Austria's Erste Group strikes deal with Santander to expand in Poland

By Jesús Aguado and Alexandra Schwarz-Goerlich

MADRID/VIENNA (Reuters) -Erste Group Bank has bought a 49% stake in Santander's Polish bank for around 6.8 billion euros ($7.7 billion), turning Austria's largest lender into one of the most important banks in Poland and freeing up billions for Santander.

Santander, the euro zone's biggest lender, and Erste also clinched a deal to give the Austrian bank 50% of the Spanish lender's Polish asset management business for 200 million euros.

Both sales give Santander money to spend expanding in the Americas and help the Austrian group fill a gap in its presence across Europe. Erste already operates in seven countries across central and eastern Europe, from Hungary to Romania.

The deal is one of the biggest cross-border deals in Europe in recent years and underscores the appeal of Poland, one of Europe's biggest countries and also among the region's fastest growing economies.

Poland has thrived on the back of homegrown consumption, fuelled by double-digit wage growth. For banks, it is a profitable but increasingly competitive market.

The country's banking sector's net profit increased by more than 50% last year to top 42 billion zlotys ($11.1 billion), according to its regulator.

Santander's Polish unit is the country's third largest bank by assets and also one of the most profitable in the country, where interest rates have been higher than in the euro zone.

Peter Bosek, Erste's chief executive, said the deal would allow the group to build up its presence in the region, meeting a long-held strategic goal.

Erste avoided taking a larger stake to sidestep a mandatory takeover offer for the remaining shares. Shares in Erste jumped 7.3%, while those in Santander were flat.

"It's hard to call the purchase of Santander a bargain, but that doesn't mean they are overpaying," said Millennium Bank analyst Marcin Materna.

The cash deal valued Santander Bank Polska at 2.2 times first-quarter 2025 tangible book value per share - putting an overall price tag on the bank of roughly 13.9 billion euros.

It represented a premium of 7.5% to Santander Bank Polska's closing price on May 2, excluding the dividend, Santander said.

Erste said it would fund the deal from its own resources, supported by the cancellation of a 700-million-euro share buyback programme and temporarily reduced dividend.

The transaction was expected to increase Erste Group's earnings per share by over 20%, Erste said.

Santander is expected to book a net capital gain of around 2 billion euros by the end of 2025.

Both banks also announced a strategic cooperation in corporate and investment banking, and to allow Erste to gain access to Santander's global payments platforms.

Santander said it would use part of the proceeds to expand organically in Europe and the Americas, at a time when it is also reviewing its British presence as part of a regular assessment of its major markets, a person familiar with the matter told Reuters in January.

The Spanish lender said it intended to distribute 50% of the capital released from the sale to shareholders, equivalent to a share buyback of around 3.2 billion euros. This payout would accelerate the delivery of its target to buy back up to 10 billion euros of shares in 2025 and 2026.

($1 = 0.8835 euros)

(Reporting by Jesús Aguado and Alexandra Schwarz-Goerlich. Anna Koper, Tristan Veyet and Mateusz Rabiega. Editing by Emelia Sithole-Matarise, John O'Donnell and Mark Potter)