Deutsche Bank warns of potential US property losses

Deutsche Bank’s provisions for losses in US commercial real estate were more than four times bigger in the last quarter, as it warned that refinancing poses the greatest risk to the struggling sector.

The bank took 123 million euros (S$178.1 million) in provisions for its portfolio, up from 26 million euros in the same period a year ago and nearly double the amount the bank put aside in the previous three months, according to a presentation to investors released alongside earnings on Thursday (Feb 1). 

Real estate exposures drove total provisions to 488 million euros, the highest quarterly total since the second quarter of 2020, when expectations for bad loans spiked during the Covid pandemic.

Deutsche Bank’s loans on US offices represent about 1.5 per cent of its total lending book, with properties in cities including New York, Los Angeles and San Francisco. The German group has given extra scrutiny to the sector, which made up 23 per cent of its stress-tested portfolio in its latest earnings, as pressures grow from higher interest rates and lower post-Covid occupancy. 

The bank said refinancing of real estate loans was the “main risk” as it pointed to the possibility that debts will come due on properties that have fallen in value, requiring borrowers to inject fresh equity to secure new loans. BLOOMBERG