The future of Eurohypo’s UK real estate business has been secured in new restructuring plans announced today by parent Commerzbank.
Eurohypo, the German bank’s public finance and property lender, is to be split into non-core activities which will be wound down and core activities which will be taken in-house by Commerzbank.
Non-core will comprise public finance and around 29 non-core commercial real estate regions, while the core activities include its main commercial real estate markets of the UK, France, Poland and Germany.
The “clearly scaled down” core activities in the commercial real estate business will be part of the new Commerzbank division “Real Estate and Ship Finance” (RES).
RES will have a balance sheet of around €25m, and an annual new business volume of €5bn – although it is not yet know how this will be divided between geographies.
In the UK, Eurohypo historically undertook between €1bn to €1.5bn of new business pa.
While the restructuring creates certainty for Eurohypo it is not yet know when it will resume lending in the UK following a freeze imposed in November last year.
The temporary freeze is to be reviewed in June this year.
In accordance with the conditions imposed by the European Commission, the Eurohypo brand has to be given up, although will remain in use until a new company is announced.
The restructuring has been undertaken as the EU Commission has changed the condition imposed on Commerzbank in 2009 to divest its subsidiary Eurohypo into a condition to run down the company.
Accordingly, Commerzbank has to reduce in full both the state financing business (Public Finance) as well as the bulk of the commercial real estate financing (non-core areas Commercial Real Estate) of Eurohypo.
“The amended conditions of the EU Commission are challenging, but acceptable. We will consistently continue with the chosen course of a reduction in the Eurohypo portfolios. The objective is that of continuing a small, lower-risk area of the commercial real estate business in Commerzbank,” said Martin Blessing, chairman of the board of managing directors of Commerzbank.
The decision by the EU Commission also foresees other conditions: Excepting the non-core activities, Commerzbank has to reduce its balance sheet to €600bn as of the end of 2012 and it may not exceed this level until the end of 2014.
In addition, the acquisition ban has been extended to the end of March 2014.
bridget.o’connell@estatesgazette.com
