Talks in relation to the sale or initial public offering (IPO) of Commerzbank's equity markets and commodities (EMC) division, which houses the bank's structured financial and investment products business, have reached a standstill with some sources pointing at the government's intransigence over the sale of its 15.6% stake in the bank.
The German government is the biggest shareholder in Commerzbank, after injecting a €18bn bailout n 2009, and is in no hurry to dispose of its stake while the shares remain below the price it paid, according to local media reports. The government reportedly needs €5bn to offload its share without a loss, which means that the bank's share price should be valued at €26 (now €11). The Ministry of Finance said, at the end of 2017, that it was not under any time pressure to sell its stake and that its position remained 'unchanged', which is to achieve 'a good economic result' for the taxpayer.
The bank's EMC division, the sale of which is part of the'Commerzbank 4.0' restructuring plan, has attracted the attention of a number of bids from investment banks over the last few months, according to sources. "I don't think an opportunity like this will happen again," said a senior investment banker. "Not only because is a profitable business, but also because of the footprint the bank has, as well as its manufacturing and distribution capabilities and the client base," said the source. "The bank has been in a beauty parade over the last few months and is considering its options."
The buyer of the EMC business will have to transfer risk, assets and liabilities related to the German bank's structured products, including income payments and redemptions. The German bank sold US$8.24bn of structured products in 2017, which represents an estimated $6.58bn outstanding volume.
Up to 15 potential buyers, such as investment banks (including a Chinese bank), fund managers, consulting and private equity companies have approached the German bank, according to sources. Those understood to be interested in buying the EMC division include Barclays, BNP Paribas, Credit Agricole, UBS and Unicredit, with Goldman Sachs and Societe Generale also understood to be bidding for parts of the business, such as Commerzbank's exchange traded funds (ETF), Comstage.
Another senior market source with knowledge of the negotiations said that it is not surprising that a number of banks have an interest in buying the second German bank in the biggest European economy with a large corporate network of clients, a commercial retail network with over 13 million high net worth clients, and 700 family offices. "The interest makes sense, but the timing is not clear because, at this stage, most financial firms are focused on implementation of a number of regulatory regimes and putting bids forward to buy a business with new requirements around capital and solvency is at least questionable."
Commerz was the fourth most active issuer and the seventh in terms of sales in Europe in 2017, with 175,052 structured products marketed with a sales volume of €3.8bn. The German bank has 648,651 live products across markets. More than half a million of those products were sold in Germany/Austria (582,198) with Belgium (24,502 products), The Netherlands (23,043), France (20,986) and Sweden (11,578) the top five markets in which Commerz is more active.
Unicredit has a solid presence in Germany as owner of a Bavarian savings bank after merging with the German group HVB in 2005. At a European level, the Italian group is a top 10 provider in Europe - in terms of issuance (sixth in 2017 with 119,000 products marketed), and sales (second in 2017, with €5.3bn). Unicredit has marketed over 726,581 structured products, of which 264,336 are still live. The Italian group has a limited presence outside Germany/Austria (261,050 live products) and remains a marginal player in France (2,420), Italy (435) and the Czech Republic (116).
BNP Paribas is a more likely buyer, as it remains a top market player and has acquired a number of structured products books from struggling banks including Credit Agricoloe, RBS and most recently ING, according to sources. BNPP was the most active issuer in Europe in 2017, marketing almost 200,000 products worth an estimated €5.3bn. The bank is a leading global provider and has issued almost two million products of which 585,700 are live, and its top European markets include Germany/Austria (550,368 products), Belgium (18,766), France (14,091), The Netherlands (11,919) and Sweden (8,200), and also a presence in Hong Kong (877 live products), the US (479), Taiwan (468) and South Korea (133).
UBS was the tenth biggest issuer in Europe in 2017 with 57,379 products marketed for an estimated €3.8bn. The Swiss bank has issued over 1.6 million products, of which 636,668 are still live and is an active provider in Germany (619,810 live products) and Switzerland (6,791), and has also a large presence in Hong Kong (1,510 products) and the US (8,208).
Credit Agricole remains a marginal issuer (62 products), but fourth largest in European in terms of sales (€4.5bn) in 2017, continuing to rebuild its structured products over the last two years. It has 278 live products, of which 220 products were sold in France, and a marginal presence in Italy (19 products), Japan (13), and the US (13). Barclays marketed 13 products in Europe in 2017 worth an estimated €230m. The UK bank has marketed 75,350 products across databases of which 34,549 are still live, according to SRP data. Its core market is France, where it has 23,598 live products, followed by Germany (7,515), the US (3,110) and South Africa (131), with only a limited presence in Hong Kong (six products), Switzerland (14), (Japan (16), Singapore (22) and the UK (34).
SG issued over 116,900 products in 2017 with an estimated volume of €4.1bn, and has issued almost one million structured products, of which 359,328 are still live: 345,000 live products in Germany, 342,890 in Austria, 6,277 in Sweden, 1,478 in France and 1,133 in Finland. SG is laos a prominent issuer in Hong Kong (2,282 products), the US (323), Japan (44) and Singapore (22).
Goldman Sachs issued 97,570 products in 2017 in Europe with an estimated sales volume of €869m, according to SRP data. It has issued 966,218 products, of which 210,412 have yet to reach maturity, although its global reach is limited compared to the others. While it has a strong presence in a few European markets, such as Germany, where it has 194,844 live products, The Netherlands (8,138) and Belgium (3,705), its involvement in non-European markets is limited to its presence in its core market, the US, where it has over 5,000 live products and Hong Kong, where it has 1,767 live products.
Related stories:
Commerzbank to develop range of products linked to 'Industry 4.0' concept
Commerzbank reports fall in trading liabilities, Deutsche's EQD revenues far lower in Q3