FRANKFURT-Because a buyer could not be found for the troubled Eurohypo commercial lending division of locally based Commerzbank, the European Commission and the Federal Republic of Germany have agreed today to allow the company to gradually dissolve the business by 2014. The commission and Germany had provided Commerzbank about $24 billion in bailout money in May 2009, with the condition that Eurohypo be sold.
Now, Commerzbank has agreed to separate its core and non-core activities of Eurohypo. The non-core activities will be put in a separate restructuring unit that will not be allowed to write new business, but will concentrate on the winding down of the business. Commerzbank will be allowed to continue commercial real estate activity in Germany, France, Poland and the United Kingdom with a limit of $33 billion, or $6.7 billion of new business volume, until Jan. 1, 2016.
Joaquin Almunia, the commission VP in charge of competition policy, said the new decision preserves the balance of the original bailout conditions. “The winding down of Eurohypo on the balance sheet of Commerzbank, plus a prolongation of the acquisition ban, are an adequate substitute to the divestiture of Eurohypo,”Almunia said in a statement today.
Commerzbank said in a separate statement that the Eurohypo name will be discontinued, and a new name for the company’s real estate arm, which will be part of the company’s new “Real Estate and Ship Finance” division, will be announced at a later point. Martin Blessing, chairman of the bank’s board, said in a separate statement that the new conditions are challenging but acceptable. “We will consistently continue with the chosen course of a reduction in the Eurohypo portfolio,” he said. “The objective is that of continuing a small, lower-risk area of the commercial real estate business in Commerzbank.”
Another new condition requires Commerzbank to reduce its balance sheet from about $880 billion to about $800 billion by the end of 2012, and it may not exceed this level until the end of 2014. Also, a commission-imposed ban on the bank performing acquisitions has been extended until April 1, 2014.
Eurohypo has been one of the major commercial real estate lenders in Europe in the past decade. Among other deals, the company provided $131 million financing to Max Property Group to assist in the acquisition of St Katherine Docks, London in 2011 and provided $186 million in financing to
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