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German bank bracing for worst as real estate crisis unfolds.

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TLDR:

German lender Deutsche Pfandbriefbank (PBB) has increased its provisions for bad debts as it anticipates a decline in commercial property values. The bank set aside up to €215m ($231.7m) for losses on loans in 2023, citing the “persistent weakness” of the real estate markets. Despite this, PBB remains profitable. PBB is the second German bank in two weeks to warn of mounting losses in commercial real estate. PBB’s shares slid by nearly 6% as a result, while Deutsche Bank also revealed it had allocated €123m during Q4 2023 to cover potential defaults on its US commercial real estate loans.

 

Key points:

  • Deutsche Pfandbriefbank has increased provisions for bad loan losses due to an anticipated decline in commercial property values.
  • PBB said it has set aside up to €215m ($231.7m) for bad debts last year due to “persistent weakness” of the real estate markets.
  • PBB’s shares fell nearly 6% on the news, while Deutsche Bank also set aside €123m during Q4 of 2023 to absorb potential defaults on its US commercial real estate loans.

 

Deutsche Pfandbriefbank (PBB), a German lender specializing in real estate, has increased its provision for bad debts as it braces for what it says is the worst decline in commercial property values in 15 years. PBB increased its provisions for losses on loans in the fourth quarter of 2023, taking the total set aside for the year to as much as €215 million ($231.7 million), it said in a statement Wednesday, citing “persistent weakness of the real estate markets.” PBB is the second German bank to warn of mounting losses on commercial real estate in two weeks. Shares of PBB slid nearly 6% in Frankfurt. The stock has slumped 25% so far this year. Deutsche Bank said recently that it had allocated €123 million ($133 million) during the fourth quarter of last year to absorb potential defaults on its US commercial real estate loans.

The renewed turmoil comes almost a year on from a banking crisis that led to the collapse of three US regional lenders and the emergency rescue of Credit Suisse. On Wednesday, New York Community Bancorp attempted to reassure investors that it has enough cash to stay afloat after the stock shed about 60% of its value over the past eight days and ratings agency Moody’s downgraded the bank’s credit grade to junk. Last week, the troubled US regional lender reported a surprise $252 million loss for the fourth quarter, a big chunk of which was tied to loans for office buildings. It also set aside $552 million in the quarter to absorb potential losses on loans, up sharply from $62 million in the previous quarter. Also last week, Japan’s Aozora Bank said bad loans tied to US offices were partly to blame for its projected annual loss of 28 billion yen ($190 million) last year. And Swiss private bank and wealth manager Julius Baer said profit slumped 55% in 2023 because it lost 586 million Swiss francs ($680 million) on loans made to a single “ European conglomerate ,” reportedly the failed Austrian developer Signa Group.

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