Depfa postpones sale of German subsidiary

Shares in IFSC-based Depfa Bank were punished yesterday when it emerged that the sale of a subsidiary would take longer than the market had expected.

Depfa said in March that it would sell its German-based subsidiary, Depfa Deutsche Pfandbriefbank. A deal, which would free up capital to help Depfa expand in the US, was expected to be in place by September.

However, the bank said yesterday that it no longer wanted to be "locked into a timeframe" on the disposal of the public-finance institution.

News of the delay overshadowed strong results posted by Depfa for the second quarter of the year. The bank showed a 23 per cent jump in revenues and an after-tax profit of €128 million, up 38 per cent. It also raised its full-year profit guidance from €400 million to €450 million.

Depfa shares reacted poorly, however, falling by 6.4 per cent to €10.77 in Frankfurt.

"This sale is important," said Mr Konrad Becker, analyst with Merck Finck. "It underpins their expansion plans in America. Many investors are asking themselves now if this really is just a delay or will the plan not work at all."

Depfa chairman and chief executive Mr Gerhard Bruckermann said the sale of the Pfandbriefbank had been interrupted by changes to the regulatory backdrop for public-finance banks in Germany.

From next year, these banks - which issue bonds to fund loans to the public sector - will be governed by a new statute that changes the scope of the business they can do. The new law will also get rid of a rule requiring that a set ratio be maintained between a bank's equity and the bonds that it issues.

"It eliminates a special disadvantage under which Pfandbrief banks have operated in Germany," said Mr Bruckermann.

He said Depfa had been expecting a change in the legislation when it put the bank up for sale but had not foreseen such a "favourable" shift. Analysts were less convinced, however, worrying that the Pfandbriefbank could now attract a lower price than had initially been thought. The bank had been expected to generate a book gain of about €400 million.

Mr Bruckermann said Depfa would now go back to all parties that had expressed an interest in the German entity before the new regulations were clarified. The slower sale will not affect Depfa's US expansion plans, he added.

(Additional reporting Reuters)