Aareal Bank The Disappearing Act

The global property finance house is making major job cuts and winding down new business at newly acquired Corealcredit Bank. Employees fear a total wipeout.
Not long for this world?

When Wolf Schumacher, the boss of Aareal Bank, a global property financing house, talks about his company, he makes it sound like a family. He often speaks about the responsibility he carries for more than 2,500 employees and their dependents. In terms of numbers alone, it’s like a little town, he says.

In March, when Aareal completed its €342 million ($425 million) purchase of a smaller competitor, Frankfurt-based Corealcredit, Mr. Schumacher also found warm words for the new members of his company. “We are pleased to greet Corealcredit Bank as a subsidiary in the Aareal Bank enterprise,” he said.

But his warm welcome is now sticking in the craw of his new employees. For weeks now, worrying rumors have made their way through the company, and ongoing and future job losses are a frequent subject of discussion.

“We here in Frankfurt are unfortunately the black sheep of the family, born out of wedlock — and that is how we are being treated,” said one banker. “In the truest sense of the word, Corealcredit Bank is being wiped out.”

In the truest sense of the word, Corealcredit Bank is being wiped out. Corealcredit employee

At a staff meeting last week, the resentment was palpable. “For Aareal Bank, we were nothing more than an acquisition for bookkeeping purposes,” said one of those who attended. “They just wanted our capital resources.”

Aareal purchased Corealcredit from U.S. investor Lone Star for well below the company’s value. So far, the Wiesbaden company has shown little interest in the core business of its new subsidiary.

Corealcredit’s chief executive, Reinhard Grzesik, told employees at the meeting that almost none of its customers and credits match Aareal's strategy. His comments were met with an icy silence.

Aareal says Corealcredit's profile does fit with its plans, and that the new subsidiary can complement its wider business. But Corealcredit's employees sense little of this. “Everything is being done to block new business and to drive away existing customers,” one said.

Almost all new-business experts have left the bank, sources say, mainly because of a restrictive credit policy. A Corealcredit spokesperson defended the policy, saying returns from the German real estate market, in which it specializes, were currently too small to justify lending more.

 

Aareal Bank boss Wolf Schumacher (right) and management board member Hermann Merkens in February.

 

As a consequence, in the first nine months of 2014, new business at Corealcredit fell dramatically to €280 million. In the past three years, the annual volume of new business was more than €1 billion. An internal memo states that a cap of €500 million per year was recently imposed on new business.

The employees’ meeting did little to dampen fears over credit turnover. In 2015, Mr. Grzesik explained, the bank would “actively pursue” only a few credit extensions. Otherwise, contracts would be extended only for those customers who cannot find another bank.

Mr. Grzesik also painted a bleak picture for the future. Three possibilities exist in the coming year: a merger of the two banks, Corealcredit continuing as an independent subsidiary, or a sell-off.

A sell-off is unlikely, and the chances of Corealcredit being turned into an independent subsidiary were less than 50 percent, Mr. Grzesik said.

It’s most likely that the bank will be merged with its parent company, and all scenarios point to massive job cuts.

So it’s most likely that the bank will be merged with its parent company, and all scenarios point to massive job cuts. The bank has already cut a fifth of its 160 positions, and more jobs are likely to go once an IT integration project has been completed.

Even if Corealcredit remains independent, it will be a “very slender subsidiary,” said Mr. Grzesik. The company's marketing division is particularly at risk.

The timing of further job cuts is being negotiated. They were first planned for spring 2016, but could now come as early as fall next year. “Accelerating the integration was discussed,” said a Corealcredit spokesperson. The first cuts could “be carried out a few months earlier than was communicated,” the spokesperson said.

After painting this bleak picture at the staff meeting, one employee asked Corealcredit's managing director: “So we are expected to work even more quickly to eliminate ourselves? How do you intend to maintain the motivation to do that?”

That drew the loudest applause of the meeting.

 

 

Yasmin Osman is a Handelsblatt banking correspondent and Sönke Iwersen is head of the paper's investigative team. To contact the authors: [email protected], [email protected]