Custodians are lining up advisers for the potential sale of Commerzbanks custody business, Global Custodian understands.
As reported first in Bloomberg, the bank is said to be considering divesting the business in the wake of the European debt crisis. Lower client activity and increased regulatory costs, which have impacted earnings, have sparked the review of portfolios including public finance, commercial real estate and ship finance. Furthermore, a low interest rate environment has led to reduced fees, lower yields and reduced returns on securities lending. Commerzbank is said to be considering a private and informal sale of its custody business.
At the end of the first quarter of 2012, the bank had shrunk public finance assets marginally by 7 billion to 82 billion and commercial real estate assets by 4 billion to 54 billion. “These changes are important and necessary, for a safer business model and to comply with new capital and liquidity rulebooks, but it becomes clear that Commerzbank is like the French banks in giving up substantial yield curve P&L as it deleverages,” said an analyst research report from Barclays Capital in May. Before that, in February, Barclays Capital noted a greater trend by Commerzbank in running down assets in order to meet the European Banking Authority’s capital requirement. Commenting on Commerzbank’s Q4 2011 earnings, a note from Barclays Capital said: “While this accelerated run-down helps capital ratios and funding requirements (they will barely need to refinance any of the 30 billion debt maturing in 2012), we are seeing a continuing stream of mark-downs and charges as the portfolios are worked down.”
Sources say some custodians have already lined up advisers to look at the business, which Bloomberg reported may fetch more than 200 million ($261 million), citing sources. It said it may sell the business by the end of the first quarter, but could also decide against a sale if the bids are deemed too low. UBS is advising Commerzbank, the report added.
Commerzbank could not be reached for comment, while UBS declined to comment.
Commerzbanks custodian unit had 91.2 billion of assets at the end of June.
Europes main custodians include BNP Paribas, Societe Generale, Deutsche Bank, while the global custodians in the region include State Street, BNY Mellon, J.P. Morgan and RBC Investor Services.
(JDC)