German bank braces for wave of bad loans in ‘greatest real estate crisis since the financial crisis’
By Hanna Ziady, CNN
London (CNN) — Deutsche Pfandbriefbank, or PBB, a German lender focused on real estate, has set aside more money 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.”
“Despite these expenses, PBB remains profitable thanks to its financial strength — even in the greatest real estate crisis since the financial crisis,” it added.
The global financial crisis peaked in 2008 as banks collapsed under the weight of huge losses on mortgages and related securities following the bursting of a bubble in the US housing market.
On Thursday, PBB announced that it had enough cash and highly liquid assets on its balance sheet — a “liquidity cushion” — to operate for six months without new funding from investors. It said it would publish further details with its 2023 earnings in March.
Fears about the health of bank balance sheets have resurfaced in recent weeks, almost a year on from a crisis that saw three US regional lenders collapse and the emergency rescue of Credit Suisse.
US Treasury secretary Janet Yellen told lawmakers Tuesday that she had concerns about the exposure of some banks to commercial real estate.
“I believe it’s manageable, although there may be some institutions that are quite stressed by this problem,” she said.
Shares of PBB, the second German bank to warn of mounting losses on commercial real estate in two weeks, have slumped 17% since Friday. The stock has tumbled more than 25% so far this year and 40% in the past six months.
Germany’s biggest lender Deutsche Bank said last week 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. That’s more than quadruple the amount it set aside during the same three-month period in 2022.
Banks as far apart as New York, Tokyo and Zurich have also reported mounting losses on lending to the troubled commercial property sector in recent days.
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.
This article has been updated with additional details from PBB on Thursday.
The-CNN-Wire
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