Bank Pekao/BPH: Escalating rhetoric, as the political landscape shifts
In a statement yesterday, Poland’s treasury ministry extended the deadline for Unicredito to sell Bank BPH by 3 months. At the same time, it warned that if Unicredito does not comply, then it could seek to annul the 1999 sale of Bank Pekao. The Polish government alleges that Unicredito breached the non-competition clause of its 1999 privatisation agreement, when it indirectly acquired a controlling stake in Bank BPH via its takeover of HVB last year. Unicredito has declared that it hasn’t breached the intent of the original non-competition clause, as its intention is to merge Bank BPH with Bank Pekao, but its lawyers have also stated that the agreement is not enforceable under EU law. The European Commission, in a letter, has reminded Poland that Brussels has competency to rule on competition issues and that the country is violating principles on free movement of capital by delaying the deal.
It now seems highly probable that court proceedings will follow, with shareholders of Unicredito and its Polish subsidiaries victims of the changing political landscape. As the Law and Justice party formed a 12-month power-sharing pact with anti-reform parties Self-Defense and League of Polish Families, President Kaczynski stated that this ‘means a radical change in the country….Defense of national interests will be everyday policy and our partners, who until now counted on a different situation and exploited it, will have to get used to this.’ Adding perspective on the level to which rhetoric has risen, consider the comments of senior Law and Justice member of parliament and potential candidate for Treasury Minister Wojciech Jasinski at the end of January ‘This is wild behaviour. Unicredito treats us like a colony. They treat us like savages.’
Meanwhile, on the market-friendly side of the political spectrum, in a television interview, Maria Wisniewska (current Civic Platform deputy and former Bank Pekao CEO) stated that ‘Poland is perceived as a non-credible partner. This is an example of total disrespect of EU laws and ownership rights in Poland….as well as bending the terms of a deal for……ideological reasons.” Also on television, central bank president Balcerowicz asked ‘What will this change mean? Will there be nationalisation, will we return to socialism, will we return to printing money or see the state, politicians and officials replace private owners?’
Whilst the latest escalation of rhetoric might appear negative at first glance, not much has actually changed. If anything, it may prompt the European Commission to take more rapid measures to intervene with court proceedings. While there are, no doubt, legal opinions supporting both sides and the one certainty appears to be long delay, we believe that Unicredito’s case is strong and that the merger of Bank Pekao and Bank BPH is too important for its long-term interests to concede to government demands. From a short-term trading perspective Bank BPH has benefited (on speculation that minorities could benefit from the high price of a trade sale) and Bank Pekao suffered (as potential merger synergy appears in doubt or at least delayed). In our opinion, these trading issues have already been priced in and we reiterate our Buy rating on Bank Pekao for those with patience. On valuation grounds, we rate the more expensive Bank BPH a Hold.