LG Petro bank in Nordea's sights

Nordic banking group Nordea last week launched a bid for Poland's LG Petro Bank, aiming to boost its weak position in Eastern Europe's largest country and be ready for its planned European Union entry. Nordea said it would buy 54.3% in Petro from Korea's LG Securities and would launch an offer for all outstanding shares at zł. 21 each, valuing the entire bank at €128 million ($117.3 million). "The acquisition of LG Petro Bank comes at a time when Poland's EU entry is imminent and when the country's economy is set to recover," said Nordea Chief Executive Thorleif Krarup. "The transaction creates a solid foundation for Nordea's continued expansion in Poland." The Nordic region's largest bank was also open to further acquisitions in Poland, which is among 10 mostly ex-communist countries negotiating to join the EU in 2004, Nordea spokesman Jens Bekke said. Nordea, which expected the deal to have a positive earnings impact within two years, said the Petro deal required regulatory approval, expected within four months, and 90% acceptance for the tender offer, which will be started within seven months. Polish fuels group Polski Koncern Naftowy Orlen (PKN Orlen), which holds around 20% of the bank, reiterated it was planning to dispose of its holding but would not comment on the proposed tender price. LG Petro stock, which is highly illiquid, was down 6.5% to zł 20.30 for the five-day period ending Thursday.

The purchase should help Nordea increase its critical mass in Poland's fragmented banking market, where growing competition among mostly foreign-controlled lenders and sluggish economic growth hurt their earnings in past years. "The strategy appears to make sense in the present situation as buying smaller banks and later merging them appears the only way to strengthen a position here," said Robert Sobieraj, banking analyst at Citigroup's Bank Handlowy. Following wide-scale privatization over the last decade, international giants control above 70% of Polish banking assets, with UniCredito Italiano, Citigroup and HypoVereinsbank leading the pack. To streamline its operations, Nordea, which is also present in Latvia, Lithuania and Estonia, said it would merge LG Petro with its Warsaw-listed Nordea Polska arm, created last year from a tie-up of its two small banking units. "Nordea will after the transaction rank among the 15 largest financial services providers in Poland," it said in a statement. LG Petro has over 160,000 customers including several of the country's largest corporations. The combined entity will have 50 branches and 17 outlets in the country's major cities.

Pension funds buy stocks Poland's largest pension funds increased their equity exposure by nearly one percentage point in April, with new purchases valued at some zł. 300 million ($75 million), a monthly Reuters poll showed last week. The survey of Poland's top 10 funds showed the average share of their assets invested in equity rose to 27.6% last month from 26.8% in March, but the new purchases failed to boost the weak market. The funds shaved their holdings of government bonds to 65.6% of the total in April from 66% in March, also trimming cash to 3.8% from 4.9%. Analysts said the Warsaw Stock Exchange, whose large-cap WIG20 index fell 1.3% to 1,321.3 points last month, would likely stay stable or inch down in May, with few signs of an economic rebound. "The new purchases (in April) were too small to push the indices up and pension funds only helped to prevent the market from falling," said a manager at a leading pension fund. "There is no economic recovery," said another fund manager. "And if we have large supply from foreign investors, the pension funds might not be able to limit the downside. I think we will test the 1,200 points level." Attractive yields on Polish government bonds, which earned a return of 1.6% over the month, continue to discourage fund managers from exhausting the maximum 40% equity allocation. The top 10 pension funds, the biggest players on the WSE, had zł. 21.3 billion ($5.33 billion) under management at the end of April after receiving zł. 532 million ($133 million) from the state social security office (ZUS). In March, ZUS transferred zł. 984 million ($246 million) to pension funds, which were created under a 1999 reform. - Reuters