Polish bank M&A back in spotlight after Pekao's reported bid for BGZ

By bne IntelliNews August 7, 2013

Tim Gosling in Prague -

In what could be further evidence that a new round of consolidation in the Polish banking sector is taking hold, Bank Pekao is reported to have made a bid for Bank BGZ.

Unnamed sources cited by Polish daily Parkiet claim that Pekao, Poland's second biggest lender, has persuaded Italian parent UniCredit Group to give it the green light to make a move for the agricultural specialist BGZ. The bank is owned by Dutch lender Rabobank and has long been touted as the next target in the mooted consolidation process.

"(Pekao) CEO Luigi Lovaglio got the owner's permission to present the Dutch with an offer," Parkiet quotes an unnamed banking source as saying, according to Reuters.

The newspaper claims the Italian-owned bank will join ING, BNP Paribas and Getin in the race for BGZ, which has a market capitalization of around PLN2.9bn (€688m). State-controlled insurance giant PZU has also been mentioned as a potential suitor.

The size of Pekao's offer was not detailed, although one source apparently called it "low". The motivation for Pekao, the source added, is a large surplus of capital which it's looking to employ. The reported bid come in the wake of a better-than-forecast financial performance for Pekao in the second quarter.

However, if it is indeed "low," the chances that Pekao's offer will be accepted look limited. Potential suitors appear plentiful, while valuations on the Polish banking market remain elevated, despite the trough the economy fell into a year or so ago.

The CEO of Erste Bank - which is notable by its absence from the top tier of Polish banking in a region in which it's the second-largest player - said in late July that prices are too rich for his blood right now. "The valuation of the Polish banks still seems to be a very full one compared to the valuation of other European banks, so I don't think the timing is very opportune," Andreas Treichl told a conference call.

Race for acquisitions

However, speculation that the Polish banking sector is set for a wave of consolidation as the major players compete for greater market share is rife, having kicked off in earnest in mid-June when PKO - the country's biggest bank - bought the local unit of Scandinavia's Nordea. That acquisition is reported to have put pressure on other leading Polish banks - mostly foreign owned - to seek growth through M&A in order to keep up. Meanwhile, several smaller EU lenders with assets in the country are thought to need to sell.

Pekao CEO Lovalio told Gazeta Wyborcza in an interview published on June 28 that the PKO purchase has his bank on the lookout for targets. "We are looking at the market with caution. If an opportunity, that will let us to grow, appears, we will do everything to take advantage of it."

However, four days later Unicredit CEO Federico Ghizzoni told Dow Jones that Pekao is under no pressure to make an acquisition to keep pace with the other top lenders in the country, and that it will focus on growing its current assets. "We aren't pressurized by moves by competitors," Ghizzoni said. "We are focused on organic growth. But we're carefully watching markets and if we see opportunities, we will evaluate them."

However, banking sources report that Pekao was also in the hunt for the Nordea assets bought by PKO. Spain's Santander - which controls the third largest Polish lender Bank Zachodni WBK - and France's BNP Paribas were also said to be in the running. The speculation is that the buyer in the next deal is likely to come from among those firms.

The theory is that the leading players are now in a race to hoover up the assets of those European banks struggling to keep up with capital ratio requirements, as was seen in a series of deals between early 2011 and 2012. With speculation that Germany's Commerzbank could divest BRE Bank and Portugal's Millennium bcp sell its Polish unit dying down in recent months, that leaves BGZ - alongside growing retail player Alior - as the main candidates.

Dutch Rabobank only bought out the remaining 40% stake in agricultural specialist BGZ from the state - at a huge price - less than a year ago. Press reports claim that the parent is unhappy with BGZ's ranking as 11th largest in Poland.

"We are looking at the market and our position in the market regarding our size," a Rabobank spokeswoman admitted in late June. "There is so much happening in that market at the moment, we are looking at what is the best strategy. That is not necessarily selling."

If Rabobank doesn't sell, though, it would likely need to buy to shore up its share of the Polish market. That could prove tricky with the Dutch bank struggling to keep up with the Eurozone's strengthened capital requirements as the crisis drags onwards. It's in the midst of a restructuring that will see 3,000 jobs cut and a refocusing back onto its "core business" of lending to Dutch farmers. The group lost its triple-A credit rating from Standard & Poor's in 2011, leading to the sale of fund manager Robeco, as well as Swiss private bank Sarasin.

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