Real estate disaster is growing: PBB under pressure.

Last Updated: 16. Februar 2024By

Just a week ago I reported at this point about Deutsche Pfandbriefbank. The bank has been heavily hit, at least in the stock markets. Within a week, it went down by about -15%. This led to an all-time low and raises questions: Why is the bank being punished so harshly in the markets? What consequences can this have for you?

Credit rating agencies and short sellers The background is quickly told. In the USA, the real estate crisis hit particularly hard. The higher interest rates, as well as the weakening economic power and the rise in home offices, put pressure on commercial real estate. The values of the properties are decreasing – partly also in the balance sheets of companies and certainly also in the balance sheets of banks.

First loans are at risk because the securities are also based on the high property values. PBB is also involved in the USA. The bank itself has recently noticed – I reported to you about it here – that this is „the biggest real estate crisis since the time of the financial crisis“.

All of this is true, and yet PBB has taken precautions. As a publicly traded company, it is required to disclose this information – and the management is at least legally obliged to provide the data correctly. The data are significant: The Liquidity Coverage Ratio (LCR) has been reported at 212% for the end of 2023. Bank supervision requires a liquidity coverage ratio of 100%. So: PBB has sufficient liquid funds to avoid a crisis.

Only credit rating agencies have – understandably – reacted and slightly reduced their rating. In addition, short sellers are said to be getting involved.

The risks are being dramatized Short sellers have a stake of over 8% in the stock. Data from the German Federal Gazette show that short sellers (who must deliver shares at a later date and bet on „cheaper“, i.e. falling prices compared to the previous purchase of the securities) hold positions „against 8.08% of the bank’s shares“. The position has increased compared to the beginning of the week, when it was 7.57%.

In addition, S&P has reduced the credit rating. It is now at „BBB-/A-3“ instead of the previous „BBB/A-2“. This adjustment is certainly understandable based on the market conditions according to the guidelines of such credit rating agencies, as they believe that the share of non-performing loans (which can default or partially default) has increased from 2.2% to 3.9% – in a year-on-year comparison.

Nevertheless, the bank sees itself well positioned at its core. The risk provision is being increased. S&P even expects PBB to further improve its profits in the current year. Also, the capitalization – see above the liquid funds – is high. From all of this, you can read my assessment: If the management – as I would absolutely assume – provides the correct data, PBB will certainly be punished far too harshly. The P/E ratio remains quite low.

Mortgage Bank: Short sellers bet against the bank – WKN: 710000 – ISIN: DE0007100000 Source: