German banks ‘bid for Deutsche Hypo’

LBBW, Aareal and pbb have reportedly submitted offers to buy the German mortgage bank, with a final decision on its sale due in January.

German real estate lenders LBBW, Aareal Bank and pbb Deutsche Pfandbriefbank have expressed interest in buying mortgage bank Deutsche Hypo, according to German newspaper Sueddeutsche Zeitung.

The German state-backed lender NordLB is preparing a sale of its property bank Deutsche Hypo in a bid to bolster its capital buffers following heavy write-downs related to its exposure to toxic shipping loans.

“NordLB is planning to reach a decision on whether to sell Deutsche Hypo or not in January. Right now, we are evaluating offers by several bidders,” a spokesman for NordLB told Real Estate Capital, declining to comment further on the possible buyers.

A Deutsche Hypo spokesman told Real Estate Capital that a “transformation programme” is ongoing at the parent bank, with all units including subsidiaries and associate companies under scrutiny.

The sale of Deutsche Hypo will depend on how high the offered prices are, unidentified financial sources told Sueddeutsche Zeitung. LBBW, Aareal and pbb declined to comment on their potential interest in acquiring the rival bank.

The bidders are among Germany’s largest real estate finance providers, although 2017 has proved a challenging year. LBBW wrote €3.4 billion of new loans in H1 2017, 3 percent up year-on-year. Pbb, for its part, originated €4.5 billion in new property loans in H1 2017, which means that volumes remained stable over the same period a year ago. Across H1 2017, Aareal’s structured property financing segment originated €3.8 billion, putting it behind its progress at the same point last year (€4.4 billion).

German real estate banks are under pressure amid the current high level of competition, which has driven down loan pricing in their home market. Typical senior margins for German prime offices, at 1 percent, are the lowest across Europe, according to CBRE data. Only Switzerland currently carries this same rate.

“I think consolidation makes sense now as, on the one hand, you have low margins in a very competitive market and, on the other hand, the pressure on costs is increasing, with more regulatory requirements coming up,” said Anke Herz, JLL’s team leader of debt advisory in Germany.

“Before, German local property lenders, such as Sparkassen and Volksbanken, used to do business just in their own area, but it is no longer the case. There’s huge competition across Germany, so banks will continue to consolidate and form bigger groups,” Herz added.

With the merger of DZ bank and WGZ bank back in August 2016, the German co-operative banking sector has already started a process of consolidation. Their specialist mortgage lenders – DG Hyp and WL Bank – are also set for a merger, in a move that will create one of the largest Pfandbriefe issuers.

Prior to this, in 2013, Aareal bought rival Corealcredit Bank to bolster its commercial real estate mortgage business in its home market. Two years later, Aareal completed the acquisition of German property lender WestImmo.

“Over the years, we have already seen significant consolidation among German mortgage banks. Effectively, real estate financing by specialist mortgage banks has become a niche in which you only can survive if you can provide a competitive edge such as a sector or country expertise,” said Karlo Stefan Fuchs, executive director for covered bonds at Scope Ratings.