Loan loss provisions from U.S. commercial real estate increased slightly for investment banking giant Deutsche Bank after an expected recovery in the sector failed to materialise.
Deutsche Bank took loan loss provisions on U.S. commercial real estate loans of €130M ($140M) in the second quarter, up from €121M in Q1, the firm said. Its total global CRE loan losses for the first half of the year were €302M.
“What is perhaps a little bit worse is that the sort of beginnings of a recovery that I might have expected three months ago, that hasn't happened yet,” Deutsche Bank CEO Christian Sewing said on a conference call with analysts. “It doesn't change our view, frankly, of the direction of travel and that essentially, over time, the new defaults and the valuation adjustments that remain in that portfolio begin to sort of burn out some CRE.”
Sewing said total CRE loan losses for 2024 were likely to be around €500M to €525M, higher than the guidance it provided at the end of 2023 of €450M.
Deutsche Bank has a CRE loan portfolio of €38B, of which €7B is characterised by the bank as low risk. The remaining €31B has an average loan-to-value ratio of 64%.
Of that €31B, €16B is in the U.S., and €7B is made up of U.S. office loans. The average LTV of the loans is 81%.
“Refinancing remains [the] main risk when loans with lower debt service coverage ratio and reduced collateral values reach maturity/extension dates, requiring modifications including additional equity,” Deutsche said in a presentation alongside its results.
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