(Bloomberg) — Commerzbank AG is working on a significant risk transfer as part of Chief Executive Officer Bettina Orlopp’s efforts to free up capital.

The German lender is selling an SRT tied to its 2 billion euro ($2.2 billion) corporate loan portfolio, according to people familiar with the matter. People who wish to remain anonymous because the matter is private said that the size of SRT is approximately 150 million Euros.

The transaction is at an advanced stage of the sales process, but final terms are still subject to discussions with investors, sources said. A spokesman for Commerzbank declined to comment.

Commerzbank is trying to free up capital to create more room for investments, including investor payouts and acquisitions, Bloomberg reported. Increased use of SRTs is one element of this plan.

Orlopp promised in September to increase the amount of money Commerzbank will distribute to shareholders. The announcement came shortly after rival UniCredit SpA announced a major stake in the German bank and said it was considering a takeover.

SRTs, also known as synthetic risk transfers, allow banks to reduce credit risk by paying investment companies that agree to help cover potential future losses, reducing the amount of capital the bank must hold as a backstop. In a typical deal, a bank must obtain default protection for 15% of its loan portfolio and pay investors in return a rate that often exceeds 10%.

The deals have grown in popularity, with loans tied to SRTs reaching nearly $1 trillion globally as of the end of September, according to data compiled by Chorus Capital Management. According to Bloomberg, 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.

Commerzbank’s Orlopp is working on a plan to keep expected growth in risk-weighted assets several billion euros below the target presented just over a month ago. That would allow it to increase payments, people familiar with the matter said.

The bank announced on Monday that it had received ECB approval for a €600 million share buyback, which it will launch after announcing third-quarter earnings on Wednesday. The bank has promised to pay €1.6 billion on profits so far this year, €1.1 billion of which will come through buybacks.

(Background information added to buyback plans)

©2024 Bloomberg LP