UPDATE 1-Major Pekao shareholder sees benefits in potential mBank deal

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WARSAW, Dec 4 (Reuters) - A major shareholder in state-run bank Pekao SA is supportive of a potential merger with smaller rival mBank saying such a deal could bring significant benefits including in technology.

Pawel Borys, CEO at the PFR fund, which has a 12.8% stake in Pekao, said: “It would bring potential operational synergies, especially in the technology sphere,” adding that it was up to Pekao and its biggest shareholder PZU whether to pursue a deal.

Analysts have said that Pekao lags behind many of its rivals in terms of technology, while mBank is well known for its digital banking.

Pekao, Poland’s second largest bank by assets, has said it is interested in mBank, which has been put up for sale by its German owner Commerzbank.

“I think that from the Pekao shareholders perspective the potential merger between Pekao and mBank could bring bigger benefits than the previously analysed transaction with Alior Bank, where we were sceptical,” Borys told Reuters.

Pekao and Alior Bank ended talks on a merger in August 2018 after they failed to agree terms.

The Polish government bought control of Pekao from UniCredit in 2017 and has said it would be interested in buying more banks from foreign investors.

But analysts said big European banks, such as Santander , BNP Paribas, Erste, and ING might be also interested in taking over mBank, as it has a strong position in Poland’s domestic market.

Borys, who’s fund paid 123 zloty per share for Pekao stock two years ago, also said that he was worried by recent falls in Pekao’s share price and that the bank is undervalued at the current level of 96.8 zloty per share.

“In my opinion Pekao is strongly undervalued - it has PE (price/earnings ratio) of 11.5 with good growth dynamics and a high dividend ratio of 6.8%... I assume that this volatility is short-lived.”

Borys, who’s fund is also in charge of implementing a nation-wide pension savings plan called PPK also said he hoped the participation rate would exceed 50% in the coming years from the estimated around 40% now. (Reporting by Marcin Goclowski. Editing by Jane Merriman)