Commerzbank’s acquisition of rival Dresdner Bank from insurer Allianz for €9.8bn will not only shake up Germany’s financial landscape but could also cast a shadow over Frankfurt’s office market.
Allianz is selling the bank in two tranches to create a stronger German bank behind Deutsche Bank. Under the terms of the deal, around 9,000 jobs will be axed worldwide of which around 6,500 are likely to be in Germany. Commerzbank is hoping to make €5bn in cost savings by 2012, including the job cuts. Around 70% of the job losses are expected to occur in back-office functions and investment banking with around 10% of cuts taking place in retail banking.
Massive redundancies could spell bad news for Frankfurt’s office market, where around 15,000 Commerzbank and Dresdner staff are currently located. Take-up in the city started to slow in the second quarter, as the global credit crunch deepened. Commerzbank is currently evaluating the combined bank’s office space in Frankfurt. However, the combined bank is likely to have a ‘significant’ amount of redundant office space across Germany and, most significantly, in Frankfurt, according to DTZ.
Poland’s economic growth slows
Katarzyna Zajdel-Kurowska, deputy finance minister of Poland, revealed that Poland’s economic growth might not reach the projected figure of 5.5% in 2008.
Zajdel-Kurowska said that Poland’s economy will grow by 4.6-5% in 2009, revealing a firm indication that the ministry might cut its projected forecast, adding that inflation could ease to around 3% by the end of 2009.
In July, inflation hit a seven-year high of 4.8%, well above the central bank’s target of 2.5%. The central bank is expected to hike interest rates again in October from its current 6% to fight inflation.
Fewer mortgage loans granted to Spanish households
Financial institutions granted 41.2% fewer mortgage loans to Spanish households in July from a year earlier, according to the Bank of Spain.
In July, mortgage loans fell to €8.33bn from €14.17bn a year earlier, according to the bank. Exacerbated by the credit crunch, Spain’s decade-long property boom came to an abrupt halt at the end of last year, plunging the economy into an economic crisis and its lowest growth rate for 15 years.
Data from Spain’s National Statistic’s Institute showed that mortgage lending in June plummeted 40.6% year on year, while house sales dived 29.6%.
Deutsche Bank plans to “substantially” boost growth in retail banking
Deutsche Bank AG plans to substantially boost growth in retail banking and continues to be interested in acquisitions in that business segment, according to Josef Ackermann, chief executive of the bank.
However, the bank will continue to show “price discipline” regarding acquisitions. Ackermann said: “We will expand retail banking in Germany, Italy and Spain and we will also boost our efficiency in the business segment.” He added that the bank aims to substantially increase the profit contribution from retail banking.
Germany ’s largest bank by market capitalisation is open for retail banking but “with discipline”, said Ackermann. “An acquisition must be a strategic fit and create value for shareholders. Citibank would have been desirable and we were among the bidders.” Deutsche Bank’s bid of €4bn for Citibank Privatkunden AG&Co, the German retail bank unit of Citigroup, was unsuccessful and it sold for around €4.9bn to French Credit Mutuel this summer.
Deutsche Bank wants to expand business areas with stable revenues and is also “open for smaller, add-on acquisitions in transaction banking”, Ackermann said.
Inflation in the Euro-zone was “likely to remain high”
Jean-Claude Trichet, president of the European Central Bank (ECB), has warned that inflation in the 15 countries sharing the euro was “likely to remain” high despite a pull-back from a record 4% in July.
“Looking ahead, inflation in the Euro-area is likely to remain high for quite some time, moderating only gradually during the course of 2009,” Trichet said to the European Parliament’s economic and monetary affairs committee.
Annual inflation in the Euro-zone countries fell in August to 3.8% after hitting the highest rate in its history in July on the back of record oil prices. After striking a record price of close to $150 a barrel in July, oil prices have fallen steadily to around $100. Trichet said the development of oil and food prices in the months ahead would be central to how well the Euro-zone economy copes with sharply slowing activity.
He said: “The current episode of weak economic growth is expected to be followed by gradual recovery, particularly if a fall in oil prices from a peak in July will help strengthen real disposable income.”
The ECB is currently forecasting Euro-zone growth of 1.1-1.7% in 2008 and 0.6-1.8% in June.
Bulgaria tops index again
According to Knight Frank’s Global House Price Index, Bulgaria topped the index for the fourth consecutive quarter with growth of +32.2% over the year. Its current annual growth is only slightly lower than the +33.7% recorded in the first quarter.
Denmark appeared to be suffering the most of all the Western European economies, as annual price falls amounted to +9.6%. The Danish market peaked in the third quarter of 2006, and the slowdown began earlier here than anywhere else. It is blamed on a slowing economy and increasing problems with interest rates and mortgage finance – a crisis highlighted by the high-profile rescue of Roskilde Bank earlier this year in the wake of £1bn of losses from bad debt, concentrated in the housing sector.
Price growth in Russia picked up speed over the past quarter and stood at +26.5% in Q2 2008 compared to +21.7% during the first quarter of the year. Growth was highest in the Republic of Khaksiya (88.2%), whereas prices fell by 8.2% in the Chechen Republic. Growth in St Petersburg (41.5%) and Moscow (18.2%) was also strong, driven, as elsewhere, by rising wages and the increasing importance of the country’s natural resources.
Worldwide News
US’s delinquency rates affect prime too
July’s delinquency rates on many prime US-mortgages outpaced those on the subprime loans that helped spark the US housing crisis, according to Standard & Poor’s (S&P) latest report.
This is not surprising considering the latest news that the Federal Government in the US has taken control of mortgage giants Fannie Mae and Freddie Mac in a move to expand the pool of money available for home finance and arresting a plunge in house prices that endangers the nation’s economy.
Overall, delinquencies on 2007 prime “jumbo loans” (any residential or commercial mortgage with a loan exceeding the guidelines of Fannie Mae and Freddie Mac) rose to 3.22% in July, while “Alt-A” (loans aimed at borrowers whose credit makes them less likely to qualify for a prime mortgage) loan delinquencies increased to 14.56%, according to the report, and defaults on subprime loans from last year hit 31.25%.
The housing slump, now in its third year, has surprised many mortgage companies as its affects erode more creditworthy loans. Potential downgrades to such loans, including top-rated ones, have put mortgage bond markets further on edge in recent weeks as they await rating company reviews.
S&P in late July increased its loss assumptions on many types of mortgages, including doubling the projections for the Alt-A sector. The company aims to complete reviews using its new assumptions “within a few weeks, as opposed to a few months”, said Robert Pollsen, an analyst at S&P in New York.
Reserve Bank in NZ expected to cut interest rates
The Reserve Bank in New Zealand is expected to cut interest rates to 7.75% on Thursday, heading for about 7% early next year and close to 6% late next year, to boost a sliding economy and tackle inflation, according to Westpac Bank economists.
The economy is in recession, with nine months of slowdown expected, according to some economists. A weak and slow recovery is expected later this year. Market pricing suggests the official cash rate could reach 6.5% or lower later next year. The Bank of New Zealand (BNZ) said: “We are lucky if it gets to 6% late next year”, compared with the previous low of 4.5%.
Two-year fixed-term mortgage rates, now just under 9%, may fall below 8.5% by late this year. They could hit the five-year average of 7.8% by the middle of next year, “optimistically”, said BNZ. Rates would only go much lower if the economy was weaker than expected.
Al Zorah, €40bn mixed-use development, will be shown in London for the first-time
Solidere International, one of the Mediterranean region’s largest master-plan developers, will display its ambitious €40bn mixed-use development, Al Zorah, in London for the first time at the Property Investor Show from 19-21 September.
The development in Ajman is 20 minutes away from Dubai International Airport. Al Zorah will be a self-contained city comprising varied residences, offices, retail, schools, hospitals and leisure facilities including a championship gold course, marinas and five-star hotels. The 12 sq km project will have 16km of beaches and waterside walks with the built-up area limited to 22m sqm, leaving 60% of the area, approximately one-third of the density of the average city, for public spaces. By the time it is complete in 2015, Al Zorah is expected to have a population of 200,000.
Since its May 2008 pre-launch, Al Zorah has secured pre-sales of €10bn with investors from Asia, Europe, the Indian sub-continent and the Middle East showing substantial interest in the project.
The Bank of Korea holds interest rate
The Bank of Korea held its key interest rate unchanged at an eight-year high of 5.25%, as expected, saying inflation is likely to remain elevated for a ‘significant period’.
The bank raised rates in August to ensure an oil-driven surge in inflation didn’t prompt companies to raise prices and workers to demand higher wages. The cost of crude oil has fallen, consumer prices slowed in August from a 10-year high, industrial output declined in July and retail-sales growth eased although the won’s 8% drop against the dollar since 7 th August rate has complicated policy by fanning inflation pressures as it drives up the cost of imported goods.
The economy grew +4.8% in the second quarter from a year ago, the slowest pace in more than a year. Households’ spending fell for the first time in four years as rising living costs prompted consumers to cut discretionary purchases.
Australian home loan approvals continue to decline
Australian home-loan approvals declined for a sixth month, supporting the central bank’s assessment the economy is slowing, according to the Statistics Bureau.
The number of loans granted to build or buy homes and apartments fell -0.2% from June, when they slid a revised -3.7%, according to the Statistics Bureau. Demand for new homes may rebound in coming months after Glenn Stevens, the Reserve Bank of Australia’s governor, cut the overnight cash rate target from a 12-year high by a quarter point to 7%.
House prices declined for the first time in almost three years in the second quarter, according to the Government, after banks raised mortgage rates and rationed lending because they faced higher funding costs amid the global credit squeeze.
US commercial property prices set to tumble
US commercial property prices are likely to tumble over the next 12-18 months as more borrowers default on their loans and regulators crack down on banks, pushing even more properties onto the market, according to Peter Steier, vice president of Inland Mortgage Capital Corp.
Since the market’s peak in 2007, the availability of debt has dried up and so volumes of property sales have decreased. Borrowers have resisted selling because of falling prices and banks have not sold off their troubled loans, fearing a massive write-down of all commercial property loans.
“We’re going to see a whole lot more trouble going forward,” said Steier, when speaking at the Distressed Commercial Real Estate Summit East where about 200 investors, lenders and buyer gathered in hopes of finding ways to capitalise on commercial real estate that is likely to come onto the market as foreclosures.
From their peak last year, office prices in Q2 2008 were down -11.2%, retail prices fell -4% and warehouse and distribution prices decreased by -6.7%, according to real estate research firm Reis Inc.
Sales are expected to fall -66% this year from $467bn to an estimated $159bn because debt, especially securitised debt in the form of commercial mortgage-backed securities (CMBS), is either unavailable or prices are too high and terms too strict for borrowers, Reis said.
So far, many of the distressed commercial properties and loans have appeared in Arizona, Las Vegas and Florida, as well as in Atlanta and the already troubled Louisiana, Michigan and Ohio.
