New boss to put Pekao in Pole position

By bne IntelliNews March 15, 2010

Jaroslaw Adamowski in Warsaw -

As Poland's biggest private bank with a market capitalisation of over €11bn, Bank Pekao shares some of its bison logo characteristics: while solid and robust, it's also thickset and sluggish. Alicja Kornasiewicz, the new CEO of Pekao, wants to change that, though there are doubts she can resist pressure from the bank's owner UniCredit Group to further subordinate it to the Milan headquarters.

Kornasiewicz, who was picked by the supervisory board of the bank that's 53% owned by Italy's UniCredit in January, says she wants to transform the bank into one of the region's leading financial institutions. "All duties and responsibilities of a company CEO are stipulated by the Polish law. As long as it is not altered, my position is perfectly clear," Alicja Kornasiewicz said in a recent interview with the daily Dziennik Gazeta Prawna. "I didn't become the CEO to hand over all my competences or avoid responsibility for the company."

Prior to her appointment to replace Pekao's former CEO, Jan Krzysztof Bielecki, Kornasiewicz headed UniCredit CA IB in Poland, and was responsible for the group's investment banking in Central and Eastern Europe. From 1997 to 2000, she served as deputy minister of the Polish Treasury in charge of the banking sector's privatization, an alleged conflict of interest that has been often raised against Kornasiewicz by her detractors.

Time to loosen up

In contrast to Bielecki, whose markedly old-fashioned, conservative stance to banking shored up Pekao under his six-year tenure, Kornasiewicz is known for her considerably more aggressive approach. Analysts agree that Bielecki's prudence in not following other banks' risky policies proved to be one of Pekao's biggest assets as the global financial crisis broke. During his term, the bank's lending held steady, and Pekao remained wary of currency options while other banks were giving them away like candy, causing a major headache to Polish companies when the euro and dollar exchange rates soared in early 2009.

This cautiousness was rewarded: while Polish banks' average return on equity (ROE) in 2009 was only 8.3%, Pekao's hit 14.1%. Although Pekao's profit fell from PLN3.53bn (€909m) in 2008 to PLN2.41bn in 2009, its share of the market rose from 23.4% in 2008 to 27.8% last year. As to the bank's competition, its long-time rival, the state-owned PKO BP, reported a profit of PLN1.79bn in the first three quarters of 2009, down from PLN2.75bn in the same period of 2008. Should PKO's overall profit for 2009 come in at less than Pekao's, it would represent a prestigious victory for Pekao and a boost in its attempt to regain the top spot, a title it lost to PKO BP in late 2008.

Bielecki's conservatism certainly saved the bank from a lot of trouble, but as the waters calm the time could be right for Kornasiewicz to push Pekao to loosen its tight grip on credit. In 2010, Polish exports are expected to pick up, making the climate favourable for an increase in lending. "Up to now, Pekao has been trying to defend its possessions from smaller and riskier banks, who were luring the bank's clients away with tempting deposit rates," says Boguslaw Tazbirek from the Warsaw-based Noble Securities. "What these banks lacked, contrary to Pekao, were their own funds. With smaller players weakened by bad loans and eschewing from further lending, Pekao has now an open way to provide loans to Polish exporters, which are increasingly back on track."

A major challenge for Kornasiewicz, though, is to straighten out Pekao's twisted relationship with its troubled Ukrainian subsidiary, UniCredit Ukraine. Between 2007 and 2009, Pekao financially supported the troubled bank in Kyiv, and today UniCredit Ukraine's commitments to the Polish parent company amount to more than €800m. Because the bosses in Milan regard Ukraine as a promising market and should UniCredit Ukraine have to return the money to Pekao it would probably have to be closed down, they have devised a scheme under which Pekao would sell the Ukrainian bank to the Bank of Austria, another subsidiary of UniCredit, leaving Pekao effectively short-changed. The tussle over this plan will be the first serious test for Kornasiewicz: it would show how the new CEO's strategy fits in the triangle between looking after the Italian group's interests, securing Pekao's well-being, all the while not drawing the ire of the Polish Financial Supervision Authority (KNF), which is said to be against the transaction being pushed by Milan.

"The most important tasks ahead of Mrs Kornasiewicz will be to open Pekao to new banking products and catch up with the competition, gain new clients, as well as rectify the bank's balance sheet in respect to the Ukrainian subsidiary before its eventual sale," says Noble Securities' Tazbirek.

New boss to put Pekao in Pole position

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