Poland’s PZU and State Fund Said to Weigh Pekao Stake Purchase

(Bloomberg) -- Polish government-controlled insurer PZU SA and its development fund are weighing the acquisition of a stake in the country’s second-largest bank held by Italy’s UniCredit SpA, said a person with knowledge of the discussions. 

Talks over Bank Pekao SA are at an early stage and no decisions have been made, said the person, who asked not to be identified because the plans are private. Polish newspaper reported that the heads of PZU and the state’s Polish Development Fund will travel to Italy this week for talks with UniCredit officials.

UniCredit has been selling businesses to build up capital and meet regulatory requirements, a task compounded by the bank’s complex structure spread across some 17 countries. Poland’s government is considering mounting a bid via state-run companies to buy a controlling stake in the country’s second-largest lender from UniCredit to promote local ownership, a plan that has contributed to a drop in valuations for the industry.

“Nobody is sure if UniCredit is keen on selling its controlling stake, rather than raising cash by disposing of smaller parts of its holdings on the stock exchange,” said Marcin Materna, an analyst at Bank Millennium SA’s brokerage in Warsaw. A deal could be far from being reached, he said.

UniCredit’s shares jumped 6 percent higher to 2.078 euros at 2:15 p.m., the biggest daily advance in three weeks. Bank Pekao, in which the Italian lender holds a 40 percent stake valued at more than 13 billion zloty ($3.4 billion), declined 3.1 percent to the lowest in four weeks while PZU dropped 3.8 percent to a record low.

Lock-Up Period

UniCredit is considering tapping shareholders for as much as 5 billion euros ($5.7 billion) and offloading Bank Pekao and online lender FinecoBank SpA, having already sold more than $1 billion of their shares last month, people with knowledge of the matter have said. The lock-up period for the disposal of further Pekao shares, which took place at 126 zloty, a 6.4 percent discount to the previous day’s market price, is due to end on Oct. 11.

Jean Pierre Mustier, a 55-year-old Frenchman who took over as the Italian bank’s chief executive officer last month, said he will present a plan before the end of the year to strengthen capital and profitability.
“The disposal of Bank Pekao could partially offset UniCredit’s capital needs,” estimated at 7 billion euros and “thus reducing the size of the rights issue,” Manuela Meroni, an analyst at Banca IMI SpA with a hold recommendation on the Italian lender, wrote in a note. “On the other hand, the exit from Poland would reduce the group’s long-term growth opportunities.”
A sale of Pekao could help boost the Italian bank’s Tier 1 capital ratio by about 100 basis points, while decreasing the group’s profit by 10 percent, according to Matteo Ghilotti, an analyst at Equita SIM SpA, who has a hold recommendation on the shares. A spokesman at UniCredit declined to comment.

Milan Visit

Dziennik Gazeta Prawna reported that PZU CEO Michal Krupinski and Pawel Borys, head of the development fund, will travel to Milan to negotiate a potential Pekao purchase with UniCredit officials, without saying where it got the information. Agata Nalecz, a spokeswoman for the Polish Development Fund, which under a government plan to boost long-term growth will manage about 50 billion zloty in assets, declined to comment on the report, as did PZU spokesman Pawel Kozyra.

Treasury Minister Dawid Jackiewicz saying in June that PZU was among the institutions that could help “re-Polonize” the banking industry. PZU’s boss Krupinski told public radio on Monday that the insurer, which bought a controlling stake in Polish lender Alior Bank SA in 2015, was in talks to buy “several” banks, but declined to say if Pekao was one of them.

The deal may be “value destructive” for PZU because a government-controlled Pekao would vie for dominance on the local market against another state-controlled lender, PKO Bank Polski SA, which could diminish efficiency, according to Bank Millennium’s Materna.

Lower Valuations

Valuations of Polish banks have dropped almost book value in 2016, when the government imposed the European Union’s highest tax rate on lenders. Shares rebounded this month as politicians opted to soften plans to force banks to convert more than $36 billion in foreign currency-denominated mortgages into zloty to trade around 1.2 times book value this week.

Poland’s PZU and State Fund Said to Weigh Pekao Stake Purchase

Just one of 24 analysts covering Pekao has a buy rating on the lender, while six have sell or underweight recommendations, according to data compiled by Bloomberg.

“State-controlled lenders are traded with a discount to the market, so investors may start to see the same impact on the Pekao price,” Dariusz Gorski, analyst at Bank Zachodni WBK SA with a sell recommendation on Pekao, said by e-mail. If PZU buys only a 30 percent stake in Pekao, like it did in Alior so as to avoid triggering a bid for all shares, it could leave an overhang with UniCredit seeking to sell its remaining 10 percent, he said.