By Tom Sims and John O'Donnell
FRANKFURT (Reuters) - Troubled property lender Deutsche Pfandbriefbank on Thursday revealed it has billions of euros of loans outstanding for unfinished building sites in Germany as it halted lending in the U.S. and braced for a further drop in real estate prices.
PBB is one of the biggest property financiers in Germany, where the country's banks are among the continental Europe's heaviest lenders for the troubled commercial property sector.
"I don't want to present 2023 in a flattering light," CEO Kay Wolf told journalists. "It not was not a good year," he said, reiterating that the bank was "in great shape" and could withstand further stress.
The bank reported its lowest annual profit and biggest loss for soured loans since going public in 2015. Wolf said more loans would sour in the coming months and that the bank could weather a drop in prices in the United States of 20%.
PBB said it would halt new business in the U.S. this year while it focuses on risk management but would not withdraw from the market, which it entered in 2016.
PBB's troubles have turned the spotlight on the deepening global property rout that has hammered U.S. office prices, as well as the value of homes and buildings in Germany.
The bank said it had made more than 3 billion euros of high-risk development loans mostly in Germany, with half of that lent for offices. The money is tied up in building sites, many of which are far from completion.
Germany is littered with vacant development sites and half-built skyscrapers, from Frankfurt to Hamburg. With the economy stagnating and property prices tumbling, loans for such developments carry the highest risk.
Wolf promised to be transparent about the bank's problems but declined, when asked by Reuters, to say whether the bank had lent to developer Signa, Germany's biggest casualty of the property crash.
Banks in Europe have about 1.4 trillion euros in loans to the commercial property industry, with lenders in Germany, France and the Netherlands the most exposed to the sector.
Germany's 670 billion euro real-estate sector accounts for roughly a fifth of output and one in 10 jobs, according to the ZIA industry association.
PBB's 2023 profit crumbled to 91 million euros, compared with 187 million euros a year earlier, while provisions for loan losses shot up to 212 million euros from 44 million euros.
PBB was borne out of a German government bailout during the financial crisis more than a decade ago and went public in an initial public offering in 2015. It then went on a lending spree in the U.S., which is now suffering from high office vacancies and falling property prices.
Short sellers have bet against the bank, pushing its shares down as much as 40% this year, though big gains this week have pared some of those losses. Its bonds have also come under pressure after PBB's rating was downgraded in February to a notch above "junk".
The bank said it won't pay a dividend for 2023, but forecast 2024 profit to be "significantly higher".
The push into the U.S. has meant the bank has built up 15% of its portfolio in commercial real estate loans there.
Aareal Bank, a German competitor that operates globally, last week warned a quarter of its 4 billion euros in loans for U.S. offices were likely to go unpaid.
Earlier this week, one of Germany's semi-state Landesbanks, LBBW, revealed it had lent 71 billion euros for property, one fifth of all loans. It lent 5 billion euros for offices in the United States.
LBBW's CEO Rainer Neske said while he did not expect a "catastrophic year", neither did he see much of an improvement in 2024.