Record stock sales and a growing economy are helping Poland solidify its position as central Europe’s busiest financial center, even as euro-area neighbors struggle to shake the sovereign-debt crisis.
UniCredit SpA (UCG), JPMorgan Chase & Co. (JPM) and Societe Generale SA (GLE) are establishing investment-banking hubs in Warsaw, where equity sales of 15 billion zloty ($4.6 billion) this year exceed the $490 million in the rest of central Europe.
Polish Prime Minister Donald Tusk, 56, is building on the economic and political transformation started by former President Lech Walesa, an electrician whose Solidarity labor movement negotiated the end of Communist Party rule in 1989. Spurred by pension industry reform and a swathe of public offerings, daily trading volume on the Warsaw exchange has climbed to an average 1.08 billion zloty this year, exceeding bourses in Vienna, Prague, Ljubljana and Budapest combined.
“The development of regional capitalism here is irreversible,” Krzysztof Walenczak, 44, Societe Generale’s country manager, said in an interview in Warsaw. “The verdict is out -- Poland will be a hub for central and eastern Europe and we are building a franchise that will last.”
Walenczak, who as deputy Treasury minister helped raise $9 billion by selling stakes in the Warsaw Stock Exchange and coal miner Jastrzebska Spolka Weglowa SA in 2010 and 2011, hired bankers to lead Paris-based Societe Generale’s expanded equities, mergers and debt teams in Warsaw over the past six months. The firm ranks second together with PKO Bank Polski SA and Deutsche Bank AG (DBK) and behind Citigroup Inc. (C) in arranging equity offerings this year, with a total of 10.4 billion zloty, according to data compiled by Bloomberg.
UniCredit, employing 80 people in investment banking in Warsaw, made the city its regional center for equities last year as it closed offices in Moscow, Bucharest and Istanbul. Warsaw is the sole investment-banking and brokerage office for Citigroup in the region and Goldman Sachs Group Inc. (GS) runs some of its regional investment-banking services from the city.
Sixteen international investment banks and brokerages registered to be able to trade shares on the Warsaw bourse since the start of 2008, including London-based HSBC Holdings Plc (HSBA), Goldman Sachs, UBS AG (UBSN) of Zurich and Russia’s VTB Capital, according to data provided by the exchange. Foreign institutions’ share of trading volume rose to 30 percent last month from 7.4 percent five years ago.
Since the collapse of Lehman Brothers Holdings Inc. in September 2008, Warsaw has hosted public offerings by 86 companies. Vienna had one and Prague had two. The sales were spurred by legislation in 1999 requiring a portion of Poles’ monthly income to be invested in private funds, which built the pensions industry into an $83 billion business, dwarfing those of Poland’s neighbors, including Russia.
The Solidarity-led government established the Warsaw exchange in 1991 at the Communist Party’s former national headquarters.
The development of the private pensions industry and the funds that came with it means there are now 53 foreign-owned companies among the 440 listed on the bourse, compared with just one in 2003. Four trade on Vienna’s 71-member bourse.
For New York-based Goldman Sachs, such equity offerings and investment-banking deals make Poland “a strategic market in central and eastern Europe and in general in growth markets,” Artur Tomala, 36, chief of the firm’s central and eastern European operations, said in an interview in Warsaw.
The market value of companies traded on the Warsaw bourse exceeds the capitalization of firms listed on the CEE Stock Exchange Group, headed by Vienna’s exchange and including Budapest, Prague and Ljubljana. The rivalry with Vienna has intensified with Warsaw’s growth as a financial center.
In 2010, CEE Stock Exchange Group expressed an interest in buying the Warsaw bourse just as it prepared for an initial public offering. The two are now in merger talks and any agreement would require Warsaw to become the main owner, Adam Maciejewski, 46, chief executive officer of the Warsaw Stock Exchange, said last month.
JPMorgan, based in New York, was the leading equity underwriter in Poland last year, arranging transactions worth 5.87 billion zloty, data compiled by Bloomberg show. Sales included the 2.1 billion-zloty IPO of Alior Bank SA, a record for a privately held Polish company. Local broker Ipopema Securities SA ranked second, followed by UBS, Amsterdam-based ING Groep NV (INGA) and Credit Suisse Group AG (CSGN) of Zurich.
Poland’s WIG20 (WIG20) Index of the biggest and most liquid stocks on the Warsaw bourse rose 20 percent last year, compared with 14 percent increases in the Stoxx Europe 600 Index and the Czech PX Index. This year, the WIG20 has declined 7.7 percent and the PX 5 percent, while the Stoxx Europe 600 has advanced 11 percent.
Walesa, 69, was Poland’s first democratically elected president, from 1990 to 1995. He started the country’s asset sales program, the transition to a free market economy and negotiated the withdrawal of Soviet troops. He backed Tusk’s successful election to prime minister in 2007.
Tusk is from Gdansk, the birthplace of Walesa’s Solidarity movement, and was active in the opposition to the Communist Party in the 1980s. In addition to continuing Walesa’s market policies, his Civic Platform advocated adopting the euro and embraced better relations with neighboring Germany and Russia. Tusk was re-elected in 2011.
Equity offerings on the Warsaw exchange this year have eclipsed the 10 billion zloty sold in the whole of 2012. The government sold a 12.3 percent stake in PKO Bank Polski, Poland’s largest lender, for 5.24 billion zloty in January. KBC Group NV and Banco Santander SA (SAN) sold 21.4 percent of Bank Zachodni WBK SA, the country’s third-biggest bank, for 4.89 billion zloty in March.
Tusk is targeting sales of state-owned assets amounting to at least 5 billion zloty in 2013, even as he foresees economic growth slowing to 1.5 percent, the weakest in more than a decade, from 1.9 percent last year. Poland’s $514 billion economy is larger than any in central Europe and ranks eighth in the 27-member European Union. It’s the only EU economy that hasn’t experienced a recession since the financial crisis in 2008.
By contrast, the economy of the 17-nation euro area shrank 0.2 percent in the first three months of 2013, extending a recession to a record sixth quarter, as policies implemented to curb public deficits restrain growth.
Some international banks, under cost-cutting and regulatory pressures, are scaling back their operations in Poland. Credit Suisse, the Swiss bank that’s cutting costs across its business, moved its Polish equity trading to London from Warsaw.
KBC Securities NV, under pressure from the European Union to dispose of assets in exchange for state aid, halted operations in Warsaw last month including retail brokerage, institutional sales, research and corporate finance.
“Poland might have become a victim of global changes and cost-cutting initiatives,” Miklos Kormos, 50, Deutsche Bank’s head of investment banking for central and eastern Europe, said in a phone interview from Frankfurt. “I don’t see us going in that direction.”
For bankers, one attraction of Poland is the region’s biggest pool of pension funds. The 14 pension funds, including ING’s Polish unit, the biggest of them, have bought 101.5 billion zloty of shares listed in Warsaw since their establishment a decade ago. By contrast, Russia’s pension funds own $6.5 billion of stock in Moscow, according to a Goldman Sachs report in February.
“We decided to lead our regional equities business from Warsaw because this isn’t just a temporary phenomenon for us,” Jacek Radziwilski, 41, head of Milan-based UniCredit’s Polish operations, said in a telephone interview.
Societe Generale is expanding in Poland after cutting 1,600 corporate and investment-banking jobs globally last year and outlining 900 million euros of extra cost savings by 2015.
In December, Walenczak brought Filip Paszke from Bank Zachodni as chief of equities. Last month, he hired Andrzej Olszewski, former chief of corporate finance at ING Securities in Warsaw, to develop the local investment banking business.
The pace of mergers and acquisitions is also attracting banks to Warsaw, according to Alicja Kornasiewicz, 62, head of investment banking for Poland and the region at Morgan Stanley (MS) and deputy Treasury minister from 1997 to 2000.
Transaction volume was $9.83 billion last year, more than tripling from 10 years before and exceeding all deals in the rest of central and eastern Europe except Russia, according to data compiled by Bloomberg.
“Polish companies have less experience in growing their businesses through M&A than, say, companies in developed markets like France and Germany, but that could easily change,” Kornasiewicz said in an interview. “Local companies are increasingly looking at targets at home as well as abroad.”
Morgan Stanley and Santander lead the mergers rankings this year after advising on 1.84 billion zloty of deals. Rothschild and PricewaterhouseCoopers LLP follow. Goldman Sachs and Charlotte, North Carolina-based Bank of America Corp. tied for first in 2012.
Among the largest transactions was the $5.7 billion sale of Polkomtel Sp. z o.o., Poland’s second-largest mobile phone operator, to billionaire Zygmunt Solorz-Zak in 2011. Spain’s Santander paid $5.2 billion for Bank Zachodni WBK SA, Allied Irish Banks Plc (ALBK)’s Polish unit, the same year.
More deals are in the works. BNP Paribas Bank Polska SA picked Bank Handlowy SA, owned by Citigroup, to help manage a secondary public offering this year, Frederic Amoudru, CEO of BNP’s unit in the country, said in an e-mailed response to Bloomberg questions today.
Carlo Tassara SpA, a holding company controlled by French financier Romain Zaleski, hired UBS to sell its remaining stake in Alior Bank, three people familiar with the matter said in January. Nordea Bank AB (NDA), Scandinavia’s largest bank, hired Bank of America to explore selling Nordea Bank Polska SA, two people with knowledge of the matter said in February.
Deutsche Bank says the size of transactions in the country provide a unique opportunity in the region. Poland’s economy and the level of “recurring investment-banking business” make the nation “a green island in the storm,” Kormos said.