Aareal Bank boosts new business, considers DüssHyp takeover

The Wiesbaden-based property financier Aareal Bank boosted its new property lending in the first half of the year to €4.2bn, up from last year’s corresponding figure of €3.8bn. Earnings however were 28% lower at €129m, after a number of one-off effects amounting to €50m last year, although the bank said projected full-year profit figures were still on target, of between €260m and €300m. – down from the €328m achieved in 2017.

The bank has been consolidating much of its loan book in the wake of its takeover of the two specialist lending banks Corealcredit in 2014 and Westimmo in 2015. Gross margins in the second quarter declined further from 220 bps to 171 bps, largely due to a lowering of its share of North American business.

CEO Hermann Merkens commented, “Our operating performance continues to be robust, and we are making good progress with the transformation we have initiated with 'Aareal 2020'. At the mid-year point, we therefore remain on track not only to meet our earnings target for the current year, but also our medium- to long-term strategic goals."

Aareal 2020 is Merkens’s personal strategy to radically shake up the conservative bank by streamlining and digitizing many of the bank’s internal processes and opening up new sources of revenue. Many of the measures have not met with universal approval by staff at the bank, insiders have suggested. Merkens, who rose to the top job from the CFO position, had been handling the CFO responsibilities as well, but the bank has just appointed a new CFO - Marc Oliver Hess, most recently CFO of Deutsche Postbank - to handle the position full-time, including taking charge of the Treasury department, responsible for the bank’s relationships with foreign capital investors.

The bank has so far not commented on rumours that it is in discussion to buy the small Düsseldorfer Hypothekenbank, a commercial property lender which got into difficulties a few years ago with its exposure to worthless bonds from the scandal-ridden Austrian bank Hypo Alpe Adria. DüssHyp has 60 employees and a balance sheet of about €4bn. It was sold by US private equity investor Lone Star Group to the German bank guarantee association BdB Bundesverband deutscher Banken.

Should Aareal buy DüssHyp it could book a one-time credit if it were able to buy the bank at below its Net Asset Value. In a similar manner to its acquisitions of Corealcredit and Westimmo, the so-called “negative goodwill” would allow Aareal to book a profit of about €150m on the deal, possibly the only attractive aspect of the potential acquisition. DüssHyp’s balance sheet contains about €600m of commercial property loans on German assets, about half its total lending, whereas Aareal has a decided preference for lending on overseas assets.

Aareal recently agreed an €800m debt facility with funds affiliated to US investor Apollo Global Management to finance a pan-European portfolio of logistics properties. The loan is for five years, and the deal was concluded in less than three months.