European lenders remained in investors’ focus on Thursday, as analysts assessed the risk of contagion of problems in commercial real estate markets.
Deutsche Bank AG has limited room to absorb potential losses from the asset class without triggering concerns about its ability to increase payouts to investors.KBW analysts wrote in a note.
Deutsche Pfandbriefbank AG, the specialist lender at the center of contagion concerns, continued its decline as Barclays Plc analysts argued that PBB had set aside relatively small provisions.
Other banks responded to concerns, including French lenders Societe Generale SA and Credit Agricole SAas well as the Italian Intesa Sanpaolo SpA.
“Our exposure is very limited“said Intesa CEO Carlo Messina in an interview on Bloomberg TV. “In this sector we do not expect negative surprises in 2024.”
Investors and executives have been on tenterhooks after smaller banks from New York to Tokyo were hit by rising defaults in the commercial real estate sector., an asset class that has seen a sharp decline as last year’s spike in interest rates compounded problems arising from the shift to working from home. Concerns spread to Europe this week, when PBB bonds plunged due to its exposure to the troubled US market.
Although many analysts argue that large lenders are not at risk because they are more diversified, Barclays said in its Thursday note that Banco Santander SA and Deutsche Bank had “notable” portfolios of US commercial real estate loans. Santander shares have lost about 5% this week and Deutsche Bank shares have fallen more than 8%.
The largest German bank has a “high relative and absolute exposure” to the commercial real estate sector and yet has set aside the smallest amount among its peers for debt that is in the early stages of default, according to KBW analysts led by Thomas Hallett in a note. That means has limited room to absorb potential losses before payments to investors may be affectedaccording to KBW analysts.
Deutsche Bank declined to comment. A Santander spokesperson had no immediate comment. Santander’s U.S. unit said during its third-quarter results presentation that The commercial real estate portfolio is primarily comprised of multifamily loans.
Deutsche Bank said last week that had doubled the amount of money set aside for commercial real estate loans in the US. in the fourth quarter compared to the previous three months, up to 123 million euros (US$132 million).
At the same time, he said that expects this year’s loan provisions to remain in line with last year’s. US commercial real estate loans, at €17 billion ($18,300), make up about 3.5% of the total loan portfolio.
“US commercial real estate is not a big problem for European banks in general, especially for the older ones“said Luis Buceta, chief investor officer at Creand Wealth Management. “It may cause some problems for individual lenders.”
PBB, which had issued a profit warning in November, said on Wednesday that set aside more money for non-performing loans, with provisions for last year reaching up to 215 million euros ($232 million).
The lender said it still expects to make a pre-tax profit for last yeardespite what he called the “biggest housing crisis since the financial crisis.”
PBB shares fell 2.4% at 2:52 p.m. in Munich, with which the losses this week rise to 17%.
