Warsaw makes bid to become Central Europe’s financial hub

As the only country in the EU to escape the ravages of recession during the recent financial crisis, Poland is becoming a magnet for foreign investment

By Jack Ewing  /  NY Times News Service, WARSAW

Mon, Dec 13, 2010 - Page 9

It may come as a surprise to some people that the upstart Warsaw Stock Exchange has surpassed the venerable Vienna exchange in trading volume, but to Ludwik Sobolewski, president of the Polish bourse, this is old news indeed.

“The time has passed when we defined our position versus Vienna,” Sobolewski said in an interview in his sleek office inside the exchange building in downtown Warsaw, where visitors wait to see him in a room decorated with a large tank of piranhas.

Instead, Sobolewski, a 45-year-old lawyer, is already measuring his institution against European giants like the London Stock Exchange and the Deutsche Boerse in Frankfurt. With 32 initial public offerings in the third quarter of this year, he can already claim to have surpassed them in the number, if not the market value, of new listings.

In July, Warsaw signed a contract to use the NYSE Euronext trading platform, making it easier for US investors to trade shares from Poland and other countries in the region that are listed on the exchange. The agreement is part of Sobolewski’s plan to make Warsaw the dominant exchange for Central Europe, with listings from countries like Romania and Ukraine and others as far south as the Balkans.

Sobolewski’s ambitions reflect a shift in the economic center of gravity in Europe. As the only country in the EU to escape recession during the financial crisis, Poland has become a magnet for foreign investment. While much of Europe is still climbing out of recession, Poland is expected to grow more than 4 percent next year, after 3.6 percent this year.

Stephen Schwarzman, the chief executive and a cofounder of the Blackstone Group, has his eyes on the region. He told an audience in New York on Tuesday that an acquisition in Central Europe would be “really neat” if regional economies held up.

A government privatization wave has drawn investment banks like Goldman Sachs, Citigroup and Morgan Stanley, which have opened offices in Warsaw in the last year. One of the biggest privatizations was the Warsaw Stock Exchange itself, whose shares soared 18 percent promptly after an initial public offering on Nov. 9.

“Everyone wants to have a piece of Polish action,” Artur Tomala, head of Goldman Sachs Poland, said at a recent conference sponsored in part by the International Herald Tribune.

Warsaw may be one of the few places left in Europe where investment banks are still welcomed warmly.

“I can’t imagine having such a broad privatization program without cooperating with investment banks,” Polish Treasury Minister Aleksander Grad said in an interview.

Vienna, as the former capital of the Hapsburg dynasty, has a historical claim to be Central Europe’s financial center. Austrian institutions like Erste Bank are deeply embedded in the region.

However, the Austrian banks emerged bruised from the financial crisis, while Polish institutions escaped relatively unscathed because of their low exposure to troubled foreign assets.

Now, Warsaw is trying to sell itself as a capital that offers growth, without the overexuberance that ended in tears so many other places.

“For an effective financial center what we need above all is a stability culture,” Polish Finance Minister Jacek Rostowski said at the conference.

“We have not had the kind of excessively rapid growth that other countries have seen,” Rostowski said, who promised Poland would exercise tight supervision over its financial sector.

To be sure, the CEE Stock Exchange Group, an alliance of the exchanges in Vienna, Budapest, Prague and Ljuljana, still has more trading volume collectively than Warsaw.

Beatrix Exinger, a spokeswoman for the Vienna exchange, concedes Warsaw has more initial public offerings but she argues that the Vienna exchange, founded in 1771, is home to more blue-chip companies.

“We have less quantity but more quality,” Exinger said.

While the Warsaw Stock Exchange had more new listings than any other European exchange from July through September, they were mostly small companies listed on the so-called NewConnect platform. The total value of the Warsaw IPOs was 60 million euros (US$79.4 million), according to PricewaterhouseCoopers, compared with a total of 1.7 billion euros for the 20 new listings on the London Stock Exchange.

The European Bank for Reconstruction and Development, which promotes development in the former Soviet bloc countries, has expressed concern about the low level of liquidity in the Polish exchange, meaning that it can be difficult to find buyers or sellers for some shares.

Sobolewski agreed that “liquidity is king,” and outlined plans to attract listings from as far south as Bulgaria and Serbia. The exchange can already boast companies like Kernel Holdings, a maker of sunflower oil that is Ukraine’s largest agricultural company. As Sobolewski pointed out, Warsaw still needs more of the professionals that are essential to a vibrant financial center, like auditors, lawyers, bank analysts and financial media.

“It is not ended, by far but the situation is better than a few years ago,” he said.

There is also a risk that the Polish market, as one of the few growth stories in Europe, could become overheated from too much foreign investment. But no one in Warsaw seems to be worried about bubbles.

“It would be desirable to have more companies invested in Poland,” Sobolewski said. “We are still far from the point where it might be dangerous.”