Latest CRE disposals sees Commerzbank ahead of sales schedule
Germany’s second-largest lender Commerzbank has clearly resolved to let nothing stand in the way of further sales of its performing and non-performing commercial property loan portfolios, in advance of the looming stress tests coming up for the eurozone’s largest banks in the autumn.
The Frankfurt-headquartered Commerzbank’s ‘bad bank’ has just shed a further €5bn in property loans in Spain, Portugal and Japan in two large transactions, which it said would further reduce its total non-performing loans by nearly a third, and its overall commercial property lending portfolio by 16%.
The “Project Octopus” sale included Commerzbank’s total commercial property lending book in Spain with a nominal value of €4.1bn, including non-performing loans of €1.1bn, along with the non-performing loan book in Portugal with a nominal value of €300m. The package, with a nominal value of €4.4bn, was sold to JP Morgan and Lone Star, for a price variably estimated at between €3.5bn (Spanish newspaper Expansion) and up to €3.9bn (Reuters). The Portuguese performing loans are not included in the sale.
According to Sascha Klaus, Commerzbank’s board member for non-core assets, “In Spain we were able to take full advantage of the excellent market opportunity, thereby reducing significantly the earnings impact through an auction process.” The Spanish, Portuguese and Japanese transactions would cut the bank’s risk-weighted assets by €3.2bn and improve its core capital. Nearly all the portfolio loans the bank had classified as “high risk cluster” had now been sold off, he added.
In the second transaction, the bank sold its subsidiary Commerz Japan Real Estate Finance Corporation including all its Japanese loans valued at €700m to Asia-focused PAG Funds’ Secured Capital REP V fund and its Special Situations Fund. The loans are categorised as ‘higher risk’, while a report in German newspaper Handelsblatt estimated the discount on the sale at about 5%. These were Commerzbank’s last remaining commercial property loans outside Europe. After a recent sale of its UK loans – also to Lone Star - it still holds its loan book in France, Italy and Germany.
The bank says it is now ahead of its own schedule in reducing overall assets in its bad bank, cutting the portfolio by 29% at the end of the first quarter from the same time last year to €102bn. The bank plans to cut non-core assets to €75bn by 2016 from a previous goal of €90bn. At the end of March, Commerzbank’s core tier one equity ratio – a crucial regulatory measure of strength – stood at 9 per cent, which is still relatively weak compared with other European lenders.