Bawag Is Said to Emerge as Frontrunner to Buy German-Owned Depfa

Austrian lender Bawag Group AG is emerging as the frontrunner to acquire Depfa Bank Plc, the public sector financier being sold by Germany, people with knowledge of the matter said.

FMS Wertmanagement, the state-owned bad bank that controls Dublin-based Depfa, is negotiating terms of a deal with Bawag, according to the people. No final agreements have been reached, and another winner could still emerge, the people said, asking not to be identified because the information is private.

Kommunalkredit Austria AG and German regional lender LBBW had earlier been studying the business, the people said. Representatives for FMS, Bawag, Kommunalkredit and LBBW declined to comment.

Depfa is the former Irish unit of Hypo Real Estate Holding AG, which acquired the business in 2007 for more than 5 billion euros ($6 billion). When the financial crisis hit, Depfa was unable to secure short-term funding, forcing Hypo into a taxpayer-funded bailout.

Banks have become more careful on lending after their asset quality was hit by the coronavirus pandemic. Vienna-based Bawag’s pursuit of Depfa would bring it a lender with low credit risk and a safe run-off portfolio after FMS spent years scaling back its balance sheet. The transaction could prove lucrative for Bawag, which would gain access to the excess capital Depfa has been holding.

Depfa had 6.9 billion euros of total assets at the end of June last year, down from 8.9 billion euros at the end of 2019, according to its its interim report. Its tier 1 capital ratio stood at about 153% as of June 30.

Germany decided in 2014 to abandon an effort to sell Depfa, deciding instead to wind down the business. The state then transferred its Depfa stake to FMS.

Bawag is Austria’s third-largest listed lender by market value. It was previously owned by private equity firm Cerberus, which sold the last of its stake in 2019. The bank reported fourth-quarter earnings this week that beat expectations and said it plans to pay 460 million euros of dividends this year, pending ECB approval.

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