Banks - The Franc Gambit
With just weeks to go before the Court of Justice of the European Union and the Supreme Court of Poland give landmark decisions on franc loan contracts, we want to make a case for taking an overweight position in the Polish banking sector. After reviewing past cases, we are cautiously optimistic that both tribunals will sanction the annulment of contracts, but at the same time they will not prohibit the lenders from seeking restitution. To avoid getting sued, there is data to show that 70% of franc borrowers would agree to settle their disputes out of court. Knowing this, we assume as our baseline banks will take write-offs on a corresponding portion of their franc loan books in 2021, and stagger the much lower costs of future lawsuits over the next four years. With portfolios free of francs, from 2022 on it should be smooth sailing for the sector with the ROE restored to an average 11%, and with unlocked dividend potential. Over the years, many institutions have accumulated a massive capital surplus that is more than enough to cover the costs of franc loan settlements and make handsome payouts to shareholders. With systemic risk no longer weighing, as returns and dividends become attractive again, Polish banks should soon jump back on the radars of global investors. Furthermore, our lenders will finally be able to shake the discounts at which they currently trade relative to other CE3 competition. At our target prices, our bank universe is trading at 1.0x 2022E price-to-book as compared with a ratio of 1.1x attributed to Czech banks and a multiple of 1.3x of OTP Bank. In the worst-case scenario where franc loan contracts are voided but lenders are banned from pursuing restitution, at a cost to the sector as high as PLN 100bn, turmoil in the stock market would ensue, however, it is important to remember that most banks have the capital to take these charges without raising additional funds.
Alior Bank is a universal lending and deposit-taking bank which renders services to individuals, legal persons and other entities which are Polish and foreign persons. Co.'s core activities include maintaining bank accounts, granting loans and advances, issuing banking securities and purchasing and selling foreign currency. Co. also conducts brokerage activities, consulting and financial agency services and renders other financial services.
Bank Handlowy W Warszawie is a Polish bank holding company engaged in a wide range of banking services for individuals and corporate customers in the domestic and foreign markets. Additionally Co. operates in brokerage operations, lease services and investment operations. Customers have access to these services at the branches, ATM's, telephone services and electronic banking services.
Bank Millennium provides various banking products and services to individual clients, small businesses, corporate, and public sector entities in Poland. Co. offers current account, custody account, and escrow account; standard deposits, negotiated deposits, millenet deposits, and automatic overnight deposits; debit and charge cards; funds management; professional cash services; and management of balances of current and auxiliary accounts. Co. also provides current account overdraft facility, real estate loans, revolving credits, working capital loans, investment loans, energy financing facility, sureties, line of guarantees, letters-of-credit, preferential loans, and bid bond guarantees.
Bank Polska Kasa Opieki (the Bank) is a commercial bank providing a range of banking services, mainly in Poland. The segments of the Bank are as follows: Retail banking, which comprises all banking activities related to retail customers and small and micro companies; Private banking, which comprises all banking activities related to the affluent individual customers; Corporate and Investment banking, which comprises all banking activities related to the companies, interbank market, debt securities and other instruments; and Assets and Liabilities Management and other, which is engaged in the supervision and monitoring of fund transfers, and other activities centrally managed.
BNP Paribas Bank Polska SA, formerly Bank BGZ BNP Paribas SA and Gospodarki Zywnosciowej SA, is a Poland-based bank. The Bank divides its operations into three segments: Retail Banking includes sales of products and services for individuals, such as current and deposit accounts, term deposits, granting of housing loans and cash loans, mortgage loans, revolving loans, overdrafts, issuing debit and credit cards, service of foreign cash transfers, entering into foreign exchange transactions, among others; Institutional Banking includes sales of products and services for enterprises, companies and cooperatives, individual entrepreneurs, individual farmers, non-profit institutions and public sector entities; and Financial Markets, Assets and Liabilities Management covers activity in the area of financial markets and liquidity management.
ING Bank Slaski is a bank holding company. Through its subsidiaries, Co. is engaged in providing a range of banking services rendered for individual and institutional clients in line with the scope of services outlined in Co.'s charter. Co. runs operations both in the home currency and in foreign currencies. Co. is also active on the domestic and foreign financial markets. The subsidiary, ING Bank Hipoteczny S.A., also runs banking business, including loans secured with mortgage. Additionally through subsidiaries, Co. operates brokerage services, real estate, leasing of real estate and advisory and acts as a financial intermediary as well as provides other financial services.
PKO Bank Polski is a universal commercial bank offering services to both domestic and foreign retail, corporate and other clients. Co. is licensed to hold foreign exchange and currencies and sell/buy them, as well as perform a full range of foreign exchange services; open and hold bank accounts abroad and to deposit foreign exchange in these accounts. In addition, Co. conducts activities relating to leasing, factoring, electronic settlements via payment cards, as well as renders other financial services. As of Dec 31 2009, Co. had total assets of Zl156,478,685,000 and total deposit of Zl124,628,562,000. Co. operates in the Republic of Poland, Ukraine and Sweden.
Bank Zachodni is a bank seated in Poland. Co. and its subsidiaries provide a range of banking services for individual and business customers and operate in domestic and interbank foreign markets. Additionally, Co. provides also the following services, including intermediation in trading securities, leasing, factoring, asset/ fund management, insurance services, trading in stock and shares of commercial companies, and brokerage activity. Operational activity of Co. and its subsidiaries has been divided into five segments: Retail Banking, Business and Corporate Banking, Global Banking and Markets, ALM (Assets and Liabilities Management) and Centre, as well as Santander Consumer.
Set up in 1986, mBank (originally BRE – Export Development Bank) is Poland’s 4th largest universal banking group in terms of total assets and 5th by net loans and deposits at the end of June 2019. mBank has one of the oldest brokerages in Poland – we have been providing brokerage services since 1991 - and the biggest, serving about 300 ths clients.
We provide all brokerage services available in the Polish capital market (i.e. Warsaw Stock Exchange, non-public markets and forex) in a way that meets the expectations of all groups of investors, both individual and institutional. Participating in the dynamic growth of the Polish capital market since its inception, we have acquired competences and experience needed to provide the highest quality of service and we have won the trust and satisfaction of our Clients.
Over the past decade, mBank's Equity Research Team has been consistently ranked among the top research teams in Parkiet's annual institutional investor surveys (Parkiet is Poland's leading daily business newspaper). mBank analysts provide coverage on an extensive list of companies, mainly in Poland but also elsewhere in the CEE region: Austria, Czechia, Portugal, Ukraine and Hungary.
Clients get access to a comprehensive selection of research products including daily market insights, monthly roundups, macroeconomic views, industry- and company- specific analyses, investing strategies, earnings comments, etc.
We give our institutional clients numerous opportunities to connect with industry professionals, top executives, and leading analysts:
- Get direct access to senior management teams at listed companies (over 30 meetings in 2018),
- Engage in our many industry events, featuring listed Polish and global firms (in 2018, we hosted sector-themed conferences around industrials, chemical companies, telecoms, retail, and financials, and co-hosted a Best of Poland investors' with Commerzbank and the Warsaw Stock Exchange),
- Stay informed through an array of enlightening discussion panels, workshops, and briefing sessions with regulatory officials.
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