– Thoughts on Strategy and Management

Another Takeover in Specialised Financial Services

Today Hypo Real Estate Holding AG (HRE), a specialised German real estate financing institute, and DEPFA BANK plc, Ireland, announced that HRE would take over DEPFA. DEPFA, which has German roots too, is specialised in public sector and infrastructure financing. Both are listed companies with a high free float. Both banks are active in the most important international markets. The combined group would have a size that makes it one of the larges German banks.

On a global scale, the takeover between two mid-sized specialised banks is probably not overly interesting. Nevertheless, the reason why this is worth a post here is that this is a nice example of how short-lived the rationales between major strategic moves have become. A look at the history of both banks reveals some quite interesting things:

HRE is the former real estate financing business of Hypo-Vereinsbank AG which was spun off in 2003. This real estate financing business was part of Hypo-Vereinsbank’s problems, which eventually led to the takeover of Hypo-Vereinsbank by Unicredito. HRE, however, developed nicely. It shows a steady improvement of financial results and ratios and is one of the most profitable German mortgage banks.

DEPFA has a much longer history, which dates back to 1922. Until 2001 DEPFA was located in Germany and had a full mortgage financing business. Thus it followed the business model of most German mortgage banks with two major activities: mortgage banking (i.e. commercial and private real estate financing, refinanced by Pfandbrief, the German coverd bond) and public finance. In 2001 DEPFA spun off its mortgage financing business in the form of newly founded Aareal bank. Moreover, DEPFA moved its registered office from Wiesbaden in Germany to Dublin, Ireland, for legal reasons.

Isn’t that a nice turn: HRE, the former problem child, feels strong enough to take over a not-so-small competitor, and DEPFA will again be part of a German group which will operate the mortgage banking business and the public finance business. There is a lot of talk about synergies and how well the two businesses complement each other in the press releases from both banks.

In a time span of only four (HRE) to six (DEPFA) years we have seen a complete change in the strategic situation which led to the regrouping of two major players in their industry. I am quite sure that there will be some more spin-offs, mergers, takeovers and the like in this industry in the next future.

By the way, if you struggle to keep track of who belonged to whom, was spun off from whom or was created by a merger of even other banks, the Association of German Pfandbrief Banks publishes a “family tree” of the operative members with former names, mergers etc. (in German language only) 

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