Allied Irish Banks has brought its spending on acquisitions this year to over £1.1 billion (€1.4 billion) by spending £443.7 million (€563.4 million) for an 80 per cent stake in the Polish banking group, Bank Zachodni. Earlier this month, AIB negotiated the right to buy a 25 per cent stake in the Singapore bank, Keppel Tat Lee, for £661 million.
The Polish move was expected as AIB was given exclusive rights by the Polish government to negotiate last month. But the price AIB has paid was higher than expected.
Analysts agreed that AIB has paid "top dollar" for the controlling stake in Zachodni, reflecting the determination of the Irish bank to build on its existing presence in Poland - the Poznan-based WBK Bank. One local analyst said that AIB had paid 15 per cent - around £65 million - more than expected.
While AIB intends to operate WBK and Bank Zachodni separately and has no plans to merge the two banks, the combination of the two makes AIB the sixth biggest banking group in Poland while the two banks account for 20 per cent of the regional banking market in the west and south-west of Poland. WBK and Bank Zachodni are similar in size, each having net assets of €3.4 billion (£2.7 billion), although WBK is more profitable.
AIB's head of investor relations, Mr Maurice Crowley, said: "Zachodni is not the cheapest bank we have bought but we're happy to pay the price in the face of very competitive bidding".
AIB beat out rival bids from the French bank, Societe Generale, and the Austrian bank, Raffeissen, for Zachodni. The £443.7 million price tag is equivalent to 4.1 times Zachodni's reported book value. All the foreign banks which have invested in Poland have paid premium prices to enter the underbanked market.
As well as the purchase price, AIB has also committed to investing £48.5 million to improve the Polish bank's computer systems and will invest a further £116 million over the next 10 years. AIB has committed to maintain the Zachodni name, retain the Wroclaw head office and maintain the current workforce of 6,981 for 18 months.
"It gives us a very significant franchise in two of the most affluent areas of Poland," said Mr Crowley.
Last year, Zachodni grew its income by 23 per cent to £143.3 million although pre-tax profits were halved to £23.1 million mainly as a result of a £45.2 million bad-debt provision.
AIB shares fell sharply by 36 cents to €13.19, but this was more due to a general international weakness in financial shares than any negative reaction to the acquisition. ABNAmro analyst Mr Eamonn Hughes said the Zachodni consideration would knock 1.2 percentage points off AIB Tier 1 capital ratio to 6.3 per cent. He said after goodwill amortisation, the acquisition would have a small negative impact on earnings.
