Aareal Bank triples profit, clinches deal for WestImmo
The Wiesbaden-based Aareal Bank’s press conferences are always well-managed; they have the added advantage that veteran CEO Dr. Wolf Schumacher invariably recaps the more extended analysis of the minutiae of the company’s annual performance and boils the enormous amount of data into a handful of key take-home messages, representing his view of the most salient achievements.
This year was no exception. Those key points at the annual event held in Frankfurt last week were; a) the bank had its best ever year, with a tripling of its consolidated net profit;b) the full-year dividend is being raised to €1.20; c) the bank comfortably passed the recent ECB stress tests with flying colours and repaid the residual amount of the SoFFin silent participation granted during the financial crisis, while placing additional Tier 1 capital and integrating last year’s acquisition of Corealcredit from LoneStar, and d) concluded the acquisition of Mainz-based Westdeutsche Immobilien Bank (WestImmo) from WestLB’s ‘bad bank’ Erste Abwicklungsanstalt (EAA) after a long drawn-out sales process.
The deal to buy WestImmo was only announced the week before the presentation of the full-year figures. Aareal is paying €350m in cash for commercial property lender WestImmo, its neighbour down the road in Mainz. This is about €100m less than WestImmo’s equity capital of €452m, allowing Aareal to book a one-off profit of €150m for “negative goodwill” in its 2015 accounts.
Aareal had previously withdrawn from active bidding earlier in the lengthy sales process as EAA pursued efforts to wind down assets of the now-defunct landesbank WestLB. Now, as the successful suitor, Aareal says it expects to complete the deal, which is subject to regulatory approval, in the next four months, and to “integrate WestImmo into the group as swiftly as possible”. Aareal said the integration “will provide a positive contribution to Aareal’s consolidated operating profit, and is expected to generate a cumulative contribution to earnings per share (EPS) of more than € 3.00 over the next three years.
The acquisition, coming on top of last year’s absorption of Corealcredit from turnaround specialist LoneStar, boosts Aareal’s commercial property lending book by €4.3bn. Like Aareal, WestImmo has a diversified international portfolio, with only about a third of its book secured on property in Germany. The deal also includes private mortgage lending of €1.6bn along with public financing loans valued at €800m, which Aareal – as a pure commercial lender - is expected to dispose of.
The sale of WestImmo, which we have reported on exhaustively in these pages, came after a sales process lasting nearly five years and several false starts, from which it was subsequently withdrawn. The bank remained active, and profitable, although it was prevented from writing any new business, and as a consequence gradually reduced its balance sheet to its current €8.1bn. It still remains well-capitalised and refinanced as a Pfandbrief-issuer, with an experienced staff of 280 with broad international expertise.
Posting its ‘best ever’ full-year results following a bumper last quarter, Aareal is raising its dividend from €0.75 to €1.20 for the year after seeing its consolidated operating profit jump to €282m, a reise of 40% on 2013. Consolidated net income more than tripled to €294m for the year as a whole (2013: €93m), of which €35m was generated in the fourth quarter (Q4 2013: €27m).