PKO BP - PKO Gets Ball Rolling On Swiss Franc Deals
PKO BP shareholders at an EGM today voted to create a dedicated fund to cover expected losses and costs of reaching voluntary settlements with holders of mortgage loans denominated in foreign currencies. This is tantamount to PKO’s Management Board getting a green light to offer deals to clients to convert their Swiss franc loans to zloty on terms proposed earlier by the Polish Financial Supervision Authority (KNF). The resulting losses, estimated at PLN 6.7bn, in the end will most likely be recognized against the profit for FY2020, contrary to what we had predicted last week, when we said 2021 was the more likely timing because the EGM would probably be pushed back by a month.
By leaving its at-risk CHF loan book in the rearview mirror, PKO BP can look forward to bringing its ROE back up 11%, or close to it, in 2021, and its shareholders can look for a distribution equivalent to 90% of net earnings as soon as in 2022, making an implied dividend yield of 10% (shareholders today voted against a share buyback). In terms of valuation effects, we are convinced PKO is poised to soon begin a positive re-rating of its price-to-book ratio over and above 1.0x (ex. disputed CHF loans, 2021E P/B is expected to be 0.97x).
We are adjusting our models for PKO BP to reflect the expected effects of CHF loan settlements, and we see today’s decision as potentially having a snowball effect on the whole sector, with other lenders soon following in PKO’s footsteps and coming out with their own deals to their franc clients. The one thing that might still cause some institutions, and their clients, to hold back decisions to settle, is the ruling on franc loan contracts that Poland’s Supreme Court is scheduled to give on 11 May – unless the ruling has to be postponed again amid the ongoing controversy that surrounds the top tribunal. We maintain that, after eliminating CHF loan risk, PKO should go back to trading at 1.2x-1.1x price-to-book.
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.
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.
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