Cerberus, Feinberg Switch Strategy to Shake Up German Banks

(Bloomberg) -- Stephen Feinberg, the reclusive American financier, is probably best known for his connection to President Donald Trump, his firm’s brief ownership of Chrysler, its investments in distressed debt, and its involvement in weapons, from pistols to military aircraft.

Add this surprise to Feinberg’s portfolio: He’s put himself in a position to be an activist investor in a pair of German banks that have been mentioned as possible merger partners.

Feinberg’s Cerberus Capital Management announced Wednesday it had taken a 3 percent stake in Deutsche Bank AG, Germany’s biggest bank. In July, it bought 5 percent of Commerzbank AG, the country’s second-biggest lender.

“They could be an activist catalyst to merge the two biggest German banks,” said David Hendler, founder of Viola Risk Advisors and an analyst who’s followed the industry for more than three decades.

The bet on German financial institutions marks Cerberus’s latest foray into Europe’s highly political banking industry.

The firm already controls Austrian lender Bawag Group AG, which agreed in July to take over small German commercial lender Suedwestbank AG. Last month, shareholders led by Cerberus listed Bawag, Austria’s fourth-biggest bank, on Vienna’s stock exchange, making it the nation’s largest-ever IPO. The stock has lost almost 10 percent since then.

Distressed Assets

Cerberus has made a binding offer for HSH Nordbank AG, the German shipping lender that’s been controlled by regional governments since the financial crisis, people familiar with the matter said in October.

In an investment more in keeping with its history as a buyer of distressed assets, Cerberus purchased 13 billion pounds ($17.2 billion) of loans and mortgages from bailed-out U.K. lender Northern Rock Plc in 2015.

Cerberus’s single-digit stakes in the two German banks might seem too small to wield much influence, but that could be underestimating what can be accomplished. Nelson Peltz’s Trian Fund Management got its co-founder and chief investment officer elected to the General Electric Co. board despite controlling only 0.8 percent of shares.

Cerberus’s 1-billion-euro ($1.2 billion) stake in Deutsche Bank makes it the company’s No. 4 shareholder. It’s the second-largest investor in Commerzbank, after the German government.

Economy Strengthening

“As the economy is strengthening there, it could be a very interesting play in the German economy more broadly,” Steve Pierson, president of Radnor, Pennsylvania-based Lovell Minnick Partners, told Bloomberg TV.

There are many obstacles to a potential wedding of Deutsche Bank and Commerzbank. They include the issues around loan exposure, said one person familiar with the situation, who asked not to be named as the information is private.

Cerberus declined to comment on the prospect for a merger between Deutsche Bank and Commerzbank. The firm sees Germany as an attractive place to invest, it said in a statement Wednesday. “Within Germany, we believe there are attractive long-term opportunities in retail and corporate banking due to Germany’s robust economy, high savings rate, and a number of other factors,” it said.

Cerberus has more than $30 billion under management, according to its website. The firm, named after the mythological three-headed dog that guards the gates of Hell, invests in distressed assets and real estate and lends to middle-market companies. It typically focuses on private investments, preferring to work under the media radar. Feinberg, 57, co-founded the firm in 1992 and is its chief executive officer.

Cerberus’s German team is led by 14-year Cerberus veteran David Knower, an American who has been focusing its efforts on European real estate investments. In addition to being the largest investor in European property loans, Cerberus has directly invested more than 5 billion euros in real estate across the continent.

In March, GE sold its consumer-finance business in France to Cerberus, which in June divested Spanish luxury property developer Sotogrande SA.

Weapons Makers

Cerberus owns more than a dozen brands that manufacture weaponry. Remington Outdoor Co., which Cerberus bought in 2007, makes the AR-15 semiautomatic rifle, which was used in the 2012 Sandy Hook Elementary School massacre in which 20 children and six adults were killed. Families of the victims are trying to sue the company.

Cerberus is close to current and former government officials. John F. Kelly was an adviser for DynCorp International Inc., an aircraft-maintenance company owned by Cerberus, before becoming Trump’s Homeland Security secretary and now his White House chief of staff. John W. Snow, a Treasury secretary under President George W. Bush, is chairman of Cerberus, and former Vice President Dan Quayle oversees foreign deals.

Feinberg was one of Trump’s earliest Wall Street supporters, giving about $2.2 million with his wife to groups backing the candidate. In June 2016, he co-hosted a $50,000-a-plate fundraiser at the Le Cirque restaurant in New York.

He may need to develop similar political connections in Berlin if he tries to orchestrate a merger between the country’s two biggest lenders, especially with the German government calling the shots at Commerzbank.

“Certainly there’s some consolidation talk that’s been in the works over there,” said Lovell Minnick’s Pierson said in the interview.

©2017 Bloomberg L.P.

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