Eurohypo

Eurohypo was a German specialist banking business focused on commercial real-estate finance, public-sector lending and covered-bond refinancing. It was created in the early 2000s by combining the real-estate lending operations of Deutsche Bank, Dresdner Bank and Commerzbank. The combination was intended to create a large, internationally active mortgage bank with greater scale, a broader origination platform and a substantial position in the European Pfandbrief and securitisation markets. The bank financed commercial property in Germany and a range of overseas markets, including countries in Europe, the United States and Asia. Its public-finance activities served central governments, federal states, municipalities and other borrowers benefiting from public guarantees. It also provided financing and advisory services for public-private partnership projects. Treasury activities supported covered-pool management and the refinancing of the commercial real-estate portfolio. Eurohypo expanded rapidly before the global financial crisis. By 2007 it had a balance sheet of approximately €214.2 billion and was described as one of Germany’s largest banks. Its scale also made it a major issuer of Pfandbriefe and a significant participant in syndicated lending and European securitisation. The business model exposed it to property-market cycles, complex loan portfolios and lending in multiple jurisdictions. The ownership structure changed decisively in 2005. Eurohypo had originally been jointly owned by Deutsche Bank, Dresdner Bank and Commerzbank, with an intended independent stock-market flotation. Commerzbank opposed the proposed listing and agreed to acquire the interests held by the other two banks. Eurohypo consequently became a wholly owned Commerzbank subsidiary. The acquisition gave Commerzbank control of a large real-estate lender but also concentrated substantial property-market risk within the group. The financial crisis placed heavy pressure on Eurohypo. Falling property values, constrained refinancing markets and loan impairments weakened the bank’s results. Under chief executive Frank Poerschke, the business sought to concentrate lending on a smaller group of core countries through an internal initiative known as Operation Fokus. New lending nevertheless remained limited and did not offset the deterioration of existing portfolios. Commerzbank increasingly regarded the subsidiary as a problem asset and explored ways to reduce or exit its exposure. In late 2011, Eurohypo suspended new lending outside Germany for six months while it worked to improve capital ratios. The bank was expected to resume operations in June 2012, but Commerzbank announced immediately beforehand that it would permanently withdraw from global real-estate lending. Eurohypo therefore did not restart normal origination and entered an official wind-down. Loan portfolios and operating platforms were gradually managed, sold or transferred as part of the disposal process. The entity was subsequently renamed Hypothekenbank Frankfurt AG. In 2016, its banking and Pfandbrief licences were returned, its portfolios were transferred to Commerzbank, and the remaining legal entity was transformed into the service company LSF Loan Solutions Frankfurt GmbH. Eurohypo therefore survives as a historical banking brand rather than an operating bank.

Eurohypo emerged from the consolidation of the real-estate lending activities of Deutsche Bank, Dresdner Bank and Commerzbank in the early 2000s. The three institutions had experienced repeated write-downs in property lending and faced pressure to use regulatory capital more efficiently. By placing their international real-estate operations in a jointly owned specialist bank, they sought greater scale, a unified platform and a stronger position in mortgage-backed refinancing. The new bank combined commercial property finance with public-sector lending. Its real-estate division financed properties in Germany and in selected European, American and Asian markets. Its public-finance division lent to national and subnational governments, municipalities and publicly guaranteed borrowers, while also supporting public-private partnership projects. Treasury managed refinancing, covered pools and the bank’s Pfandbrief programme. This broad platform made Eurohypo one of Europe’s most significant specialist property lenders. The shareholders initially contemplated an independent public listing. That plan became politically and strategically difficult for Commerzbank, whose earnings were significantly connected to its Eurohypo stake. Commerzbank feared that a listed Eurohypo could make the parent more vulnerable to a takeover and therefore blocked the flotation. On 16 November 2005, agreements were signed for Commerzbank to buy the Deutsche Bank and Dresdner Bank holdings. Eurohypo became wholly owned by Commerzbank, giving the latter control of a large Pfandbrief issuer and a major syndicated-loan and securitisation participant. The strategy created significant concentration risk. Eurohypo’s size and international reach had been attractive during the expansionary property cycle, but its loan book became vulnerable when property markets and wholesale funding conditions deteriorated. The 2008 financial crisis caused material impairments and intensified tensions between Eurohypo and its parent. New chief executive Frank Poerschke led an effort to reduce geographic exposure through Operation Fokus, concentrating activity on Germany, the United Kingdom, the United States, Poland, Spain, France and Russia. The bank curtailed new business, but this was insufficient to offset losses and writedowns on existing assets. Poerschke left in 2011, and the board was reorganised with greater representation from credit and risk management. Thomas Koentgen, previously the bank’s chief credit officer, became chief executive. In November 2011, Eurohypo announced that it would stop new lending outside Germany for six months in order to improve capital ratios. The measure damaged the bank’s reputation among clients because its competitive position had depended partly on being perceived as consistently open for business. The planned resumption in June 2012 never occurred. Immediately before the expected reopening, Commerzbank announced that it would leave global commercial real-estate lending altogether and instructed Eurohypo not to restart origination. The subsidiary entered wind-down, with efforts focused on portfolio management, loan-book disposals and the possible sale of regional platforms. This process reflected Commerzbank’s broader attempt to reduce risk and strengthen its balance sheet after the crisis. Eurohypo was later renamed Hypothekenbank Frankfurt AG. In 2016 the bank’s regulatory licences were returned and its portfolios were transferred to Commerzbank. The remaining company was converted into LSF Loan Solutions Frankfurt GmbH, a servicing organisation. The end of the entity marked the conclusion of Eurohypo’s career as a major independent European real-estate and public-finance bank.

1. 2016Banking licences are returned

   Hypothekenbank Frankfurt returns its banking and Pfandbrief licences, transfers portfolios to Commerzbank and becomes LSF Loan Solutions Frankfurt GmbH.

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2. 2012Eurohypo enters wind-down

   Commerzbank cancels the planned resumption of lending and announces its withdrawal from global real-estate finance.

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3. 2011International lending is suspended

   Eurohypo stops new lending outside Germany for a six-month period while seeking to improve capital ratios.

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4. 2008Financial crisis changes the business model

   Property-market stress and the global financial crisis lead to impairments, reduced lending and a geographic-concentration programme known internally as Operation Fokus.

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5. 2007Balance sheet reaches major scale

   Eurohypo’s balance sheet is reported at approximately €214.2 billion, placing it among Germany’s largest banks.

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6. 2005Commerzbank becomes sole owner

   Commerzbank signs agreements to acquire the Eurohypo interests held by Deutsche Bank and Dresdner Bank.

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7. 2002Eurohypo is established

   The real-estate lending operations of Deutsche Bank, Dresdner Bank and Commerzbank are combined to create a specialist banking platform.

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A large specialist European bank for commercial real estate, public finance and covered-bond refinancing, with an international lending platform and a strong German mortgage-bank heritage.

• Commercial real-estate financingReal-estate finance

  Eurohypo’s principal business was lending against commercial property, including assets and portfolios in Germany and selected international markets. The bank built a large cross-border platform serving property owners, investors and institutional borrowers. Its exposure to multiple geographies and property sectors contributed to its scale before the financial crisis, but also amplified the effect of falling valuations, refinancing stress and loan impairments.

• Public-sector financePublic finance

  The public-finance division provided conventional lending to central governments, federal states, municipalities and borrowers supported by public guarantees. It also participated in financing and advisory work for public-private partnership projects. This activity complemented the property business and formed part of Eurohypo’s specialist-bank identity.

• Pfandbrief refinancingCovered bonds

  Eurohypo issued Pfandbriefe and managed the covered pools used to refinance eligible lending. The bank was described as one of Europe’s largest Pfandbrief issuers. Treasury also supported refinancing of the commercial real-estate portfolio and compliance with covered-pool requirements.

• Syndicated and structured real-estate lendingWholesale banking

  The bank participated in syndicated loans and European securitisation markets alongside its bilateral property lending. These activities expanded its institutional and wholesale-banking role, although the resulting complexity and geographic reach increased the risks that became evident during the financial crisis.

• 2012Commerzbank exits global real-estate lendingStrategy

  The planned reopening of Eurohypo’s international lending operations approached, but Commerzbank decided that continued global property lending was incompatible with its restructuring needs.

  What changed. Commerzbank announced that lending would not resume and placed Eurohypo into an official wind-down.

  Aftermath. Eurohypo focused on managing and disposing of loan portfolios and regional platforms rather than originating new business.

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• 2011Temporary suspension of lending outside GermanyStrategy

  Eurohypo needed to improve capital ratios while its parent considered how to manage the loss-making real-estate business.

  What changed. The bank announced a six-month halt to new lending in every country except Germany.

  Aftermath. The suspension frustrated client-facing teams and weakened the bank’s reputation for being consistently available to borrowers.

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• 2008Operation Fokus reduces geographic exposureStrategy

  The financial crisis impaired property markets and placed pressure on Eurohypo’s international loan book.

  What changed. Management announced a concentration of lending on Germany, the United Kingdom, the United States, Poland, Spain, France and Russia.

  Aftermath. New lending remained limited and did not compensate for impairments on existing exposures.

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• 2005Commerzbank buys the remaining Eurohypo interestsM&A

  Eurohypo’s shareholders had considered an independent flotation, but Commerzbank opposed the listing and sought greater control of the business.

  What changed. Commerzbank acquired the holdings of Deutsche Bank and Dresdner Bank, making Eurohypo a wholly owned subsidiary.

  Aftermath. The transaction concentrated Eurohypo’s real-estate and refinancing exposure within Commerzbank and ended the proposed independent listing.

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• 2016Hypothekenbank Frankfurt is wound down

  The renamed bank returned its banking and Pfandbrief licences, transferred its portfolios to Commerzbank and became the service company LSF Loan Solutions Frankfurt GmbH.

  Other
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• 2016Eurohypo portfolios transferred and banking licences returned

  The wind-down concluded with portfolio transfers to Commerzbank, the return of the banking and Pfandbrief licences, and conversion into LSF Loan Solutions Frankfurt GmbH.

  Other
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• 2012Commerzbank orders permanent exit from global real-estate lending

  Commerzbank announced that Eurohypo would not resume normal lending and that the group would exit its global real-estate-finance activities.

  Bankruptcy
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• 2012Eurohypo enters official wind-down

  After the lending shutdown, Eurohypo began managing down and disposing of its regional loan portfolios and operating platforms.

  M&A
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• 2012Commerzbank begins the wind-down of global real-estate lending

  Commerzbank announced that Eurohypo would not resume lending and that the parent group would leave global real-estate finance.

  Leadership change
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• 2011Eurohypo suspends lending outside Germany

  The bank announced a temporary halt to new lending in countries outside Germany while it worked to restore capital ratios.

  Regulation
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• 2008Eurohypo narrows international lending under Operation Fokus

  Following the financial crisis, Eurohypo sought to reduce its geographic exposure and concentrate activity on a smaller group of core markets.

  Regulation
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• 2008Eurohypo narrows its international lending footprint

  Following the financial crisis, the bank announced Operation Fokus, concentrating lending activity on a smaller group of core countries.

  Other
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• 2005Commerzbank acquires Deutsche Bank and Dresdner Bank stakes in Eurohypo

  Commerzbank agreed to buy the interests held by Deutsche Bank and Dresdner Bank, ending plans for an independent Eurohypo flotation and making Eurohypo a Commerzbank subsidiary.

  M&A
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1. Eurohypo