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UK Watchdog Group Launches Aviation Merger Inquiry

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The U.K.'s Competition and Markets Authority (CMA) launched a merger inquiry on Aug. 16 into the anticipated acquisition by Japan's MUFG Bank of the aviation finance business of Germany-based cooperative lender DZ Bank.

As had been expected in the market, on March 1, 2018, DVB Bank, the transport finance specialist lending unit of DZ Bank, signed an agreement with MUFG Bank, a subsidiary of Mitsubishi UFJ Financial Group, and BOT Lease Co., an affiliate of MUFG, for the sale of DVB's aviation finance division.

The CMA has the jurisdiction to examine a merger, which includes acquisitions and joint ventures, in which two or more enterprises cease to be distinct entities and either the U.K. turnover of the acquired enterprise exceeds £70 million (approximately $85 million) or the two enterprises supply or acquire at least 25% of the same goods or services supplied in the U.K., or a substantial part of it, and the merger increases that share of supply.

The asset purchase agreement provided for the entire aviation finance client lending portfolio of approximately €5.6 billion ($6.2 billion) as of June 30, 2018, and employees and other parts of the operating infrastructure to be transferred to MUFG Bank Ltd.

The transaction also includes acquisition of DVB's aviation investment management and asset management businesses, which will be transferred to a newly established subsidiary of BOT Lease.

Acquisition of the DVB unit would give MUFG access to a large new pool of client relationships in the lending market in which it is increasingly active. Financial services group Orix as well as Australia's Macquarie are said to be among the potential bidders for the operations. State-owned German landesbanks, such as LBBW, also were looking at the aviation and land portfolio, which primarily was focused on rail financing.

The sale of the DVB Bank unit to MUFG is another milestone for the aviation finance industry, as it marks the departure from the market of the last major German aircraft finance specialist. It was German banks that dominated the aircraft finance industry in the 1990s (with the help of triple-A-rated landesbank funding), taking over from the Japanese after the 1980s asset bubble burst.

Earlier in 2018, DZ Bank ditched efforts to sell the whole of DVB Bank, partly due to low offers and the bank's pressured shipping business. MUFG had been tipped as interested in bidding for the entire bank, as were Bank of China and Industrial and Commercial Bank of China (ICBC).

Nonperforming shipping and offshore loans dented DVB's performance in 2017 and the lender booked a loss of €774 million, which led to the decision to sell the subsidiary.

In May of this year, Landesbank Hessen-Thüringen (Helaba) concluded the acquisition of DVB's land transport finance loan portfolio for an undisclosed amount, bringing the acquiring bank's rail rolling stock portfolio to a total volume of about €2 billion.

Helaba's acquisition of the land transport portfolio represents a clear move by the bank to take a strategic position in the international rail finance markets.

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