Commerbank gets EU approval to wind down Eurohypo

German state-backed lender Commerzbank won European Union approval on Friday to wind down its real estate lending arm, Eurohypo. No deadline for the dismantling of Eurohypo has been set, a Commerzbank spokesman told PropertyEU.

Commerzbank had initially been ordered to sell Eurohypo by 2014 as a pre-condition for EUR 18 bn in state handouts during the financial crisis. However, it has struggled to find a buyer for the loss-making Eurohypo, which used to be one of the most active real estate lenders in Europe.

In addition, as a condition for approving a new restructuring plan, the European Commission has banned Commerzbank from making any acquisitions until end-March 2014. ‘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,’ EU Competition Commissioner Joaquín Almunia said in a statement. Commerzbank’s chairman of the board, Martin Blessing, called the EU conditions ‘challenging but acceptable’.

As part of the new restructuring plan, Eurohypo’s non-core activities, including part of its commercial real estate division, will be spun off into a separate unit known as ‘non-core assets’. Commerzbank said in a statement that under the restructuring plan, it will not be allowed to write more than EUR 5 bn in new commercial property business a year until end-2015. In addition, Commerzbank has to reduce its balance sheet to EUR 600 bn by end-2012 and keep it below this level until end-2014. The bank’s balance sheet was EUR 662 bn at the end of last year.

Eurohypo was formed when Deutsche Bank, Commerzbank and Dresdner Bank merged their mortgage lending arms 10 years ago. In a move that it might have come to regret, Commerzbank bought out its rivals’ stakes for EUR 4.5 bn in 2005.