(Bloomberg) -- Commerzbank AG is working on a significant risk transfer amid an effort by Chief Executive Officer Bettina Orlopp to unlock capital.
The German lender is selling an SRT linked to a portfolio of €2 billion ($2.2 billion) in corporate loans, according to people familiar with the matter. The size of the SRT is about €150 million, said the people, who asked not to be identified because the matter is private.
The transaction is at an advanced stage of the sales process but the final terms are still subject to discussions with investors, the people said. A spokesperson for Commerzbank declined to comment.
Commerzbank is seeking to free up capital to create more room for investor payouts and investments including acquisitions, Bloomberg has reported. An increasing use of SRTs is an element of that plan.
Orlopp vowed in September to step up how much money Commerzbank distributes to shareholders. The announcement came shortly after rival UniCredit SpA disclosed a major stake in the German bank and said it’s considering a takeover.
SRTs, also known as synthetic risk transfers, enable banks to reduce credit risk by paying investment firms for agreeing to help cover potential future losses, which reduces the amount of capital the bank is required to hold as a backstop. A typical deal would see a bank obtain default protection on as much as 15% of a loan portfolio and in return pay investors a rate that frequently tops 10%.
The deals have surged in popularity, with loans tied to SRTs reaching about $1 trillion globally as of end-September, according to data compiled by Chorus Capital Management. Banks that have recently worked on transactions include LBBW, Banco Santander SA, HSBC Holdings Plc, Deutsche Bank Ag, Helaba, Intesa SanPaolo SpA and Bank of Ireland, Bloomberg has reported.
Commerzbank’s Orlopp is working on a plan to keep the expected growth in risk-weighted assets several billion euros below a goal presented just a little over a month ago. That would allow her to hike payouts, people familiar with the matter have said.
The bank announced on Monday it received ECB approval for a share buyback worth €600 million that it will launch after it reports third-quarter earnings on Wednesday. The bank has so far promised to pay out €1.6 billion on profits generated this year, with as much as €1.1 billion of that to happen through buybacks.
(Adds background on buyback plans)
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