shares in this article
He currently expects a result at the lower end of the previous target of 200 to 220 million euros, CEO Andreas Arndt said in a video conference on the quarterly figures on Monday. He continues to see a clear reluctance among investors when it comes to new business. The commercial real estate financier is now focusing on maintaining its contract portfolio. However, the board wants to expand direct banking with overnight and term deposits from private customers.
The news was partly recognized on the stock market with significant price losses. Via XETRA, the pbb share fell by 3.51 percent and closed at 7.57 euros. The evaporated earnings target shouldn’t come as a surprise: analysts recently even assumed pre-tax earnings would be just below target.
In the first nine months, the Pfandbriefbank achieved a pre-tax profit of EUR 159 million, almost 15 percent less than a year earlier. This was mainly due to the development in the third quarter: profit before tax fell 28 percent year-on-year to 52 million euros. The surplus fell by a similar amount to 44 million euros, the institute announced in Munich on Monday.
The management explained this on the basis of the end of the European Central Bank’s special interest rate for bank refinancing operations. In addition, a year earlier, she had benefited from hefty early repayment penalties due to prematurely terminated loans. As a result, revenues fell by about ten percent to 128 million euros.
Given the sharply higher interest rates, customers no longer paid off old loans early, Arndt explains. In the third quarter of 2021 alone, the institute pocketed 17 million euros in income from so-called early repayment penalties. At that time, the refinancing enabled customers to secure relatively low interest rates on loans for a longer period of time. That’s over now.
The Pfandbriefbank also feels the reticence of customers when it comes to new business. As in August, Arndt expects commercial real estate financing contracts to close in 2022 at EUR 9.5 billion, the lower end of the original range. In March he still thought that up to 10.5 billion was possible.
The increase in interest rates also makes refinancing significantly more expensive for the Pfandbrief bank on the capital market. Arndt is therefore increasingly focusing on direct banking with overnight and term deposit offers for retail investors. Measured against the interest rates for the bank, this is significantly cheaper, the manager explains. From the beginning of the year to the end of October, deposits from private customers at pbb increased by approximately one billion to EUR 4.1 billion.
The CEO sees the Pfandbriefbank well prepared for the expected economic downturn – also because of the existing provision buffer for possible loan defaults. “Risk-conservative entrepreneurship proves its worth, especially in times of crisis.” The money house depends on the financing of office buildings in good and very good locations. In a recession, Arndt does expect bankruptcies and a loss of rent as a result. “But our experience is that new tenants quickly move into good premises.”
Arndt also assumes that many companies will need less office space due to the trend towards working from home. However, he believes this should mainly be at the expense of buildings in unfavorable peripheral locations and with a poorer energy balance. “We don’t have a high vacancy rate, but rather a high occupancy rate, especially in the office section,” he says. Highly solvent companies are tenants in the buildings. They continued to search for large areas.
Still, things won’t be easy for the next two years, explains Arndt. Higher interest rates on new loan agreements, the continued expansion of the company and the growing loan portfolio should help the institution to offset the negative effects.
The leverage must be between 2 and 20
More news about pbb AG (Deutsche Pfandbriefbank)
Image credit: CHRISTOF STACHE/AFP/Getty Images