A joined BPH and PBK would be third-largest bank
While the recently announced friendly takeover of Bank Austria by Germany's HypoVereinsbank will create Europe's third-largest bank, the probable merger of their Polish subsidiaries could create Poland's third-largest bank.
HypoVereinsbank controls 86% of Krakow-based Bank Przemyslowo-Handlowy (BPH), while Bank Austria has 53% in Warsaw's Powszechny Bank Kredytowy (PBK) and is set to increase that stake to 57.9%.
A merger of the two Polish banks would give rise to a bank with combined assets of zl. 36.1 billion ($8.4 billion) and 550 branches. BPH and PBK each claim about 6% of the country's overall banking market.
By comparison, the nation's two largest banks, Powszechna Kasa Oszczednosci Bank Polski (PKO BP) and Bank Pekao, have zl. 60.7 billion ($14 billion) and zl. 59.7 billion ($13.9 billion), respectively, in total assets. Bank Pekao plans to have 800 branches by year's end.
The BPH/PBK partnership would also put the new bank in the No. 3 spot for market capitalization.
"Now we'll see a bank that will be able to compete directly with PKO BP and Pekao," said Artur Szeski, a banking analyst with CDM Pekao Securities.
Though analysts are certain the merger or some sort of teaming up will take place, the question is when.
"I don't really see it moving ahead before 2001," said James Mellersh, a London-based analyst with Morgan Stanley Dean Witter. Mellersh said the second half of 2001 or early 2002 were likely dates.
Besides the time it will take for Bank Austria shareholders to approve the takeover and the details to be hammered out, analysts said the Polish banks must also integrate their processing systems. "It's not possible to merge the two banks without a common IT system," Szeski said.
When that has been taken care of and the banks are ready to combine operations, they'll probably decide on one of two possibilities, said Jean Pierre Lambert, an analyst with HSBC Securities in London. PBK and BPH will either decide to remain separate companies with distinct distribution networks while sharing a platform and infrastructure, or they'll opt for a full merger.
In the second case, Lambert said, a possible share-purchase agreement signed by HypoVereinsbank and the state treasury when Hypo takes control of BPH could limit its options. Allied Irish Bank signed a similar agreement, which bars it from merging WBK and Bank Zachodni, the two institutions it controls, for several years. "Apparently there are some legal constraints," Lambert said. Whatever scenario they decide on, the new institution "could be a potentially strong player," he said.
When considering market share, PBK and BPH together account for 9% of the retail lending market and 8% of retail deposits. In comparison, Bank Pekao and PKO BP together hand out 47% of the country's retail loans and take 58% of its retail deposits, Lambert said.
Together, PBK/BPH own the equivalent of 61% of publicly traded Bank Pekao's total assets, a 71% equivalent of its total loans and 58% of its total deposits, he said.
Mellersh estimates a merged PBK/BPH could save 10-12% on operating costs, but that would also mean trimming down staff. He believes a merger wouldn't have much significance for the country's banking sector.
"(BPH and PBK) are doing exactly the same thing," he said, mentioning deposits on the retail side and loans on the corporate front. "It doesn't change that much."
Lambert also disagrees with the view that Poland's banking sector needs to be consolidated to offset low returns on equity. An oft-repeated concern over low returns on equity isn't justified, he said, because Poland has twice the amount of capital pouring into its banks than does Hungary, its nearest competitor in the region.
If all goes through for the HypoVereinsbank/Bank Austria merger, Bank Austria will become a 100% subsidiary of HypoVereinsbank but will hold onto its name and top management.
Under the deal, Bank Austria, whose Polish banking arm is PBK and whose international subsidiary is Bank Austria Creditanstalt (BA CA), will put its business operations into a new subsidiary, turning itself into a holding company. HypoVereinsbank will sell 114 million shares to Bank Austria in return for the handover of its operations. Bank Austria will then own 22% in HypoVereinsbank and will swap stockholders' shares for newly issued HypoVereinsbank shares.
Though the HypoVereinsbank takeover looks almost certain at the moment, banking mergers in the German-speaking world are not, as evidenced by this week's collapse in merger talks between Commerzbank and Dresdner Bank, and by a similar collapse in merger discussions several months ago between Deutsche Bank and Dresdner.
