HRE plans auction sale of Dublin-based Depfa Bank

Dublin-based Depfa Bank is to be sold off by its Munich-based parent, Hypo Real Estate, five years after both were rescued from collapse by a German state-backed guarantee.

Depfa, based in the IFSC, plays no active role in the HRE group under the terms of a 2008 rescue plan that resulted in the property group’s nationalisation in 2009.

A well-placed source confirmed to The Irish Times that a plan would be announced shortly to hive off the Irish institution in an auction, six years after it was bought by HRE.

Until the financial crisis of 2008, the Dublin-based bank was a big earner for the Munich-based property company; its main business model was refinancing long-term infrastructural investment with lower-interest short-term loans.

When the collapse of Lehmann Brothers in September 2008 saw short-term money markets dry up, Depfa found itself on the brink of collapse and, with it, HRE.

HRE reprivatisation
Offloading its Dublin subsidiary is seen in Munich as a crucial step to allow the reprivatisation of HRE by Berlin in 2015.

The post-crisis group was reorganised into two pillars – Depfa in Dublin and Pbb Deutsche Pfandbriefbank – under a Munich-based holding company, Hypo Real Estate.

The group’s most toxic papers have already been transferred to a bad bank, FMS Wertmanagement, with a strategy to manage the papers until 2020 and minimise the eventual loss to German taxpayers.

The Pbb subsidiary is now HRE’s main earner, while Depfa continues to exist merely to manage existing investment on its books worth about €40 billion.

The freeze on new business in Dublin was a condition of the European Commission allowing the Berlin-backed rescue plan with guarantees of €135 billion. Another condition was that the Depfa sale must be completed by the end of 2014.

Officials familiar with the sell-off plan insist that, despite its notoriety in financial circles, Depfa has an inherent value for financial markets looking for expertise to enter the covered bond market.

Freed of its toxic assets, HRE earned a profit of €31 million in the second quarter via Pbb, pushing pretax profits for the first half of 2013 to €60 million.

“Pbb is profitable for three years and has earned €590 million in pretax profits in this period,” said HRE chief executive Manuela Better, presenting the results last week. “We see ourselves making very good progress to meet our business targets for 2013.”

These include pretax profit of €100 million for Pbb with new business worth €5.6 billion.

In line with the bank's post-crisis strategy, half of this business came from property financing and of which half was based in Germany.

Legal battles
Five years on, the near-collapse of the HRE group is still the subject of three legal battles. In one, former investors in the bank squeezed out by the 2009 nationalisation are suing for damages, claiming they were informed too late about risks on the group's balance sheet.

HRE's former chief executive, Georg Funke, is still battling his former employer over the financial terms of his dismissal.