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Govt. Opposes Polish Bank Merger

December 9, 1999

WARSAW, Poland (AP) _ An effort to merge Poland’s two leading banks has won wide praise and the approval of the country’s central bank, but that hasn’t stopped the government from trying to block the move over fears of foreign intrusion.

The merger of Bank Handlowy SA and BRE Bank SA would create Eastern Europe’s largest financial institution as measured by capital. Central bank officials say it would be a strong regional entity able to go head-to-head with Western banks in former Soviet-block countries.

The proposal was to come to a showdown vote by shareholders Thursday.

``There is no doubt consolidation in the Polish banking system will take place,″ said Ewa Sleszynska-Charewicz, head of the central bank’s Banking Supervision Committee. ``This merger would create a new quality, a very strong bank able to operate in the whole Eastern Europe.″

But the Treasury Ministry, which holds 7 percent of Bank Handlowy, and a state-controlled insurer appear to have garnered enough votes to block the merger. They say its terms favor BRE Bank, and thus Germany’s Commerzbank AG, which holds a 48.7 percent stake in BRE.

The Treasury and insurer Powszechny Zaklad Ubezpieczen SA, or PZU, are believed to have lined up 25.4 percent of the registered votes. They need 25 percent plus one to block the plan.

Those in favor of the merger, including J.P. Morgan and Co., Sweden’s Foereningssparbanken AB, Zurich Financial Services Group and Commerzbank, together control about 40 percent.

Analysts say that without a last-minute compromise, a drawn-out legal battle is likely, regardless of the outcome Thursday.

``It harms the stability of the Polish banking system in the eyes of foreign investors,″ the central bank’s Sleszynska-Charewicz said of the government’s intransigence and the resulting proxy battle.

Under terms of the deal, BRE shareholders would get 2.4 Handlowy shares for each share held. PZU has said it would favor a share-exchange ratio of 1.7 shares.

Analysts have said they think the merger terms are fair because BRE is better managed and more profitable than Handlowy.

PZU and the treasury have demanded that Commerzbank, which aims to take a 35 percent stake in the merged bank, pay a premium for Handlowy’s shares. PZU has also demanded that it be allowed to co-manage the bank with Commerzbank, and that Commerzbank restrict its holding to 25 percent of the merged bank.

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