Release Date: November 13, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Deutsche Pfandbriefbank AG (WBO:PBB) increased its operating result by 2.4% to EUR 425 million in the first nine months of 2024.
• Net interest income rose to EUR 359 million, benefiting from a focus on profitable new business with higher margins.
• Pre-provision profit increased by 16% to EUR 227 million, allowing for well-covered risk provisioning.
• The company remains on track to fulfill its financial guidance for the year.
• Deutsche Pfandbriefbank AG is implementing Strategy 2027, focusing on diversifying its portfolio and increasing efficiency through technology and AI.

Negative Points

• Pretax profit decreased slightly to EUR 87 million from EUR 91 million in the same period last year.
• The CRE market shows no sustainable turnaround yet, with heightened uncertainty and market volatility.
• The company's revenue business volume is expected to be slightly below initial guidance, at EUR 5.5 billion for the full year.
• Risk provisions remain elevated, particularly due to US office loans and German development loans.
• The cost-income ratio is expected to rise temporarily to 50% by year-end due to IT and strategic investments.

Q & A Highlights

• Warning! GuruFocus has detected 2 Warning Sign with WBO:PBB.

Q: Can you shed more light on how you plan to jumpstart new business in Q4 to reach EUR3 billion, and will this affect margins? A: (CEO) The fourth quarter is typically dynamic, and we have a strong pipeline. Our focus remains on maintaining margins rather than just increasing volume. We are confident in reaching our target of EUR5.5 billion for the year, with a focus on extensions and new business opportunities.

Q: What is the expected trajectory for fee income from PBB Invest, and when can we expect improvements? A: (CEO) We have set up a team and developed products, receiving positive feedback from investors. We expect to see real business and income generation starting in 2025, not 2026, as investors are currently allocating assets for next year.

Q: Can you explain the rationale behind your strategy to re-enter the hotel sector and your plans for office space? A: (CEO) We see a positive trend in city hotels due to increased tourism and business travel. Our focus will be on city hotels rather than luxury segments. For office space, we plan to reduce our portfolio to around 35-40% by 2027, focusing on diversification and selective investments.

Q: Do you have an average vacancy ratio for your US NPL office properties? A: (CEO) We do not disclose such granular details, but there is a correlation between NPLs and vacancy rates. However, we do not provide specific figures.

Q: How do you plan to utilize the capital benefits from the FIRB approval, and will you accelerate NPL provisioning? A: (CEO) We manage NPLs on a case-by-case basis, focusing on value preservation. While we are open to proactive sales of NPLs, our current strategy is to manage them as a senior lender, ensuring the best value for shareholders.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.