February 4, 2020 / 3:04 PM / 14 days ago

UPDATE 1-Pekao seen as main contender for Commerzbank's Polish bank - sources

(Adds more information and quotes)

By Anna Koper and Arno Schuetze

WARSAW/FRANKFURT, Feb 4 (Reuters) - Poland’s second-largest lender Pekao is currently the main contender to buy Commerzbank’s Polish arm mBank, as some prospective bidders shy away out of fear of political interference, people close to the matter said.

Buyout fund Apollo submitted a first-round bid, but is viewed as having little chance against any bid from a Polish bank, the sources said.

Poland’s biggest bank, PKO BP, has so far not made an offer for mBank, Poland’s fourth-largest lender by assets, in which Commerzbank owns a 69.3% stake, the sources said, adding it may still do so at a later stage.

France’s Credit Agricole, previously seen as a potential strong contender, has also not submitted a bid, they added.

“Pekao has submitted a bid. PKO BP is not bidding because it would not make any sense for state banks to compete in the process,” one source said.

Both Pekao and PKO BP are state controlled.

The scarcity of bids raises questions about the price Commerzbank will be able to fetch, the sources said.

Commerzbank confirmed a sales process for mBank had started, adding it would only sell for the right price. Pekao and its main shareholder PZU as well as PKO declined to comment, while Credit Agricole was not immediately available for comment.

The sale of mBank is a key part of Commerzbank’s turnaround strategy, but Western banks are wary of the reaction of Poland’s nationalist government if they were to prevent mBank from landing in Polish hands, the sources said.

Last year, Prime Minister Mateusz Morawiecki said he was in favour of increasing Polish ownership in reference to the mBank sale.

MBank has a market value of 15.75 billion Polish zlotys ($4.07 billion), which makes Commerzbank’s 69.3% stake worth well over 2 billion euros. But the sale price may differ, as Poland’s financial regulator will require Commerzbank to retain a portfolio of toxic foreign currency denominated mortgages.

ING’s Polish unit, Santander Bank Polska and the local arm of BNP Paribas are at this stage watching the auction from the sidelines. The chances of one or more of them bidding are extremely low, the sources said.

Austria’s Erste has said it will not participate in the auction.

Commerzbank, part owned by the German government after a bailout, has been struggling for years with a legacy of bad debts, high costs and fines, and tough trading conditions have hampered its recovery efforts.

Other parts of its turnaround plan include cutting staff, absorbing its Comdirect online brokerage unit and closing some branches. The bank has hoped the mBank sale would help it pay for shedding staff and investing in technology. (Reporting by Arno Schuetze, Anna Koper, Agnieszka Barteczko, Marcin Goclowski, Maya Nikolaeva, and Tom Sims; Editing by Alan Charlish and Mark Potter)

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