July 15, 2013
Commerzbank sells commercial real estate financing portfolio in Great Britain
- Sale of commercial real estate loans totalling EUR 5.0 bn to consortium comprising Wells Fargo and Lone Star Funds
- Transaction encompasses entire operational commercial real estate financing activities of Hypothekenbank Frankfurt in Great Britain with transfer of employees to Wells Fargo
- Low discount to book value of approximately 3.5% shows fair valuation of portfolio
- Clear improvement in risk profile with reduction of EUR 1.2 bn in volume of non-performing loans
- Reduction target for the Non Core Assets segment of EUR 93 bn until the end of 2016 attained more quickly – new reduction target lowered to significantly less than EUR 90 bn
- Transaction as a whole has no notable impact on Core Tier 1 ratio
Commerzbank today signed an agreement on the sale of its commercial real estate financing portfolio (Commercial Real Estate, CRE) in Great Britain to a consortium comprising Wells Fargo and Lone Star Funds. The transaction encompasses commercial real estate loans totalling EUR 5.0 billion including the relevant interest-rate and currency hedging derivatives, as well as the entire operational business of Hypothekenbank Frankfurt in Great Britain. This is one of the largest transactions in commercial real estate loans in Europe of the past years. The employees are being transferred in the framework of their existing employment contracts to the purchasers. It was agreed that confidentiality be maintained on further details of the contract.
Due to this transaction with complete risk transfer to the buyers, Commerzbank will attain its original reduction target of EUR 93 billion in the Non Core Assets (NCA) segment more quickly than planned. The Bank now assumes that the exposure at default (EaD, incl. non-performing loans) will be significantly less than EUR 90 billion at the end of 2016. The volume of non-performing real estate loans is decreasing by EUR 1.2 billion. Following the sale, Commerzbank internally classifies less than 12% of the EaD in the CRE sector (excl. non-performing loans) as “higher risk” (“higher risk cluster”). That compares with a share of 21% as of the end of March 2013 and even 24% as of the end of the third quarter of 2012.
The Bank expects that the overall result in 2013 will see charges of EUR 179 million as a consequence of the transaction (Q2 approximately EUR 134 million; Q3 approximately EUR 45 million). The discount on the book value of the loan portfolio of around 3.5% is low measured against similar transactions.
Due to the transaction the risk-weighted assets (RWA) are being reduced by EUR 1.5 billion. Thus the above mentioned overall charges in 2013 contrast with a positive equity capital effect totalling EUR 133 million in Q3. In total, the transaction has no notable impact on the Core Tier 1 equity level of Commerzbank.
“With this transaction, we are accepting a charge on earnings in 2013, to take out risk costs in the coming years. The positive capital effect from the RWA reduction compensates largely the charge to the equity capital ratio. This portfolio sale is attractive from a risk perspective since we transfer future risk from our UK operating platform to the buyers,” said Chief Financial Officer Stephan Engels.
Simon Steiner +49 69 136 46646
Nils Happich +49 69 136 44986
Commerzbank is a leading bank in Germany and Poland. It is also present worldwide in all markets for its customers as a partner to the business world. With the business areas Private Customers, Mittelstandsbank, Corporates & Markets and Central & Eastern Europe, it offers its private and corporate clients as well as institutional investors the banking and capital market services they need. With some 1,200 branches Commerzbank has one of the densest branch networks among German private banks. In total, Commerzbank boasts nearly 15 million private customers, as well as 1 million business and corporate clients. In 2012, it generated revenues of just under EUR 10 billion with approximately 56,000 employees on average.
This release contains forward-looking statements. Forward-looking statements are statements that are not historical facts. In this release, these statements concern the expected future business of Commerzbank, efficiency gains and expected synergies, expected growth prospects and other opportunities for an increase in value of Commerzbank as well as expected future financial results, restructuring costs and other financial developments and information. These forward-looking statements are based on the management’s current expectations, estimates and projections. They are subject to a number of assumptions and involve known and unknown risks, uncertainties and other factors that may cause actual results and developments to differ materially from any future results and developments expressed or implied by such forward-looking statements. Such factors include the conditions in the financial markets in Germany, in Poland, elsewhere in Europe and other regions from which Commerzbank derives a substantial portion of its revenues and in which Commerzbank holds a substantial portion of its assets, the development of asset prices and market volatility, potential defaults of borrowers or trading counterparties, the implementation of its strategic initiatives to improve its business model, particularly to reduce its public finance portfolio in Private Customers, the reliability of its risk management policies, procedures and methods, risks arising as a result of regulatory change and other risks. Forward-looking statements therefore speak only as of the date they are made. Commerzbank has no obligation to periodically update or release any revisions to the forward-looking statements contained in this release to reflect events or circumstances after the date of this release.