BA CA to face stiff competition for PBK stake
Bank Austria Creditanstalt (BA CA) looks certain to face strong competition from BRE Bank and ABN AMRO Bank in the race for a 10.3% stake in Powszechny Bank Kredytowy (PBK), analysts said last week.
BA CA, which holds a 43.5% stake in PBK and wants to merge it with its subsidiary BA CA Poland, turned down the right of first refusal to buy the stake last year. Analysts said BA CA is now regretting that decision after the Treasury Ministry received offers from several bidders two weeks ago.
"The treasury was disappointed by BA CA's behavior and right now it may be looking for revenge" by offering the stake in the retail and corporate bank to another investor, said Marek Juras, an analyst at Erste Securites Polska. However, in the end the treasury will be concerned with getting the best possible deal when the stake is sold. "Eventually the price will decide," he said. The sale is slated for the end of May.
Jakub Papierski, an analyst at Deutsche Bank Research, said last year BA CA would likely have bought the stake for zl. 100 per share, or $70 million. Analysts said BA CA was unwilling to pay last year to further extend its control over an institution in which it was already the near majority shareholder. Greater demand for the stake and PBK's rising value since then means that any investor will now likely pay around zl. 140 per share or $100 million for the stake, Papierski said.
So far BA CA is the only bidder to have publicly declared its offer. Artur Szeski, an analyst at CDM Pekao Securities, said BA CA was the best-placed bidder for the stake because it is willing to pay the most. "BA CA will win it for sure because it is the most interested," he said.
However, it now faces a tough fight, analysts said. There is a strong possibility that BRE Bank, which is gearing up to announce its strategy on the retail banking market next month (see WBJ, page 1, April 3-9, 2000), has also thrown its hat in the ring. "It is my impression they have placed a bid," Juras said.
In addition, it seems probable that ABN AMRO has declared its interest in the sale to the ministry, Juras said. While ABN AMRO Polska's deputy president said two weeks ago that a bid was "highly unlikely," that pronouncement did not come from the bank's headquarters in the Netherlands, where such decisions are usually made, Juras said. ABN AMRO Polska's press spokesman, Aleksander Lubowski, refused to confirm or deny whether the bank had placed a bid for PBK with the treasury.
Analysts said PBK is important to both BA CA and BRE primarily due to its potential in retail banking. Retail has long been considered the most lucrative banking market due to the fact that deposits from individuals are the cheapest source of capital for financial institutions. Moreover, it has enormous potential for growth, with only 40% of Poles possessing retail accounts.
While Warsaw-based PBK is both a corporate and retail operation, it has expanded its coverage in retail in recent years by acquiring small regional banks, said Martin van Tol, senior analyst at RZB Austria. Retail is dominated by Powszechna Kasa Oszczednosci Bank Panstwowy (PKO BP) and Bank Pekao, which at the end of 1999 had 1,110 and 719 branches respectively, analysts said. But PBK heads a second tier of regional banks moving up the list, finishing 1999 with 334 branches, up from 154 at the end of 1997, van Tol said.
PBK is ranked as the fourth-largest Polish bank in terms of total assets, which Deutsche estimates last year to have hit zl. 19.81 billion ($5.1 billion), up 11.7% over 1998. But its net profit in 1999 is forecast at zl. 261.7 million ($67.1 million), down 1.3% from the previous year.
For BA CA the stake would allow it to merge BA CA Poland, which is predominantly corporate, with PBK by the end of the year, van Tol said. In addition to the retail business, the move would establish "a clear and transparent structure to eliminate conflicts of interest," preventing any overlap in both entities' corporate clients. He also said the move would save costs by merging the banks' management and back offices.
Furthermore, the new entity would retain PBK's name in compliance with the trend among foreign investors of not changing the names of their holdings. "It's a question of brand recognition; the only changes are in management and strategy," van Tol said.
For its part, BRE's strategy is also to hook up with a partner in retail, analysts said. They said that BRE, reeling from the failed merger with fellow corporate Bank Handlowy in which Citigroup decided to purchase a majority stake, has to find a partner soon or face being crowded out of the market. The retail arms of corporate banks, such as Handlowy's Handlobank and BIG Bank's Millennium Bank, are expanding rapidly and already have a head start on BRE. "It's much easier (to hook up), it would take years on their own before they could gain some reasonable size," Juras said.
To this end, BRE could try to get control of the PBK stake and negotiate some form of cooperation between itself and BA CA. "It could be the beginning," Juras said. "As far as I can see (BRE President) Wojciech Kostrzewa is not willing to fight with BA CA." However, any partnership would also entail an agreement between BA CA and Germany's Commerzbank, which holds a 49% stake in BRE.
But BRE may not be in the game for long. The bank has a history of making investments for a quick profit, and a purchase in PBK could be a similar maneuver, van Tol said. Two weeks ago BRE and media and water firm Multico purchased a 28.43% stake in software firm Optimus, which analysts have interpreted as a short-term move. A few years ago it bought a stake in BIG BG, which it sold last year to RZB Central European Development. "A portfolio investment is the only reason I can think of," van Tol said.
But ABN AMRO could throw a wrench in the works. Juras said the Dutch bank, which is interested in having both corporate and retail footing, may try to get hold of the stake and then gradually wrest control of PBK from BA CA. "It would not be a portfolio investment and ABN AMRO is not interested in being a minority shareholder," he said. "It would try to build up a position to buy out the Austrians," he said. Currently ABN AMRO has a 0.7% market share in Poland's total banking market, while PBK has around 5%, Juras said.
If this scenario were to occur, Juras said the banking sector may see a replay of the year-long struggle for control over BIG BG, which Deutsche Bank currently looks set to win. However, Deutsche's Papierski said that while no one investor controlled more than around 4-6% of BIG BG, BA CA alone has a 43.5% stake in PBK. To this end, any investor other than BA CA will have to cooperate with the Austrian bank, he said.
