BRE kick starts once-abandoned retail banking
Bruised and somewhat beaten after the failure of its proposed merger with Bank Handlowy, BRE Bank plans to hit back by relaunching its previously abandoned retail banking project, Multibank, the Business Journal has learned.
U.S. Citigroup's decision to purchase a major stake in Handlowy killed a proposed merger between the two domestic corporate banks. The failure of that merger caused BRE to lose crucial time in the race to provide retail banking services one of the most dynamic areas of growth in the sector.
BRE abandoned its Multibank project when merger talks began. As a result, however, much of the staff working on the development and a good part of the strategy went to work on other projects within the company.
Despite its late start, BRE is determined to get back into the retail game. "The new project will be a sort of creative upgrading of Multibank," said a source close to BRE. "It will be based on a multi-channel network of small branches using high-tech solutions."
BRE will unveil its new retail strategy after Handlowy's shareholders meeting, scheduled for April 14, which will hammer the final nail in the merger's coffin. BRE's own shareholder's meeting follows April 23.
"It's high time for BRE to announce their plans," said Artur Szeski, a banking analyst with CDM Pekao Securities. "But they are waiting for Handlowy's shareholders meeting to dissolve the merger agreement."
The merger collapsed in early February when Citibank bought a direct 10% stake in Handlowy and 22% through convertible bonds from insurer Powszechny Zaklad Ubezpieczen (PZU). Citibank subsequently applied to the Banking Supervisory Commission (KNB) for permission to increase its stake in Handlowy to 75%.
Since then, speculation has focused on BRE's next move. The rumors have focused on BRE as a merger candidate or takeover target. While the bank faces being crowded out on the retail market, it also will have to fight off stiff competition in its corporate banking business from Citibank, through the U.S. group's control of Handlowy, as well as from Deutsche Bank, through its seemingly inevitable takeover of BIG Bank Gdanski.
Analysts said it is possible Citibank will make a bid for BRE. Others said BRE's fate will be decided in Germany, as the future of its strategic investor, Commerzbank with its 49% stake, becomes clearer. A merger between Deutsche Bank and Dresdner Bank is also putting pressure on Commerzbank, which is expected to possibly hook up with HypoVereinsbank.
If that were to happen, BRE could merge with Bank Przemyslowo-Handlowy (BPH), a Krakow-based retail and corporate bank in which HypoVereinsbank owns an 82-83% stake, analysts said. Another merger candidate is Warsaw-based Powszechny Bank Kredytowy (PBK), which also offers both retail and corporate services. Bank Austria Creditanstalt (BAC) holds a 43% stake in that bank and is looking to up the figure to 50% before the year is out, said Martin van Tol, senior analyst at RZB Austria.
"A merger is quite likely and it will come from Commerzbank, BRE's mirror image," van Tol said. And it's "likely to be one of the German or Austrian banks with a retail presence."
But analysts said the prospect of hooking up with a partner in retail would certainly help BRE, which is likely to have a hard time of it alone. "The later in the game you are the harder it is," said Jean-Pierre Lambert, a London-based analyst at HSBC Securities. Problems with the Handlowy merger caused BRE to lose nine crucial months that could have been used developing its retail strategy, Szeski said.
In addition, BRE's locations and software for the aborted Multibank project went over to Handlobank, Handlowy's retail wing, said Adam Kalkusinski, an analyst at Wood & Co. Handlobank, which initiated its operations in late 1998, now has 48 branches nationwide. "What can they do to get anything like that up and running? It would take 18 months or more," van Tol said. "It's not a quick thing, and then making a profit takes even longer."
BRE will have to deliver on a variety of levels if it is to have any chance of competing effectively with its peers in retail, analysts said. "If BRE wants to succeed, they have to provide a good combination of quality and price," Szeski said.
Brand name is another factor. While BRE has a strong brand name and a good reputation on the corporate market, it is less known among individuals. That means that the bank will have to reach those new clients through branches, call centers and the internet in addition to coming up with a strong offer, he added. BRE has one ace up its sleeve: technological prowess. Analysts said the bank has always been a leader in terms of new technology, and the bank is ready to spend whatever money necessary to maintain that lead. Furthermore, it can count on strong technical support from Commerzbank, one of Germany's most prominent internet banking institutions, to help it gain a competitive edge, Kalkusinski said.
However, BRE has cooperated most extensively in this respect with IT firm ComputerLand. Their most recent joint venture, "eCard," a clearing house to settle credit card transactions over the internet, was announced three weeks ago. Kalkusinski said that while other banks, such as Bank Pekao and BPH, have internet banking products on offer, they are not marketing them as aggressively as BRE probably would, he said.
Marketing prowess is likely to be the key to success in retail. "There is demand for such a product for retail customers (as well as for) small and medium-sized enterprises," he said.
Moreover, analysts said internet banking would save BRE the vast amounts of money necessary to roll out branches nationwide. As it is, the bank has outlets in major cities across the country.
"It makes no sense to spend billions to duplicate" the retail activities of other banks, Kalkusinski said. "What makes sense is to go after the market with the most money."
To this end, BRE will pursue the only secure footing it has in retail: affluent private banking clients. Last year this customer segment made up 24% of the bank's zl. 7.36 billion ($1.9 billion) in total deposits. "They'll carry on with the high net worth client idea, it's been very successful," van Tol said. Furthermore, "internet usage may be small but internet banking will grow at a fairly fast rate, and especially among their target group."
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