Largest Polish bank may seek to take over AIB subsidiary

PKO, POLAND’S largest bank in terms of assets, aims to raise as much as €1.1 billion (five billion Polish zloty) to boost lending and fund growth from what could be the largest issue of new shares in the country in almost five years.

This has led to expectation among analysts that the bank may seek to buy control of smaller rival, Bank Zachodni, which may be sold by Allied Irish Banks (AIB) as part of the Irish bank’s efforts to raise an additional €1.5 billion in capital to protect itself further against soaring losses on loans.

PKO may use the money raised from the share issue to target Bank Millennium, which is controlled by Portuguese bank Millennium BCP and has a market value of €504 million. Bank Zachodni is valued at 6.8 billion zloty (€1.5 billion). The bank is hoping to take advantage of growth opportunities in Poland and discounted prices as international banks prepare to sell assets in the eastern European state to help cover losses at home.

PKO plans to raise money by issuing up to 650 million shares, which could increase its share capital by as much as 66 per cent.

“We want to raise an amount in the neighbourhood of five billion zlotys,” PKO chief executive Jerzy Pruski said. “We want to have the means for PKO to develop in 2010 in a rational way with a feeling of safety.” He said the “ultimate size” of the share sale would depend on market conditions.

Investors dumped PKO’s stock, fearing a glut of new shares.

The bank’s share price fell 5.4 per cent and has declined 29 per cent this year, giving the bank a market value of 25.3 billion zloty.

PKO said it would pay a dividend of 2.88 billion zloty on 2008 earnings, reversing Mr Pruski’s decision five months ago for the bank to postpone the payout to bolster the bank’s capital.

The Polish government owns 51.2 per cent of PKO and is seeking extra cash to meet a projected budget deficit of 18.2 billion zloty.

“This is just a proposal of the bank’s management,” said a spokesman for the Polish treasury ministry. “In our option it would be better for PKO to first raise capital and then pay the dividend.”

The Polish central bank, which had called on lenders to withhold dividends this year, criticised the government for pushing the bank to reverse its earlier position.

AIB has signalled that the bank’s 70 per cent stake in Bank Zachodni and 24 per cent stake in US bank MT may be sold – in addition to a debt buy-back – to bolster the bank’s capital reserves. – (Additional reporting: Reuters and Bloomberg)