Ministry moves aside in BIG BG takeover battle
The Treasury Ministry will not stand in the way of Deutsche Bank's effort to take control of BIG Bank Gdanski (BIG BG), as long as the German institution agrees it will not in turn go after state insurer Powszechny Zaklad Ubezpieczen (PZU), analysts said last week.
The possibility of Deutsche Bank gaining control of BIG BG outraged the Treasury Ministry last week, not so much because the Polish bank could change hands as the fact that whoever owns BIG BG in turn controls a 10% stake in PZU. BIG BG and European insurer Eureko last year took a 30% stake in PZU during the insurer's privatization BIG BG got 10% and Eureko received 20%.
That fact had the Treasury Ministry believing last week that not only would Deutsche Bank finally get a Polish bank, but that the German company would be in a position to eventually gain control of the country's largest insurer. By agreeing to stay away from PZU, Deutsche Bank will have the Treasury Ministry's promise that it will not interfere in a possible take-over of BIG BG, a bank in which the state treasury has no stake.
"If Deutsche says it's not interested, that it won't have any influence in PZU, I don't think the Treasury Ministry would have any reason to object," said Artur Szeski, an analyst at CDM Pekao Securities. The Ministry "is worrying about PZU, not BIG BG."
PZU is expected to have a very dispersed shareholding once its privatization is complete, however, even a 10% stake would give Deutsche Bank a strong foothold.
BIG BG's shareholders meeting Jan. 28 left the bank in limbo and the fate of its existing management in the air. In that meeting, Deutsche Bank managed to convince a group of investors, including PZU, to vote in block a move that gave the group a majority position in all votes taken. Deutsche Bank used that position to put together a new supervisory board stacked with its representatives, although clashes with the management ended up in two boards being created.
That meeting was put on hold last Friday, and now the issue is expected to be settled at the bank's second shareholders meeting Feb. 11. It is unclear, however, how PZU, whose votes put Deutsche Bank over the 50% mark, will vote in the new meeting. PZU owns 8.6% of BIG BG.
While Deutsche has a 13.23% stake in BIG BG, allied with other shareholders it controls around 44-45% of votes in the bank.
Angered that PZU had voted against its interests, the Treasury Ministry last week suspended PZU President Wladyslaw Jamrozy. The ministry said that Jamrozy knew the effect his decision to back Deutsche Bank would have on PZU and that it unduly influenced the insurance company's ongoing privatization.
In Jamrozy's absence, there is no guarantee PZU will again vote with Deutsche Bank, analysts said. And "the way PZU votes next time will be crucial," said Jean Pierre Lambert, a banking analyst at HSBC Securities.
Many analysts last week, though, said they believed that Deutsche Bank gained PZU's support at the shareholders meeting by agreeing beforehand not to touch the insurer. "I'm quite sure there was such a deal," said an analyst who did not wish to be named. "PZU wouldn't have been very happy if it didn't get these assurances" and otherwise wouldn't have voted in the way it did.
While at the beginning of the week Treasury Minister Emil Wasacz spoke strongly against Deutsche Bank's move on BIG BG, and at one point during the week threatened to intervene if Deutsche Bank continues to pursue BIG BG. But by Friday Wasacz had softened his comments, saying that he had not known all the details of the shareholders meeting.
While these later statements were seen as perhaps paving the way for Jamrozy's reinstatement, it also showed that the ministry was now aware of the deal between Deutsche and PZU, the analyst said.
Others said that while the ministry had no real business interfering with the internal workings of a private bank, it had been caught off guard. Although some analysts said that the ministry should have seen it coming. "When they sold the 30% in PZU, they knew the situation in BIG BG and they knew that Deutsche was interested, determined and strong enough to eventually get a foothold," Szeski said.
While PZU's behavior had astonished those present at the meeting, Jamrozy provided an explanation this week, saying that PZU could stand to gain as much as zl. 100 million ($23.8 million) should Deutsche Bank gain control of the bank. Deutsche Bank's presence was expected to push BIG BG's share price up significantly.
Jamrozy said that he was dismayed that he had been suspended for trying to earn PZU and the Treasury Ministry record sums. PZU also was not obliged to vote with BIG BG's management, Szeski said.
However, while PZU's position at the next meeting is still unclear, it could still influence the outcome of the vote by abstaining. Analysts said that in this respect Deutsche could still expect a majority with around 45% of the vote, while BIG BG investors Banco Comercial Portugues (BCP), Eureko, TBM Leasing and INEC Services combined with smaller shareholders would have around 40%.
But while this scenario would give Deutsche the upper hand, it wouldn't provide a solution to the long-running tug of war between the German bank and the opposing parties, analysts said. If the meeting doesn't resolve the situation, "it will definitely be detrimental for BIG BG, the management will be absorbed by this issue; the image of the bank will be affected because of the uncertainty; and its staff will be nervous," Lambert said.
However, a possible solution could be Deutsche Bank agreeing to let BCP, which owns 14.95% in BIG BG, run BIG BG's retail operation, Millennium. That would allow Deutsche Bank to concentrate on corporate banking instead, said Adam Kalkusinski, an analyst at Wood & Co.
Deutsche announced last week that it has received permission from the Banking Supervision Commission (KNB) to exceed a 25% stake in BIG BG. At the same time, however, it is also being investigated by the Securities and Exchange Commission (KPWiG) as to its relations with smaller shareholders. In addition, BIG BG's management and supporting shareholders said they are not ruling out legal action against Deutsche, said Wojciech Kaczorowski, press spokesman at BIG BG.
"There's a lot of potential for this," he said.
