Warning on U.S. office real estate drags German bank's shares lower

By Steve Goldstein

Shares of a German lender fell as much as 14% after a profit warning due to the struggling commercial real estate market in the U.S.

Deutsche Pfandbriefbank shares (XE:PBB) slumped as the German lender late on Tuesday said it would increase its risk provisions due to "persistent weakness in the commercial real estate market." It now sees pretax profits for the year between EUR90 million ($96 million) and EUR110 million, versus its guidance at the beginning of the year for a pretax profit between EUR170 million and EUR200 million. The bank, informally called PBB, also cancelled its special dividend.

In a presentation, Deutsche Pfandbriefbank said structural changes in locations and preferences were leading some tenants to avoid central business districts. "At time of origination, all U.S. office properties financed by PBB were in A-locations -- now, 5-10% are considered B-locations," the bank said. However, it also said about 80% of the market correction is assumed to have happened. "Many ex-prime locations are likely to achieve prime status again in expected market recovery," the bank said.

The property values of the non-performing loans it has have dropped 41% on average, the bank said, and even those of its performing loans fell 24%. At the end of September, 63% of its U.S. portfolio was in New York, with another 12% in Chicago, 8% in Washington and 5% in San Francisco.

PBB wasn't the only bank struggling -- ABN Amro shares NL:ABN slumped 10% as the Dutch lender said its net interest income rose a weaker-than-forecast 20% due in part to a deposit migration to higher-yielding products. Its net interest income of EUR1.53 billion lagged the Visible Alpha-compiled consensus of EUR1.61 billion.

The broader European stock market moves were muted, with a small rise for the French CAC 40 FR:PX1 and small losses for the U.K. FTSE 100 UK:UKX and the German DAX DX:DAX.

Other movers of note: Ahold Delhaize shares (NL:AD) slumped 7% as the owner of Stop & Shop reported a weaker-than-forecast third-quarter profit.

Marks & Spencer shares (UK:MKS) rallied 11% as the U.K. retailer resumed dividends -- albeit to just 1 pence a share -- after its first half adjusted pretax profit rose 75%.

ITV shares (UK:ITV) lost 5% as largest U.K. commercial television broadcaster said its total advertising revenue for the year is expected to fall by 8%, compared to the 6.5% decline expected by analysts.

-Steve Goldstein

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11-08-23 0730ET

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