Commerzbank signed an agreement on the sale of its commercial real estate financing portfolio (Commercial Real Estate, CRE) in Great Britain to a consortium comprising Wells Fargo and Lone Star Funds. The transaction encompasses commercial real estate loans totaling €5.0 billion including the relevant interest-rate and currency hedging derivatives, as well as the entire operational business of Hypothekenbank Frankfurt in Great Britain. This is one of the largest transactions in commercial real estate loans in Europe of the past years.
The employees are being transferred in the framework of their existing employment contracts to the purchasers. It was agreed that confidentiality be maintained on further details of the contract.
Due to this transaction with complete risk transfer to the buyers, Commerzbank will attain its original reduction target of €93 billion in the Non Core Assets (NCA) segment more quickly than planned. The Bank now assumes that the exposure at default (EaD, incl. non-performing loans) will be significantly less than €90 billion at the end of 2016. The volume of non-performing real estate loans is decreasing by €1.2 billion. Following the sale, Commerzbank internally classifies less than 12% of the EaD in the CRE sector (excl. non-performing loans) as “higher risk” (“higher risk cluster”). That compares with a share of 21% as of the end of March 2013 and even 24% as of the end of the third quarter of 2012.
The Bank expects that the overall result in 2013 will see charges of €179 million as a consequence of the transaction (Q2 approximately €134 million; Q3 approximately €45 million). The discount on the book value of the loan portfolio of around 3.5% is low measured against similar transactions.
Due to the transaction the risk-weighted assets (RWA) are being reduced by €1.5 billion. Thus the above mentioned overall charges in 2013 contrast with a positive equity capital effect totaling €133 million in Q3. In total, the transaction has no notable impact on the Core Tier 1 equity level of Commerzbank.
“With this transaction, we are accepting a charge on earnings in 2013, to take out risk costs in the coming years. The positive capital effect from the RWA reduction compensates largely the charge to the equity capital ratio. This portfolio sale is attractive from a risk perspective since we transfer future risk from our UK operating platform to the buyers,” said Chief Financial Officer Stephan Engels.