Weighing the odds of the most suitable suitor for Pekao group
Price will obviously be an important issue. But there are also other considerations such as future investment strategy, the ability of Pekao to maintain its identity in the market and compatibility between the strategic investor and the bank's management. Of course, political concerns will likely have a role as well.
The five bidders are Bank Handlowy, Citibank, Allied Irish Bank, Deutsche Bank and a consortium between Italy's Credito Italiano and German insurer Allianz.
Among these, one of the top contenders may be a less than obvious choice. While Italian banks have barely any presence on the market, this could be an advantage for the consortium of Credito Italiano, which after its recent merger with UniCredito changed its name to UniCredito Italiano, and Allianz.
Currently, only Banca Commerciale Italiano, which has a 4% stake in Bank Rozwoju Eksportu (BRE) is present in Poland. But Italy is the country's third-largest foreign investor, its second-largest trading partner and Fiat is the largest foreign company here with $1.2 billion invested.
This gives the Italian business community a fair amount of political clout and reason to want an increased banking presence here.
"The Italian community would welcome the presence of an Italian bank in Poland," said Cristiano Penzauti, president with Wang Global in Poland and vice chairman of the Italian Chamber of Industry and Commerce in Poland. "Credito Italiano is one of the best banks in Italy."
On Oct. 23, Credito Italiano merged with, UniCredito, and changed its name to UniCredito Italiano. Its main shareholders are three governmental agencies: Cariverona (19%), Cassa di Risparmio Torino (15%) and Cassamarca (3.8%). Allianz, along with Italian insurer RAS, has a stake of about 3%. The banking group has 2,665 branch offices and a 12.5% share of the Italian retail banking market.
UniCredito Italiano's "pro forma" total assets at the end of 1997 were about $180 billion, making it the third-largest bank in Italy. Net profit at the end of 1997 was $600 million. The bank does not presently have a foreign presence, but is actively looking for investment possibilities and wants to expand.
The fact that the bank is not global, but local, could help make it more attractive in the eyes of Pekao's management - it is not likely to dominate the local executives as bigger players might. The fact that it is from the European Union (EU), is another plus.
In addition, the presence of Allianz is likely to strengthen the bid. Pekao's management has repeatedly said that it would welcome a partner with experience in the insurance industry. Such combinations are reflective of global banking trends and are likely to become increasingly common on the Polish market.
When it comes to sheer size, though, and international reach, Citibank is clearly the most attractive. But this, plus its reputation as an aggressive bank, could be a disadvantage for the American financial institution.
Citibank would definitely strengthen Pekao, but the question is at what cost to its identity and customers?
"It would be a tragic mistake to sell Pekao to Citibank," warned one London-based analyst, who did not want to be named. "Management doesn't know what it's doing jumping into Citi's bed."
The main concern with Citibank is that local management would be devoured by the international giant and that the banking group would lose its Polish identity.
On the plus side, the bank would have to comply with Citibank standards and this would mean large investments in technology. Analysts were divided, though, about who would pay for the upgrades.
"The costs would be covered by customers, in fees and commissions," the London-based analyst said. "This would mean the new Pekao would find many customers not attractive enough and would get rid of them."
To start with, Pekao would have to review many areas of its activity and launch dramatic operational changes.
"Citibank would focus not on the bank's position in different areas of financial services, but on its profitability," said Marek Juras, analyst with Erste Securities Polska.
This would surely bolster the bottom line. It may also mean closing down some operations and serious employment cuts, he said. But Juras doesn't agree that the restructuring costs would have to be covered by customers. On one hand, Citibank would have to make large investments into Pekao. On the other, it could squeeze savings out of increased efficiency and new technology could also bring about greater profit.
"With Citibank in Pekao it would mean a whole new (level of) quality on the Polish banking scene," said Juras.
Perhaps the largest problem with Citibank is the fear that Pekao would lose its identity. But analysts said this should not be too much of a fear as such a scenario is likely to occur no matter which bank becomes the strategic investor.
Deutsche Bank would also be likely to transform the bank in its own identity. And Bank Handlowy has made it clear on several occasions that it would pursue full control of Pekao.
Deutsche Bank faces larger problems in its bid, however. These are mostly political. The recent victory of Bayerische Hypo- und Vereinsbank in the bidding for a 37% stake in Krakow-based Bank Przemyslowo-Handlowy (BPH) may have crushed Deutsche's Pekao hopes.
One German banker, who did not wish to be named, said that no more Polish banks will be sold to German institutions because they are already represented in this sector. Besides Vereinsbank, Commerzbank has a 48.7% holding in BRE.
Bank Handlowy also faces difficulty in winning the tender for Pekao, although its chances seem to have improved over the past six months. The two banks would be complementary in terms of financial services and Handlowy, which is well known as a corporate bank, recently proved that it is capable of launching efficient and state-of-art retail operations. Such a merger could create a banking group that could successfully compete not only on Polish, but also on international markets.
"Handlowy would be a good solution," said Pawel Szymanski, banking analyst with London-based Schroders. "And with the list of bidders they have more chances than ever."
The five bidders are Bank Handlowy, Citibank, Allied Irish Bank, Deutsche Bank and a consortium between Italy's Credito Italiano and German insurer Allianz.
Among these, one of the top contenders may be a less than obvious choice. While Italian banks have barely any presence on the market, this could be an advantage for the consortium of Credito Italiano, which after its recent merger with UniCredito changed its name to UniCredito Italiano, and Allianz.
Currently, only Banca Commerciale Italiano, which has a 4% stake in Bank Rozwoju Eksportu (BRE) is present in Poland. But Italy is the country's third-largest foreign investor, its second-largest trading partner and Fiat is the largest foreign company here with $1.2 billion invested.
This gives the Italian business community a fair amount of political clout and reason to want an increased banking presence here.
"The Italian community would welcome the presence of an Italian bank in Poland," said Cristiano Penzauti, president with Wang Global in Poland and vice chairman of the Italian Chamber of Industry and Commerce in Poland. "Credito Italiano is one of the best banks in Italy."
On Oct. 23, Credito Italiano merged with, UniCredito, and changed its name to UniCredito Italiano. Its main shareholders are three governmental agencies: Cariverona (19%), Cassa di Risparmio Torino (15%) and Cassamarca (3.8%). Allianz, along with Italian insurer RAS, has a stake of about 3%. The banking group has 2,665 branch offices and a 12.5% share of the Italian retail banking market.
UniCredito Italiano's "pro forma" total assets at the end of 1997 were about $180 billion, making it the third-largest bank in Italy. Net profit at the end of 1997 was $600 million. The bank does not presently have a foreign presence, but is actively looking for investment possibilities and wants to expand.
The fact that the bank is not global, but local, could help make it more attractive in the eyes of Pekao's management - it is not likely to dominate the local executives as bigger players might. The fact that it is from the European Union (EU), is another plus.
In addition, the presence of Allianz is likely to strengthen the bid. Pekao's management has repeatedly said that it would welcome a partner with experience in the insurance industry. Such combinations are reflective of global banking trends and are likely to become increasingly common on the Polish market.
When it comes to sheer size, though, and international reach, Citibank is clearly the most attractive. But this, plus its reputation as an aggressive bank, could be a disadvantage for the American financial institution.
Citibank would definitely strengthen Pekao, but the question is at what cost to its identity and customers?
"It would be a tragic mistake to sell Pekao to Citibank," warned one London-based analyst, who did not want to be named. "Management doesn't know what it's doing jumping into Citi's bed."
The main concern with Citibank is that local management would be devoured by the international giant and that the banking group would lose its Polish identity.
On the plus side, the bank would have to comply with Citibank standards and this would mean large investments in technology. Analysts were divided, though, about who would pay for the upgrades.
"The costs would be covered by customers, in fees and commissions," the London-based analyst said. "This would mean the new Pekao would find many customers not attractive enough and would get rid of them."
To start with, Pekao would have to review many areas of its activity and launch dramatic operational changes.
"Citibank would focus not on the bank's position in different areas of financial services, but on its profitability," said Marek Juras, analyst with Erste Securities Polska.
This would surely bolster the bottom line. It may also mean closing down some operations and serious employment cuts, he said. But Juras doesn't agree that the restructuring costs would have to be covered by customers. On one hand, Citibank would have to make large investments into Pekao. On the other, it could squeeze savings out of increased efficiency and new technology could also bring about greater profit.
"With Citibank in Pekao it would mean a whole new (level of) quality on the Polish banking scene," said Juras.
Perhaps the largest problem with Citibank is the fear that Pekao would lose its identity. But analysts said this should not be too much of a fear as such a scenario is likely to occur no matter which bank becomes the strategic investor.
Deutsche Bank would also be likely to transform the bank in its own identity. And Bank Handlowy has made it clear on several occasions that it would pursue full control of Pekao.
Deutsche Bank faces larger problems in its bid, however. These are mostly political. The recent victory of Bayerische Hypo- und Vereinsbank in the bidding for a 37% stake in Krakow-based Bank Przemyslowo-Handlowy (BPH) may have crushed Deutsche's Pekao hopes.
One German banker, who did not wish to be named, said that no more Polish banks will be sold to German institutions because they are already represented in this sector. Besides Vereinsbank, Commerzbank has a 48.7% holding in BRE.
Bank Handlowy also faces difficulty in winning the tender for Pekao, although its chances seem to have improved over the past six months. The two banks would be complementary in terms of financial services and Handlowy, which is well known as a corporate bank, recently proved that it is capable of launching efficient and state-of-art retail operations. Such a merger could create a banking group that could successfully compete not only on Polish, but also on international markets.
"Handlowy would be a good solution," said Pawel Szymanski, banking analyst with London-based Schroders. "And with the list of bidders they have more chances than ever."
