The unpleasant Eurohypo saga is finally drawing to a close for Germany’s Commerzbank.
Now known as Hypothekenbank Frankfurt, Commerzbank CEO Martin Blessing inherited the troubled subsidiary from his predecessor Klaus-Peter Müller. Having cost the bank many billions of euros since the outbreak of the financial crisis, Mr. Blessing slated what was once the largest mortgage lender in Europe to be wound down in 2012. Now the final exit looms.
Handelsblatt has learned from internal sources that Commerzbank wants to completely phase out Eurohypo by 2016. The bank reportedly then wants to put the unit’s remaining transactions on its own balance sheet and shift its 600 employees into a service and employment company without a banking license.
One manager said Commerzbank has finally found a way to take over Eurohypo’s assets but not its employees. That was reportedly important to prevent conflicts with the Commerzbank works council. When asked for a statement, Commerzbank declined to comment “on ongoing negotiations with the council.”
The final exit may therefore come sooner than some employees probably expected. Essentially, the employees at Eurohypo are the victims of their own success at dismantling the business faster than expected. When the loans disappear from the books, so does the interest income. But the high costs for the bank infrastructure remain.
Eurohypo's real estate book was cut in half over two years to €23 billion
The real estate portfolio at the bank has shrunk considerably over the past two years. That was thanks to large package sales, as well as what has been called “close combat” with customers at Eurohypo, where they were urged to find another bank.
The result is that the real estate book was cut in half over two years to €23 billion ($28.3 billion). Government bonds were cut from €80 billion to €53 billion recently. The dismantling is meant to continue: according to the blog CoStar Finance, the bank is currently reviewing the sale of bad German loans totaling €800 million, as well as healthy European loans of up to €3 billion.
Where the remainder of Eurohypo could go in 2016 has been a looming issue for some time. Since October, two Commerzbank officials have been managing the government loans at Eurohypo: Group treasurer Thorsten Kanzler has been in charge of the liquid, eligible securities. More complex securities are being taken care of by Vijai Radhakishun, who is responsible for credit portfolio management.
Since the beginning of the year, Eurohypo has transferred €12 billion in state government securities to its parent company. The remaining real estate loans would fall in the small to mid-sized businesses division, where there is a center of competence for commercial real estate financing. Last week, Commerzbank decided it would at least finance the construction of commercial real estate. Siegfried Eschen will reportedly be responsible for that business. He currently is a regional director at Eurohypo.
The bank is saying nothing officially about these developments. But Mr. Eschen will have to scale down his ambitions, as the bank is planning to limit its commercial property lending business to just €1 billion.
A more grandiose return to the commercial real estate business would have been embarrassing for Mr. Blessing, as he was passionate about shutting down Eurohypo in 2012. Internal critics say that’s why it took three attempts to come up with a plan for Commerzbank’s future real estate business.
Yasmin Osman covers the banking sector for Handelsblatt. To contact the author: firstname.lastname@example.org