German banks seek tighter service ties to insurers

German banks are seeking close partnerships with insurers and pension funds as both sides desperately try to boost revenue against a backdrop of persistently low interest rates.

Germany's second-biggest lender Commerzbank on Wednesday touted its services to meet the long-term investment needs of insurers, while public sector landesbank rival NordLB unveiled a pact with pension fund Bayerische Versorgungskammer to offer commercial real estate loans.

Rock bottom interest rates, aimed at propping up an economy still dazed from the financial crisis, have kept a lid on traditional interest income at banks and insurers, forcing both to search out alternatives and opening up prospects for cooperation.

"There are areas where we can work very closely together, particularly in alternative investments" Commerzbank board member Michael Reuther told a capital market conference targeted at insurers and pension funds.

Banks normally focus on lending for short to medium-term projects while insurers are interested in long-term investments of seven years or more, which they use to help match obligations to policy holders that can run over decades.

NordLB property lending unit Deutsche Hypo and Bayerische Versorgungskammer each plan to kick in 50 percent of the financing for commercial real estate loans to be made by Hypo in future, in a deal Hypo board member Andreas Pohl said was a "first" in the German market.

The deal, in which the two partners have an initial target volume of 500 million euros ($675 million), will allow Hypo to lend more than it could on its own, while still cutting the bank's regulatory capital burden, Pohl said.

Bayerische Versorgungskammer said the arrangement not only gave it access to a secure asset class but also allowed it to diversify its investment portfolio, something that has been a central demand of international regulators post-crisis.

Commerzbank's Reuther cited his bank's loan partnering programme with French insurer Axa, which offers financing to medium-sized companies in Germany, Austria and Switzerland, as one example that has already won supervisory approval.

Germany's massive shift toward renewable energy and away from nuclear power would need to be financed not just with debt but with equity, he added, opening up another opportunity for long-term oriented investors.

Commerzbank was working on long-duration deals sought by insurers, particularly in the area of aircraft financing, and was also offering a service to more efficiently clear derivative trades, he said.

Europe's biggest insurer, Allianz has also increased its focus on alternative investments, including commercial real estate financing.

While many bankers see the increasing presence of insurers and pension funds in property and corporate lending as an incursion that threatens margins in an already difficult business environment, Commerzbank clearly touted cooperation.

"Let's see what we can do together to meet our targets in this risk rich but return poor environment," Reuther said.

By Jonathan Gould and Andreas Kroener; editing by David Evans

Source: Reuters