Banco Santander's Management Discusses Merger Of BZ WBK And Kredyt Bank Conference (Transcript)

Banco Santander S.A. (STD)

Merger of BZ WBK and Kredyt Bank Conference Call

February 28, 2012 3:30 am ET


José Antonio Álvarez – Chief Financial Officer


David Vaamonde – Fidentiis Equities

Marta Sanchez Romero – Keefe, Bruyette & Woods, Inc.

Carlos Berastain – Deutsche Bank Research

Daragh Quinn – Nomura

Britta Schmidt – Autonomous Research

Juan Pablo Lopez – Espirito Santo Investment Bank

George Karamanos – Redburn Partners


José Antonio Álvarez

Hi, good morning to everyone. This is José Antonio Álvarez, Santander CFO speaking. The reason of this conference call as follow do now is to explain the merger agreement that we’ve reached with Kredyt Bank in relation with the subsidiaries of the two Banks, Santander subsidiary in Poland BZ WBK and Kredyt Bank, the subsidiary of the KBC in Poland.

I think all do got the presentation, so I’m going to run through the presentation. The presentation has five different parts, the first one is about the transaction [result], the description of the transaction; the second one is the strategic rationale as we see in the transaction; the third one is the financial impact in our numbers, in our accounts; and finally the New BZ equity strategy going forward, and finally a brief summary of all the presentation.

I’m going to go through different page, page 4, you have there the description of the transaction, basically transaction is about combining BZ WBK and Kredyt Bank in Poland for a total combined value of slightly above PLN 20 billion, roughly speaking €5 billion. The exchange ratio is going to 6.96 BZ WBK shares with the assigned value of PLN 226.4 per share for each 100 shares of Kredyt Bank. As a result of this transaction, the shareholding structure will be – Santander will have 76.5%; KBC, 16.4%; and 7.1% the minority investors.

While Santander has committed to help to lower KBC’s stake from 16.4% to below 10%, the combined entity after the merger, while we are looking to incorporate new investors that some of them are really showing there is enough potential placing. Santander will acquire up to a maximum of 5% of the combined entity at the price of PLN 226.4 per share. KBC’s stake will be below 10%.

So finally, as a result of the transaction Santander will hold 76.5%, its minimum shareholder up to 81.5% if we acquire the 5%, we will then allocate this 5% to the market. The remaining share to – KBC reach – has a shareholding below 10% will be placed in the market with investors.

Other agreements, other considerations in relation with the transaction is, KBC will provide Swiss franc funding for three years maintaining the current terms and conditions, that means basically the funding is provide – half of the funding is provide in form of a loan in Swiss franc, the other half is a basic swap between the Swiss franc and the Polish zloty roughly speaking because it’s around 70 basis points, the basic swap.

Well, Kredyt Bank will continue to distribute KBC TFI Funds on a non-exclusive basis. In the context of this agreement, Santander has also agreed to acquire the channel Zagiel, the channel of consumer finance distribution. The book value of this channel is PLN 25 million.

Santander Shareholders’ agreement includes our governance rights, I would say they’re in [our] governance rights, including having one representative in the Supervisory board.

In Page 6, you have an overview with the numbers of the combined entity. Basically, we are creating an entity with €25 billion balance sheet, with a net income, pro forma net income of €375 in 2011, roughly speaking 900 branches, 3.5 million customers. Those are the main figures. This figures we’ll see later on represent close to 10% market share in the Polish market, in the different items.

Despite the timetable, since these agreement, well there is a preparation of the merger together the management boards of both BZ WBK and Kredyt Bank need to agree in the change ratio proposed, and afterwards there is going to be AGMs in the second quarter.

So we expect to do filing with KNF, Polish regulator at the end of the second quarter. While afterwards the approval process will start and we expect to close or we will be ready to close before the year end, but while this is something that we look through the process when it’s going to finish. And there is some regulatory filing, anti-trust filings with European Union that we do not expect any problem in the particular half.

So having the transaction described, I’m going to elaborate a little bit on the strategic rationale, the rationale we see for this transaction. In Page 9, so we have the three main relations why we think this transaction is compelled for us. Well, the first is the Polish market itself, is an attractive market that has significant potential to grow, which is stable, still plenty of room to grow in the market – market that we already we’ve been there since 2002, 2003 with our consumer finance; and we bought BZ one year and a half ago. So it’s a market that we know well.

Second one is being consistent with our, what we so call vertical strategy, that means that we always target to have kind of market share close to 10% market share, that is a rule of thumb that we use as a target to be a core market for us. On top of that, the market share, the balance sheet is strong of the combined entity, while the funding profile, loan to deposits is below 100%.The capitalization pro forma is going to be 12.2% core capital.

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