Pbb Deutsche Pfandbriefbank bounces back with profits, new lending

The Munich-based pbb Deutsche Pfandbriefbank, the 'good bank' that emerged out of the ashes of the old – and since nationalised - Hypo Real Estate, has posted its best results since its new beginning as an independent real estate financing bank.

Nine months after its flotation as a public entity on the stock market, the bank has announced full-year 2015 profits up 12% to €195m, and a generous dividend payout to its shareholders of nearly half of its net profit. The German state remains a 20% shareholder in the bank.

pbb raised its new real estate lending in 2015 to €10.4bn, a rise of 16% over 2014. This came from 180 transactions, up from 161 the previous year, with €2.3bn being extensions. Average maturity increased slightly to 5.7 years, but average gross margins fell from 200 bps to 170 bps (in some cases, particularly for core, stabilised assets to blue chip investors, the margin was under 150 bps.)

Of new lending, 47% was originated in Germany, followed by UK (18%), France and the Nordic countries (10% each) and Central and Eastern Europe (7%). The average LTV on new commitments was 63%.

The bank said it expects to match 2015's new lending in 2016, although it warned of further margin compression and rising funding costs against a background of increasing competition among finance providers, particularly non-banks.

On refinancing, the bank expressed its concern that Pfandbrief spreads will increase throughout 2016 in response to lower current demand from financial investors at present yields. An increase in pbb's funding costs would narrow the profitability of the loans it made, it said. However, this could be countered by growing its syndication and placement business, it said.

Thomas Köntgen, pbb's co-CEO and Treasurer, commented: “We want to continue leveraging our structuring expertise for more complex – and hence, higher-margin – financings, without higher risk exposure. In addition, we plan to make careful adjustments to our product and country mix, to re-flect a changing business environment, in line with our risk strategy. We want to generate additional income through a stronger focus on the syndication business, and placements of financings. We also strive for broader diversification in terms of regions and products in our funding business."

This "broader regional diversification" could involve the bank making a first foray into the US market, in which its predecessor Hypo Real Estate was an active player.

Köntgen's co-CEO Andreas Arndt said, "We might make our first steps into the US market this year, in a modest way, by dipping our toe in the water. Our goal would be to initiate transactions that are suitable for Pfandbrief refinancing, and to avoid unnecessary risk."

In part because of high deferred tax income, the bank's consolidated after-tax profit rose to €230mn, or €1.71 per share. Köntgen said the bank plans to distribute a €0.43 dividend per share, a dividend yield of nearly 7%. (The share price has fallen from its IPO price of €10.75 to currently about €9.20).

On the outlook for 2016, co-CEO and CFO Arndt said, “A key milestone for 2015 was PBB’s privatisation, which we achieved through the flotation. At the same time, pbb generated its highest operating results yet in 2015. 2016 will present particular challenges, both in terms of regulation and the market environment. Nonetheless, we expect good pre-tax profits, which however are likely to be slightly lower than the very good figures posted in the previous year."