Polish banks trapped in their own monopoly
From: Polish Market
You will be forgiven for having missed the headline, but epic news was out just recently. News of herculean efforts that in ancient times would have forced the chroniclers to sit down with their pens to save the saga for the ages. In the current age, I've been handling the paeons, putting it up blow by blow on my service, capped with a recent six-part feature in April.
So here it is: The Polish chemical group Ciech signed a debt restructuring deal with its numerous creditors. After some 18 months of negotiations.
Underwhelmed? You shouldn't be.
Polish banks face huge problems when the time comes to restructure the debts of a troubled corporate client. Ciech is only the latest in a long line of tragi-comic examples. Troubles usually involve having too many banks around the table - seventeen in the case of Ciech.
Polish banks have a stranglehold monopoly on corporate finance as Poland does not yet have a corporate bond market that can attract serious financial investors. But the banks are too small to handle the financing of major firms alone. The result - any number of large-cap firms have loans at nearly every major bank in town.
To wit: the combined assets of Poland's commercial banks, now at nearly PLN 1 trillion, constitute a mere 17% of the group assets of Deutsche Bank. Poland's largest bank, the state-controlled PKO BP, has just 15% of that total. And prior to the financial crisis, more and more banks were working overtime to muscle their way in.
Tough market. Unless you were a large-cap borrower, that is. A financial director at any respected large firm could bicker down interest rates and often secure funding without even putting up fixed assets as collateral. When worse comes to worse - and it did - any number of banks find themselves negotiating debt restructuring without much collateral to back up their demands for repayment.
Find seventeen different banks around the table and you likely get seventeen different approaches to the client. Perhaps thirty-four, once you count in those foreign parents.
One bank throws the deal quickly to the collection team, a pretty "get-serious" approach. Another bank might go easy. Clients naturally begin to play one bank off another. Alternatively, one bank might have collateral and another might not, meaning one can play hard ball, the other can't. One bank might have the liquidity to rattle on with tough talks, one might be in a position of preferring fast cash. First versus last in, collateral, capital and liquidity strength and the attitude of the parent bank all shape behavior.
Why struggle in such talks for 18 months when a bankruptcy filing would do?, you might ask. Not Poland, where bankruptcy courts move slowly, are subject to numerous appeals and give creditors little sway over the actions of the receiver. The average bankruptcy runs three years and bears costs at up to 20% of the estate, the World Bank's and EBRD's 2010 report "Doing Business in Poland" states. Creditors recover an average of 30 cents on the dollar. The OECD average is a 1.7 year procedure bearing costs at 8.4% of the estate and with a recovery rate of 68.6%. Bankruptcy filings are reserved for only those cases in which a bank fears that a third party might cart away assets.
And those are just the standard barriers.
Ciech went the extra mile to make matters interesting. Ciech had taken some of the market's worst headlines in the FX options scandal that had given Poland its own form of toxic asset. Before Ciech could talk out a broader deal, the firm had to sit down with its banks to avoid a crushing margin call on FX options gone bad. Bankers started the game with a load of mistrust to the firm. When they saw that all their banker colleagues around town had sold speculative FX options to Ciech, they also lacked a lot of trust for one another.
 |
| Ciech |
So here it is: The Polish chemical group Ciech signed a debt restructuring deal with its numerous creditors. After some 18 months of negotiations.
Underwhelmed? You shouldn't be.
Polish banks face huge problems when the time comes to restructure the debts of a troubled corporate client. Ciech is only the latest in a long line of tragi-comic examples. Troubles usually involve having too many banks around the table - seventeen in the case of Ciech.
Polish banks have a stranglehold monopoly on corporate finance as Poland does not yet have a corporate bond market that can attract serious financial investors. But the banks are too small to handle the financing of major firms alone. The result - any number of large-cap firms have loans at nearly every major bank in town.
To wit: the combined assets of Poland's commercial banks, now at nearly PLN 1 trillion, constitute a mere 17% of the group assets of Deutsche Bank. Poland's largest bank, the state-controlled PKO BP, has just 15% of that total. And prior to the financial crisis, more and more banks were working overtime to muscle their way in.
Tough market. Unless you were a large-cap borrower, that is. A financial director at any respected large firm could bicker down interest rates and often secure funding without even putting up fixed assets as collateral. When worse comes to worse - and it did - any number of banks find themselves negotiating debt restructuring without much collateral to back up their demands for repayment.
Find seventeen different banks around the table and you likely get seventeen different approaches to the client. Perhaps thirty-four, once you count in those foreign parents.
One bank throws the deal quickly to the collection team, a pretty "get-serious" approach. Another bank might go easy. Clients naturally begin to play one bank off another. Alternatively, one bank might have collateral and another might not, meaning one can play hard ball, the other can't. One bank might have the liquidity to rattle on with tough talks, one might be in a position of preferring fast cash. First versus last in, collateral, capital and liquidity strength and the attitude of the parent bank all shape behavior.
Why struggle in such talks for 18 months when a bankruptcy filing would do?, you might ask. Not Poland, where bankruptcy courts move slowly, are subject to numerous appeals and give creditors little sway over the actions of the receiver. The average bankruptcy runs three years and bears costs at up to 20% of the estate, the World Bank's and EBRD's 2010 report "Doing Business in Poland" states. Creditors recover an average of 30 cents on the dollar. The OECD average is a 1.7 year procedure bearing costs at 8.4% of the estate and with a recovery rate of 68.6%. Bankruptcy filings are reserved for only those cases in which a bank fears that a third party might cart away assets.
And those are just the standard barriers.
Ciech went the extra mile to make matters interesting. Ciech had taken some of the market's worst headlines in the FX options scandal that had given Poland its own form of toxic asset. Before Ciech could talk out a broader deal, the firm had to sit down with its banks to avoid a crushing margin call on FX options gone bad. Bankers started the game with a load of mistrust to the firm. When they saw that all their banker colleagues around town had sold speculative FX options to Ciech, they also lacked a lot of trust for one another.
posted by BEING HAD at 4:39 PM
<< Home