German state reduces PBB holding, RAG Foundation invests

Germany has sold most of its remaining stake in pbb Deutsche Pfandbriefbank, 10 years after bailing out the property lender’s former parent Hypo Real Estate (HRE). Among those taking up part of the placement of the state's stake in the lender is German public sector trust the RAG Foundation, which bought a 4.5% stake.

State-owned HRE placed around 22 million shares in pbb Deutsche Pfandbriefbank (PBB) with institutional investors, raising around €287 million and cutting its stake in PBB to 3.5% from 20%.

Germany bailed out HRE in 2008 and nationalised it in 2009 after the bank was forced to make massive writedowns on its holdings of mortgage-backed securities, which slumped in value after the failure of U.S. investment bank Lehman Brothers.

As part of the European Commission's diktat relating to bank bailouts and temporary nationalisations, HRE was required to sell PBB. This led to PBB being floated on the stock exchange in 2015, but with HRE retaining a 20%. stake.

Bookrunners on the placement said that 22 million PBB shares were placed at €12.95 apiece in the accelerated bookbuilding, a 4% discount to the previous Tuesday’s closing price of €13.50.

According to Jutta Doenges, managing director of Germany’s Finance Agency, in a statement, “The proceeds of the stock market flotation and this share placement total around €2.5 billion, exceeding the €2.3 billion euros granted to PBB by the FMS (financial market stability fund), making this a considerable success in the re-privatisation of PBB.” She said the government would retain HRE's remaining 3.5% stake in PBB for the medium to long term.

The Essen-based RAG Foundation, which took a 4.5% stake in PBB following the placement, has its roots in German hard-coal mining company Ruhrkohle AG, and was established to finance the transition away from German coal mining to alternative forms of cleaner energy. The investment will help RAG Foundation become less dependent on the chemicals sector, where its biggest holding is a roughly two-thirds stake in German chemicals maker Evonik.

RAG Foundation's CFO Helmut Linssen told Reuters news agency, “The bank is strategically well positioned, and its low-risk business model and good dividend yield offer an attractive risk-return profile.” He did not rule out further investments in the financial sector if opportunities arose, but declined to say whether RAG might increase its stake in PBB over time.

In figures just released, pbb Deutsche Pfandbriefbank says it is remaining very conservative on risk, providing €1.7bn in new commercial real estate financing in the 1st quarter. In the quarter, down from €2.0bn in Q1 last year. Nearly half of new business came from Germany and 15% from the USA, which profited from the bank's lowering of its exposure to the UK, at 8% of new business against a share of 16% of the total bank loan book.

The average gross margin was 170 basis points, slightly higher than in the past financial year (155 bp). The interest result saw a significant increase from €97m to €107m, earnings before taxes rose only slightly from €47m to €48m.