Pekao’s New CEO to Keep Strategy, Analyze MBank Purchase

(Bloomberg) -- Bank Pekao SA, a Polish state-controlled lender, pledged to stick to its strategy through next year after an upheaval in management, with the acting chief executive officer expressing “great interest” in considering a bid for MBank SA.

Marek Lusztyn, the new acting CEO of Poland’s third-biggest lender by assets, said he was picked to replace Michal Krupinski because of his knowledge of the bank’s internal processes as deputy CEO in charge of risk management. Krupinski wanted to pursue a career abroad, Pekao said, without elaborating further on the reasons for the management change.

Krupinski’s departure on Nov. 29, followed by the resignations of deputy chief Michal Lehmann and management board member Piotr Wetmanski, came as Jacek Sasin, the head of the newly formed Ministry of State Assets, took over the supervision of state entities. Earlier this week, Pekao acknowledged it won’t achieve a return on equity of 12.5% in 2020, as targeted in the group’s strategy, due to its regulatory burden.

While Pekao is aiming for an amended ROE target range of 11%-12% in 2020, Lusztyn said, he will also seek to reach the original goal in the “shortest possible time.” He hopes that IT and digitization projects will help it raise profitability and keep the cost-to-income ratio below 40% in coming years.

Pekao’s shares dropped as much as 2.3%, taking its year-to-date retreat to 6%. Krupinski had led Pekao since June 2017, when he arrived from state insurer Powszechny Zaklad Ubezpieczen SA, which had earlier taken over the bank from UniCredit SpA together with Polish Development Fund PFR. His ambitious strategy to increase Pekao’s profitability, by boosting retail lending and investing in technology, stumbled over the country’s higher regulatory burdens and the abandoned attempt to acquire Alior Bank SA.

Krupinski’s departure may further erode investor sentiment toward the bank, given the lack of clarity about the exact reasons. The lender’s valuation premium to the sector has slid by more than 10% since the Polish government acquired a controlling stake, according to Tomasz Noetzel, an analyst at Bloomberg Intelligence. The reshuffle may even push Pekao stock to a discount over the industry as fears of government interference heighten, he said.

The change overlaps with the dismissal of the chief financial officer of PKN Orlen SA, the state’s biggest refiner, as well as reports of the potential replacement of management in natural gas distributor PGNiG SA and PZU. The state also controls the country’s biggest utilities as well as Poland’s largest lender, PKO Bank Polski SA.

Krupinski, a 38-year-old with experience in investment banking dubbed Law & Justice’s “golden boy,” has been seen as a close ally of Justice Minister Zbigniew Ziobro, the leader of one of several right-wing groups that comprise Poland’s ruling bloc, which secured power for four more years in October’s elections.

“Krupinski’s departure was his own decision, there is no sensation in it, there is no broom sweeping managers of state companies, there is no fight among factions in government,” Sasin, the minister overseeing the assets, said in an interview with Polish Radio Three.

Looking at MBank

Pekao’s plans beyond 2020 will depend on the outcome of Commerzbank AG’s sale of MBank, Poland’s fourth-biggest lender. Lusztyn will look at the imminent takeover opportunity with “great interest,” as he sees the bank as an “interesting and innovative institution.” The acting CEO worked on Pekao’s merger with part of Bank BPH in 2007, which he believes made the company ready for the organizational challenges that come from such large deals.

“If our analysis shows added value for Pekao shareholders, the bank’s ownership structure with the dominant position of state insurer PZU should be supportive for such a deal,” he said, adding that the sale process is at an early stage and it’s premature to discuss funding options.

Lusztyn also said:

• He confirmed the bank’s dividend policy which assumes paying out 60%-80% from 2019 profit and 50%-75% in coming years
• He wants to seek broader synergies with PZU when drafting a new strategy beyond 2020
• The expected slowdown of the Polish economy may boost the bank’s cost of risk to 50 basis points in 2020, but shouldn’t pose a danger for the portfolio of retail cash loans as well as loans to the real estate industry

--With assistance from Maciej Martewicz.

To contact the reporter on this story: Konrad Krasuski in Warsaw at kkrasuski@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Andras Gergely, Jon Menon

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