Commerzbank AG announced on June 26, its plans to wind up its commercial real estate financing and ship financing in a bid to minimize risks and capital lockup in these less profitable businesses.
The German bank said in a press release that its motivation for moving away from CRE and ship financing was the increased capital and liquidity requirements under Basel 3, especially for long-term financing.
Ron D’Vari CEO and Co-founder of NewOak Capital Advisors said in a weekly market commentary note published today, that the bank’s move is likely to become more of the norm, if Europe consolidates its banking system under a unified banking regulation.
D’Vari’s comments come on the back of news that E.U. leaders at last Friday’s EU summit, seemed more ready to embrace the idea supported by European Commission (EC) President José Manuel Barroso. Barroso said in an interview with the Financial Times on June 12, that he believes the proposal of a unified system could be implemented by as early as next year.
D’Vari said that under a more “disciplined unified European banking system,” banks will increasingly seek to bolster their balance sheet and negotiate sales of maturing balloon or already non-performing loans. Banks looking to optimize their regulatory capital will have to restructure , recapitalize or sell debt at likely discounted payouts.
“Due to lack of refinancing, many maturing loans will fail their balloon payments and need to be restructured involving extension, coupon and balance reductions and in some cases out right sales,” said D’Vari. “For maturing loans in 2004-2007 securitizations such as CMBS and ABS, there will be a workout period of two to three years after which an actual default event, foreclosure, workout or liquidation will occur.”
