Week #3 Case Analysis
Case #8
Down for the count at HVB Group
Indiana Institute of Technology
MBA7000
Business Policy and Strategy
September 21, 2006
By Bob Locke
Context
In 2003, HBV Group was the second largest bank in Germany, and tenth in the world with assets of more than $730 billion. HBV's core holding is Bayerische Hypo-und Vereinsbank in Germany and Bank Austria, the largest in Austria. HVB has 8.5 million retail customers and is Europe's largest mortgage lender. It is the leading lender to the Mittelstand?the small and midsize companies that form the backbone of the German economy.
The problem is that the company is seeing mounting losses, tumbling credit ratings, and a share price less that half of what it was in 2002.
The reason is that HBV group has a massive $460 billion loan portfolio full of bad debts. In the early to mid-1990's one of HBV's banks made real estate loans worth billions of dollars especially in the former East Germany. But with the Eastern Germany economy failing to achieve the expected results, and taking the West Germany with it, the entire German economy went into a recession, and HBV was stuck with billions of dollars in bad debt. Much of that has been paid off, but HBV still carries the rest on its balance sheet.
In addition, HBV also made loans to some large, now bankrupt German companies, as well as many of the Mittelstand companies that ended up filling bankruptcy.
In the end, HBV was forced to make new bad-debt provisions of $1.25 billion in the third quarter of 2002. This is more than double its operating profit of $545 million. Normally HBV would be able to use it's investments to help boost it's share price, but due t ...