Germany Scraps Depfa Bank Sale and Orders Wind-DownJoe Brennan and Rainer Buergin
Germany’s government abandoned plans to sell bailed-out lender Hypo Real Estate Holding AG’s Dublin-based Depfa Bank unit, choosing instead to wind it down.
Depfa’s assets, which stood at 49 billion euros ($67 billion) at the end of 2013, will be moved to state-owned bad bank FMS Wertmanagement AoeR, or FMS-WM, the German Finance Ministry said in an e-mailed statement yesterday. German taxpayers, who own Hypo Real Estate, would get “a higher value” by running down the unit than by selling it, the ministry said.
“This is a dangerous precedent Germany has set,” said Christopher Wheeler, a banking analyst at Mediobanca SpA in London. “The government is clearly loathe to let private equity run off into the west with an asset that could generate a substantial return. It looks political and probably sends out the wrong signal for a country looking to sell more bank assets in the coming years.”
Leucadia National Corp., the investment firm run by Wall Street banker Richard Handler, and Massachusetts Mutual Life Insurance Co. were picked last month as preferred bidders, after offering as much as 350 million euros for Depfa, people with knowledge of the matter said on May 7. The German Finance Ministry said at the time that the unit would only be sold if a deal offered an “economically viable alternative” to winding it down under state control.
Hypo Real Estate agreed to sell Depfa, a provider of public-sector finance, by the end of the year under a plan approved by the European Union in 2011. The EU review was triggered after Germany injected 10 billion euros into Hypo Real Estate in a rescue program.
“We have created very good options by preparing the sale of Depfa ready for signing,” Manuela Better, chief executive officer of Hypo Real Estate, said in a separate statement. “It goes without saying that the decision not to sell, but to wind down Depfa under FMS-WM, is that of the owner.”
Better must also find a buyer for Hypo Real Estate’s remaining business, Deutsche Pfandbriefbank, by the end of 2015 to meet EU conditions for its bailout. FMS-WM is also seeking bids for its servicing unit that administers about 119 billion euros of assets.
Elsewhere, Germany holds a 17 percent stake in Commerzbank AG after rescuing the country’s second-largest bank in 2009. The state of North-Rhine Westphalia plans to sell the portfolio servicing unit of Portigon AG, which succeeded failed lender WestLB.
Depfa transferred about 131 billion euros of non-performing and non-strategic assets to FMS-WM in 2010, according to Hypo Real Estate.
Depfa reported a 20 million-euro pretax loss last year compared with a 68 million-euro profit in 2012, according to a presentation on its website on April 3. Its total assets shrank to 49 billion euros at the end of December from 73 billion euros a year earlier.
A group led by Daniel Loeb’s Third Point LLC and an offer involving Oswald Gruebel, the former CEO of UBS AG and Credit Suisse Group AG, and Mead Park Holdings LLC, a New York-based hedge-fund firm, were also on the short list as potential buyers, people with knowledge of the matter said in March.
“It’s good that despite the long preparation for the sale, those in charge have now pulled the emergency brake at the last minute and stopped the sale,” Gerhard Schick, finance policy spokesman in Parliament for the opposition Green party, said in an e-mailed statement. “In my view it would have been possible to stop the sale process earlier, thus saving cost and effort.”