Santander, KBC to Merge Polish Units

Banco Santander SA (ADR: STD) of Spain, the euro zone's biggest lender by market capitalization, said Tuesday that it will take over Poland's Kredyt Bank SA from KBC Group NV of Belgium, widening its reach in one of Europe's fastest-growing economies.

Santander's Bank Zachodni WBK will merge with Kredyt Bank in an all-share deal that values the combined entity at 20.8 billion zlotys ($6.69 billion).

Santander Chairman Emilio Botin said the transaction will increase the Spanish bank's presence in Poland, which he called "one of the most dynamic economies in Europe." The Polish economy expanded 4.3 percent in 2011, much faster than Santander's Spanish home market, where gross domestic product grew by only 0.7 percent.

With more than 3.5 million retail customers, the merged bank will also be Poland's third-biggest based on revenue and profit, significantly closing the gap to the leaders.

Including the Santander Consumer finance business, the merged entity's total market share in business volumes will amount to around 10 percent in Poland.

Following the merger, Santander will control 76.5 percent of the enlarged bank, while KBC will hold 16.4 percent with an intention to fully exit the joint bank once the transaction has closed.

KBC was hit hard by the 2008 financial crisis, and the sale of Kredyt is part of KBC's strategy to repay the €7 billion of rescue funds the company received from the Belgian government. It is required by the European Union to restructure and sell non-core assets.

"Taking the decision to divest Kredyt Bank and to leave the Polish banking market was a very difficult one but difficult times have forced us to make difficult choices," KBC CEO Jan Vanhevel said in a statement.

KBC estimates its Tier 1 capital will increase by € 700 million, or 0.8 percent, after it reduces its stake in Kredyt to below 10 percent.

KBC and Kredyt Bank shares jumped on the merger announcement, while Santander shares rose and Bank Zachodni fell.