Banking on banks

Michał Krupiński

WBJ Observer spoke with Michał Krupiński, CEO of PZU, Poland’s biggest insurer, about its plans to repolonize foreign banks and the current economic climate

by Jacek Ciesnowski

WBJ Observer: When I was doing research for this interview, it felt like I was preparing to talk with the CEO of a bank, not the biggest insurer in the country.

Michał Krupiński: Insurance is still at the core of our business. It takes up to 80 percent of my time. Our results in this field are very good. We’re currently analyzing how we can sell more products to our clients who have group protection insurance, of which we have 6 million. We’re also planning to introduce new investment products, but we have to wait for Deputy PM Morawiecki to announce his plan, which will include a program aimed at increasing Poles’ savings. We think it will be a good opportunity for our investment fund (TFI). Other types of insurance products are also selling very well.

But what interests people the most is not your core segment, but the banking division, which PZU recently entered with a bang and in which it plans to increase its presence with more acquisitions. We have a big surplus of funds earmarked for investment and we want to use it to consolidate the Polish banking sector. That’s what your predecessor, Andrzej Klesyk, was saying. He also added that no insurer has ever profited from owning a bank. His plan was to acquire a couple of banks, merge them through synergy and sell them at a later date. Has this plan changed?

No, nothing has changed there. We bought a controlling stake in Alior Bank, which in turn purchased Bank Przemysłowo-Handlowy (BPH). I think that this will be the trend in the next 4-5 years. The sector will consolidate further and its profitability will increase along with it. Alior is a very good platform to start from. It’s one of the most innovative banks in the region.

The initial idea was to make Alior an anchor and integrate it with two or three smaller banks. Now, according to media speculation, you plan on acquiring lenders much bigger than Alior (Pekao and Raiffeisen). How will this affect your strategy?

I can’t really comment right now on potential acquisitions, but we approach every possibility individually. With BPH, for example, we decided that it would be much better if Alior were the purchasing body, not PZU. This was the largest transaction of its kind on the market so far, and in the process the bank managed to sell bonds worth PLN 800 million in one day. But future acquisition models might be different.

When you make an investment you always need to have an exit strategy. Do you have a timetable for selling the banks?

It’s a matter of a few years for sure. We have to show synergy first, produce good results and the sector needs to improve as well. You don’t have to be Sherlock Holmes to figure out that PZU as a state- owned company is under pressure by the state to repolonize banks. The question is if it’s a good moment to acquire lenders. We all know that the sector is not in the best shape. Every company has to manage its own capital properly. It can’t be under or overcapitalized. If it has more than it needs, the funds should be invested. There aren’t many acquisition targets in the insurance sector. PZU has investments on the WSE, in the bonds sector, as well as in real estate and should invest in related fields. From an evaluation point of view I think it’s a good moment to invest in banks. It’s a buyer’s market now. When the market is consolidated, banks are more profitable.

What if the market situation in Poland worsens and has a few tough years? Aren’t you afraid that the banks will be the ones that will lose the most in this situation? Just like in the south of Europe.

I spent lots of time working at the World Bank analyzing the banking crisis and I came to the conclusion that this is as much an economic problem as it is a social one. The crisis has been accumulating for some 20 years. We’re still a relatively young demography with lots of catching up to do, we have a flexible exchange rate and we have stable trade relations with Germany. That’s why many economists, including those in the IMF, and myself, don’t expect the economic situation in Poland to worsen. Moreover, the rise in lending is still the highest in Poland out of all EU countries. If there is a crisis in Poland it will be caused by global downturn, which I actually expect to happen in the future.

If it’s so good, why do so many foreign banks want to leave Poland?

It’s all caused by the banks’ internal problems. Most of them would love to stay here, but, like UniCredit, which has significant problems in Italy, they have to concentrate on their home turf. During my tenure in the Bank of America I worked on several transactions in the banking sector and they were all caused by the sellers’ internal problems. If they had the capacity, they would stay and strengthen their position in Poland. But in order to be successful in the sector you have to grow. You’re either up, or out as they say. The consensus is that you need at least 5 percent of the market, if you have less than that, it’s better to leave the sector.

What percentage of the market share do you plan on having?

I can’t answer that. It all depends on future acquisitions, and what opportunities will be on the market. It’s not like we’re forced to get involved in the sector. It just makes sense for us. There’s a lot of synergy between the banking and insurance sectors and we want to take advantage of it. If you can name better assets than banking we would consider getting into them. But in the current landscape I don’t see anything better for PZU to invest in.

You’ve talked about having a surplus of investment funds, but you don’t have enough to take over the UniCredit stake in Pekao (40 percent). Someone has to help you with financing. We can do it in cooperation with the Polish Development Fund. The Treasury is not the only shareholder of PZU. The company is listed on the Warsaw Stock Exchange and its shares have dropped to their lowest point since it began trading. It seems that they have a different opinion on entering the banking sector.

I’ll just say that among European insurers we’re one of the best, if not the best performing listed company. The whole industry is in rough shape.

So if the banking sector has its problems, so do insurers. I have to ask again. Is this a good moment for such large investments?

I do think so. As I’ve mentioned before, there aren’t any better assets for us to invest in. Can you find better banks in Europe than Pekao or BZW BK – banks that have similar profits, or a similar level of innovative products? These are some of the better assets in the whole of Europe.

When can we expect some news regarding PZU investments in the sector?

I think within the next few weeks we will announce some decisions regarding one, or even two lenders. But I won’t name any names for obvious reasons.




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