Restructuring of Eurohypo and repositioning of the business area Commercial Real Estate

Autor: Bancherul.ro
2012-03-30 14:13

- EU Commission changes requirement of Eurohypo disposal into required run-down

- Organisational separation of Eurohypo into non-core activities (Public Finance, non-core area
Commercial Real Estate) and core activities (core area Commercial Real Estate)

- Public Finance and the non-core area of the commercial real estate business shall be
consistently reduced in the new segment "Non Core Assets" (NCA)

- The clearly scaled-down core activities in the commercial real estate business will be part
of the new Commerzbank segment "Real Estate and Ship Finance" (RES)

- Balance sheet total of Commerzbank without reduction portfolio has to be reduced to a maximum
of 600 billion euro by the end of 2012 - Acquisition ban extended until the end of Q1 2014

- Blessing: "The changes in the conditions imposed by the EU Commission are challenging, but acceptable. We will consistently continue with the reduction course at Eurohypo."

The European Commission today informed the Federal Republic of Germany that it has changed the condition imposed on Commerzbank in 2009 to divest its subsidiary Eurohypo into a condition to run down the company, said Cmmertzbank in a statement.

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. Merely a clearly scaled-down part of the commercial real estate financing in Germany, United Kingdom, France, and Poland may be continued.

"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.

In accordance with the conditions imposed by the European Commission, the non-core activities of Eurohypo (Public Finance and non-core areas in Commercial Real Estate) have to be clearly separated in organisational terms from the core activities (core areas in Commercial Real Estate). The non-core activities will be managed in a new group-internal reduction unit in the future. The clearly scaled-down commercial real estate business in Germany, United Kingdom, France, and Poland will be part of the newly-formed Core Bank segment "Real Estate and Ship Finance" (RES) of Commerzbank. In accordance with the conditions imposed by the European Commission, the Eurohypo brand has to be given up. While adapting to the changing business framework conditions, Eurohypo will be continued for the time being. The new company name will be announced at a later point in time.

The decision by the EU Commission also foresees other conditions: Excepting the non-core activities, Commerzbank has to reduce its balance sheet to 600 billion euro 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.

Portfolios of the reduction areas shall be consistently decreased
Among the business areas of Eurohypo to be reduced are the Public Finance business and the Commercial Real Estate portfolios outside the markets in Germany, United Kingdom, France, and Poland. Thus, the Bank is withdrawing in the Commercial Real Estate business from 29 of the original target markets at Eurohypo. The two areas are to be managed in a new reduction unit with the name "Non Core Assets" (NCA). Here, Commerzbank will continue its strategy from past years in the future: In the period from 2008 to 2011 the Public Finance portfolio had already been reduced by some 40 %. The portfolio volume in Commercial Real Estate was lowered by more than 20 % in the same period. The objective of Commerzbank is to further consistently reduce the portfolios of these non-core activities. The new reduction unit is not part of the Core Bank of Commerzbank. On the Board of Managing Directors of Commerzbank it will be the responsibility of Ulrich Sieber.

Reduced core activities in Commercial Real Estate will be continued in Commerzbank

In operational terms, the reduced commercial real estate business is to be gradually transferred to Commerzbank AG in the coming years. It will be continued in the future as part of the new Commerzbank segment "Real Estate and Ship Finance" (RES). In accordance with the conditions imposed by the EU Commission, the core-activities in the area of Commercial Real Estate may not exceed a volume of 25 billion euro including the annual maximum new business volume of 5 billion euro through to the end of 2015. The core activities in the area of Commercial Real Estate will continue to be optimised in terms of its risks and profitability. "There will always be a need for commercial real estate financing. We are, therefore, pleased to be able to continue to offer this product. We will, however, run this business in the future so that it is much more focused and the risks are lower," said Thomas Köntgen, Chairman of the Board of Managing Directors of Eurohypo, and responsible in the future at Commerzbank for the core area Commercial Real Estate.

Newly-formed segment "Real Estate and Ship Finance" (RES) will be an integral part of the Core Bank

The newly-formed Commerzbank segment "Real Estate and Ship Finance" (RES) will replace the existing segment Asset Based Finance (ABF) as of July 1, 2012, and will be part of the Core Bank in the future. It comprises the three areas Ship Finance, Asset Management & Leasing, and the Commercial Real Estate core activities. "All three business areas are strategically important elements of Commerzbank. In the past years we have optimised every single one of these areas. We have restructured the portfolios and consistently reduced the risks," said Jochen Klösges, the member of the Board of Managing Directors of Commerzbank responsible for the "Real Estate and Ship Finance" (RES) segment in the future. "We will continue along this course. We intend to make a sustainable and positive contribution to the business success of Commerzbank."

Outlook: Details on implementation will be elaborated in the coming months

A major milestone in the implementation of the amended conditions of the EU Commission is the transparent organisational separation of the core activities Commercial Real Estate and the non-core activities (Public Finance and non-core areas Commercial Real Estate). The corresponding details on this will be elaborated in the coming months.

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