Deutsche Bank is exploring the possible disposal of Deutsche Postbank’s €2.5bn predominantly UK commercial property loan book, which could pave the way for a second multi-billion performing UK property loan book sale this year.
Postbank, which is 93.7%-owned by Deutsche Bank, has been locked in six-month long negotiations with its major shareholder over its majority shareholder’s exit strategy of the London commercial property loan business, with the appointment of an investment bank adviser now thought the most likely outcome.
The motive of Deutsche Bank, which could feasibly choose to handle the sale internally, for selling-off or running down Postbank’s UK loan book is part of its “2015 and beyond” strategy to dramatically reduce its risk-weighted assets (RWAs) and increase its Tier 1 capital ratio, as dictated by the EU Commission.
While Deutsche Bank and Deutsche Postbank declined to comment, it is thought that Deutsche Bank felt that running two commercial real estate lending businesses in London – although rarely in competition, if ever – was seen as an unnecessary duplication given the capital-intensity of real estate lending in the emerging post-crisis regulatory environment.
The boards of Deutsche Bank and Postbank have been considering a number of viable exits routes, after Deutsche Bank assigned the €2.5bn property lending business, based in London, to its Non-Core Operations Unit (NCOU) last November.
Options under consideration have included: to sell the loan book within the next six months; continuing to run the bank on an active “open-for-business” basis and seek a buyer in a more benign market environment in two to three years’ time; or wind down the loan book as a ‘bad bank’ until the loans naturally run-off.
CoStar News understands that Postbank’s €2.5bn commercial property loan book – managed out of its London office – is comprised of around 85 loans, including €2.1bn in UK loans and €400m in Continental loans.
Less than 10% of the €2.5bn is thought to be impaired, with the majority of the performing book investment loans, two-thirds secured by London and South East properties, with the balance regional UK and the Continent.
Postbank, a balance sheet lender sourcing capital for lending through its German retail deposit savings business, tends to lend on a five-year term and clients include Argent, Brockton Capital, Quintain Estate and Almacanter. (See below for recent Postbank loans).
In the six months since Deutsche Bank assigned Postbank’s UK loan book to its NCOU division, the London office is understood to have remained open for business and retains a mandate for conservative LTV lending this year.
Five weeks ago, Postbank’s US commercial real estate lending division, PB Capital Corporation, a wholly-owned subsidiary of Deutsche Bank, was sold to Union Bank, the San Francisco subsidiary of Japan’s Mitsubishi UFJ Financial Group for around $3.7bn, reflecting an almost par trade, according to reports in Wall Street Journal at the time.
In Europe, Commerzbank’s soon-to-be-announced sale of Eurohypo’s £4bn UK property loan book to Wells Fargo and Lone Star, is perhaps further indication of an improving liquidity for larger performing loan portfolio trades, with Commerzbank rejecting a low single-digits bid by JPMorgan for the performing Eurohypo property loans.
In addition, PIMCO was, until the 11th hour, a credible bidder for Eurohypo’s book.
Deutsche Pfandbriefbank (PBB) is readying itself for a re-privatisation by the end of 2015, which could feasibly act as a competitor in securing a new owner or even as a performing loan portfolio buyer itself, if the trade were deemed to enhance PBB’s own profitability.
Postbank, the former German state-owned postal savings banks was established more than a century ago, gaining independence from state-management in 1990, before completing a full IPO, 14 years later.
Then on 12 September 2008 – just three days before Lehman Brothers finally filed for Chapter 11 bankruptcy in New York – Deutsche Bank acquired a 29.75% stake in Postbank for €2.79bn, reflecting €57.25 per share, with an option to subsequently acquire an additional 18.0% at €55.00 per share, equating to €1.69bn.
A third tranche – of 20.25% – was agreed to be sold at €42.80 per share. By the end of February 2012, Deutsche Bank’s stake in Postbank climbed to 93.7%.
While an acquisition of any kind in such unprecedented volatile times seems somewhat cavalier in hindsight, the retail branch deposit-based business model was seen as an attractive funding diversifier for Deutsche Bank at the time, which was heavily-reliant on interbank lending as a funding source.
In a press statement at the time of establishing NCOU, Deutsche Bank stated: “Our objectives in setting up the NCOU are to improve external transparency of our non-core positions; to increase management focus on the core operating businesses by separating the non-core activities; and to facilitate targeted accelerated de-risking.”
Postbank’s recent UK senior lending deals
- In April, Postbank called in LPA receivers at Savills over developer HDG Mansur’s £255m Finzels Reach scheme – a part-completed, mixed-use regeneration project – after failing to make loan repayment on a development loan. Kevin Mersh and Julian Clarke at Savills have been appointed.
- In January, Postbank and HSBC extended two development loans, together worth £104m, to finance the construction of the residential schemes at Arthouse and 1 Canal Reach by Argent
- Last April, Postbank extended a five-year £42.75m senior loan to the iQ Property Partnership Fund, a Quintain Estates and The Wellcome Trust joint venture fund, secured by three UK student accommodation buildings at a margin between 275bps and 300bps over three-month LIBOR.
- Last June, Postbank and DG Hyp refinanced CommerzReal Lloyd’s Building with £131m over four-and-a-half-years, which is now under offer to Chinese insurance company Ping An for around £260m.
- Last July, Postbank financed two regional office acquisitions, Marlow International and Unilever House, with a five-year £61.7m senior debt facility shared equally with DekaBank. Margin is thought to be around 275 bps.
- Also last July, Postbank provides a share of a £60m three-year loan to finance £109m acquisition of CAA House and 1 Kemble Street by Mike Hussey’s Almacantar with Crédit Agricole CIB.
- Back in December 2011, Postbank provided senior debt to finance UK retail park acquisitions by a joint venture fund established by Brockton Capital and Pradera.
CoStar Finance 