PKO, gov't clash over sell-off plan
But the plan directly contradicts suggestions from management on how to sell a chunk of the bank and places executives and the Treasury Ministry, PKO's shareholder, at odds over the sell off.
Management wants a portion of the bank's shares to be offered on the Warsaw Stock Exchange (WSE) rather than to be sold to a controlling investor. While the recently completed privatization plan does not rule out the idea of a public offering eventually, it suggests first finding an investor that would take control of the bank, sources said last week.
Bank industry watchers were not surprised that management and the government had come to different conclusions on how to sell the bank.
"PKO's board would like to a see similar solution as Bank Handlowy and it's only natural," said Marek Juras, a banking analyst with Erste Securities Polska. "A dispersed shareholders' structure means more freedom for the management board."
PKO President Andrzej Topinski last week downplayed the issue, refusing to comment directly on the privatization strategy.
"This is up to the owner, it has to decide," Topinski told the Business Journal. The Treasury Ministry holds 100% of PKO BP, one of the last Polish banks to be privatized. "The issue will be considered by the supervisory board."
Topinski could not say when PKO BP's supervisory board planned to discuss the privatization proposal.
According to Topinski, the proposed sale to a strategic investor is "one of several obvious options when privatization is discussed and the consultant's opinion is always very helpful."
But Slawomir Lachowski, PKO BP's deputy president, told the Business Journal in an interview in May that he envisioned the first step of the privatization consisting of the public floatation of up to 10% of the bank's shares, with the sale of a majority stake to only follow later. Shareholders could be both institutional and individual investors, he said, or a group of core investors. (See the WBJ, May 10-16, 1999)
PKO BP has total assets of zl. 56.7 billion ($14.53 billion) and about 7 million customers that it serves in more than 1,000 branches.
The ultimate decision, however, is up to the Treasury Ministry. Juras said that the odds are in favor of looking for a strategic investor, as it would likely bring more money to the state treasury and quickly improve the bank's operations.
"It means faster restructuring and adjustment of the bank to market requirements," he said.
The Treasury Ministry could easily get a premium for the bank, as a strategic investor would be willing to pay more for PKO BP's 43.6% market share in current accounts, nationwide network and brand name, analysts said. Those assets are more valuable to a strategic investor, however, than to a portfolio one, they said.
The initial privatization plan also notes that a strategic investor could provide the know-how PKO BP needs and also be able to better push through deep restructuring. The suggestion to bring on a strategic investor also took into account that the bank will require significant help in upgrading and reworking its retail banking activities to compete against new entrants on the market such as Millennium BIG Bank, Handlobank and BRE Bank's Multibank.
In the last four years, PKO BP's market share in current accounts plunged from 62.6% to 43.6%. In the last year alone, the number of PKO's current accounts increased by 15%, while its overall market share dropped by 7%.
Analysts working on the privatization plan also took into account that PKO may not be very well received on the weak capital markets right now, particularly because the bank's financial results last year were rather poor and it still requires much restructuring. But floating 20% after a strategic investor is brought on may work well, they said.
The bank recently corrected its 1998 financial results for the second time. Originally, the bank announced that in 1998 it incurred a loss of zl. 690 million ($197 million). But the loss doubled after the bank's audit, rising to zl. 1.3 billion ($333 million). That compares to a 1997 net profit of zl. 621.8 million ($194.3 million) and more than zl. 1 billion ($357 million) in 1996.
The higher than expected loss was due to the demand of the bank's new auditor, Arthur Andersen, to increase provisions for bad loans and future tax payments to zl. 633 million ($162.3 million) from the zl. 250 million ($64.1 million) the bank originally assigned. The loss caused PKO's solvency ratio to dip below the 8% required by National Bank of Poland (NBP) regulations. This compares to a 10.36% solvency ratio the bank showed at the end of 1997.
The bank blamed the need for extra provisions on its portfolio of old housing loans. The national bank saddled PKO with the portfolio when the economic system changed 10 years ago. PKO holds zl. 5 billion ($1.28 billion) worth of old loans given to housing cooperatives under communism to pay for construction and refurbishments. Those cooperatives, however, had difficulty paying the money back after the hyperinflation of the early 1990s.
How that portfolio will be cleaned up is unclear, although the bank is asking the state treasury for guarantees or subsidies. Earlier this year Jaroslaw Bauc, deputy finance minister and the chairman of PKO's supervisory board, told the Business Journal that the bank needs to be recapitalized, although he did not say by how much.
If PKO's privatization is to take place next year, some decisions on the portfolio need to be made quickly.
"It (privatization) can't be done without some kind of assistance from the state budget," said a source who requested anonymity. "If so, next year's state budget should include this item."
Management wants a portion of the bank's shares to be offered on the Warsaw Stock Exchange (WSE) rather than to be sold to a controlling investor. While the recently completed privatization plan does not rule out the idea of a public offering eventually, it suggests first finding an investor that would take control of the bank, sources said last week.
Bank industry watchers were not surprised that management and the government had come to different conclusions on how to sell the bank.
"PKO's board would like to a see similar solution as Bank Handlowy and it's only natural," said Marek Juras, a banking analyst with Erste Securities Polska. "A dispersed shareholders' structure means more freedom for the management board."
PKO President Andrzej Topinski last week downplayed the issue, refusing to comment directly on the privatization strategy.
"This is up to the owner, it has to decide," Topinski told the Business Journal. The Treasury Ministry holds 100% of PKO BP, one of the last Polish banks to be privatized. "The issue will be considered by the supervisory board."
Topinski could not say when PKO BP's supervisory board planned to discuss the privatization proposal.
According to Topinski, the proposed sale to a strategic investor is "one of several obvious options when privatization is discussed and the consultant's opinion is always very helpful."
But Slawomir Lachowski, PKO BP's deputy president, told the Business Journal in an interview in May that he envisioned the first step of the privatization consisting of the public floatation of up to 10% of the bank's shares, with the sale of a majority stake to only follow later. Shareholders could be both institutional and individual investors, he said, or a group of core investors. (See the WBJ, May 10-16, 1999)
PKO BP has total assets of zl. 56.7 billion ($14.53 billion) and about 7 million customers that it serves in more than 1,000 branches.
The ultimate decision, however, is up to the Treasury Ministry. Juras said that the odds are in favor of looking for a strategic investor, as it would likely bring more money to the state treasury and quickly improve the bank's operations.
"It means faster restructuring and adjustment of the bank to market requirements," he said.
The Treasury Ministry could easily get a premium for the bank, as a strategic investor would be willing to pay more for PKO BP's 43.6% market share in current accounts, nationwide network and brand name, analysts said. Those assets are more valuable to a strategic investor, however, than to a portfolio one, they said.
The initial privatization plan also notes that a strategic investor could provide the know-how PKO BP needs and also be able to better push through deep restructuring. The suggestion to bring on a strategic investor also took into account that the bank will require significant help in upgrading and reworking its retail banking activities to compete against new entrants on the market such as Millennium BIG Bank, Handlobank and BRE Bank's Multibank.
In the last four years, PKO BP's market share in current accounts plunged from 62.6% to 43.6%. In the last year alone, the number of PKO's current accounts increased by 15%, while its overall market share dropped by 7%.
Analysts working on the privatization plan also took into account that PKO may not be very well received on the weak capital markets right now, particularly because the bank's financial results last year were rather poor and it still requires much restructuring. But floating 20% after a strategic investor is brought on may work well, they said.
The bank recently corrected its 1998 financial results for the second time. Originally, the bank announced that in 1998 it incurred a loss of zl. 690 million ($197 million). But the loss doubled after the bank's audit, rising to zl. 1.3 billion ($333 million). That compares to a 1997 net profit of zl. 621.8 million ($194.3 million) and more than zl. 1 billion ($357 million) in 1996.
The higher than expected loss was due to the demand of the bank's new auditor, Arthur Andersen, to increase provisions for bad loans and future tax payments to zl. 633 million ($162.3 million) from the zl. 250 million ($64.1 million) the bank originally assigned. The loss caused PKO's solvency ratio to dip below the 8% required by National Bank of Poland (NBP) regulations. This compares to a 10.36% solvency ratio the bank showed at the end of 1997.
The bank blamed the need for extra provisions on its portfolio of old housing loans. The national bank saddled PKO with the portfolio when the economic system changed 10 years ago. PKO holds zl. 5 billion ($1.28 billion) worth of old loans given to housing cooperatives under communism to pay for construction and refurbishments. Those cooperatives, however, had difficulty paying the money back after the hyperinflation of the early 1990s.
How that portfolio will be cleaned up is unclear, although the bank is asking the state treasury for guarantees or subsidies. Earlier this year Jaroslaw Bauc, deputy finance minister and the chairman of PKO's supervisory board, told the Business Journal that the bank needs to be recapitalized, although he did not say by how much.
If PKO's privatization is to take place next year, some decisions on the portfolio need to be made quickly.
"It (privatization) can't be done without some kind of assistance from the state budget," said a source who requested anonymity. "If so, next year's state budget should include this item."
