Pbb Deutsche Pfandbriefbank (pbb) is planning to re-enter the US real estate financing market during the second half of this year.
In its H1 2016 results, announced this morning (12 August), the German bank said that it is aiming to work with existing clients and banking partners to make a fresh push into the US market. Its focus will be on syndications, with the east coast cities of New York, Washington DC and Boston on its radar.
Several German banks have increased their focus on the US, partly in order to benefit from higher margin business than in Germany.
Otherwise, pbb’s results highlighted the challenges facing European real estate lenders. During the first half of the year, it wrote €4.5 billion of new business through its real estate finance segment, including loan extensions of more than one year. The total was down from €5.2 billion in the same period last year.
The bank said that the lower levels of lending reflected a conservative risk approach in a “challenging market environment”. It added that it has managed to keep its gross margins stable through selective new business origination.
New commitments increased slightly, while extensions declined. Germany accounted for 51 percent in new real estate finance business, followed by the UK at 18 percent, Central and Eastern Europe at 9 percent, France at 8 percent and the Nordics at 3 percent.
Based on the H1 performance, the bank now anticipates full-year volumes to be “significantly lower” than last year. In 2015, the real estate finance segment wrote €10.4 billion of new business. However, pbb said that it affirms its guidance for 2016 profits, based upon its expectation of lower risk costs and general administrative expenses.
The German bank made a pre-tax profit of €87 million for the first six months of the year, down from €112 million in the same period last year. Of the H1 total, €42 million was generated in the second quarter. The bank said that profit for the six months was in line with its expectations.
Net interest and commission income totalled €198 million, which the bank said was down year-on-year from €238 million, although relatively stable from H2 2015 at €202 million. The planned reduction in its non-strategic portfolio, lower non-recurring effects and liquidity reserves all had a more negative impact, pbb explained.
Pbb said that it remains well-capitalised, with its fully phased-in CET1 ratio rising to 18.4 percent.
“In the current market phase, our conservative risk approach leads to lower new business volumes, with the corresponding effect upon net interest and commission income from our operating business,” said CEO Andreas Arndt.
“Persistently low interest rate levels have a similar effect, since they burden income from investing equity and raise the costs of holding liquidity. These effects are offset by low risk costs, however, and by general administrative expenses which are once again lower in the current year. Hence, despite these headwinds, we maintain our expectation of pre-tax profit for the full year slightly below the previous year’s level. However, these expectations would no longer be feasible if the already difficult market situation were to escalate further,” Arndt added.