Michaela Lehr/Reuters
The headquarters of Deutsche Pfandbriefbank in Unterschleißheim, Germany, in 2010
CNN, London —
Deutsche Pfandbriefbank (PBB), a German lender specializing in real estate, has increased its funds for resolving bad loans as it braces for the worst decline in commercial property values in 15 years.
PBB said in a statement on Wednesday it increased its provisions for loan losses for the fourth quarter of 2023, raising its total provisions for the year to 215 million euros ($231.7 million), citing “persistent weakness in the real estate market.”
“Despite these expenses, PBB continues to make profits thanks to its financial strength amid the biggest real estate crisis since the financial crisis,” he added.
The global financial crisis reached its peak in 2008 when banks collapsed under the weight of huge losses on mortgages and related securities following the collapse of the US housing market bubble.
PBB said on Thursday it had enough cash and liquid assets (a “liquidity cushion”) on its balance sheet to operate for six months without new funding from investors. The company said it would provide further details alongside its 2023 earnings in March.
Nearly a year after the crisis that led to the collapse of three U.S. regional financial institutions and an emergency bailout of Credit Suisse, concerns about the health of banks' balance sheets have resurfaced in recent weeks.
U.S. Treasury Secretary Janet Yellen told lawmakers on Tuesday she was concerned about some banks' exposure to commercial real estate.
“This may be quite stressful for some agencies, but we believe it is manageable,” she said.
Shares in PBB, the second Deutsche bank in two weeks to warn of widening commercial real estate losses, have fallen 17% since Friday. The stock has fallen more than 25% so far this year and 40% in the past six months.
Deutsche Bank, Germany's largest lender, said last week that it allocated 123 million euros ($133 million) in the fourth quarter of last year to absorb potential defaults on U.S. commercial real estate loans, more than four times the amount the bank set aside for the same three months in 2022.
Banks as far away as New York, Tokyo and Zurich have also reported mounting losses in recent days on loans to the struggling commercial real estate sector.
New York Community Bancorp on Wednesday sought to reassure investors it has enough cash to stay afloat after its shares fell about 60% over the past eight days and ratings agency Moody's downgraded the bank's credit rating to junk status.
The troubled U.S. regional bank last week reported an unexpected fourth-quarter loss of $252 million, much of it from loans for office buildings, and said it was setting aside $552 million for the quarter to absorb potential losses on loans, up from $62 million in the previous quarter.
Also last week, Japan's Aozora Bank said its estimated annual loss of 28 billion yen ($190 million) last year was partly due to bad loans linked to its U.S. branch, and Swiss private bank and asset manager Julius Baer said its 2023 profits would fall 55% after a loss of 586 million Swiss francs ($680 million) on a loan to a single “European conglomerate” – the reportedly bankrupt Austrian developer Signa Group.
This article was updated on Thursday with additional details from PBB.