AIB merges subsidiaries to head off competition
Allied Irish Bank's (AIB) announcement last week that it is to merge its two Polish subsidiaries, Bank Zachodni (BZ) and Wielkopolski Bank Kredytowy (WBK), next May will create the country's fifth-largest bank in terms of total assets.
The signing of a preliminary merger agreement by the management boards of the two Polish banks was a hasty move in reaction to growing competition and the ongoing consolidation of the country's banking sector, industry analysts said.
AIB, Ireland's largest financial group, owns 81.6% of Wroclaw-based BZ and 60.1% of Poznan-based WBK. The new bank will operate under the name Bank Zachodni WBK, and be officially headquartered in Wroclaw, although its central units will be evenly divided between Wroclaw and Poznan. Jacek Ksen, the president of WBK, will be president of the new bank.
BZ employs 6,500 workers and has 203 branches and 265 automated teller machines (ATMs). WBK has 5,000 employees, 196 branches and 184 ATMs. The two banks have total combined assets of zl. 21.2 billion ($4.71 billion). With a heavy presence in west and southwest Poland, the new bank plans to increase the number of branches from 400 to 530 by the end of 2002.
AIB acquired a stake in WBK in early 1995 and increased its holding to 60.1% in 1997. Last year, the Irish bank purchased 80% of BZ from the Treasury Ministry for $580 million and later increased its holding to 81.6%. AIB plans to increase its stake in BZ to 83% by the end of this year. As part of its privatization agreement with the treasury, AIB agreed to keep the BZ name and retain its base in Wroclaw until 2003 if the two banks merged.
Shares of privately held BZ will be floated on the Warsaw Stock Exchange (WSE) before the merger is completed next May through a share exchange transaction. The management boards of both banks will appoint independent advisers to propose an exchange ratio before the matter is taken up at an extraordinary shareholders meeting in December. BZ then will sell its shares to the shareholders of WBK at a ratio based on the adjusted net-asset value of each bank. AIB will control about 70% of the new entity with the remaining shares publicly traded on the WSE.
Although the rapid merger plan came in response to the continuing consolidation wave in Poland's fragmented banking sector, industry analysts indicated that it would not significantly alter the country's financial scene.
"It is significant, but it won't change the picture of the Polish banking sector much," said Artur Szeski, a banking analyst at CDM Pekao Securities, adding that a merger between Warsaw's Powszechny Bank Kredytowy and Krakow's Bank Przemyslowo-Handlowy looms on the horizon as another sign of growing sector consolidation. "If there's no competition, there's no need for cost cutting or for rapid mergers," he said.
Ted Kozaczynski, the director of equity research at CA IB Securities in Warsaw, said that Bank Zachodni WBK would have only 5% market share in terms of total assets. "Despite the merger, it's not going to be a huge entity," he said. "It will need to participate in a second round of banking consolidation in Poland."
James Mellersh, a banking analyst at Morgan Stanley Dean Witter in London, said that although the merger would not have a great impact on the banking sector, the new entity would be more efficient than the two separate banks with a cost-cutting integrated information technology system to process transactions in retail banking.
"The merger's got more to do with rationalizing the operating systems of the two banks and bringing branding to them," he said.
While the merger won't change the banking scene, it could prod other banks into quicker consolidation. "For the industry as a whole, the timing of the announcement may prompt other players to move faster to create feasible partnerships," Kozaczynski said. He added that foreign investors might find it more sensible to speed up the process by buying out their competitors.
For the next few years, the Polish banking sector will remain fragmented as consolidation continues, analysts said. "In other European cities there are usually only four big banks, but in Poland there is a group of about 10 big banks," Mellersh said, adding that the country has numerous regional banks in addition to its major foreign and domestic ones.
