Aareal boosts profits with WestImmo acquisition

Aareal Bank’s structured property financing division has reported a 238% increase in operating profit to €240m but a 25% fall in newly-originated loans to €1.2bn for Q2 2015.

The operating profit includes the non-recurring €154m negative goodwill from the acquisition of rival property lender WestImmo, which Aareal bought for €350m in June. Negative goodwill is reported as a gain occurring when the price paid for an acquisition is less than the value of its assets.

With the negative goodwill stripped out, the property lending division made a profit of €86m, up 21% from the €71m reported in Q2 2014.

Newly-originated lending was down on last year’s Q2 figure of €1.6bn but net income came to €192m, up almost a quarter on Q2 2014’s €168m.

“Aareal Bank pursues a selective policy regarding new business, especially in view of margin pressure due to intensified competition, and the acquisition of WestImmo, which has led to non-organic growth in interest-bearing lending volume,” said Dr Wolf Schumacher, Aareal’s chairman.

“A high level of early loan repayments, low funding costs, and a considerable increase in lending volume, partly due to the acquisition of WestImmo, all had a positive effect.”

However, net income “continued to be burdened by a lack of attractive investment opportunities for liquidity reserves, due to the persistent low interest rate environment”.

The bank predicted new business of between €6bn and €7bn for its structured property financing division for the current financial year. Aggregate new business reported was €1.8bn for the quarter, down on Q2 2014’s €2.6bn. The total figure for the first half of 2015 was €3.6bn, down from €4.2bn.

Aareal reported a consolidated operating profit of €233m for Q2 2015 and said it expected that figure to rise to between €400m and €430m for 2015, including the negative goodwill gain from the WestImmo purchase.

The WestImmo acquisition was Aareal’s second significant purchase in recent years. It bought Germany’s Corealcredit Bank from Lone Star for €342m in 2014.