PZAKY Powszechny Zaklad Ubezpieczen SA (PK)

By Giovanni Legorano in Milan and Martin Sobczyk in Warsaw 

UniCredit SpA is in talks with Polish insurer PZU SA over a possible sale of the Italian lender's stake in Bank Pekao SA, people familiar with the matter said Tuesday, in a transaction that would boost UniCredit's capital position.

PZU Chief Executive Michal Krupinski is set to travel this week to Milan, where UniCredit is based, to discuss the sale, one of the people said.

The Italian bank has been struggling to shore up its capital base in recent years, as slow economic growth, large amounts of bad loans and high costs have been a major drag on its profitability and capital.

Its newly appointed chief executive, Jean-Pierre Mustier, has launched a strategic review at the bank with a specific focus on increasing capital, whose results will be unveiled by year-end. He recently said the review would involve all assets of the bank, but didn't list Poland as one of UniCredit's core businesses.

Indeed, as soon as he was appointed he sold a 10% stake in Pekao, raking in EUR749 million and improving its capital base by 12 basis points. Still, analysts consider the bank's capital buffer, a common equity Tier 1 ratio of 10.33% at the end of the second quarter, as too low.

The bank's plan may include any of the following: asset shedding, a sale of new shares, cost cuts and a reduction of the bank's risky assets, according to analysts.

Meanwhile, the Polish government has signaled it wants the country to be more in control of its banking system, where about 60% of assets are in the hands of foreign owners, mostly from the eurozone.

Poland's Treasury minister said in June the government was looking at two banks that may be available for sale in the country and might encourage financial companies it controls to buy them.

The transactions would take the form of takeovers by PZU, Central Europe's largest insurer, or PKO Bank Polski SA, Poland's largest bank by assets, Minister Dawid Jackiewicz said at the time. The Polish government holds 34.19% in PZU and 29.43% in PKO, being the largest and controlling shareholder in each.

More than two decades of growth in Poland has prompted officials across the political spectrum to consider regaining more control over banks, as well as some other industries, that were privatized after 1989.

But Polish attempts to get a bigger share in the banking sector have thus far been largely fruitless.

Write to Giovanni Legorano at giovanni.legorano@wsj.com

(END) Dow Jones Newswires

August 23, 2016 13:48 ET (17:48 GMT)

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