German real estate lender Eurohypo saw its pre-tax loss rise by over 50% in 2010 to as much as EUR 785 mln, mostly due to 'higher than expected loan loss provisions'. The figure compares to a pre-tax loss of EUR 515 mln in 2009.

Loan loss provisions rose to EUR 1.4 bn last year, driven primarily by the ongoing difficulties on the Spanish real estate market and the persistently high loan loss provisions in the US. The negative result was also attributable to de-risking activities in the Public Finance business division, which the bank no longer actively pursues.

'Even if this is not instantly recognisable after taking a first glance at the figures, the results for 2010 do show that in essence the new business model is working,' said Eurohypo's CEO, Frank Pörschke. In the past year the German lender has sought to transform itself from a volume-oriented bank to an extremely focused provider, he added.

Eurohypo, which is owned by CommerzBank, has managed to reduce its commercial real estate financing portfolio by EUR 3 bn to EUR 72 bn. By the end of 2012, plans are to bring the portfolio size down to less than EUR 60 bn. Net interest income rose by 4% to EUR 1.3 bn in 2010. The bank committed to lending new loans of more than EUR 5 bn, from EUR 3 bn in 2009. Almost half of the new commitments abroad were in the UK. Additionally, Eurohypo also extended existing commercial real estate loans amounting to EUR 6 bn.

'At the end of this process we want to have the 'right' loans in our portfolio,' said Pörschke. The bank expects the year 2011 to remain challenging, with the lender continuing to downsize its portfolio while new business is likely to resemble the 2010 volumes. Another major challenge for Eurohypo is regaining its independent capital market viability. 'Eurohypo is the leading player on the sector for Pfandbriefe (covered bonds). This is why the bank is seeking to optimise the structure of its portfolio with a higher share of loans secured through covered bonds, while disproportionately reducing the unsecured portions of assets,' the bank said in a statement.