pbb Deutsche Pfandbriefbank (“pbb”) generated pre-tax profit of €42 million during the second quarter (Q1 2016: €45 million; consolidated figures in accordance with IFRS reviewed by external auditors). Pre-tax profit of €87 million for the first half of the year (H1 2015: €112 million) was in line with pbb’s own expectations, which provided for a slight decline in full-year results, compared to the good figures for 2015. Whilst the aggregate of net interest and commission income – in the amount of €198 million for the first half of the year – was lower compared to the same period of the previous year (H1 2015: €238 million), it was relatively stable vis-ˆ-vis the second half of 2015 (H2 2015: €202 million). Net interest income generated in pbb’s operating business only declined slightly during the quarter under review; the planned reduction in the non-strategic portfolio, lower non-recurring effects, and liquidity reserves all had a more negative impact. No loan loss provisioning was required during the first six months of the year; pbb reduced general administrative expenses to €94 million (H1 2015: €98 million). New business totalled €4.7 billion (H1 2015: €6 billion; all figures for new business including extensions of more than one year), whereby new business origination was weaker during the second quarter (and especially in Public Investment Finance). Nonetheless, pbb managed to keep its margins stable, through selective new business origination.
Based on new business volumes during the first half of the year, pbb now anticipates full-year volumes to be significantly lower than the previous year’s level. Con-sequently, pbb endeavours to keep its strategic portfolios at a stable level, but no longer anticipates a strong increase. Whilst the Bank now anticipates full-year net interest and commission income to be significantly weaker than the slight decline originally envisaged, it affirms its guidance for 2016 pre-tax profit, based upon its expectation of lower risk costs and general administrative expenses.
CEO Andreas Arndt commented: “In the current market phase, our conservative risk approach leads to lower new business volumes – with the corresponding effect upon net interest and commission income from our operating business. Persistently low interest rate levels have a similar effect, since they burden income from invest-ing equity and raise the costs of holding liquidity. These effects are offset by low risk costs, however, and by general administrative expenses which are once again lower in the current year. Hence, despite these headwinds, we maintain our expectation of pre-tax profit for the full year slightly below the previous year’s level. However, these expectations would no longer be feasible if the – already difficult – market situation were to escalate further.”
New business originated by pbb was shaped by the difficult market environment and the Bank’s conservative approach to risk. In this environment, the Bank has maintained largely stable gross margins on new Real Estate Finance business since the beginning of 2015. Real Estate Finance accounted for €4.5 billion in new business during the first half of the year, whilst Public Investment Finance contributed €0.2 billion (H1 2015: €5.2 billion and €0.8 billion, respectively). In Real Estate Finance, new commitments increased slightly, whilst extensions declined. Germany accounted for the lion’s share (51 percent) in new real estate finance business, followed by the United Kingdom (18 percent), Central and Eastern Europe (9 percent), France (8 percent), and the Nordic countries (3 percent).
pbb aims to realise its planned entry into the US real estate market during the second half of the year. The Bank is looking to cooperate with existing clients invest-ing on an international scale, as well as with established banking partners. The focus of pbb’s activities in the US will be on syndications; the Bank’s particular inter-est is in financing office buildings at the East coast of the US with a focus on New York City, Washington, D.C., and Boston (MA).
During the first six months of the year, pbb increased new long-term funding to €3.5 billion (H1 2015: €2.2 billion), with higher issuance across all product groups: Mortgage Pfandbriefe accounted for €1.3 billion of new issuance (H1 2015: €0.5 billion); Public Sector Pfandbriefe issuance raised €0.5 billion (H1 2015: €0.3 billion), and senior unsecured funding via promissory note loans and bonds made up the remaining €1.7 billion (H1 2015: €1.5 billion). The volume of deposits at pbb direkt, pbb’s online offer for private investors, rose further during the first half of 2016, to €3.4 billion (31 December 2015: €2.6 billion). pbb direkt has also been offering overnight and term deposits in US dollars since mid-July 2016.
pbb is well-capitalised and continues to hold a buffer over the existing requirements set by ECB to date. The Bank’s CET1 ratio has improved slightly: assuming full implementation of Basel III requirements (“fully phased-in”), it stood at 18.4 percent on 30 June 2016 (31 December 2015: 18.2 percent). Based on its current capital ratios, pbb believes it is well-equipped to also deal with more demanding requirements which may emerge from further regulatory restrictions ahead.