Tuesday, August 23, 2016

PZU is going after the 33 percent. Pekao – Republic

The transaction, for which the market is speculating for several weeks, is taking shape. Pekao, the second largest bank assets over the Vistula River, could hit under the control of the largest Polish insurer. Later this week, the negotiations will start between Italy and the Polish side. News of the planned negotiations do not like the investors, who on Tuesday’s trading session sell shares of one and the other. Qualities PZU even got cheaper by almost 5 per cent., To 26.75 zł, while Pekao – by 3.6 per cent., To 123 zł.



Objective: The third action

the heads of PZU and Polish Development Fund (PFR) will meet on Thursday with representatives of UniCredit, to negotiate the terms of the repurchase of shares of Pekao – according to unofficial information. The case said on Wednesday Reuters, which sources say that Milan flies Michael Krupiński, CEO of PZU and Pawel Borys, head of the PFR.

Our source close to the case argues that the Italians want to sell the bank, while the largest Polish insurer is interested in buying, but less than one owned by UniCredit 40 percent. package worth 13.2 billion zł. Targeting is a package of 33 per cent., Which gives corporate sway.

In addition, PZU counts for 10 percent. discount and would like to trade, a model acquisition Alior, was spread “on the installment plan,” or buying a package of 10 per cent. at intervals of at least 60 days, which would ensure that there would be no need to announce a tender offer for shares of Pekao.

If there has been so planned transaction, its value at the current valuation of Pekao shares would amount to less than 9 billion zł. the insurer is not able itself to take over the bank, as its surplus capital, which could be allocated for this purpose, it is up to 5-6 billion zł. Therefore, the transaction is to support the PFR. We do not know how it would look on the technical side. Our information indicates that the PFR could, together with PZU set up a special company which will take over.

the ambitions of PZU on the banks are large. records strategies insurer, which reached indicate that the banking pillar insurer has rapidly at least double its assets to 140 billion zł in 2020. PZU wants four years the contribution of the banking segment as a result of the group amounted to nearly 0.5 billion zł .

the strategy indicates that the acquisitions will be financed by subordinated debt, depending on your needs. This will allow the insurer continue to share profits with shareholders.



can move domino

If there is a transaction between Pekao and UniCredit, this could be a turning point in the upcoming by politicians repolonizowaniu banking sector. Currently, nearly 60 per cent. assets of banks in Poland is in the hands of foreign investors. Some of the parent companies with headquarters in the West, however, have problems now, which may force them to sell healthy and profitable Polish banks.

Officially, it is known that under the hammer goes Raiffeisen Polbank with more than 50 billion zł assets ( favorite among willing to take PKO BP). His Austrian owner RBI needs to the end of September to sign an agreement establishing the terms of the transaction, but this can be difficult because of the bank to be separated mortgage francs worth over 12 billion zł (one third of the bank’s portfolio). In such a scenario, the acquisition may be valued at 4-5 billion zł.

Quiet candidate for sale is also the Millennium, of which 50 per cent. the stock has plunged into problems BCP. It is worth recalling that the Portuguese, saving their capital ratios, in March 2015. Sold 15.4 per cent. values ​​Millennium, of which acquired 1.24 billion zł. The buyer was mainly investment funds. Portuguese owner reluctantly pozbywałby a bank – only in 2012-2015 Millennium brought an average of 23 percent. operating result BCP.

These transactions, already acquired by PZU Alior Bank, BPH can completely change the balance of power on the Polish banking scene. If acquiring former Polish entities, the share of the domestic capital market would increase from the current 40 to almost 60 percent.

In the case of aggravation of problems in the banking sector in the west and south of Europe put up for sale may be more banks. These include the Deutsche Bank Poland with 38 billion zł assets and considerable loan portfolio frankowych. Its German owner has poor results in 2015. Recorded a record loss of 6.8 billion euros. Another candidate could be mBank, the fourth largest lender in Poland, with assets of nearly 120 million zł. It is speculated also that under the hammer can go even BZ WBK, the third largest bank with assets worth 123 billion zł.

While both banks are doing in Poland well, but their owners (respectively German Commerzbank and Spanish Santander) may be under the pressure of having to raise the capital adequacy ratios.

Is PZU should buy Bank Pekao? Take part in the poll and answer the question www.ekonomia.rp.pl

Review

Peter Miliński, analyst, NWAI DM

the reaction of investors [to the information that the head of PZU is going to negotiate the acquisition of Pekao - ed.] is so unique that the price falls affect both the acquired entity, as well as the potential buyer. On the one hand, PZU may have trouble reaching a fair return on the investment. Pekao yet to be the most effective and least risky banks in the sector, which is reflected in the high market valuation. In poukładanej little structure can be improved, and losses resulting from bad business decisions can be serious. Of course, PZU will try as much as possible to beat the price, to leave a margin of safety. Therefore, the market saw a weaker negotiating position UNICREDIT, he began to overestimate Pekao.



Under a lot of pressure is UniCredit

We still do not know how determined the sale of shares in Pekao UniCredit is, having problems with bad loans and low capital (the second option to increase its capital ratios is the issuance of shares).

– Pekao is approx. 6.4 percent. risk-weighted assets of the group and is traded significantly above book value (1.48). Given the capitalization of the bank and its indicators, UniCredit could sell it with a positive impact on their own capital adequacy ratios – says Hai Thanh Phuong Le of Concorde Securities. With the July sales 10 percent. Pekao (after 126 zł per unit) indicator CET1 UNICREDIT strengthened by only 0.12 percentage points. (At the end of June amounted to 10.3 per cent.). – Sales up all of the remaining 40 percent. the package is not enough, because at the current share price of Pekao transaction could raise the rate by only 0.5 percentage point., and the needs are much greater – estimated Fabrizio Bernardi, an analyst Fidentiis. He added that on the other hand, sales of a controlling stake would require a premium to the market quotations (PZU hopes to discount). Analysts estimate that UniCredit in the most difficult scenario would increase rates by as much as 2-3 pct., Which would involve raising capital by as much as 11 billion euros (40 percent. Pekao shares are worth 3.1 billion euros). Luca Coni, ICBPI analyst, estimates that getting rid of the 25 billion euros of risk-weighted assets and control premium would give improvement rates by 1 percentage point. – UniCredit sale of 33 per cent. Pekao shares for PZU, and the rest of the market. I’m also pretty sure that it will conduct a share issue – says one of the Italian analysts. Earlier it was said that UniCredit can prepare emissions by 7-8 billion. In 2012-2015 Pekao provide an average of 10.5 percent. the operating result of the group UniCredit. – Sale of Pekao it would be sold off in silver rhodium – puentuje Bernardi.

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