Aareal Bank benefits from demise of competitors to target fresh lending

The Wiesbaden-based Aareal Bank saw its profit in the second quarter climbing by 12% as the bank said it benefited by picking up clients from previous lenders Eurohypo and Westimmo, both of whom are now being wound down by their respective owners.

Aareal saw its net income rise in the quarter to €29m from last year’s corresponding €26m, while operating profit remained almost unchanged at €45m. For the full year, Aareal is sticking with its forecast of a consolidated operating profit ‘only slightly below’ last year’s figure of €185m, itself up 38% on 2010’s figures.

“As economic risks have increased, we stick to our conservative business policy: first funding and second new business”, the bank said in a statement.  In refinancing, Aareal raised €3.3bn in long-term funds in the first half, consisting of €1.8bn in mortgage Pfandbriefe, €1.4bn in unsecured funding and €100m in subordinated bonds. Deposits from the institutional housing industry - forming an additional source of funding for the bank - rose to €5.5bn from €5bn in last year’s first quarter.

The bank said that after a slow start to the year (new lending in Q1 was a mere €500m), it aims to aggressively expand new lending in the second half, after booking €1.7bn in new lending in last year’s second half.  This year, according to bank chairman Wolf Schumacher, the bank is aiming to commit to €4.5bn - €5.5bn in new business for the full year.

Given its 11.7% core Tier 1 ratio, Aareal Bank is already largely in compliance with the new more restrictive capital requirements demanded by Basel III, and can therefore look to soak up some of the new business vacated by competitors.  “Even though the situation on global financial markets remains tense, thanks to our decidedly robust capital base and refinancing situation, we are in an excellent position to be successful in this challenging environment,” said Schumacher.

“Former clients of Eurohypo and other failed real estate lenders are seeking a safe haven and coming to us,” Schumacher later said on a conference call with media earlier this month. “We are benefiting from the situation as we can reach higher margins.” Last year’s IRR before tax was a weakish 8.3%, albeit up on 2010’s figure of 6.1%.  Schumacher indicated that the bank wanted to raise this to about 13% in the near future.

The bank plans to concentrate its new business lending on Germany, strong European cities such as Paris and London, and the USA.  Trouble spots like Italy and Spain are off the menu for now, said the bank.