Westimmo may be sold in two parts, analysts say

State-owned German bank WestLB may sell its subsidiary Westimmo in its entirety or in two parts, separating the Pfandbrief-related assets from any 'toxic' ones, real estate analysts have told PropertyEU.

'A split-up could offer a better result than selling everything together. The Pfandbrief-related assets could appeal to other banks that might not want to take on the 'toxic' assets. Private equity investors might take the approach that they could take the problem of the toxic assets off Westimmo's hands, although once guarantees are deducted, there might not be much left, so any price paid may be symbolic,' one analyst, who asked not to be identified, told PropertyEU.

A further possibility is that a private equity buyer, most likely Apollo Global Management, might buy Westimmo outright and quickly flip the Pfandbrief component to another investor, such as Aareal Bank, providing that the EU Commission approves it, the analyst added. WestLB itself declined to give further details regarding the sale.

If the sale does go through, it will doubtless come as a relief to Düsseldorf-based WestLB, which failed to meet December's deadline to sell Westimmo, despite a number of bids from domestic and international investors, which the bank dismissed as being too low. (WestLB has to sell Westimmo under conditions imposed by the European Commission when it approved state aid.)

Private equity groups have been widely tipped to acquire Westimmo, largely because they have the financial means to put together a deal of this kind, market insiders say. Last year, Lone Star was believed to be the frontrunner for Westimmo, following its acquisition last June of distressed German lender Düsseldorfer Hypothekenbank for an undisclosed sum. LoneStar's European head, Bruno Scherrer, told PropertyEU at the time that his company would certainly take a look at other potential acquisitions of distressed lenders if 'the price reflected changes in asset values and if the funding requirements were manageable'. However, LoneStar is no longer in the running, according to someone close to the company. LoneStar declined to comment.

The future of WestLB is also hanging in the balance. The owners of WestLB have until the end of June to submit proposals regarding the bank's future to the European Commission. Germany's Finance Ministry has proposed that WestLB be turned into a central bank for the region’s savings banks. Another possibility is that the lender could be split into four business segments - core banking and corporate finance, group and service functions, specialty banking and transaction banking - that could potentially be sold off. EU Competition Commissioner Joaquin Almunia has signalled that a decision is likely to be taken by September.