Bank merger rumor shakes up local financial markets

Will Bank Pekao and BRE Bank merge?
By : Leo Broomfield

   Speculation continued last week over a merger between Bank Pekao and BRE Bank, which would create Poland’s largest bank and could set off a wide-ranging shake up of the country’s financial markets, analysts said.

   Rumors of a merger follow reports in the German press that UniCredito Italiano, which owns 53% of Bank Pekao, is at an advanced stage in talks to take over Germany’s Commerzbank, a 50% shareholder in BRE Bank. Reports said the takeover could go through as soon as the first half of September. Both Polish banks declined to comment on the reports.

   Analysts, however, said the newly set up bank would have all the right business synergies. “Looking at the bigger picture, both banks’ portfolios would complement each other perfectly,” said Grzegorz Zawada, head of research at Erste Securities in Warsaw.

   A merger of the two banks’ Polish assets would create the largest bank in Poland and one of the biggest companies in Central Europe. The bank would have assets of more than zł. 85 billion ($20 billion), about zł. 15 billion ($3.5 billion) more than Powszechna Kasa Oszczędnoœci Bank Polski (PKO BP), currently the largest Polish bank. The merged bank would have funds of zł. 8.35 billion ($2 billion). It would also have one of the largest liquidities on the Warsaw Stock Exchange and one of the highest notings of any bank in the region.

   Analysts said Bank Pekao’s large retail network and stable client base would ideally complement BRE Bank’s strengths in the corporate sector. Analysts also said Bank Pekao’s strong presence in brokerage, pension funds and debt financing services would complement BRE Bank’s corporate banking services. The merger would also reduce costs as the activities of both firms overlap in some areas.

   As for investment funds, Bank Pekao’s Pioneer Pekao TFI and Bank BRE’s TFI Skarbiec are the largest funds on the market at the moment. A merger of these two funds would dwarf opposition on the market. At the end of July the two funds managed a combined zł. 2 billion ($476 million), or more than 37% of the market.

   Also, a merger of the two banks’ management firms, Pioneer Pekao IM with zł. 14 billion ($3.3 billlion) worth of managed shares and BRE AM with zł. 1.6 billion ($380 million) worth of managed shares, would create the largest such firm in the sector.

   A combination of the two banks’ leasing firms would create the largest firm in that sector as well, with the power to take on current market leader, Europejski Fundusz Leasingowy EFL.

   On the pension funds market, BRE Bank’s BRE OFE Skarbiec-Emertytura, is the tenth-largest in terms of value, and Bank Pekao’s OFE Pekao, the twelfth-largest. A merger of the two funds would create a pension fund with zł. 773 million ($184 million) capital, making it the fifth-largest on the market.

   But some analysts warned that a merger would see the fusion of two different corporate cultures and management styles. Others pointed to the downside of such a dominant player in the Polish banking sector. “Other banks will find it hard to compete in funds, shares and free-float capacity,” said Paweł Homiński, share portfolio manager at pension fund PTE Dom.

   Meanwhile, the merger of the two mother companies is still not certain, according to some analysts. And even if it does go through as soon as this month, any merger of the two Polish banks would not happen immediately. Media reports suggest that Commerzbank would rather wait until its restructuring process is finished before merging with UniCredito.