Germany prepares sale of Depfa to draw line under country's largest bailout: sources

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© Reuters. Germany prepares sale of Depfa to draw line under country's largest bailout: sources© Reuters. Germany prepares sale of Depfa to draw line under country’s largest bailout: sources

By Arno Schuetze and Hans Seidenstuecker

FRANKFURT (Reuters) – The German government has started preparations to sell state financier Depfa as it seeks to draw a line under the country’s largest bailout of the financial crisis a decade ago, people close to the matter said.

Ireland-based Depfa is a former unit of Hypo Real Estate (HRE), which Germany nationalized in 2009. An attempt to sell Depfa for 320 million euros was scrapped in 2014 and the lender was instead transferred to the HRE bad bank FMS Wertmanagement (FMSW).

FMSW has mandated Barclays (L:) to find a buyer for Depfa, which has a book value of about 900 million euros ($988 million) and could be valued at 0.6-0.8 times that in a potential deal, the people said.

FMSW and Barclays declined to comment.

FMSW Chief Financial Officer Christoph Mueller said in April that a sale of Depfa could be launched in 2020.

The lender is expected to attract interest from banks, which can make use of Depfa’s strong capital basis – the result of de-risking its portfolio over the last decade.

FSMW will likely market Depfa to German public-sector bank Helaba, which bought municipal lender Dexia Kommunalbank in 2018, as well as to Austrian infrastructure lender Kommunalkredit and private equity firms such as Lone Star.

Germany nationalized Hypo Real Estate in 2009 after injecting 10 billion euros of capital and providing 145 billion euros in liquidity guarantees. The bank collapsed due to massive writedowns among other things on Depfa’s holdings of mortgage-backed securities, which slumped in value after the failure of U.S. investment bank Lehman Brothers.

Depfa, which had been bought by Hypo Real Estate for 5.2 billion euros in 2007, stopped underwriting new business on EU demands after the HRE bailout and focused on winding down its assets and shrinking its capital base.

In the first six months of 2019, Depfa posted a pre-tax loss of 67 million euros. Total assets stood at 14.4 billion euros and its core equity tier 1 ratio at 144% at the end of June, according to its half-year report.

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