S&P Just Now Downgrades NBG & Greek Banks, From The Land of Duh (NBG)

If you want to know what happens to the credit ratings of large banks in lands of the PIIGS when the underlying country ratings have been cut over and over, you should know that it isn’t pretty.  Standard & Poor’s has downgraded the ratings of four large Greek banks today and the outlook is negative as well.  As if this was not easy to see.  Among the downgrade casualties is National Bank of Greece SA (NYSE: NBG).

Other banks downgraded along with NBG are EFG Eurobank Egasias, Alpha Bank, and Piraeus Bank.  The group was cut to “CCC” from “B” and the negative outlook reflects more likely downgrade(s) if S&P believes that the banks are likely to default on their obligations as defined by the new default criteria.

Here is where the fault lies in today’s downgrades.  While these have been removed from CreditWatch, these were placed on that watch back on December 3, 2010.  It is as if the bad news is only now coming to light by the ratings agencies that because Greece is in trouble that it is just now the determination that the banks could be collateral damage. It has been obvious for months and months that the credit ratings would be at risk.  We noted that the recent earnings announcement from NBG was nothing more than a smoke-screen as the country’s woes were greater than a look-back report.  Moody’s even recently gave default odds of 50/50 for the nation of Greece and now our argument is that the Greek default is now imminent because the criteria for default has been widened out to basically be any scenario on the table currently.

In December, NBG had already been pounded from highs earlier before the recession and before terms like “The PIIGS” were widely used.  Since then, NBG has lost close to another one-third of its value.  The Greek bank’s ADR, the only US-exchange-listed Greek bank, closed at $1.31 on Tuesday and the 52-week range is $1.27 to $3.23.

What is almost funny is that there is a “buy the news” reaction here in America as this was an obvious downgrade in the works for months and months.  Shares are indicated up marginally so far in New York with more than two hours until the stock market opens.  It looks as though the ordinary shares in Athens are down about 5% after a recovery yesterday.

JON C. OGG