The German investment in Pfandbriefbank (PBB) intends to pay the coupons for high risk bonds despite high provisions for risky loans, but also expects charges this year. The crisis in the American real estate market, however, has consequences for Deutsche Pfandbriefbank (PBB) shareholders, as it cancels its dividend. “In order to maintain its financial strength in this late phase of the real estate cycle in the interest of all interested parties, the bank resigns from distributing dividends for the financial year 2023 and maintains its profits,” PBB announced. Profit before tax of the bank fell more than half, from EUR 213 million to EUR 90 million last year, due to high provisions for risky loans. At the same time, so-called liquidation gains increased from EUR 15 million to EUR 85 million, in addition to raising other revenue to EUR 32 million. Without these extraordinary effects, Pfandbriefbank would probably be in red, as both interest revenue and commission revenue dropped slightly last year. The bank defines liquidation gains as compensation income for early repayments, asset sales or debt management measures such as the repurchase of bonds. Some analysts had already provided in particular for the repurchase of bonds. Bonds are securities with which companies can borrow money from investors. In PBB, particularly high risk bond prices, which can be converted into shares or used to offset losses in times of crisis, have been reduced. These bonds recently cost about a fifth of their repayment amount. Thus, if PBB invested 1,000 euros in repurchasing such bonds, its debt level would be reduced by 5,000 euros. This would correspond to extraordinary revenues of around 4,000 euros. Many investors feared that PBB would not be able to pay the interest on these very dangerous bonds. This is also possible with such titles in years of crisis. However, concern was unfounded. The bank announced it would pay the coupon for the subordinated bond, the so-called AT1 bond, in April. The bank ‘currently meets the capital requirements for this bond’, he said. Financing projects from the US and Germany is a burden The decrease in Pfandbriefbank’s profits is due to a dramatic increase in risk projections for risky loans. These amounted to EUR 212 million in 2023, almost five times as much as last year. “This mainly affected property financing in the US and project financing in Germany,” the bank said. The bank expects the market to remain difficult this year. The situation remains ‘difficult’: “In the US, PBB expects prices to be further reduced in the first half of 2024, while price adjustments in Europe are likely to be more moderate, as in 2023,” the bank says. Nevertheless, the bank considers that the risk forecast for this year will be lower than last year, although it will likely continue to be above average. Profits are also likely to increase. “We have a realistic view of the current market situation with its opportunities and risks,” said new CEO Kai Wolf. “We are very sure that we will have a good time in this admittedly difficult market phase,” he said. The bank announced last year that Wolf would succeed Andreas Arndt in the CEO position this year, shortly before scaring investors with a warning about her profits. In recent weeks, PBB had become a target short sellers who were betting on a fall in the share price of the real estate financier. At times, investors were betting more on a fall in PBB’s share price than was the case with any other large German share. “PBB’s situation, with its strong capital and liquidity, is much better than the latest price developments in the capital market could indicate,” Wolf stressed. PBB will no longer have to be refinanced without collateral on the capital market this year.
Germany – Real estate crisis: Pfandbriefbank cancels its dividend
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