BRE's future plans frustrated in wake of Citi/Handlowy talks
The tables are beginning to turn for BRE Bank, and the outcome may not be what the bank had hoped for.
The U.S.'s Citigroup's reported intention to acquire a controlling stake in Bank Handlowy could leave BRE competing against a formidable competitor. If Citigroup does take control of Handlowy, it would create one of the largest banking groups on the Polish market. A powerhouse on the corporate market, Citigroup/Handlowy would also tower over BRE.
"All of a sudden BRE would have a competitor twice its size," said Marek Juras, banking analyst with Erste Securities Polska. "It would dramatically change BRE's competitive position on the corporate market."
News of Citigroup's interest is the latest setback in a previously announced merger between BRE and Handlowy. Shareholders of the two banks had approved a merger at the beginning of December, but opposition from key shareholders, insurer Powszechny Zaklad Ubezpieczen (PZU) and the Treasury Ministry, derailed the teaming. PZU filed a lawsuit to block the merger, and talks between BRE Bank and Handlowy have now stalled.
A Handlowy combined with Citigroup's Polish branch, Citibank (Poland), would be the largest bank in the country in terms of own capital (zl. 3.3 billion/$825 million) and the third-largest bank in terms of total assets (zl. 27.5 billion/$6.87 billion).
"Right now BRE has clear technological and human resource advantages over Handlowy," Juras said. "But after Citigroup enters Handlowy, this advantage would disappear soon."
After years of dynamic growth, BRE could experience a setback if its merger with Handlowy derails, said Artur Szeski, a banking analyst with CDM Pekao Securities. To survive on the market, the smaller BRE, with zl. 14.5 billion ($3.54 billion) in total assets, would have to find another bank to merge with or acquire, he said.
"All options are being considered," said Wojciech Kostrzewa, BRE Bank's president told the Business Journal last week when asked what his bank's strategy was going to be if the merger didn't come through.
He added that both the merger outcome and possible changes in BRE's strategy will be decided in coming months and not coming weeks.
Another problem is that the failure of the merger with Handlowy would leave BRE without retail operations. As a result of the planned merger with Handlowy, BRE has halted the development of its own retail banking project, called Multibank. Instead, the bank was going to combine its infrastructure with that of Handlowy, which already runs a retail operation called Handlobank.
At this point, BRE would have to acquire a retail presence as it has already lost too much time to build one of its own, analysts said. "Of course, it raises a lot of speculations about who could be a possible buy," Szeski said.
Finding a solid acquisition target will be tricky, however, analysts said. They pointed out that the two banks remaining to be privatized, Powszechna Kasa Oszczednosci Bank Panstwowy (PKO BP) or Bank Gospodarki Zywnosciowej (BGZ), are unlikely to interest BRE. Both banks are considered to be ineffective competitors.
One possibility could be smaller and more efficient Powszechny Bank Kredytowy (PBK), but Austria's Creditanstalt would first have to divest of its 43.51% stake. "There are rumors about Creditanstalt selling its stake in Powszechny Bank Kredytowy," Szeski said. "But the rumors come and go, and Creditanstalt has never confirmed them."
BRE is not out of the game yet, analysts said. They also said that BRE's strategic investor, Commerzbank, was unlikely to walk away from the present challenge.
"I don't think Commerzbank is going to give up," said Adam Kalkusinski, a salesman with Wood & Co. "I'm pretty sure the fight (over Handlowy) will continue, although I don't know how."
To acquire Handlowy, Citigroup will first have to hammer out an agreement with the Polish bank's stable of investors, which include JP Morgan, Swedbank and Zurich Insurance. Those investors are not allowed to sell their stakes until September this year.
