Landesbank Baden-Württemberg (LBBW) is taking over Berlin Hyp, although the commercial real estate lender will operate as a self-contained subsidiary and the Pfandbrief programmes of the two issuers are not expected to be combined.

Berlin Hyp had been the subject of takeover talk for some time, with DekaBank and Helaba other bidders, although ahead of the official announcement of the news LBBW had become the favourite to acquire it from Landesbank Berlin Holding, which is in turn owned by the German savings banks. The financial terms of the transaction have not been disclosed.

“With its profitable and low-risk business model focused on sustainability, Berlin Hyp is an excellent fit for LBBW,” said Rainer Neske, chairman of LBBW’s board of managing directors. “At LBBW, this strengthens one of our core business areas, where we have already been enjoying very successful growth for several years.

“At the same time, we are creating a major competence centre for commercial real estate lending within the savings banks organization. This represents another big step in combining forces in the public banking sector.”

As of 30 June 2021, Berlin Hyp had a loan portfolio of some €25bn, while LBBW’s was around €26bn, and LBBW noted that the banks’ strategies in real estate are similar. It also highlighted their interest in sustainability and notably ESG bonds, citing Berlin Hyp having issued the first ever green covered bond and first sustainability-linked bond among European commercial banks.

“In recent years, Berlin Hyp has prepared itself optimally for the future through comprehensive digitization projects and a forward-looking ESG strategy,” said Sascha Klaus, chair of the board of management at Berlin Hyp. “In the future, we will bring these strengths to LBBW. Customers of both banks will benefit from this.”

Berlin Hyp’s brand name will be retained and it will be managed as a “self-contained” subsidiary, according to the announcement.

Yesterday’s news confirmed analysts’ expectations that the combination of the two banks should not affect the trading levels of their Pfandbriefe.

“Since there will be no significant changes in the framework conditions for the Pfandbriefe,” said DZ analyst Thorsten Euler, “we do not expect any significant takeover-related movements in the swap spreads of the Pfandbriefe of the two institutions in relation to each other.

“The spreads are already trading at a very similar level anyway. Against this background, we classify the euro benchmark Pfandbriefe of Berlin Hyp and LBBW as market-performer.”

The two banks issue mortgage and public sector Pfandbriefe, although Berlin Hyp’s public sector is being run down. Its mortgage Pfandbriefe and LBBW’s mortgage and public sector Pfandbriefe are rated Aaa by Moody’s.

The transaction is expected to close in the summer and is subject to anti-trust approval and approval by the relevant savings banks bodies.