Nordea Bank AB sold its Polish units to PKO Bank Polski SA for 694 million euros ($927 million) as the Nordic region’s largest bank boosts profitability and capital buffers lagging behind its Swedish peers.
PKO agreed to pay 2.64 billion zloty ($826 million) for Nordea Bank Polska SA, 180 million zloty for the life insurance business and 8 million zloty for Nordea Finance Polska, state-controlled PKO said in the statement.
PKO’s acquisition, the biggest in Poland this year, according to data compiled by Bloomberg, comes as foreign banks in the country face stricter regulation, increased competition and lower revenue from lending. Growth in the European Union’s biggest eastern economy may slow to 1.5 percent this year, the weakest since 2002, the central bank has forecast.
“In order to meet its financial targets and according to its strategy to concentrate on markets where it can deliver a superior customer experience and significant scale benefits based on a leading market position, Nordea has decided to divest its Polish banking, financing and life insurance operations,” the Stockholm-based bank said in a statement late yesterday.
Nordea shares fell 0.95 krona, or 1.2 percent, to 77.2 kronor as of 9:26 a.m. in Stockholm trading. PKO shares declined 0.2 percent to 36.4 zloty as of 9 a.m. local time in Warsaw.
The deal will add 50 basis points, or half a percentage point, to Nordea’s core Tier 1 capital ratio, which stood at 13.2 percent at the end of March. While the bank already meets Sweden’s stricter capital requirement of a core Tier 1 ratio of 10 percent this year and 12 percent by 2015, Swedbank AB and Svenska Handelsbanken AB have ratios exceeding 17 percent.
Nordea targets a return on equity of 15 percent as well as a core Tier 1 capital ratio exceeding 13 percent by 2015. The bank’s core Tier 1 ratio of 13.2 percent at the end of the first quarter compared with 11.6 percent at the end of March 2012. Nordea also plans to cut costs by 450 million euros from 2013 to 2015.
Nordea had set out ambitious targets in Poland, saying in 2010 that it planned to have 400 branches in the country and double its market share to 8 percent. In April last year, it back-tracked and announced it would reduce staff in Poland by 20 percent and cut branches to about 135 from 193. Citigroup Inc., DNB ASA, Norway’s biggest bank and BNP Paribas have announced similar plans to pare their operations in the country.
The lender said that it has faced “challenges” in Poland from stricter governance and operational practices in recent years, including a requirement to list at least 25 percent of any Polish bank’s shares on the Warsaw bourse. The Polish unit has a free float of only 0.8 percent today, said Nordea.
“These practices make it increasingly challenging to pursue Nordea’s uniform operating model which is used across all other markets,” the Swedish bank said. “At the same time it would take significant investments to reach the scale needed in the future consolidating Polish banking market.”
As part for the deal, Nordea will keep financing its mortgage portfolio in Poland and will participate in the risk of the loans losing their value, PKO said. The banks need to receive regulatory approvals to close the transaction.
PKO, Poland’s biggest bank, plans to buy all shares of Nordea Bank and withdraw it from public trading. Operating profit at the unit fell to 78 million euros last year from 95 million euros in 2011. Net loan losses swelled to 37 million euros from 14 million euros.
Poland has been among the most active markets in Europe for deals involving banks and insurers in the last three years. Banco Santander SA acquired Bank Zachodni WBK SA and Kredyt Bank SA and created the country’s third-largest lender this year. Austria’s Raiffeisen Bank International AG bought Polbank SA from EFG Eurobank Ergasias SA of Greece, while Germany’s Talanx AG purchased insurer Warta SA from Belgium’s KBC Groep NV.
The purchase of Nordea is in line with PKO’s strategy in the three years to 2015 to expand in Poland through acquisitions as the economic slowdown in eastern Europe’s largest economy limits organic growth. The deal will add 136 Nordea outlets to PKO’s 1,200 branch network, widening the gap over its largest competitor, UniCredit SpA unit Bank Pekao SA, which has 1,000 branches.