Handlowy unveils $57 million retail-branch plan
The bank announced at a meeting last week with investors in London that it plans to invest $57 million on a network of 60 retail branches and outlets in major cities throughout Poland that will rely primarily on electronic banking. A pilot branch will open in Warsaw this autumn and will be followed by another four branches in the city by the end of this year.
Handlowy will manage the operation, which it estimates to be worth $150 million once all 60 branches are built, through a subsidiary which will be called Handlobank.
Analysts greeted Handlowy's plan with enthusiasm, but also a little skepticism. The corporate bank has talked for more than a year about how it plans to approach the retail market, but so far has not actually built anything.
"It's a very good plan but nothing more than a plan," said Lubomir Charchalis, an analyst with Wood & Co. "It has already been one year that Handlowy has been boasting about its great plans regarding retail banking, while the others, like (Bank) Slaski, don't say anything but build their network."
Bank Slaski, which is 54%-owned by the Netherlands' ING Barings, is busy rolling out 150 new branches, adding to its existing 70 outlets.
If Handlowy does go ahead with this plan, the bank expects the operation to earn an internal rate of return of 30%.
The bank will target middle-income individuals, the portion of the market that is considered to hold the most potential. Anybody who earns net income of at least zl. 1,500 a month will be able to open an account. Handlowy wants to grab 4% of the deposit market for individuals, has an estimated 5.5 million-6 million accounts.
To reach that group with the minimal amount of infrastructure, Handlowy will lean on electronic and telephone banking. The bank told investors that the only paper its customers will see will be the application they sign to open an account.
The approach is similar to that of one of Handlowy's stable of investors, Swedbank, which has a 5% stake in the bank. Swedbank is one of the leading retail banks in Sweden with $70 billion in assets, and also one of the most cost-competitive banks in all of Europe, according to a research report investment bank Merrill Lynch put out on Handlowy Oct. 3, 1997. Swedbank is known for its state-of-the-art electronic and telephone banking services.
Handlowy appears to be committed to its current proposal, however. The bank already hired advertising firm Saatchi & Saatchi to develop Handlobank's logo as well as design its payment cards.
Handlowy has bounced back and forth in recent months between buying its way into the retail market with the purchase of an existing Polish bank or by going it alone with a greenfield operation.
The bank's management favored the greenfield approach until about May, when it became clear that the state treasury would sell stakes this year in three of the country's key banks - Krakow-based Bank Przemyslowo-Handlowy (BPH), Wroclaw-based Bank Zachodni as well as the Pekao group.
Handlowy immediately expressed its interest in Pekao, making its intentions clear by subscribing for three times the amount of shares offered in its initial public offering (IPO) and ending up with a 4.58% stake. Pekao sold only 15% of its shares in the IPO at the end of June.
The state treasury is looking for a strategic investor to take a further 35% stake in the bank, which should be sold this fall. Handlowy, however, has already declared that it wants more than 35%. Pekao is the largest banking group in Poland with total assets of zl. 55 billion ($16 billion) and the second largest in terms of a network with more than 500 branches.
A merged Handlowy and Pekao would create the largest bank in Poland, with total assets of roughly zl. 70 billion ($21 billion).
"It would have an enormous synergy effect," said Pawel Szymanski, an analyst with London-based Schroders. "And it would be the first really large Polish bank to be able to compete on a European level."
Handlowy would also benefit from Pekao's strong deposit base - an area Handlowy needs to develop to bring down its funding costs.
"Handlowy has a very weak deposit base," said Denise Vergot Holle, an analyst with Merrill Lynch. "Their loan-to-deposit ratio is 150%, which is very high."
Handlowy is clearly smitten with Pekao, but the No. 1 banking group's management does not necessarily share the feeling.
"Handlowy (needs to) present a very good concept for Pekao," said Leszek Pawlowicz, a supervisory board member at Pekao. "Because right now I have no idea how these two banks could operate."
Analysts also question whether Handlowy can provide Pekao with the retail banking expertise it is looking for. "For Pekao it would be much better to have a foreign investor who can bring capital, new products, experience and technology," Vergot Holle said.
At the end of the day, Pawlowicz said he has difficulty understanding how the merger would benefit Pekao at all.
"With any merger two plus two should equal five," he said. "Here two plus two might equal four and a half, with a high risk it would equal one."
Handlowy will manage the operation, which it estimates to be worth $150 million once all 60 branches are built, through a subsidiary which will be called Handlobank.
Analysts greeted Handlowy's plan with enthusiasm, but also a little skepticism. The corporate bank has talked for more than a year about how it plans to approach the retail market, but so far has not actually built anything.
"It's a very good plan but nothing more than a plan," said Lubomir Charchalis, an analyst with Wood & Co. "It has already been one year that Handlowy has been boasting about its great plans regarding retail banking, while the others, like (Bank) Slaski, don't say anything but build their network."
Bank Slaski, which is 54%-owned by the Netherlands' ING Barings, is busy rolling out 150 new branches, adding to its existing 70 outlets.
If Handlowy does go ahead with this plan, the bank expects the operation to earn an internal rate of return of 30%.
The bank will target middle-income individuals, the portion of the market that is considered to hold the most potential. Anybody who earns net income of at least zl. 1,500 a month will be able to open an account. Handlowy wants to grab 4% of the deposit market for individuals, has an estimated 5.5 million-6 million accounts.
To reach that group with the minimal amount of infrastructure, Handlowy will lean on electronic and telephone banking. The bank told investors that the only paper its customers will see will be the application they sign to open an account.
The approach is similar to that of one of Handlowy's stable of investors, Swedbank, which has a 5% stake in the bank. Swedbank is one of the leading retail banks in Sweden with $70 billion in assets, and also one of the most cost-competitive banks in all of Europe, according to a research report investment bank Merrill Lynch put out on Handlowy Oct. 3, 1997. Swedbank is known for its state-of-the-art electronic and telephone banking services.
Handlowy appears to be committed to its current proposal, however. The bank already hired advertising firm Saatchi & Saatchi to develop Handlobank's logo as well as design its payment cards.
Handlowy has bounced back and forth in recent months between buying its way into the retail market with the purchase of an existing Polish bank or by going it alone with a greenfield operation.
The bank's management favored the greenfield approach until about May, when it became clear that the state treasury would sell stakes this year in three of the country's key banks - Krakow-based Bank Przemyslowo-Handlowy (BPH), Wroclaw-based Bank Zachodni as well as the Pekao group.
Handlowy immediately expressed its interest in Pekao, making its intentions clear by subscribing for three times the amount of shares offered in its initial public offering (IPO) and ending up with a 4.58% stake. Pekao sold only 15% of its shares in the IPO at the end of June.
The state treasury is looking for a strategic investor to take a further 35% stake in the bank, which should be sold this fall. Handlowy, however, has already declared that it wants more than 35%. Pekao is the largest banking group in Poland with total assets of zl. 55 billion ($16 billion) and the second largest in terms of a network with more than 500 branches.
A merged Handlowy and Pekao would create the largest bank in Poland, with total assets of roughly zl. 70 billion ($21 billion).
"It would have an enormous synergy effect," said Pawel Szymanski, an analyst with London-based Schroders. "And it would be the first really large Polish bank to be able to compete on a European level."
Handlowy would also benefit from Pekao's strong deposit base - an area Handlowy needs to develop to bring down its funding costs.
"Handlowy has a very weak deposit base," said Denise Vergot Holle, an analyst with Merrill Lynch. "Their loan-to-deposit ratio is 150%, which is very high."
Handlowy is clearly smitten with Pekao, but the No. 1 banking group's management does not necessarily share the feeling.
"Handlowy (needs to) present a very good concept for Pekao," said Leszek Pawlowicz, a supervisory board member at Pekao. "Because right now I have no idea how these two banks could operate."
Analysts also question whether Handlowy can provide Pekao with the retail banking expertise it is looking for. "For Pekao it would be much better to have a foreign investor who can bring capital, new products, experience and technology," Vergot Holle said.
At the end of the day, Pawlowicz said he has difficulty understanding how the merger would benefit Pekao at all.
"With any merger two plus two should equal five," he said. "Here two plus two might equal four and a half, with a high risk it would equal one."
