BPH-PBK merger to trigger consolidation in retail banking
By : Leo Broomfield
The banking sector could be in for a new round of consolidation following the merger of Bank Przemysłowo-Handlowy (BPH), controlled by Germanys HypoVereinsbank, and Powszechny Bank Kredytowy (PBK), controlled by Bank Austria, which is set to happen by the end of the year.
I expect to see a more oligopoly structure in the market as a consequence of this merger, with the other big banks looking to consolidate further Bank Pekao, PKO BP (Powszechna Kasa Oszczednosci Bank Polski) and Handlowy-Citibank, said Robert Brzoza, an analyst at PKO BP brokerage in Warsaw.
The merger, which was approved last week by shareholders of both HypoVereinsbank and Bank Austria, will create Polands third-largest bank after PKO BP and Pekao. The bank is set to take 10.8% of all banking services in Poland and will be called Bank Przemysłowo-Handlowy PBK, based in Kraków.
The cost of the merger is estimated at around O 70 million. The bank said it would cover these costs in 2002. The merger creates a bank with a capital base of zł. 5.2 billion ($1.2 billion), a balance sheet of zł. 41 billion ($9.7 billion), 2 million customers and 600 branches in Poland.
Analysts said the merger would mean savings of up to O 70 million a year O 50 million on operating costs and O 20 million on savings from a shared IT system. The new bank recently chose BPHs IT system Profile run by U.S. firm Sanchez Computer Associates (SCA). It will be cheaper to integrate the PBK system into the BPH system, at an estimated cost of zł. 300,000, against an estimated zł. 20 million ($4.7 million) the other way around.
They said the savings would start to show up on the banks books as early as 2004. BPH president Józef Wancer (slated to become the new banks president) said the banks rate of return on equity would reach 20% by 2005, with the banks costs-to-earnings no higher than 55% less than PBKs first-half year level of 68% and BPHs 67%. PBK also plans to lay off about 1,000 employees, or 7.9% of the workforce. BPH said it had similar plans.
Analysts said other changes in the sector that may result from the merger would be the spreading of risk. One of the effects of the merger in the corporate sector will be that on-going consolidation in the sector may incline corporations to look for a third house bank, Brzoza said. He added that companies may want to cover their risk profiles by opening new accounts with other banks after the merger to remain diversified.
The new bank will likely increase its presence in the middle and small enterprise sectors and in the private banking sector. In the private banking sector especially I expect more competition, Brzoza said.
There will also be an expansion of more marketable bank products in the retail sector. Analysts said these would be most likely based on BPHs offers. Banking fees for customers will likely rise and interest paid for deposits fall as the two banks have more deposits than they need to fund credit actions.
A strong deposit base and strong capital base may enable BPH-PBK to gain better positions in the big ticket market (consortium credits, infrastructure credits, leading banks in investment projects), while the smaller players are likely to look for niches (private banking, specialized services etc), Brzoza said.
Analysts said the housing market would also see a boost and become a significant segment of retail banking in the near future. BPH already has its own house-savings society and a mortgage bank and many in the industry said it is well-equipped to compete.
The merger will see all of PBKs assets going into BPH in return for BPH shares before the end of the year. The management of the two banks has already accepted the merger parity rate two PBK shares for every one BPH share from a new share issue. This means that BPH must issue 14.6 million new shares. PBK will take 51.08% of votes at the new banks shareholders meeting, with the remaining 48.92% going to BPH.
HypoVereinsbank will become the largest investor in the new bank, with 71.28%, though the Austrians will oversee the banks Polish operations, as elsewhere in the region.
Wancer said the bank would see 25% of its shares traded on the Warsaw Stock Exchange in January 2002, with a simultaneous withdrawal of PBK shares from the bourse.
We want to be the first choice bank for Polands rapidly developing middle class, Wancer said. He said the number of accounts at the bank will reach 1 million, with 2.4 million customers.
BPH press officer Robert Waker said the banks were still discussing the fate of regional bank Górnolšski Bank Gospodarczy (GBG), whose strategic investor is PBK. PBK and GBG last week agreed to sell PBKs pension fund PTE PBK to STU Ergo Hestia for zł. 323 million ($76.9 million). BPH owns 10% of pension fund PTE BPH CU WBK and Polish law prohibits any company holding shares in more than one pension fund.
