Inside track: When banks become unwelcome investors in property

 
David Hellier
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TWO INVESTMENT banks, Goldman Sachs and Deutsche Bank, will for the next few months be keeping a beadier eye than usual on the German property market.

The pair have just emerged as holding a combined stake of around 13 per cent in Gagfah, the second-largest owner of German homes, as a consequence of not being able to fully distribute a €354m (£305m) share sale last week.

The Gagfah revelations follow instances earlier this year that illustrate the perils of so-called block sales, where banks bid for the right to distribute large holdings in public companies to their client base. With the relative lack of activity in M&A, and notwithstanding a slight uptick in new issues, the block trade business has been keeping many a firm’s investment bankers busier than they otherwise would have been. But the exercise is often fraught with exceptional risk.

Earlier this year Barclays found itself holding more than $900m (£592m) of shares in a Dutch cable group Ziggo after it agreed to underwrite the sale of a big block of shares on behalf of the private equity groups Cinven and Warburg Pincus.

Luckily for Barclays, for whom the trade was embarrassing, the bank was let off the hook days later when Liberty Media, the US cable group, bought the entire stake.

In November, HSBC was left holding block of shares worth over €410m in private equity firm Amadeus.

In the Gagfah case, the inability to fully distribute the stock, which was a mixture of existing and new shares, came as a double blow for Deutsche Bank. That’s because Deutsche decided to act on the deal even though it was a junior partner on the flotation of Terra Firma’s Deutsche Annington, a rival German property group.

Deutsche took up a role in the Gagfah block trade after the Deutsche Annington issue had been pulled. But within a week Terra Firma had revived the sale, putting Deutsche in the unfortunate position of being in both rival deals at the same time.

Terra Firma was said to have been unamused, although even rival bankers have sympathy with Deutsche’s position since it had been blindsided on the decision to revive the IPO of Deutsche Annington so quickly.

Sources close to the banks were indicating yesterday that they intended to place the remaining shares over time in Gagfah in a controlled and managed way.

But rivals warned it could take them months to unwind their unwelcome positions.
david.hellier@cityam.com