As commercial real estate values crumble in the US and parts of Europe, so far there’s no evidence of systemic risk spreading through the financial system. What happens next at the German specialist real estate lender Deutsche Pfandbriefbank AG, though, may presage whether the pressure remains localized – or whether the property slump becomes a more widespread problem.
PBB, as it’s known, has a balance sheet worth about €49 billion ($53 billion), including $27 billion of European real estate exposure and €5 billion of loans to the US property market. Its market capitalization, though, is an ultra skinny €605 million – yes, million, after a near 50% drop in its share price during the past year. Nervousness about the lender’s profitability and possible losses has seen its market value fall to 20% of its book value this week, from 52% in early 2022. That’s unsustainable if funding becomes unavailable.