Polish PZU Tilts Strategy Toward Banks Amid Pekao Takeover Talk

  • Insurer seeks to double bank assets to $37 billion by 2020
  • Company to remain a ‘generous’ payer of dividends, CEO says

Polish insurer PZU SA unveiled a strategy to double banking assets over four years amid speculation it’s considering the purchase of the country’s second-largest lender.

East Europe’s biggest insurance company, which bought two Polish lenders in the past 15 months, seeks to hold 140 billion zloty ($37 billion) in bank assets by the end of 2020, it said on Wednesday. Together with a state-run development fund, government-controlled PZU is weighing the acquisition of Bank Pekao SA from UniCredit SpA, a person with knowledge of the discussions said a day ago.

PZU is shifting its strategy toward expansion through takeovers, which could include buying more Polish banks as well as other insurers and asset managers, at a time its earnings are pressured by record-low interest rates and falling valuations on the Warsaw stock exchange. While the tilt toward acquisitions could affect payouts for shareholders, Chief Executive Officer Michal Krupinski said PZU will remain a “generous” dividend payer.

“PZU needs to have scale in the Polish banking industry in order to benefit,” Krupinski told reporters in Warsaw when presenting the company’s second-quarter results. “Now is the best moment” to invest in banks, he said.

After initially losing ground amid concern dividend would be cut, PZU advanced 1 percent to 27.46 zloty at 4:10 p.m. in Warsaw. It rebounded from Tuesday’s record low reached after reports the Warsaw-based insurer was interested in UniCredit’s 13.1 billion zloty stake in Pekao.

Polish Banks

Krupinski has embraced the government’s push to boost domestic ownership in the banking industry, seeking to build on the purchases of Bank BPH SA this year and Alior Bank SA in 2015. According to its strategy, banks will contribute 450 million zloty to annual profit by the end of the decade. PZU earned 2.3 billion zloty last year and is forecast to post a similar net this year, according to a Bloomberg survey of eight analysts.

PZU’s takeover strategy document didn’t mention Pekao by name and Krupinski declined to comment on a report by Puls Biznesu newspaper that he’s flying to Milan this week to discuss the issue with UniCredit executives. Deputy Prime Minister Mateusz Morawiecki said “no specific talks” with UniCredit were presently conducted and that he would want a deal done on “market terms,” Reuters reported late on Tuesday.

In its presentation, PZU said that to “carry out ambitious development plans” it would “keep some of the consolidated profit” to help finance these goals. If the funds aren’t used for development, they would be “returned to shareholders.” Some analysts took this as a signal that the insurer would reduce payouts, which is “the main attraction of PZU” for shareholders, according to Kamil Stolarski, an analyst at Haitong Bank SA.

Dividend Questions

Previously, PZU’s dividend strategy was based on payouts of between 50 percent and 100 percent of profit. Its dividend yield, the per-share payout relative to the company’s share price, stood at 6.1 percent last year. This compares with 2.4 percent for Vienna Insurance Group AG, 4.6 percent at NN Group NV, 4.7 percent at Standard Life Plc and 4.8 percent at Aegon NV, according to data compiled by Bloomberg.

“PZU has shared generously with investors, and we want to remain such a company,” Krupinski said. “To do that we have to invest in pro-growth projects. We don’t want the company’s dividend yield to deviate significantly from western peers.”

PZU doesn’t plan to cut its dividend yield in the longer term and will present the details of its new payout strategy in several weeks, the CEO said.

“There is major uncertainty over what part of profit it wants to pay to shareholders,” said Andrzej Powierza, a Warsaw-based analyst at Bank Handlowy SA. “On the one hand, it plans to maintain the payout level, and on the other it wants to be like western peers, which pay less.”

PZU’s new strategy envisages cutting administration costs by about 20 percent, or 400 million zloty, in the next three years as well as boosting revenues from its health business to 1 billion zloty in 2020 from 260 million zloty last year. The company may sell subordinated debt to help raise funds. Its assets under management will rise to 100 billion zloty this decade, while the company’s return on equity will remain at 18 percent.

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