NEW YORK ( The Deal) -- Commerzbank AG said Monday it sold a 5 billion Euro ($6.5 billion) portfolio of U.K. commercial real estate loans owned by the British arm of its Hypothekenbank Frankfurt AG unit to Wells Fargo & Co. (WDC) and Lone Star Funds.
The Frankfurt-based lender, which is 17% owned by the German state following a 2009 bailout, sold the loans at a discount of about 3.5%. It said this is "low measured against similar transactions" but will nevertheless result in a 179 million Euros charge for 2013.
The deal cuts Commerzbank's risk-weighted assets by 1.5 billion Euros and trims its nonperforming loans by 1.2 billion Euros, the lender said. It also means it will be able to cut noncore assets to "significantly less" than 90 billion Euros by the end of 2016, since it will achieve an earlier 93 billion Euro target before it had anticipated, Commerzbank added. The sale won't have a notable impact on its core Tier 1 capital ratio.
"This portfolio sale is attractive from a risk perspective since we transfer future risk from our U.K. operating platform to the buyers," chief financial officer Stephan Engels said in a statement.The transaction includes the London branch of Hypothekenbank Frankfurt, whose employees will transfer to Wells Fargo. Wells Fargo said the loans portfolio changing hands totals about 4 billion UK Pounds ($6.04 billion). It noted that Lone Star will acquire about 1.3 billion UK Pounds of the loans, with Wells Fargo providing the financing. Wells Fargo, of San Francisco, in January announced plans to expand its U.K. commercial real estate business. It said Monday that executive vice president Bill Vernon led the loans acquisition from Commerzbank. "Hypothekenbank Frankfurt's 20-year history in London, their recognition as a market leader in the commercial real estate industry, and our similar approaches to building quality assets and providing outstanding client service all add up to a great strategic expansion opportunity for Wells Fargo's U.K. Commercial Real Estate business," Vernon said in a statement. Hypothekenbank Frankfurt's Max Sinclair will lead Wells Fargo's London commercial real estate office arm, the bank said, and Hypothekenbank Frankfurt's office in London's Covent Garden will become Wells Fargo's U.K. commercial real estate base.