It was a moment 11 years in the making: US private equity giant Apollo was about to escape the German banking value trap that had ensnared so many of its peers.
Apollo had already tried twice to float OLB, the lender it had assembled from a string of acquisitions starting in 2014. The first time, Russia’s 2022 invasion of Ukraine intervened; in 2023, it was the transatlantic collapses of Silicon Valley Bank and Credit Suisse that scuppered an exit.
But in the middle of March this year — before the Trump administration’s trade war derailed markets — the window for listings had reopened and OLB’s bankers were hours away from pulling the trigger on an initial public offering announcement.
Instead, the message filtered down at around 1am: OLB was pulling the float once again. Rather than another year-long wait, however, Apollo had secured itself a better outcome: a sale to French bank Crédit Mutuel that would enable Apollo and its co-investors to cash out in full, at a valuation above even the uppermost end of OLB’s expected IPO price.
The US private equity firm secured an internal rate of return of about 20 per cent, people familiar with the matter said, and price close to book value at a time when most European banks have struggled to persuade investors they are worth that much.
“The Apollo guys are very very happy, it was a very good deal,” said a former investor in several German banks. “It shows that private equity can earn money in Germany again, something one could not have dreamt of two or three years ago.”
Assuming the deal completes, the €1.7bn sale could mark a turning point for private equity in a historically underperforming sector with a habit of destroying capital — and pave the way for rivals such as Cerberus, Advent, Centerbridge and Lone Star to secure exits.
Private equity’s appetite for German banking assets dates back to the global financial crisis, when a trail of smaller banks that were bailed out by the taxpayer could subsequently be gobbled up at huge discounts to their book value. Lone Star bought corporate lender IKB in 2008 for just €137mn, and struggling real estate bank Düsseldorfer Hypothekenbank in 2010; Cerberus acquired 40 per cent of Hamburg Commercial Bank (HCOB) in 2018.
After buying a German bank, buyout firms tended to follow a similar playbook, said Jörg Rocholl, president of business school ESMT Berlin. There would typically be rounds of cost-cutting, then the company would be merged with other banks, and would cultivate a specialism in an area in which larger groups were uninterested.
Apollo, which declined to comment for this article, followed this model. It first bought Bremer Kreditbank in 2014 and then added to it Bankhaus Neelmeyer, Oldenburgische Landesbank and eventually Degussa Bank to create OLB.
Although the group has a core retail and corporate business, it also focused on higher-risk areas such as acquisition and football transfer financing. OLB entered a €120mn loan agreement with Wirecard’s former chief executive Markus Braun just weeks before the payments company’s collapse.
Apollo and its co-investors deployed in total about €600mn, and built a group with total assets of €34bn, net profits of €270mn and a return on equity of 17.1 per cent. Between the end of 2023 and 2024, OLB grew its assets by about 30 per cent and net profits by 17 per cent.
That put OLB on course for an IPO valuation of between €1.4bn and €1.6bn, according to people familiar with the matter. The range was lower than its shareholders’ equity of €1.7bn at the end of last year, but still respectable. Crédit Mutuel will merge OLB with its German unit Targobank, expanding the French lender’s retail reach and giving it a stronger foothold in corporate lending, according to people familiar with the deal.
But even though rising interest rates and profitability have started to make German banks more attractive assets after years in which they struggled with high competition and costs, buyout firms have found it difficult to secure an exit.
Private equity investors with German banking assets “have tried everything” to divest their holdings, according to one person familiar with investor discussions, including exploring IPOs, mergers between banks and seeking strategic buyers.
Both Cerberus-backed HCOB and Lone Star’s IKB have explored IPOs in recent years, according to people familiar with the strategies. But five years after Lone Star bought it, in 2015, Düsseldorfer Hypothekenbank had to be taken over by Germany’s deposit protection fund. Lone Star, which declined to comment, is still stuck with IKB 17 years on from that acquisition.
When HCOB’s chief executive spoke recently about preparing for a sale or IPO, he talked about a plan that involved exiting less profitable lending and axing a fifth of the bank’s staff by 2027. By that time, Cerberus would have owned it for nine years, beyond the standard buyout model of five-seven years of ownership.
Cerberus, which did not respond to a request for comment, burnt hundreds of millions of euros building stakes in Deutsche Bank and Commerzbank in 2017. By the time it started to liquidate its positions in 2022 after unsuccessfully campaigning to merge the two, the market value of its positions had fallen from €1.6bn to €1.2bn.
The limited exit routes available have been a “big issue” for private equity, said Sascha Steffen, professor of finance at the Frankfurt School of Finance & Management. Lacklustre public market valuations for banks and the decline of European equity capital markets have made IPOs an unattractive option. Even after a 50 per cent surge in its share price over the past year, Deutsche Bank only trades at around half its book value.
“Nobody needs another small-cap,” one investor said of the difficulty listing the banks.
Strategic buyers have meanwhile shown limited interest, in part because the banks are often highly specialised — whether in real estate lending, as with Advent and Centerbridge-owned Aareal Bank and Cerberus-backed HCOB, or in arranging development lending, as with Lone Star’s IKB.
There could be more cross-border deals in the wake of the OLB acquisition, said Steffen. But he cautioned that larger transactions could become politically sensitive, as with the potential takeover of Commerzbank by Italy’s UniCredit, which has encountered substantial opposition in Germany.
Still, banks’ private equity owners have found other ways to extract value while they await an exit. HCOB paid a €1.5bn dividend in 2023 — exceeding its owners’ original €1bn investment — after offloading billions in toxic assets and cutting its workforce by more than a third.
Aareal, which Advent and Centerbridge bought two years ago at a €1.74bn valuation, plans to return €1.9bn in dividends this year, following the €3.9bn sale of its IT subsidiary Aareon. Advent and Centerbridge declined to comment.
“Regulators have also become much more flexible regarding dividends,” said the former bank investor — something that has the potential to make the assets more attractive to private equity investors. “Before, it was hard to get money back, even when the bank was strongly overcapitalised.”
IKB, on the other hand, has only paid out €12mn in dividends to Lone Star since its €137mn takeover in 2008, despite returning to profitability in 2020. Last year, the US buyout group had to roll over its IKB stake into a new fund, as the old one reached maturity.
Additional reporting by Ian Johnston in Paris
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