PKO Jumps as Nordea Buy to Boost Dominance: Warsaw Mover

PKO Bank Polski SA, Poland’s biggest lender, surged to a five-month high after signing an agreement to buy Nordea Bank AB’s Polish assets to increase its dominance on the European Union’s largest eastern market.

State-controlled PKO, which faces growing competition from foreign-owned lenders, will buy Nordea’s bank, financing and life insurance units in Poland for 694 million euros ($925 million). Nordea will keep financing its mortgage portfolio and will participate in the risk of the loans losing their value, PKO said in a statement after market close yesterday.

PKO shares climbed 2.4 percent to 37.3 zloty at the close in Warsaw, the highest level since Jan. 3. Turnover amounted to

3.2 times the daily average from the last three months. Bank Pekao SA, the country’s second-largest lender and a unit of UniCredit SpA, fell 1.7 percent, while the WIG20 Index of the largest and most liquid stocks declined 0.4 percent.

“The transaction could help improve sentiment toward PKO shares as in the environment of slowing volume growth PKO found a relatively inexpensive way to boost growth and utilize excess capital,” Kamil Stolarski, a Warsaw-based analyst at Espirito Santo Investment SA, said by phone.

Consolidation Push

Poland has been among Europe’s most active markets for deals involving banks and insurers since 2010, with foreign lenders teaming up to compete against PKO, which has an 18 percent share in the country’s consumer-loans market and 21 percent of deposits, data from the Warsaw-based lender show.

Spain’s 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 last year, while Germany’s Talanx AG purchased insurer Warta SA from Belgium’s KBC Groep NV in 2010.

PKO’s purchase, Poland’s biggest M&A transaction this year and the bank’s largest ever according to data compiled by Bloomberg, is subject to regulatory approval. It is part of the bank’s three-year strategy through 2015 to expand by acquisitions as organic growth is limited by slowing economic growth in Poland, the bank said in April.

Declining Income

PKO’s net income fell 22 percent to 781.4 million zloty ($244 million) in the January to March period, the smallest quarterly profit in three years as Poland’s economy is set to grow 1.1 percent in 2013, the least in 11 years, according to European Commission forecasts.

The takeover stands to boost PKO’s assets by 16 percent to 229 billion zloty and its share in the market by 3 percentage points to 18 percent, compared with Pekao’s 11 percent. PKO expects as much as 215 million zloty in savings from the acquisition by 2016.

“The bank will now focus on integration” of the Nordea assets, Chief Executive Officer Zbigniew Jagiello said today.

PKO is also interested in buying Nordea’s pension fund, the remaining part of the Swedish bank’s business in Poland. PKO didn’t purchase the unit because changes to Poland’s pension system planned by the government “cause problems with the valuation,” Deputy CEO Jakub Papierski said.

Dividend Impact

PKO will also seek to “strengthen” its cooperation with Bank Pocztowy SA, in which it owns about 25 percent and sought to buy the rest earlier this year, Jagiello said.

“Our first take on the transaction is positive though we note that PKO doesn’t have restructuring experience,” Dariusz Gorski, an analyst at Zachodni, said in a note today. “The pressure on the bank’s capital adequacy ratio might minimize its ability to pay out dividend in 2014.”

The bank, which in April proposed to pay 1.8 zloty a share as a dividend from 2012 profit, doesn’t plan to change its recommendation, Jagiello said today. The bank will continue to pay dividends after completing the Nordea transaction, he added.

PKO’s return on equity is about 15.9 percent compared with a 10.8 percent average for the Polish banking market, according to data compiled by Bloomberg. PKO shares have gained 1.1 percent in 2013, compared with a 4.3 percent decline in the WIG20 Index.

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