Polish Development Fund and PZU Buy 32.8% of Bank Pekao SA

Polish Development Fund and PZU Buy 32.8% of Bank Pekao SA

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On 7 June 2017, PFR and PZU closed the acquisition of 32.8% of Bank Pekao SA for PLN 10.6 billion. The purchase price was PLN 123 per share. This was one of the biggest deals in the European banking industry in the last few years. The transaction matches the strategy of the Polish Development Fund: to make important investments in the Polish economy which provide an attractive return in the long term.

The acquisition of Pekao matches PZU’s strategy by the year 2020, which provides for the creation of a banking group with assets of at least PLN 140 billion as well as PLN 50 billion of assets under management.

“This is a historic moment. By closing the acquisition of Bank Pekao, PZU becomes the biggest financial group in Central and Eastern Europe and a leader in insurance, banking, and asset management. I am positive that the partnership with Pekao SA will be a success. Pekao is a major market player with a large-scale business, an extensive distribution network and excellent customer relationships. This affords the opportunity to develop many new solutions including non-life insurance, investments and life insurance, for instance addressed to small and medium-sized family businesses. I believe that PZU and Pekao joining their ranks will significantly strengthen the stability and financial outlook of the Polish economy,” said Paweł Surówka, President of PZU SA.

“After about a dozen years, Pekao SA once again becomes a Polish bank and the well-known bison brand is back on the market. This means that the share of Polish capital in the banking sector grows to more than 50%, which is relevant to the stability of the banking industry and to sustainable economic growth. For the Polish Development Fund, this is a profitable long-term investment. As an investor, PFR will support the implementation of Pekao’s strategy focused on investments in new technologies, quality of customer service and operating efficiency of the bank, building long-term shareholder value,” said Paweł Borys, President of the Polish Development Fund.

The agreement for the acquisition of 32.8% of Pekao S.A. for PLN 10.6 billion was signed between PZU and PFR on the one hand and UniCredit S.p.A. on the other on 8 December 2016. The Polish Financial Supervision Authority (KNF) approved the acquisition of Bank Pekao on 4 May 2017. The deal includes a direct acquisition of 20% of Pekao shares by PZU for PLN 6.5 billion and a direct acquisition of 12.8% of Pekao shares by PFR from UniCredit for PLN 4.1 billion. The purchase price is 2.4% lower than the price of a block of 10% of Pekao shares sold by UniCredit in July 2016.

With this strategic investment, PZU becomes the biggest group to offer comprehensive financial services in Poland and in Central and Eastern Europe with total assets at ca. PLN 360 billion (combined assets of PZU SA, Pekao SA and Alior Bank). The integrated PZU Group will offer a full range of insurance services of Poland’s biggest insurer PZU, banking products of the second largest bank: Pekao and Alior Bank, as well as asset management services of the second largest player in the sector: TFI PZU, TFI Pioneer, PTE PZU and PTE Pioneer. The merger will grow the existing distribution network to 1,356 branches, facilitating customer access to the service offer.

“The acquisition of Bank Pekao confirms our determination to implement PZU’s strategy 2020, which includes a strong presence in the Polish banking sector. Moreover, the deal allows us to offer a full range of financial products at each stage of life of Poles. We protect their life and health, private and business assets, investments, savings and capital for retirement,” said Paweł Surówka, President of PZU. “Furthermore, the deal generates additional shareholder value and is good for the clients of both companies thanks to synergies and potential partnerships. Technically speaking, it is an asset which will in the long term generate a stable dividend stream for the PZU Group. We expect to earn a dividend of more than PLN 450 million this year,” added Paweł Surówka.

“The objective of the Polish Development Fund as a long-term strategic financial partner is to support PZU in the implementation of its strategy of building a strong Polish financial group. I do believe that the partnership between PZU and Pekao will create a modern comprehensive offer for clients and contribute to the shareholder value of both institutions,” said Paweł Borys, President of the Polish Development Fund.

Pekao is a leading Polish bank present in corporate banking, SME banking, retail banking, and asset management, which regularly generates excellent financial results. In the financial year 2016, Pekao had a 14.0% market share in mortgage loans and a 17.0% market share in corporate loans, growing key retail loans at 10.9% CAGR and key corporate loans at 6.5% CAGR in FY 2014 – 2016. Pekao follows a strict cost discipline, boasts a high quality of assets with gross NPL at 5.9% (Q1 2017) and a cost of risk at 40 bps., resulting in a standardised ROE of ca. 9%, despite a high CET1 of 17.75% at the end of Q1 2017.

“The acquisition of Pekao SA will provide the PZU Group with a number of financial advantages. We expect the deal to largely boost the consolidated profit attributable to the PZU Group (EPS) and bolster the capital of the PZU Group by 1-2 percentage points. This is the annualised impact assuming the contribution of the bank to PZU’s results in the full financial year. Furthermore, the bank’s capital position will improve the solvency of the Group: according to PZU’s capital policy published in 2016, the solvency ratio should remain safe above 200%,” said Tomasz Kulik, PZU CFO.

The acquisition of Bank Pekao by PZU and PFR is a major step in the on-going consolidation of the Polish banking industry. The bank is well positioned to unlock the potential of the Polish financial sector. Its planned technology investments will support stable growth and improved efficiency of Pekao, advancing the quality of customer service and the growth of Poland’s banking industry.

The Management Boards of PZU and PFR are planning to maintain Pekao’s safe risk profile and continue its growth strategy in all key segments. They expect Pekao to follow a stable dividend policy. Its business will rely on professional rules of corporate governance in line with the market practice.

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