LONDON: Eastern European banking markets have largely missed foreign lenders' heady expectations. The latest proof: UniCredit's agreement on Thursday to sell a 33 percent stake in Pekao, Poland's second largest bank by assets, to two state-controlled entities, insurer PZU and development fund PFR. Poland's is one of the few European economies with decent growth prospects.
That makes UniCredit's sale price - equivalent to 1.4 times Pekao's reported book value at the end of September - look cheap. Buyers are in the ascendancy. Warsaw's dislike of foreign capital is a spur to sell, with the government favouring what it calls "economic patriotism".
Though Poland is yet to ape Hungary by setting a target of domestic ownership of the banking sector, the Pekao sale means most of the country's listed bank equity will be owned domestically, according to Reuters, up from around 40 percent previously.
The certainty provides some consolation for UniCredit. Chief Executive Jean-Pierre Mustier needs to bolster his bad loan-riddled balance sheet - especially after the Italian referendum result.
This transaction will raise the bank's common equity Tier 1 capital relative to its risk-weighted assets by 55 basis points. Austria's Raiffeisen is still trying to sell its Polish business: the price was too high for PZU to be interested, says the insurer's chief executive, Michal Krupinski.
Still, the Italian bank wanted 3.5 billion euros for the transaction back in October, according to sources cited by the Financial Times. As it is, Mustier will get about 3 billion euros by selling a few other Polish corporate holdings as well as its entire Pekao stake.
He is also indemnifying the buyer against losses on Swiss-currency mortgages. UniCredit shareholders might do better if Pekao shoots the lights out.
A sale of equity-linked certificates on the open market will allow UniCredit to offload the remaining 7 percent of its holding in Pekao.
Buyers might ultimately get shares at around a one-seventh discount to the current price and receive 81 percent of dividends until maturity in three years' time. But UniCredit would share in any upside in Pekao's share price above a rise of around 16 percent.
Mustier's desire to cling to any upside has a whiff of seller's remorse.
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