German banking giant Commerzbank has suspended new business at Eurohypo, its commercial property lending subsidiary, until end-June 2012. The move is aimed at meeting the additional capital requirements of the European Banking Authority (EBA), which has said Commerzbank needed to fill a EUR 2.94 bn capital shortfall. Commerzbank has until end-June 2012 to raise its core Tier 1 capital ratio to 9%.
German banking giant Commerzbank has suspended new business at Eurohypo, its commercial property lending subsidiary, until end-June 2012. The move is aimed at meeting the additional capital requirements of the European Banking Authority (EBA), which has said Commerzbank needed to fill a EUR 2.94 bn capital shortfall. Commerzbank has until end-June 2012 to raise its core Tier 1 capital ratio to 9%.
A Eurohypo spokesperson told PropertyEU that the property lender will continue to carry out prolongations of existing loans but only on a very selective basis. The spokesperson described a media report that Commerzbank is considering splitting Eurohypo up as 'speculation'.
The European Union has given Commerzbank until 2014 to sell Eurohypo as a condition for accepting state aid. The current market volatility has complicated the sales process. On Thursday German newspaper Die Welt suggested that Commerzbank is mulling breaking Eurohypo up into separate real estate and public finance units. Under the plan, according to the report, the European Union might allow Commerzbank to keep a slimmed down Eurohypo. Non-core or toxics assets would be contributed to Commerzbank's restructuring unit.
Commerzbank declined to comment on the news report.
Announcing its third-quarter results on Friday, Commerzbank did say, however, that the suspension of new business at Eurohypo is to be adopted 'with immediate effect' and, together with a range of other initiatives, to help the financial institution reduce its risk-weighted assets by as much as EUR 30 bn. 'Since 2009 we have already been consistently reducing risks in our business. We are now further accelerating this process,' said chief financial officer Eric Strutz.
Commerzbank's Asset Based Finance division, which also includes Eurohypo, reported an operating loss of EUR 2.5 bn in the first nine months of the year, largely as a result of devaluation of Greek bonds and high risk provisions. The banking group said efforts to reduce existing commercial real estate business, mainly at Eurohypo, are ongoing. Total exposure has been decreased by EUR 8 bn to EUR 62 bn year-to-date.
