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.
Both Wells Fargo and Lone Star Funds have targeted European financial and real estate assets in recent years as the financial crisis has made asset values more attractive. In December Lone Star won the privatization auction of Germany's TLG Immobilien real estate company with a 1.1 billion Euro bid, and in October it won the bidding for the Kildare nonperforming loans portfolio of Allied Irish Banks plc, acquiring securities with a face value of 650 million Euros for a near 60% discount. In the U.K. in December 2011 the Dallas investor bought a portfolio of U.K. mortgage-backed loans from Lloyds Banking Group plc ( LYG) with a face value of about 900 million UK Pounds ($1.4 billion). That same month Wells Fargo bought London and Stamford, Conn.'s assets-based lender Burdale Financial Holdings Ltd. and a related 1 billion UK Pounds loans portfolio from Bank of Ireland Group. The Commerzbank sale to Wells Fargo and Lone Star comes after a report in weekly magazine Focus that Germany's finance ministry has held talks about selling part of its 17% Commerzbank stake to UBS ( UBS). Commerzbank shares were up almost 4% at 6.23 Euros by midafternoon in Frankfurt, valuing the equity at about 7.1 billion Euros. The bank is 5% owned by BlackRock Inc. ( BLK). An Ashurst LLP team led by Nick Cheshire and Rob Aird, and including Mark Edwards, Martyn Rogers, Lee Doyle, Derwin Jenkinson, Adair Gordon-Orr and Stephan Kock, advised Commerzbank. Allen & Overy LLP was the lead adviser to both buyers, and Wells Fargo took additional legal advice from a Dechert LLP team of Rick Jones, Jeremy Trinder, Mark Stapleton and David Gervais. The deal is expected to close in the third quarter. Written by Laura Board