(source-Immobilien-Zeitung)
Deutsche Pfandbriefbank, also known as PBB, a German financial institution specializing in real estate lending, has allocated additional funds to cover potential losses as it anticipates a significant decline in commercial real estate property values, marking the most severe downturn in 15 years.
In a statement released on Wednesday, PBB announced an increase in provisions for loan losses in the fourth quarter of 2023, bringing the total amount set aside for the year to approximately €215 million ($231.7 million). The decision was attributed to the “persistent weakness of the real estate markets.”
Increased Provisioning Amidst Looming Real Estate Crisis
Despite the increased expenses, PBB emphasized its continued profitability, underscoring its financial resilience amid what it describes as the most substantial real estate crisis since the global financial crisis of 2008. During that period, banks faced substantial losses due to the collapse of the US housing market bubble and subsequent mortgage-related securities turmoil.
US Treasury Secretary Janet Yellen expressed concerns about the exposure of certain banks to commercial real estate, stating that while she believes the situation is manageable, some institutions may face significant stress.
Following PBB’s announcement, the bank’s shares experienced a nearly 6% decline in Frankfurt. Year-to-date, the stock has plummeted by 25%.
Deutsche Bank, Germany’s largest lender, disclosed last week that it had earmarked €123 million ($133 million) in the fourth quarter of 2023 to cover potential defaults on its US commercial real estate loans. This allocation represents a more than fourfold increase compared to the same period in 2022.
Global Banking Sector Faces Mounting Losses in Commercial Real Estate Sector
The trend extends beyond Germany, with banks in various financial hubs such as New York, Tokyo, and Zurich reporting escalating losses related to lending in the troubled commercial property sector in recent days. This renewed turmoil comes nearly a year after a banking crisis that saw the collapse of three US regional lenders and prompted the emergency rescue of Credit Suisse.
On Wednesday, New York Community Bancorp sought to reassure investors amidst a sharp decline in its stock value, stating that it maintains adequate liquidity to sustain operations. The reassurance followed a downgrade of the bank’s credit rating to junk status by ratings agency Moody’s.
Last week, the troubled US regional lender reported an unexpected $252 million loss for the fourth quarter, with a significant portion attributed to loans for office buildings. The bank also set aside $552 million in the quarter to cover potential losses on loans, a substantial increase from the previous quarter.
Similarly, Japan’s Aozora Bank cited bad loans linked to US offices as a contributing factor to its projected annual loss of 28 billion yen ($190 million) in 2023. Meanwhile, Swiss private bank Julius Baer reported a 55% decline in profits for the same period, largely due to a loss of 586 million Swiss francs ($680 million) on loans extended to a single “European conglomerate,” reportedly the failed Austrian developer Signa Group.
