Polish Stocks Retreat to Six-Year Low on Co-op Bank Failure

  • Bank shares drop as fees to state-guarantee fund may grow
  • Utilities fall on report they may be forced to rescue mines

Polish stocks, the worst performers in emerging markets on Monday, sunk to a six-year low following the bankruptcy of one of the country’s biggest cooperative banks and amid concern the new government will force utilities to rescue unprofitable coal mines.

The WIG20 gauge of the largest and most-liquid companies traded in Warsaw declined as much as 3.1 percent on Monday and is headed for the lowest close since July 2009, extending its drop from this year’s peak in May to 31 percent. Banks, utilities and copper producer KGHM Polska Miedz SA led declines on a day the MSCI Emerging Markets Index dropped 0.2 percent and the precious metal tumbled 2.6 percent.

Poland’s financial regulator filed for the bankruptcy of Spoldzielczy Bank Rzemiosla i Rolnictwa in Wolomin on Saturday, raising concern that other lenders will have to increase their payments to the state fund that guarantees deposits. State-controlled utilities were under pressure after a report by Rzeczpospolita newspaper that the country’s new government is considering tasking the biggest power producer, PGE SA, with rescuing ailing coal miner Kompania Weglowa SA.

“We have local problems with a big risk of negative change for utilities and banks,” said Marcin Gatarz, chief analyst at Pekao Investment Banking SA in Warsaw. “The political uncertainty is limiting liquidity, which is making price falls more rapid.”

MBank SA, Poland’s fourth-largest lender majority owned by Commerzbank AG, slid 6.2 percent at 4:37 p.m. in Warsaw to 315.05 zloty, heading for the lowest close since 2013. While Bank Zachodni WBK SA, the third-biggest, dropped 4.6 percent after news the state guarantee fund will need to pay out 2.1 billion zloty ($526 million) to the failed lender’s 34,000 clients. The WIGBank gauge tumbled 3.5 percent to a three-year low.

The guarantee fund plans to determine the fees it will charge local lenders next year by Nov. 30. It already raised the burden on banks’ risk-weighed assets by 89 percent last year as the bankruptcies of two credit unions depleted its reserves.

Valuations of Polish lenders have dropped amid plans by the government to introduce more tax on the industry to help fund its spending promises. Banks also face higher capital requirements and may be forced to bear part of the costs of converting their Swiss franc-denominated mortgages to zloty.

It’s “very likely” that the guarantee fund will raise the fees for next year, Piotr Palenik, an analyst at ING Securities SA brokerage in Warsaw, wrote in an e-mailed note. The outlook for Poland’s banks may “deteriorate” further, said Palenik, who has a hold recommendation for both Bank Zachodni and MBank.

Loan Diversification

The financial regulator placed Wolomin-based SK Bank under administration in August, after revealing that loans sold by the cooperative lender were riskier than previously reported. Since then, customers have withdrawn 57 percent of their retail deposits, leading to a mismatch between assets and liabilities, according to the regulator’s report.

The guarantee fund’s supervisory board will take the latest bankruptcy into account when setting its 2016 fee, according to fund director Mariusz Mastalerz. He didn’t say whether or not the levies would rise.

SK Bank’s spokesman Waldemar Dzik didn’t reply to two calls to his mobile phone on Monday. The price of SK Bank’s 35 million zloty of floating-rate bonds, maturing in April 2024, fell 5.4 percent to 88 zloty on Nov. 13 when the security was last traded.

‘Latest Idea’

The “latest idea” by the government, which took power last week after winning the Oct. 25 general election, is to build an integrated coal and power group based on ailing miner Kompania and PGE, whose shares dropped 6.1 percent to 13.61 zloty on Monday, according to Rzeczpospolita. Gas producer and retailer PGNiG SA and utility Energa may also be partners in the project, the newspaper said without saying where it got the information.

The ruling party has prioritized rescuing coal mines, which fuel almost all of the nation’s power plants and employ about 100,000 people. The government is seeking to restore profits in an over-sized and under-invested industry, laden with communist-era benefits and hit by record-low coal prices, partly by shifting the burden on profitable utilities.

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