Financial investors, ladies and gentlemen, haven’t paid too much attention to sensitivities: at least not to the fact that Aareal Bank’s new CEO wanted to come first: know the employees, refine the strategy, rethink everything. What you do in the first hundred days, and that’s probably what Jochen Klösges had planned as well, since mid-September he’s been CEO of the aforementioned Aareal bank.
Instead, Klösges had to issue an ad hoc announcement last week – the 17th working day – with big implications: the bank, it was said, confirmed “open discussions with a group of financial investors concerning a majority shareholding ”. Specifically, three US private equity firms, all based in cities far from New York and Boston, have hunted down traditional Aareal bank with the intention of taking it over. If that doesn’t mean anything: Aareal Bank finances real estate around the world, particularly offices and hotels, has 3,000 employees and is one of only three listed German banks. With a balance sheet total of 45 billion euros, that’s significantly less than Commerzbank or Deutsche Bank, but at least it is.
In any case, the stock market deemed the offer plausible, the price jumped more than twenty percent on Friday. And the CEO must now do what corporate law requires, namely control advances, if only for the benefit of its shareholders: investors Centerbridge, Advent and Towerbrook could spend 1.74 billion euros to the bank, depending on the first offer. It would be one of the biggest bank acquisitions in Germany in years.
What does the supervisor think of the “grasshopper model”?
What exactly the three financial investors want remains to be seen. One thing is clear: To meet their expectations of higher returns, they need to come up with something, like splitting up the bank’s IT branch, cutting costs and managing it better. Even though Aareal Bank points out that this is anything but a crisis, Corona has hit the bank.
A strategy refined in January had fizzled out on the stock market and the top spot had been vacant for nearly a year. A militant shareholder had previously tried to shake up the management of the bank.
But there is also a fundamental question behind this: is it acceptable that German banks – and therefore possibly critical infrastructure – fall mainly in the hands of foreign investors? After the financial crisis, many wondered if it was not a mistake to simply hand over some of the zombie banks of the time to financial investors. The example of the American investor Lone Star is well remembered, who about six years ago simply abandoned the Düsseldorf real estate bank after various problems and ceded the remaining risks to the private banking community. The financial supervisory authority Bafin, which must approve such takeovers, has therefore long been skeptical of the “grasshopper” model, in particular vis-à-vis the big banks which, in the event of of doubt, should even be absorbed by taxpayers.
However, a lot has happened since: the American investment firm Cerberus has taken small stakes in Deutsche Bank and Commerzbank. The Americans were also involved in the takeover of the ailing HSH Nordbank, which now operates as Hamburg Commercial Bank. Lone Star has also kept a low profile, at least as owner of the Düsseldorf-based IKB, and a consortium around investor Apollo recently snatched up the Oldenburgische Landesbank. “They have shown they can do it,” said one bank lobbyist. “So why shouldn’t you invest in the German banking market? “
How relaxed politics and oversight is seen in the still struggling Commerzbank. According to Handelsblatt, financial investor Cerberus, which owns 5% of the bank, is interested in buying the state stake. The American investor could imagine resuming the participation of the federal government after the federal election, it is said. Is it true? Not clear. What is striking, however, is the frequency with which Commerzbank officials and senior Cerberus officials have met with the Secretary of State responsible for the Federal Ministry of Finance in recent months.
What’s next at Aareal? It is said that a breakup would not be appreciated in Wiesbaden. And anyway, a bank in Germany has never been taken over against the will of management or supervision. Maybe Klösges will still run his planned 100-day schedule after all.