The European property financing industry has lost two major lenders within a matter of weeks, sending shock waves rippling through the sector. Last week Société Générale Corporate & Investment Banking suspended new UK and continental European property lending indefinitely as the investment bank steps up significant bank-wide balance sheet deleveraging and a reduction in its funding requirements.
The European property financing industry has lost two major lenders within a matter of weeks, sending shock waves rippling through the sector. Last week Société Générale Corporate & Investment Banking suspended new UK and continental European property lending indefinitely as the investment bank steps up significant bank-wide balance sheet deleveraging and a reduction in its funding requirements.
In the bank’s third quarter results published on November 8, SocGen said its sovereign debt exposure to Greece, Spain, Italy and Ireland was EUR3.4bn by the end of October. Meanwhile its broader asset deleveraging programme has helped reduce the capital needed by mid-2012 - to meet European Banking Authority requirements - to EUR2.1bn.
The news followed hard on the heels of the announcement by troubled German real estate lender Eurohypo, the real estate arm of Commerzbank, that it would temporarily be suspending new business until June next year.
‘We were certainly very surprised that Eurohypo decided to suspend all new lending,’ Martin Braun, head of the capital markets group at Cushman & Wakefield
in Germany, told PropertyEU. ‘However, many lenders are more restrictive now in terms of what they do. The markets will be even tougher on properties that need refinancing next year than they were this year.’
Commerzbank says the move is in response to new demands by the European Banking Authority that stipulate that European banks needs to increase their Tier 1 capital to 9% by June - or collectively find more than EUR100bn in extra capital. However, against a background of turbulence - and fear - in the eurozone, getting hold of this capital could be a gargantuan task, not least because neither shareholders nor governments look likely to come to banks’ aid. The solution? Lend less and sell more assets, which is what Commerzbank is proposing for Eurohypo. As a result, the lender is hoping to reduce its risk-weighted assets by up to EUR30bn.
And while some analysts were surprised by Eurohypo’s decision, others say it was simply a matter of time: ‘It’s not really surprising that Eurohypo has suspended lending; they couldn’t keep on lending and all the loans have to be refinanced at some point. Lending anything is only destroying value and Eurohypo still needs to be sold by the end of 2014. Also, its balance sheet volume is bigger than they budgeted for,’ one analyst, who asked not be identified, told PropertyEU. Eurohypo declined to comment.
However, the move could spell good news for other lenders, Timo Tschammler, head of DTZ in Germany, said: ‘Fewer remaining providers can share new business and can achieve higher margins. Also, insurance companies may act to a greater extent as outside creditors for real estate,’ he said.
Braun at C&W agrees: ‘We’re starting to see other lenders emerge, such as insurance companies and pension funds. For example, Allianz helped finance Frankfurt’s Silver Tower earlier this month as well as Deutsche Bank’s two-tower headquarters in Frankfurt in June. However, such lenders only lend on prime properties, which doesn’t change the problem that it is hard to get financing for less-prime assets,’ he said.
The full analysis appears in the December issue of PropertyEU. Click on the following link to subscribe:
