Deutsche Bank expects fewer U.S. commercial real estate provisions in second half

By Steve Goldstein

Deutsche Bank, one of the banks most exposed to U.S. commercial real estate, reported elevated levels of credit-loss provisions for a second straight quarter but said they will start to gradually decline.

Deutsche Bank (DB) reported EUR121 million ($130 million) of U.S. commercial real estate credit loss provisions, following EUR123 million worth in the fourth quarter. In the year ago quarter, Deutsche Bank took just EUR35 million worth of provisions in that segment.

Deutsche Bank estimated that the average loan-to-value for some EUR7 billion of U.S. office loans stabilized at 81%.

It said refinancing remains the main risk, particularly for loans with a lower debt-service coverage ratio and reduced collateral values when they reach maturity of extension dates.

Of the EUR485 million in provisions it's taken since the third quarter of 2022, the majority have been driven by offices.

But in the second half of the year, Deutsche Bank said it's anticipating gradual improvement in the commercial real estate sector, with executives saying the provisions cycle will burn itself out.

That guidance, provided on the earnings call, helped lift Frankfurt-listed shares (XE:DBK) by 6% after early losses.

Deutsche Bank more broadly reported a solid first quarter, with its profit rising 10% to EUR1.45 billion after revenue rose 1% to EUR7.78 billion, with both figures narrowly beating analyst estimates. The revenue growth came from its investment bank and asset management arms.

Deutsche Bank also reiterated 2024 and 2025 guidance.

-Steve Goldstein

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04-25-24 0837ET

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