Commercial property crisis ensnares Deutsche Pfandbriefbank as S&P downgrades rating

BONDS of Deutsche Pfandbriefbank (PBB) tumbled deeper into distressed territory on Thursday (Feb 15) after S&P Global Ratings downgraded the German lender citing its excessive publicity to the beleaguered US industrial property market. Shares fell as a lot as 12 per cent to a file low.

The scores agency revised its ranking for the issuer to BBB-, one stage above junk. Analysts at S&P mentioned the financial institution’s non-performing loans ratio seemingly jumped to three.9 per cent of complete loans on the finish of 2023 as a result of its excessive publicity to industrial actual property, notably within the workplace and retail segments.

Banks world wide are beginning to report losses on loans made to industrial actual property initiatives after the rise in rates of interest dented property valuations. The downside is much more acute within the US market, which represents 15 per cent of PBB’s complete industrial actual property portfolio, as a result of a rise in distant working following the pandemic.

The European Central Bank has signalled that lenders might face increased capital necessities if they’ve an inadequate deal with on dangers associated to industrial actual property.

PBB’s bonds have been declining steeply over the previous couple of weeks as earnings studies from lenders together with New York Community Bancorp and Japan’s Aozora Bank confirmed the affect of loans which have turned bitter. The transfer was exacerbated when analysts at Morgan Stanley really useful promoting PBB’s senior bonds in a name with shoppers.

PBB’s perpetual notes misplaced 4 cents on the euro to round 30 cents, in accordance with CBBT knowledge compiled by Bloomberg. Its senior notes due in 2027 additionally dropped 2.5 cents to 90 cents.

PBB is because of report full-year outcomes on March 7, however has already disclosed that its provisions for 2023 might be as a lot as 215 million euros (S$311 million). Pretax revenue for the yr is anticipated to achieve 90 million euros, on the backside of its already downgraded vary.

S&P analysts level out that PBB’s funding base lowers its must entry capital markets this yr to faucet additional funding. The financial institution disclosed a liquidity protection ratio final week of 212 per cent on the finish of 2023, double the minimal regulatory requirement.

Aareal Bank, one other German lender with publicity to the US industrial property market, had its credit standing lower to BBB, two ranges above junk, by Fitch Ratings on Wednesday. Fitch expects additional impaired loans to extend Aareal’s impaired mortgage ratio to a 4 per cent four-year common on the finish of 2023.

Aareal’s Additional Tier 1 notes have been down by round one level on Thursday and quoted at round 75 cents on the euro, in accordance with knowledge compiled by Bloomberg. BLOOMBERG