Santander to Buy Allied Irish Stake in Bank Zachodni

Allied Irish acquired 80 percent of Bank Zachodni SA in 1999 and merged it with WBK two years later to create Bank Zachodni WBK, now Poland’s fifth-largest bank. Photographer: Piotr Malecki/Bloomberg

Banco Santander SA, Spain’s biggest bank, agreed to buy Allied Irish Banks Plc’s stake in Bank Zachodni WBK SA for 2.94 billion euros ($3.7 billion) to expand in Poland as growth in Western Europe stalls.

Santander will also buy the Irish lender’s stake in BZ WBK Asset Management for a further 150 million euros in cash, the Spanish bank said in a statement today.

Allied Irish is selling its 70 percent stake in the Polish lender as regulators force it to bolster a balance sheet depleted by Ireland’s economic slump and real estate losses. Santander Chairman Emilio Botin, who has led $70 billion of acquisitions in his 25 years in charge of the bank, is seeking to expand the bank’s business across 10 main markets, including Poland, the only European economy to avoid recession last year.

“For Santander, it’s a play on Poland and the better future growth we expect to see in the country relative to other places,” said Simon Maughan, an analyst at MF Global in London. Santander is paying about 2.8 times book value for the holding, he said. “It’s costing them real money.”

The Spanish lender said it expects the purchase to be profitable within a year of completion and generate an annual return on investment of 11 percent by the third year. The takeover will reduce Santander’s core capital, which stood at 8.6 percent in June, by about 40 basis points, the bank said. A basis point equals 0.01 percentage point.

Capital Eroded

Santander’s American Depositary Receipts rose 0.9 percent to $12.59 at 1 p.m. in New York trading. Allied Irish’s ADRs rose 8.7 percent to $2.12.

Santander is also in talks to buy Allied Irish’s stake in M&T Bank Corp., the Sunday Times reported Aug. 29, without saying where it obtained the information. The Irish lender put its 22.5 percent stake in M&T on sale in March.

“They have a lot of deals in the pipeline that are nibbling away at capital,” said Maughan. “People will worry that they’ll have to raise capital themselves at some point.”

Allied Irish is seeking to raise 7.4 billion euros by the end of the year to meet regulatory capital targets. Today’s sale will generate about 2.5 billion euros of equity Tier 1 capital.

‘Good Start’

“The capital contribution is better than the 2.3 billion euros we had expected,” said Emer Lang, an analyst at Dublin- based stockbrokers Davy with a “neutral” rating on the stock. “The market had been crying out for news on AIB’s disposal program and this is a good start.”

The Irish bank entered the Polish market in 1995, when it acquired a minority stake in Wielkopolski Bank Kredytowy SA, increasing to majority control the following year. Allied Irish acquired 80 percent of Bank Zachodni SA in 1999 and merged it with WBK two years later to create Bank Zachodni WBK, now Poland’s fifth-largest bank.

Bank Zachodni is Poland’s third-largest lender by market value and fifth-biggest by assets. With its 518 branches, it has the country’s third-largest network.

Santander spent $2.5 billion to buy back a quarter of its Mexican business from Bank of America Corp. in June and last month agreed to buy 318 U.K. branches from Royal Bank of Scotland Group Plc for about 1.7 billion pounds ($2.6 billion).

To contact the reporters on this story: Joe Brennan in Dublin at jbrennan29@bloomberg.net