Possible AIB bid for Polish bank contains drawbacks

The investment of Allied Irish Bank (AIB) in the Polish banking sector would increase dramatically if it acquired the 55 per cent stake of Pekao SA which the government is selling.

Market sources have estimated the value of the Pekao stake at between $870 million (£584 million) and $1 billion (£671 million). AIB's existing Polish subsidiary, WBK, was acquired for a total of about £97 million.

Pekao, an amalgamation of four state-owned banks, has about 20 per cent of the local market, with 630 branches throughout Poland. This compares with the 3 per cent share held by WBK, which has 160 branches, mainly in the west of Poland, with headquarters in Poznan.

Some market sources have speculated that AIB may not be interested in such a large investment in Poland, suggesting that the Irish group may want to grow more slowly in a developing banking market.

However, it is understood that AIB is pursuing the Pekao acquisition possibility, following its shortlisting with three other potential foreign acquirers - Citibank, Deutsche Bank and Creditano Italiano - subject to a due diligence.

Even at $1 billion, the price would be well below the $1.4 billion paid by AIB for Dauphin Deposit Corporation in the US last year, although Dauphin was in a mature banking market. Size may not rule out the acquisition for AIB, but the potential difficulties inherent in both amalgamating and rationalising the four banks within Pekao and then amalgamating that operation with WBK will be an important consideration. Most market sources consider there is still much work to be done to amalgamate the four banks which comprise Pekao, with one source describing Pekao as "a bank at a difficult stage in its development".

Group operations are understood to be profitable, but the bank had to make provisions this year against Russian debt.

While the Polish government appears eager to move ahead with the sale, there is some local opposition to the disposal of such a large slice of the domestic banking market to foreign investors. For the Polish government, the decision comes down to a trade-off between the sale of banking assets to foreign banks and the addition to the Polish market of the banking expertise necessary.