February 16, 2015 / 5:06 PM / 5 years ago

Polish bank deals hampered by aftershocks from Swiss franc rise

WARSAW, Feb 16 (Reuters) - The surge in the value of the Swiss franc has cooled merger and acquisitions activity in Poland’s banking sector, as buyers and sellers take time to assess the effects of a sharp rise in the cost of mortgages denominated in the Swiss currency.

Executives had anticipated a wave of deals this year in Poland, whose banking sector looked ripe for consolidation because it has about 40 constituents compared with the 10 names which some industry insiders say it can profitably support.

But in the past few weeks the sale of one Polish bank, a local unit of General Electric, has been put on hold as a direct consequence of the surge in the franc, two investment bankers and a banking source told Reuters.

A handful of other deals that were in the pipeline are also expected to be delayed, several banking executives said.

“The market wants to see what will happen in one, two, or three months’ time,” Mateusz Morawiecki, chief executive of Santander’s Polish arm, told Reuters. “Management discussions about the consolidation are frozen because of the franc ... I’m talking about the whole market.”

The Swiss central bank’s Jan. 15 decision to remove its cap on the franc had widespread knock-on effects.

In eastern Europe, millions of mortgage holders with Swiss franc loans face higher repayments, in turn meaning the ratio of banks’ non-performing loans is likely to go up, potentially affecting their financial health.

Among other deals which have been in the works, according to the banks themselves or to banking sources, are the sale of Raiffeisen’s Polish unit, the possible sale of a stake in Millennium bank (owned by Portugal’s BCP ) and the sales of two smaller lenders, Alior and FM bank.


Merrill Lynch, hired to help sell the General Electric unit BPH, had been about to send out invitations for expressions of interest in the sale when the Swiss franc surged.

More than half of BPH’s loan portfolio, or 12 billion zlotys ($3.3 billion), is in Swiss francs. Expressions of interest were put on hold, said two bankers. They were later issued, but according to one of the bankers, “the transaction is on hold due to the francs.”

GE declined comment, as did a representative at Bank of America Merrill Lynch.

Raiffeisen’s Polish unit also has a significant Swiss franc mortgage portfolio, as does Millennium Bank.

The other two deal targets, FM Bank and Alior, have no Swiss franc loans, but deals involving them could still be affected if a prospective buyer has such loans.

BCP and Alior declined to comment. FM Bank said the Swiss franc had no impact on the timing of the sale, while Raiffeisen International executive Johann Strobl, asked if the Swiss franc issue would affect the Polish unit’s sale, said: “Not at all.”

Market sources said the Raiffeisen unit is an attractive enough asset that the sale may proceed anyway, while Millennium’s owner may delay a deal pending a decision by European regulators on its recovery plan, unrelated to Swiss franc loans.

However, deals are unlikely to move ahead at least until the Polish financial regulator announces what relief measures it will demand for struggling Swiss franc borrowers, and how much of the tab must be picked up by the banks.

“Only after the deal (between banks and the regulator) is reached will it be possible to calculate banks’ fair value,” said Maciej Jacenko, an investment banker with Espirito Santo. (Additional reporting by Adrian Krajewski and Agnieszka Barteczko in Warsaw, Pamela Barbaglia in London, Michael Shields in Vienna and Sergio Goncalves in Lisbon; Editing by David Holmes)

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