Depfa bypasses ECB ban with €150m dividend payout

Bank based in Dublin is in wind-down mode and has more than €630m in reserves

Depfa’s balance sheet has contracted at an accelerated pace under the German bad bank, with total assets falling to €6.9 billion at the end of June. Photograph: Cyril Byrne

Depfa’s balance sheet has contracted at an accelerated pace under the German bad bank, with total assets falling to €6.9 billion at the end of June. Photograph: Cyril Byrne

 

Dublin-based Depfa Bank said on Tuesday that it has handed over a €150 million dividend to its owners, a German state-owned bad bank, getting around an effective regulatory ban on such payments across Europe during Covid-19.

The bank said in a statement that the Central Bank of Ireland made “no objection” to the payment.

It is understood that this is because Depfa Bank, which is currently up for sale, has been in wind-down mode for some years. It also holds more than €630 million rainy-day capital reserves – even after the dividend payment – that stand at about 15 times more than what it is required to hold by regulators.

Depfa decided in early April to postpone the planned dividend payment, after the European Central Bank (ECB) called for dividend distributions to be stalled, initially until October, but subsequently extended to January.

Recommendation

The ECB recommendation – which amounts to a de facto ban – was based on a view that banks needs to hold onto reserves to continue to fulfil their role of providing loans to households and businesses during the Covid-19 economic shock.

However, Depfa has not been in the business of issuing new loans since 2011, when it was put into rundown.

Depfa, a former high-flying German public sector finance bank that moved its headquarters to Dublin in 2002, was bought by Munich-based Hypo Real Estate in 2007, a year before the Irish bank ran into funding problems in the wake of the collapse of Lehman Brothers.

While Hypo Real Estate agreed to sell Depfa under a restructuring plan tied to its own bailout during the financial crisis, the German government pulled the transaction in 2014 and transferred the business to state-owned bad bank FMS Wertmanagement (FMS-WM).

Process

FMS-WM hired investment bankers in Barclays last October to manage a fresh attempt to sell Depfa in 2020. The sale process is ongoing.

Debt ratings agencies have questioned the attraction of Depfa to buyers as a “structurally lossmaking” business in itself. But prospective acquirers, such as hedge funds, may seek to make money out of continuing the wind-down. Alternatively, the availability of a banking licence may attract others keen on rebuilding the business.

Depfa’s balance sheet has contracted at an accelerated pace under the German bad bank, with total assets falling to €6.9 billion at the end of June from €48.5 billion 5½ years earlier. Its remaining portfolio mainly consists of loans and bonds to German and other western European borrowers from the public sector