Commerzbank AG sold 2.9 billion euros ($3.2 billion) of commercial real estate loans to Oaktree Capital Group LLC and JPMorgan Chase & Co., making headway with its plan to reduce riskier assets.
Germany’s second-biggest bank ceded 700 million euros of distressed German debt to Oaktree, a U.S.-based alternative investment firm, the Frankfurt-based lender said in a statement Wednesday. It also sold 2.2 billion euros of mixed non-performing and performing loans backed by European assets to a group controlled by JPMorgan and Lone Star Funds. It sold the assets at a 3 percent discount, it said.
“The market believes that Commerzbank is on the right track to reducing non-core assets,” said Philipp Haessler, an analyst at Equinet Bank AG in Frankfurt with a neutral rating on Commerzbank stock. “When they had their first big non-core asset real estate sales a couple years ago, shares responded positively.”
Twice last year, Chief Executive Officer Martin Blessing stepped up plans to unload unwanted assets including soured shipping and real estate loans, in compliance with the conditions of an 18.2-billion-euro bailout in 2009. Risky assets have become more attractive for yield-seeking investors, as the European Central Bank drives down market interest rates with its huge program of asset purchases.
While the bank expects the sale to reduce earnings by 65 million euros in the second quarter and 20 million euros in the third quarter, respectively, it will release 105 million euros of capital, bolstering its financial strength.
“We are significantly reducing both risk and complexity,” said Sascha Klaus, divisional board member for non-core commercial real estate assets. “In this respect we are taking advantage of market opportunities, in order to achieve best possible results through competitive bidding procedures.”
Commerzbank’s exposure at default in shipping and commercial real estate stood at 30 billion euros as of March 31, it said in the statement. The sale reduces the volume of non-performing commercial real estate loans by 1.3 billion euros, down from 3 billion euros at the end of March, it said.
Commerzbank will cut unwanted assets to about 67 billion euros by the end of 2016, a more ambitious goal than the previous target of 75 billion euros, the company said in August last year. It will cut commercial real estate and shipping assets at the non-core unit to about 20 billion euros by the end of 2016, it also said at the time.