November 17, 2017 / 1:06 PM / a month ago

Santander in exclusive talks to buy Deutsche's Polish assets: sources

WARSAW/FRANKFURT (Reuters) - Spanish bank Santander (SAN.MC) has entered exclusive talks to buy the bulk of Deutsche Bank’s (DBKGn.DE) business in Poland in a bid to strengthen its position in the highly competitive market, two sources familiar with the matter said.

The two banks are planning to sign a deal before the end of the year, ideally before Christmas, the sources said.

Deutsche Bank and Santander declined to comment.

The move follows a string of bank merger and acquisition deals in Poland driven by tough competition, low interest rates and efforts by the country’s eurosceptic Law and Justice (PiS) party to curb what it sees as excessive foreign ownership.

In June, Polish state-controlled insurer PZU PZU.WA and investment fund PFR bought a 33 percent stake in UniCredit’s Pekao PEO.WA, Poland’s second-biggest bank.

That transaction left Santander’s BZ WBK, the country’s third-biggest bank, as the largest Polish lender not controlled by the state. Poland accounted for 3 percent of Santander’s underlying third-quarter profit.

“BZ WBK has exclusivity (in talks with Deutsche Bank),” one source said, adding that final discussions between Santander and its adviser JP Morgan with Deutsche Bank were now focused mainly on the price.

A source close to the Polish financial sector regulator KNF said the country would readily accept Western investors but would shun buyers from regions such as Russia, the Middle East or private equity buyers.

    He said Chinese firms were generally welcome to operate in Poland with their own banking licenses but were seen as less suitable buyers for its banks.

    Deutsche is selling parts of its Polish operations to free up capital as part of a deep overhaul of its operations, which has seen it close or sell business in many parts of the world as it seeks to focus on its core investment and retail banking as well as asset management activities.

    The activities it is divesting comprise private banking activities, operations catering to small and medium-sized enterprises, and a local currency credit portfolio. The bank’s corporate business and foreign currency loan portfolio are not up for sale.

    Earlier this year, people close to the matter said that Deutsche Bank Polska, Poland’s 12th-biggest lender by balance sheet, could be valued at about $450 million in a potential deal. In the auction for Deutsche Bank’s Polish assets, Santander beat Commerzbank’s Polish mBank MBK.WA and Millennium bcp’s Bank Millennium MILP.WA.

    Additional reporting by Paul Day, Jesus Aguado Gonzalez and Angus Berwick in Madrid; Editing by Christoph Steitz and Hugh Lawson

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