Polish banking giant's share issue is no joke

By bne IntelliNews August 17, 2011

Jaroslaw Adamowski in Warsaw -

With net profits up 11% in the second quarter, Poland's banking giant PKO BP posted the best quarterly results in its history. The results will give the planned share issue a major fillip and a boost for a government desperate to bring its debt levels under control.

In September, the Ministry of Treasury plans to sell reportedly up to a 15.25% stake in PKO BP on the Warsaw Stock Exchange. The Treasury has a 40.99% stake in PKO BP in addition to the 10.25% held by publicly-owned Bank Gospodarstwa Krajowego (BGK). In total, the Polish state controls some 51.24% of PKO BP, according to figures from the bank.

PKO BP's management had been aiming to increase profits ahead of the upcoming stock offering, and is now eager to engage in a bout of self-congratulation. "The first six months of the year proved to be very successful for the bank," said PKO BP CEO Zbigniew Jagiello.

Indeed, in the first six months the bank posted a net profit of PLN1.84bn (€443m), an increase of 22.4% over the first half of 2010. Its second-quarter net profit of PLN967.3m (€233m) exceeded analysts' forecasts of about PLN955m (€230.1m).

It is unknown how much of this growth PKO BP owes to its latest advertising offensive, built around a string of television ads starring celebrity comedian and talk-show host Szymon Majewski. Majewski, who became the highest-paid star in Poland with the ad, was reportedly paid a record fee of about €800,000 for his services, a sum that spurred additional interest in the media campaign.

With more than 6.14m accounts in Poland and about €43bn in assets, PKO BP remains the market leader despite the mounting competition from smaller and more aggressive players. "[The bank's] financial results have been rising steadily, all while maintaining high growth rates. Recent changes to our offer of products and services have been effective, as the bank is gaining new clients," Jagiello said.

Shareholders should certainly be pleased with the bank's financial measures. In the first half, PKO BP's return on equity - a key measure of a bank's profitability - stood at a 16.3% compared with as industry average of about 12.0%, while its return on assets was 2.1%. PKO BP has also managed to decrease the cost/income ratio to 37.9%, according to Jagiello, who was reappointed as the bank's chief executive for another term in March after 18 months at the helm.

The euro intrudes

As such, most analysts are optimistic about the bank's share sale in September. "PKO BP is a solid bank, and so will probably be its forthcoming stock offering," reckons Piotr Kuczynski, chief analyst for Xelion Financial Advisors.

However, some caution that events in the Eurozone could yet cause the share sale to be put on hold. "Unless the current global market turmoil turns into something even more troubling than what we are witnessing today, it seems that the offering will be a winner for investors, with an estimated minimum profit margin of at least 20% in the not-so-long term," Kuczynski says. "But if European politicians won't agree on a comprehensive anti-crisis package and stock markets continue to slide, then the government may decide to postpone the offering."

Alternative growth paths are still open to the bank. Given the possible sales of two Polish banking subsidiaries, Belgian KBC's Kredyt Bank and Portugese BCP's Bank Millenium, there's speculation that PKO BP is interested in acquiring one of them. However, Jagiello stressed he's not interested in taking over the competition at any cost, and will act cautiously before undertaking any acquisitions.

Asked whether the local banking market was reaching saturation point, Kuczynski said Poles were still not as acquainted with banking, particularly in its more developed forms, as Western European societies. "It seems that there is still potential for expansion in Poland, but banks have to try much harder than only a few years ago to gain new clients," he said.

"Is advertising a well-established bank with a comedian an efficient strategy? Perhaps, time will show, but I hope that people won't base their decisions to buy stock solely on their liking for jokes, but also on some other economic indicators," Kuczynski said.

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