The foreigners are getting restless
While bank executives have been reticent about their specific plans for the sector, investors and analysts say that necessary consolidation in the fragmented sector is in the offing. And major changes are expected to be led by foreign banks, which are undergoing consolidation in their own right. While this is not necessarily a very new phenomenon - there has been speculation before - the sheer number of western banks said to be considering mergers of any ilk seems to have reached a climax.
Citibank, UniCredito, AIB, Deutsche Bank, Commerzbank and HVB have all been named as possible market movers in this area - all of which have a presence on the Polish market.
"My view is that there will be big changes," says Artur Szeski, an analyst at CDM Pekao, "There's no doubt about it."
Among other reasons, Szeski points out that M&A activity is expected to heat up because foreign owners of local banks are re-evaluating their positions in a Polish banking sector that has lagged along with the economy over the past two years.
Szeski does not see any major transactions surfacing later this year, rather he said 2005 would spark the much-needed consolidation.
"Something has got to happen. The market's much too fragmented," Szeski said.
Probably the most prominent deal expected is the merger between BRE Bank and BPH-PBK, owned by Commerzbank and HVB, respectively. Such a deal would be spurred by the consolidation in the German banking sectors, where many analysts see HVB attempting to snap up Commerzbank.
A source close to HVB noted that a merger between HVB and Commerzbank could indeed occur.
"It's still just a possibility, but there's nothing on the table right now," she said, "But it could well be that there is a merger. For the time being I would put it on the side of rumors, but it's Commerzbank that's most keen on getting into talks to join forces."
Should a merger occur, analysts expect that BPH-PBK would then look to take over BRE Bank to create one bank with over zł.68 billion (E13.9 billion) in assets.
Market watchers also anticipate that HVB will try to gain a larger piece of the Polish sector because it would agree with the firm's overall Central and Eastern Europe strategy.
"We are always open for acquisitions," said an HVB spokesman, referring to the Central and Eastern Europe region. He declined to talk about any Poland-specific plans, but allowed: "In the Central and Eastern Europe region there is a strong belief that there will be consolidation."
And HVB would like to be at the forefront of any consolidation. This is largely because the firm owns banks in 16 countries within the region. The spokesman said that this puts HVB in a better position than other competing banks that have a much sparser presence.
"We think that there are a lot of Western European companies that acquired banks in only a few countries of the region," he said. In that vein, he said banks could be expected to depart from the region because it is obviously not a target market.
"For a lot of these banks which have a presence it doesn't make sense to have a small bank in Poland and a big bank in Bulgaria, for instance," he explained.
Asked about a potential merger with HVB, a Commerzbank spokesman said, "We're saying 'no comment' at the moment. We are not involved in any active discussions."
Concurrent with the HVB-Commerzbank talk, market watchers were also speculating that Irish-owned BZ WBK would look to buy Dutch-owned ING BSK. However, AIB, which owns BZ WBK, dismissed that news as mere gossip.
"There's no basis for the rumors of a merger with ING," said Eamonn Crowley, Warsaw-based senior divisional manager at AIB.
Yet, he did note that AIB's doors were open to other acquisitions targets in Poland.
"However, if opportunities do arise [with other banks] we are interested. We're always interested as they open up."
Pekao's Szeski said that it is unlikely that any significant transaction could be completed this year, with one exception: Banco Comercial Portugues (BCP) would look for another investor for its 50 percent stake in Bank Millennium. He explained that he expects BCP to look for investors for the 20 percent stake owned by Dutch insurer Eureko, which is currently involved in an ownership dispute over Polish insurer PZU. After that dispute is resolved, Szeski said, he would expect that Eureko would seek to pull out of Poland. BCP had not returned calls by press time.
Whatever happens, successful consolidation does have precedents here. When Bank Przemysłowo-Handlowy merged with Powszechny Bank Kredytowy to create BPH-PBK the combined entity represented a significant streamlining of the sector, which could be replicated. "In both cases there were significant cost reductions," said Marcin Materna, analyst at Bank Millennium.
However, he said that it hasn't been all blue skies for recently-merged banks.
"From the revenues perspective it's not so optimistic," he says. He explained that BPH-PBK still needs to rise above the sector's slump over the past two years to realize the full potential of the acquisition.
Very successful or not, however, it is revenues that are driving merger talks across Europe.
For instance, mirroring the trends in the Polish market, banks in other countries are seeking to shore up their revenue streams with a strong retail-banking offer. While local firms such as BRE have opted to launch retail operations in-house, banks elsewhere have opted to acquire retail operations. U.S. banking giant J.P. Morgan Chase & Co plans to buy Bank One Corp. for its consumer business. And, most recently, rumors in Europe have centered on Deutsche Bank merging with Citigroup - both of which have operations in Poland. It is as yet unclear what effect such a merger would have on the market.
In the meantime, though, stock exchange investors are keeping an eye on the market - without making any rash speculative moves.
"The effects on the investors has been limited," Materna says, "Investors are used to the rumors."
Citibank, UniCredito, AIB, Deutsche Bank, Commerzbank and HVB have all been named as possible market movers in this area - all of which have a presence on the Polish market.
"My view is that there will be big changes," says Artur Szeski, an analyst at CDM Pekao, "There's no doubt about it."
Among other reasons, Szeski points out that M&A activity is expected to heat up because foreign owners of local banks are re-evaluating their positions in a Polish banking sector that has lagged along with the economy over the past two years.
Szeski does not see any major transactions surfacing later this year, rather he said 2005 would spark the much-needed consolidation.
"Something has got to happen. The market's much too fragmented," Szeski said.
Probably the most prominent deal expected is the merger between BRE Bank and BPH-PBK, owned by Commerzbank and HVB, respectively. Such a deal would be spurred by the consolidation in the German banking sectors, where many analysts see HVB attempting to snap up Commerzbank.
A source close to HVB noted that a merger between HVB and Commerzbank could indeed occur.
"It's still just a possibility, but there's nothing on the table right now," she said, "But it could well be that there is a merger. For the time being I would put it on the side of rumors, but it's Commerzbank that's most keen on getting into talks to join forces."
Should a merger occur, analysts expect that BPH-PBK would then look to take over BRE Bank to create one bank with over zł.68 billion (E13.9 billion) in assets.
Market watchers also anticipate that HVB will try to gain a larger piece of the Polish sector because it would agree with the firm's overall Central and Eastern Europe strategy.
"We are always open for acquisitions," said an HVB spokesman, referring to the Central and Eastern Europe region. He declined to talk about any Poland-specific plans, but allowed: "In the Central and Eastern Europe region there is a strong belief that there will be consolidation."
And HVB would like to be at the forefront of any consolidation. This is largely because the firm owns banks in 16 countries within the region. The spokesman said that this puts HVB in a better position than other competing banks that have a much sparser presence.
"We think that there are a lot of Western European companies that acquired banks in only a few countries of the region," he said. In that vein, he said banks could be expected to depart from the region because it is obviously not a target market.
"For a lot of these banks which have a presence it doesn't make sense to have a small bank in Poland and a big bank in Bulgaria, for instance," he explained.
Asked about a potential merger with HVB, a Commerzbank spokesman said, "We're saying 'no comment' at the moment. We are not involved in any active discussions."
Concurrent with the HVB-Commerzbank talk, market watchers were also speculating that Irish-owned BZ WBK would look to buy Dutch-owned ING BSK. However, AIB, which owns BZ WBK, dismissed that news as mere gossip.
"There's no basis for the rumors of a merger with ING," said Eamonn Crowley, Warsaw-based senior divisional manager at AIB.
Yet, he did note that AIB's doors were open to other acquisitions targets in Poland.
"However, if opportunities do arise [with other banks] we are interested. We're always interested as they open up."
Pekao's Szeski said that it is unlikely that any significant transaction could be completed this year, with one exception: Banco Comercial Portugues (BCP) would look for another investor for its 50 percent stake in Bank Millennium. He explained that he expects BCP to look for investors for the 20 percent stake owned by Dutch insurer Eureko, which is currently involved in an ownership dispute over Polish insurer PZU. After that dispute is resolved, Szeski said, he would expect that Eureko would seek to pull out of Poland. BCP had not returned calls by press time.
Whatever happens, successful consolidation does have precedents here. When Bank Przemysłowo-Handlowy merged with Powszechny Bank Kredytowy to create BPH-PBK the combined entity represented a significant streamlining of the sector, which could be replicated. "In both cases there were significant cost reductions," said Marcin Materna, analyst at Bank Millennium.
However, he said that it hasn't been all blue skies for recently-merged banks.
"From the revenues perspective it's not so optimistic," he says. He explained that BPH-PBK still needs to rise above the sector's slump over the past two years to realize the full potential of the acquisition.
Very successful or not, however, it is revenues that are driving merger talks across Europe.
For instance, mirroring the trends in the Polish market, banks in other countries are seeking to shore up their revenue streams with a strong retail-banking offer. While local firms such as BRE have opted to launch retail operations in-house, banks elsewhere have opted to acquire retail operations. U.S. banking giant J.P. Morgan Chase & Co plans to buy Bank One Corp. for its consumer business. And, most recently, rumors in Europe have centered on Deutsche Bank merging with Citigroup - both of which have operations in Poland. It is as yet unclear what effect such a merger would have on the market.
In the meantime, though, stock exchange investors are keeping an eye on the market - without making any rash speculative moves.
"The effects on the investors has been limited," Materna says, "Investors are used to the rumors."
