Poland's Pekao, PZU sign memorandum for potential merger

June 2 (Reuters) - Polish bank Pekao PEO.WA has signed a memorandum with insurer PZU PZU.WA to prepare a potential merger deal to create one of the biggest financial institutions in Europe.

Ahead of the potential deal, PZU would be split into a holding company and a wholly-owned unit running its operational insurance activity, Pekao said on Monday.

Thereafter, the holding company would be merged with Pekao, the lender added.

Currently, PZU holds a 20% stake in Pekao, Poland's second biggest lender.

The news comes amid expectations of consolidation in the Polish banking sector. In recent moves, Austria's Erste Group Bank ERST.VI bought the Polish arm of Spain's Santander for 6.8 billion euros ($7.8 billion), while Citigroup's C.N Polish unit agreed to sell its consumer banking business in the country to Velobank.

The announcement also came after nationalist opposition candidate Karol Nawrocki narrowly won Poland's presidential election on Sunday, a major blow to the centrist government's efforts to cement Warsaw's pro-European orientation.

Pekao and PZU aim to complete the possible deal by the end of June 2026, which they said could free up about 15 billion to 20 billion zlotys ($4 billion to $5.3 billion) of the group's capital surpluses.

The surplus would increase dividend potential of the combined companies, Pekao added.

The potential deal depends on a number of factors, including the entry into force of relevant legislative changes, as well as regulatory and shareholder approvals.

Both brands will maintain their "identity, distinctiveness and autonomy of activity" in their respective business areas, Pekao said, but added the group would be led by a bank, not an insurer.

The companies also plan to develop an optimal strategy for Alior Bank ALRR.WA, in which PZU group has a 32% stake, they added.

($1 = 3.7460 zlotys)

($1 = 0.8751 euros)