The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Banking

Hypo/Depfa marriage met with scepticism

Hypo Real Estate’s €5.7 billion purchase of Depfa Bank, announced on July 23, has not been an instant hit. The deal unites one of Europe’s biggest commercial real estate financiers with the continent’s second-biggest public-sector lender. The managements of the two banks were keen to talk up the complementary nature of the new entity’s businesses but analysts have offered lukewarm assessments at best.

Georg Funke, Hypo Real Estate

Georg Funke, Hypo Real Estate: new emphasis on the predictable

Investors reacted accordingly, sending Hypo RE’s share price down almost 10% by the end of July. A steeper sell-off on August 3 – with investors apparently fretting about the widening sub-prime mortgage fallout – took Hypo RE’s shares down 6% on the day. The slide prompted the bank to rush out a press release reassuring investors that it had little sub-prime exposure and stating that its plans to acquire Depfa were unchanged.

Dieter Hein, a banking analyst with independent research firm fairesearch in Frankfurt, argues that the tie-up makes perfect sense for Depfa, which will get a stronger capital base and the ability to compete for bigger-ticket deals. But Hypo RE is buying a bank that has been something of a black box, he says. Because there is little if any default risk in lending to public-sector institutions, margins tend to be tiny, prompting banks to boost returns through leverage. According to Hein, Hypo RE chief executive Georg Funke admitted when presenting the deal that some of Depfa’s past profits had been "like a casino game".

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree