly again) this is NOT AN INVESTMENT ADVICE blog.

Earnings turned to heavy losses in 2010, necessitating massive re-capitalizations, the latest in 2015 (the same happened to all Greek banks). Things are  on the mend now - the bank eked a tiny profit in 2016 and is on surer ground in 2017 (figures are 6m annualized).
... and here is its stock chart, with all other clues removed to protect the innocent and/or greedy. I think the "fat lady" sings in Greek too.  

Conclusion? I like Verdi best :)


  1. And I like Mozart best. Verdi opera are always so sad. Mozart managed to put all our emotions into operas that not always make us cry at the end.

    Arnould, France