Fog of uncertainty obscures German lenders’ UK targets

Regulatory and economic pressures make banks slow to decide 2012 targets, reports Lauren Parr

German banks normally expect to set new real estate lending targets for the year ahead at the end of the previous year. But 2012 has opened with less clarity. In many cases, well into Q1, allocations for international lending are still up in the air, while institutions are more cautious and non-committal than usual.

London-based teams say this is frustrating but not surprising, given the regulatory uncertainty facing European lenders, which is playing a large part in inhibiting their ability to plan ahead. The requirement to meet European Banking Authority 9% tier-one capital targets by summer is loading particular pressure on some banks.

“Regulation affects banks in different ways: some are raising capital while others are restructuring balance sheets,” says Richard Bentley, Helaba’s head of real estate finance in London. “Ultimately, some might not be able to lend until they’ve built up sufficient reserves out of profits.”

Eurohypo suspended UK lending late  last year, until at least the second half of 2012, but no other German banks have announced a full retreat. At the same time, the UK investment market began the year quietly, with few deals.

UK teams at several of last year’s big lenders, including Aareal and Bayern LB, are still in the dark about how much they will be able to lend this year. Banks that were quiet last year, such as Landesbank Baden-Wurtenberg (LBBW), show no sign of coming back into the market.

In an interview last November, Aareal chief executive Wolf Schumacher said the sheer volume of red tape is affecting lenders’ day-to-day functioning and will change the framework in which business is conducted.

“A mass of topics” hit banks

“You have Basel III; a liquidity coverage ratio; a leverage ratio; Solvency II; the fact of funding for the banking industry; the German banking levy; and talk in the EU of a new financial transaction tax. A mass of topics is affecting day-to-day work. We need a balance: on the one side, highly professional regulation, on the other, allowing banks to breathe and support customers.”

Aareal fulfilled its €7bn-8bn lending target last year. Its deals outside Germany included underwriting £350m for new customer the Hercules Unit Trust’s portfolio; large finance deals for Goodman and Prologis; and taking part in the Westfield Stratford syndication.

Bayern LB also participated at Stratford and  in large club deals for Oxford Properties at Green Park business park in Reading; Capital & Counties’ Covent Garden refinancing; and Land Securities’ and Delancy’s Wandsworth shopping centre. Both banks would be missed if they did scale back.

Deutsche Postbank will be taken over  by Deutsche Bank in June and has not announced any resulting changes in strategy. The bank’s London senior manager, Kevin Stedmann, says: “We continued lending all through 2011 and hit our target of €500m.”

The bank did about 20 UK deals, typically between £10m and £40m each and many for private wealthy investors. They included lending to Capital & Regional for its £24.8m acquisition of Waterside in Lincoln; and providing £11m for Stainton and WW Advisors’ £20m purchase of the mixed-use Chapel Quarter scheme in Nottingham.

“We have a similar target for 2012,” says Stedmann. “We are being very selective and conservative, but remain keen to transact new business, whether bilaterally or in clubs.”

Other London-based German lenders are getting on with new business. Markus Nitsche, general manager of Nord LB, Deutsche Hypo’s London branch, says his bank aims to lend slightly more than the €525m it lent last year, despite “uncertainty about the euro crisis, the government bond crisis and Basel III”.

Its loans last year included a £59.4m refinancing of MEPC’s Chineham Park with Santander. Nitsche says the bank has already completed two deals this year.

Fewer lenders still active

Helaba’s Bentley says fewer lenders are out there than at this time last year. “A few banks are having to adjust their carvings, particu-larly ones reliant on pfandbrief refinancing, to the point where they’re only looking to hit their targets out of pfandbrief-eligible business,” he says.

Tighter capital requirements make it even more important for deals to be refinanced on the pfandbrief market. This applies to Deutsche Pfandbriefbank (PBB), Germany’s biggest UK lender last year.

But the bank wants to continue building on last year’s momentum and has arranged for Austrian bank BAWAG to finance the 50-65% loan-to-value top slice of deals for selected PBB customers. They expect to sign off financing for Blackstone’s £214m Teal portfolio acquisition by the end of this month.

Helaba’s lending targets are “under rolling discussion”, says Bentley, but are likely to be similar to last year’s €500m. “We’re working to provisional numbers; they’ll get agreed,” he says. Some deals in the pipeline have received credit approval and the group is targeting lending backed by prime London and South East office and retail assets.

DekaBank is another German bank very much in the market: its £60m financing of Tishman Speyer’s purchase of Eland House in Victoria is one of two deals it closed in January (see News). Deka has a guide target of £500m-plus for new business in 2012 – around the same as last year. This figure will be confirmed by the end of the month.

Mark Titcomb, head of DekaBank’s London branch, says the UK is “probably the most attractive lending market globally”. So hopefully, other German lenders that may be taking their time to fix budgets will remain keen on UK lending.