Commerzbank is considering the sale of two further major European commercial real estate (CRE) loan portfolios in the New Year with a combined unpaid value of almost €4bn, CoStar News understands, in what is expected to be a bumper year for legacy Continental European loan sales.
The first – and more definite sale process – is the disposal of a German non-performing loan (NPL) portfolio with an unpaid loan balance of more than €800m, reflecting just over one-third of Commerzbank’s remaining €2.1bn in German NPLs, according to a presentation for the bank’s third quarter results.
The second loan portfolio – and less immediately certain will lead to a trade – is a pool of up to €3bn in predominantly performing pan-European CRE loan portfolio, secured by assets throughout the Benelux region, including in France, as well as Nordic countries, Central and Eastern Europe and Turkey.
This performing €3bn pan-European CRE loan pool would reflect 15.5% of Commerzbank’s remaining €19.3bn in performing loans, according to the same presentation, and around 55% of the bank’s €5.4bn in loans throughout Europe, excluding Germany, Italy and Portugal.
The two loan portfolio sales are the latest loan book disposals from Commerzbank’s formerly-named Eurohypo subsidiary, following the sale the Spanish property loan book to JPMorgan and Lone Star reported in May and the UK property loan book to Wells Fargo and Lone Star reported in April 2013.
Commerzbank, which is currently handling the potential loan portfolio sales internally, has spoken directly to more than half a dozen potential private equity, hedge fund and investment bank loan buyers in an effort to sound out preliminary investor appetite.
Of the two loan portfolios, both of which at this stage are unnamed, the circa €800m German NPL would be easier for Commerzbank to sell, having provisioned against the non-performing loan portfolio incrementally over the years.
Selling the German NPL at a loss to nominal value, therefore, would likely be substantially covered with a sale also freeing-up capital which Commerzbank has to hold against non-performing loans. In turn, this would improve the German investment bank’s Tier One capital ratio, incentivising Commerzbank to sell the German NPL.
The best case scenario for Commerzbank is that the sale price achieved would allow the bank to write back some provisions on these bad loans.
By contrast, the case for the predominantly performing pan European loan book is a little less clear cut. CoStar News understands that Commerzbank is considering a performing loan pool comprised of between €2bn and €3bn, against which the investment bank is unlikely to have taken provisions which means the bank will be seeking to recoup par or virtually par to justify a sale.
However, the performing book is expected to be short-duration to loan expiry, likely around two years, and although not in breach of covenants, at high loan-to-values given the vintage of the loans and the net market price adjustments since the post-recessionary period.
Commerzbank’s combined performing and non-performing European CRE loan book has reduced by €12.8bn over the nine months to the third quarter 2014, according to presentations of the investment bank’s results for the two reporting periods.
In addition to natural run-off of maturing loans, one of the major disposals was the sale of €4.4bn in performing and non-performing CRE loans to JPMorgan and Lone Star, in separate trades which competed in June.
Commerzbank’s remaining €22.8bn European CRE loan book is comprised of €19.3bn in performing loans and €3.4bn in non-performing loans. By geography, the remaining performing CRE book is comprised of €11.5bn in Germany, €1.3bn in Italy, €1.0bn in Portugal, €5.4bn throughout the rest of Europe and €0.1bn in the US.
Of the performing book, around €12bn of loans are secured by CRE in German, with a further €5bn in Western Europe and €2bn in Central and Eastern Europe as well as less than €1bn each of North America and miscellaneous countries, according to Commerzbank’s third quarter 2014 results.
By sector, there is around €7bn in retail assets, €6bn in office assets and €4bn in residential real estate, according to the bank’s third quarter results.
Commerzbank’s remaining CRE NPLs is comprised of €2.1bn in Germany, €0.2bn in Portugal, €0.1bn in Italy, €0.8bn throughout the rest of Europe as well as €0.3bn in the US.
Commerzbank declined to comment.