Poland Tightens Grip as Alior Buys GE Bank for $330 Million

Updated on
  • General Electric retains mortgage, asset management business
  • Alior to finance deal via share sale, mulls more takeovers

Polish state-controlled lender Alior Bank SA agreed to buy General Electric Co.’s unit in the East European country and plans more takeovers amid a government push to boost domestic ownership in the banking industry.

Poland’s 10th-largest bank by assets is buying 87.2 percent of GE’s banking operations, excluding a portfolio of home loans and an asset management unit, for 1.23 billion zloty ($330 million), it said in a statement Friday. Alior will finance the transaction through the sale of shares to current shareholders, including its leading owner, state-controlled insurer PZU SA. Shares in Alior jumped as much as 7 percent on Friday, while GE’s Bank BPH SA and PZU both retreated.

“This transaction confirms our goal to actively participate in a consolidation of the Polish banking market,” Alior Chief Executive Officer Wojciech Sobieraj said in an e-mailed statement. The bank will be “ready” for more acquisition talks in the third quarter and a lack of such transactions in future would be a “failure,” he said in a call with journalists.

Alior, created in 2008, is the main expansion platform in the banking industry for PZU, which controls the lender and seeks to diversify its revenue in line with government plans to boost local ownership in banks. Following the transaction, Alior said it will become the country’s ninth-biggest lender with about 60 billion zloty in assets.

‘Pure Evil’

Alior advanced the most since November 2013 on Friday, trading 5.6 percent higher at 68.61 zloty as of 1:22 p.m. in Warsaw and valuing it at 4.99 billion zloty. BPH slumped 5.5 percent to 32.88 zloty while PZU dropped 2.8 percent to 34.80 zloty.

GE is exiting the bulk of its lending business in the broadest revamp since the GE Capital unit destabilized its parent during the financial crisis. The deal comes as mergers among Polish banks have been curtailed by uncertainty stemming from President Andrzej Duda’s plan to convert $44 billion in foreign currency-denominated mortgages into zloty, a proposal called “pure evil” by central bank Governor Marek Belka.

The U.S. company decided to keep its home loans, of which majority are Swiss franc-denominated mortgages, to facilitate the sale as Poland’s financial-markets regulator warned last year it doesn’t want any Polish bank to purchase the Swiss franc loan portfolio as it poses risk for the industry’s stability. Mortgages denominated in foreign currencies proliferated prior to the 2008 financial crisis. While allowing borrowers to take advantage of lower interest payments, the loans exposed them to currency swings.

“At first glance, it appears that the deal may add value for Alior in the long term,” Marcin Gatarz, an analyst at Pekao Investment Banking SA in Warsaw, said in a note. “We believe, however, that a large share issue planned by Alior to finance the transaction may exert some pressure on bank’s share price in the short term.”

National Interests

The price Alior will pay for BPH assets implies 0.93 times BPH book value. Polish lenders trade at 1.3 times their book value, down from 1.6 times a year earlier as sentiment toward the country’s financial institutions started to sour in 2015.

The Law & Justice party, which won power last year, bashed the nation’s banks, which are mainly foreign-owned, for what they call a failure to share the fruits of the country’s economic growth with ordinary Poles. Deputy Prime Minister Mateusz Morawiecki has repeatedly discussed boosting the amount of “Polish capital in Poland’s economy,” while Finance Minister Pawel Szalamacha said state-run financial companies such as PKO Bank Polski SA, BOS Bank SA and PZU can help consolidate the banking industry.

PZU will buy new Alior shares to help finance the deal expected to finalize by the end of this year, it said in a statement. The share sale to its current owners, whose value will exceed 1.5 billion zloty as it will also be aimed at boosting Alior’s capital, is expected in June following a shareholders’ meeting to approve it, PZU said.

Deal Synergies

While Alior expects the deal to bring about 300 million zloty in annual pre-tax synergies in 2019 on top of 160 million zloty from BPH’s revamp, the costs of the merger, including job cuts, are seen in a range of 900 million zloty to 1 billion zloty in the first two years. As much as 80 percent of the expenses will be booked in 2017, according to Sobieraj.

This burden will “certainly” trim Alior’s 2017 net income, Sobieraj said, adding that if there are no more takeovers, the lender may pay dividend from its 2018 profit.