Deutsche Bank Rescues Troubled Real Estate Division | Business| Economy and finance news from a German perspective | DW | 16.12.2005
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Deutsche Bank Rescues Troubled Real Estate Division

Deutsche Bank, the biggest German bank, charged on Thursday to the rescue of its real estate division, which is under fire for taking the unprecedented step of freezing one of its so-called open-ended property funds.


Deutsche Bank shares have been under pressure due to the affair

Deutsche Bank said it supported the decision by DB Real Estate's management to freeze its Grundbesitz-Invest fund and would even offer to compensate the losses of any investors who wanted to redeem their investment at short notice.

"Deutsche Bank supports the decision by the management of DB Real Estate Investment to freeze its Grundbesitz-Invest fund," the bank said in a statement.

And Deutsche Bank chairman Josef Ackermann added: "We will offer rapid and unbureaucratic help to private investors who have recently invested in the fund and who risk seeing the value of their investment diminished by offering fair compensation."

DB Real Estate has come under heavy fire since announcing on Tuesday that it was temporarily freezing its 6-billion-euro ($7.2-billion) Grundbesitz-Invest fund to prevent a run on withdrawals in the face of a threat of asset writedowns in its underlying property holdings.

Unprecedented action

Josef Ackermann Deutsche Bank

Deutsche Bank CEO Josef Ackermann tried to reassure investors

In the first such move in the 40-year history of property funds in Germany, the doors of Grundbesitz-Invest would remain closed until the beginning of February by which time a revaluation of the assets would have been completed, DB Real Estate said.

"The move was necessary, because in recent days, investors' withdrawal requests have been substantially higher than in previous months. There was a danger that the fund's liquidity would be used up, which meant that the continued operation of the fund was no longer guaranteed," DB Real Estate spokesman Tim-Oliver Ambrosius had told AFP.

In contrast to closed property funds, in which a limited number of investors tie up their money for a specific period of time in specific properties, investors can withdraw their money from open-ended funds at any time and the funds can buy and sell properties as they see fit.

Investors could sue

The radical step, which under German law is allowed only in grave circumstances, sparked widespread anger and even the threat of lawsuits on the part of investors. Even the financial sector watchdog BaFin questioned the need for such a move.

DB Real Estate insists that the action was in the interest of investors and that BaFin had been kept fully informed about the move.

DB Real Estate has refused to give any indication about the possible size of the writedowns on the 128 properties contained in the Grundbesitz-Invest fund, which was worth 6.1 billion euros at the end of September and had around 300,000 investors. Press reports have mooted figures running between 200-600 million euros, but even as high as one billion euros.

The results of the revaluation would be made known at the end of January or the beginning of February, DB Real Estate said.

Deutsche Bank shares have come under pressure all week as a result of the affair.

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