Commerzbank has sold roughly $1 billion (£613 million) in bad Spanish property loans in a bid to clean up its balance sheet and free up capital ahead of European banking health checks.
Germany’s second biggest lender said on Thursday it hived off a portfolio worth €710 million of non-performing Spanish mortgages to international investors, sending its shares up three per cent.
The deal is a milestone in Commerzbank’s restructuring plan that aims to restore strength after an €18 billion government rescue in the financial crisis. The bank will publish 2013 results on Thursday.
Banks have been trying to sell off risky assets, but few deals have materialised as buyers and sellers disagree on valuations. A pickup of the Spanish real estate market helped smoothen the way for the transaction, Commerzbank said.
The transaction reduces the bank’s risk-weighted assets by €600 million and results in only a “minor” charge, which will be booked in Commerzbank’s fourth quarter earnings.
Since the beginning of 2013, the bank has halved the volume of non-performing loans in its Spanish commercial real estate portfolio from about two billion to roughly one billion, Commerzbank added.
Commerzbank in 2012 decided to wind down its mortgage unit Hypothekenbank Frankfurt International, previously known as Eurohypo, which does not underwrite new business anymore but runs off existing loans.
To speed up the process and to be ready for an asset quality review as well as a stress test run by European banking regulators Commerzbank has embarked on divesting larger portfolios.
In July, it sold British property loans worth €5 billion to US rival Wells Fargo and private equity firm Lone Star Funds.
The deal is a milestone in Commerzbank’s restructuring plan that aims to restore strength after an €18 million government rescue in the financial crisis
Separately, it has hired Lazard to sell a different portfolio of Spanish mortgages – €3.3 billion in performing loans and roughly €1 billion in non-performing loans – people familiar with that transaction said.
“Commerzbank will not sell those on the cheap, but only if can get out of them more or less loss-free”, one of those people said, adding it was too early to say when a deal will be reached.