Aareal Bank is acquiring Westdeutsche ImmobilienBank (WestImmo) for Eu350m from Erste Abwicklungsanstalt (EEA), the wind-down entity of WestLB, which previously owned the commercial property lender and Pfandbrief issuer.

The move comes after Aareal completed the acquisition of Corealcredit (formerly Allgemeine HypothekenBank Rheinboden) at the end of the first quarter of 2014.

WestImmo was originally to be sold by WestLB by June 2012 but was then transferred to EEA and since then the bank was unable to write new business under EC state aid rules. Ahead of the eventual sale, non-Pfandbriefbank-suitable business was transferred to EAA.

“Having already spun off non-strategic assets, and following the divestiture of all participations and further balance-sheet items (as agreed with the seller), WestImmo is now a Pfandbrief issuer with a clear focus on its core business,” said Aareal. “WestImmo’s high quality, low risk commercial property financing portfolio, which is broadly diversified – both geographically and in terms of the type of financed properties – supplements Aareal Bank’s activities in line with the bank’s strategy.”

According to Florian Eichert, senior covered bond analyst at Crédit Agricole, WestImmo’s mortgage and public sector cover pools are roughly half the size of Aareal’s, meaning that a merging of the cover pools would lead to significant changes.

He noted that mortgage OC levels are similar but that lower OC in WestImmo’s public sector cover pool could reduce the OC level of a combined cover pool to around 12% from Aareal’s 14.1%. Meanwhile, the share of residential mortgages could rise from 7% to 14% and of German mortgages from 17% to 27%, while the German share of public sector collateral could rise from 78% to 84%.

Based on this, Eichert said that a combined mortgage pool could be “a touch better”. He also noted that Aareal’s triple-A mortgage and public sector Pfandbriefe ratings have two and three notches of leeway, respectively, against issuer downgrades at Fitch – the only rating agency to rate Aareal Pfandbriefe – “so even if the agency takes a negative stance on a possible takeover, Pfandbrief ratings seem well protected”.

Aareal confirmed the purchase yesterday (Sunday) and said the sale is expected to be completed in the first half of the year.