LBBW takes over Berlin Hyp, becomes Germany's biggest property lender

Commercial property financing bank Berlin Hyp, a subsidiary of Landesbank Berlin Holdiing and ultimately owned by the Sparkassen, is likely to be a fully-owned daughter company of Stuttgart-based Landesbank LBBW by the summer, at the latest. Last week saw the deal signed which will see LBBW take over the Berlin bank, following a bidding process for Berlin Hyp in which Helaba and DekaBank - which also belong to the Sparkassen sector - emerged as the losers.

The takeover is subject to the cartel office's approval, as well as being ratified by the Sparkasse organisation's supervisory watchdogs. While the official price was not announced, it is thought that LBBW will be paying the Sparkassen organisation €1.4bn to take over the Berlin house.

According to LBBW's CEO Rainer Neske, his plan is to create "a major centre of competence for commercial real estate financing in the savings bank organisation. In this way, we are making a further, major contribution to the bundling of forces in the public-sector banking sector."

"With its high-yield, low-risk business model focused on sustainability, Berlin Hyp is an excellent fit for LBBW", said Neske.

The decisive factor which saw LBBW come away as the victor would appear to be that they were willing and able to pay for the acquisition in cash, according to a number of inside observers. Additionally, DekaBank's primary activities as a securities house were said to have counted against it.

Both Berlin Hyp and LBBW have a similar business model in respect of commercial property financing, and a similar sized loan book - in Berlin Hyp's case about €25bn, and in LBBW's about €26bn. With a combined book of €51bn, the new entity will top the previous biggest lender, DZ Hyp, whose loan book is about €42bn.

Both banks pursue an equally conservative risk policy, reflected in loan-to-value ratios of less than 55% in their financing portfolios. Both banks' portfolios are dominated by lending to office buildings and residential properties, and have complementary strategies in their foreign lending, said LBBW.

LBBW would be better known in its new lending for taking on large individual loans, whereas Berlin Hyp would typically lend smaller individual amounts, but to a much broader range of borrowers and projects. Berlin Hyp also has very deep connections in to the Sparkasse organisation with its numerous and geographically diverse members throughout Germany. Both LBBW and Berlin Hyp are well capitalised within the banking sector, LBBW having a capital ratio of 14.9% and Berlin Hyp 13.3% as of September 2021.

The new bank will certainly lay claim to being the most innovative of Germany's lenders, with particularly Berlin Hyp very much a pioneer in the issuance of Green Bonds, ESG-compliance, social progression, and a promoter of strict goals towards achieving carbon neutrality by 2025.

It's not clear whether in the course of the acquisition and integration of the two banks the Berlin bank will retain its separate identity, but it is likely to do so for at least a few years, along with its existing staff.