- Positive development of net interest income
- Increased risk provisioning
- Profit before taxes of between €205 million and €215 million projected for the full year 2018
- pbb remains cautious regarding the financial year 2019
Munich, 12 November 2018 – As announced on 8 November 2018, Deutsche Pfandbriefbank AG (pbb) generated consolidated profit before taxes of €171 million (consolidated, unaudited figures in accordance with IFRS) in the first nine months of 2018, outperforming the same period of the previous year by more than 10% (9m 2017: €154 million). This positive development was mainly driven by net interest and commission income, which increased significantly to €338 million (9m 2017: €304 million). At the same time, pbb further reduced general and administrative expenses to €136 million (9m 2017: €141 million). In addition, results benefited from income – generated in the second quarter of 2018 – from an additional conditional purchase price adjustment in connection with accepting a buy-back offer made for Heta Asset Resolution AG (“Heta”) debt securities. Risk provisions increased to
€-10 million (9m 2017: €-3 million), which was particularly due to additional provisions recognised for credit exposures in the UK shopping centre sub-segment.
On this basis, and in anticipation of solid fourth-quarter results, on 8 November pbb increased its guidance for the full year 2018 pre-tax profit from between €175 million and €195 million to between €205 million and €215 million. New business stood at €5.9 billion after the first nine months of the year, and pbb expects the annual volume to be at the lower end of the projected range of between €10 billion and €11 billion (in each case including extensions beyond one year).
CEO Andreas Arndt said: “Our solid net interest income, and the continued stability in general and administrative expenses, underline pbb’s persistent strength in operating performance. Therefore, we have been able to improve our expectations again, to profit before taxes for the full year 2018 of between €205 million and €215 million. This guidance incorporates further risk provisions in the fourth quarter, as well as rising general and administrative expenses – but, just as importantly, stable income from our client business."
pbb remains cautious regarding the financial year 2019. The Bank assumes that the market and competitive environment in commercial real estate finance is set to become even more demanding in 2019. Moreover, pbb anticipates higher funding costs for its lending business, and wants to further invest into strategic initiatives and regulatory projects.
FACTS AND FIGURES FOR THE THIRD QUARTER OF 2018
(consolidated, unaudited figures in accordance with IFRS)
1. New business
Commercial Real Estate Finance accounted for €5.5 billion of aggregate new business totalling €5.9 billion during the first nine months of the year (9m 2017: REF €6.9 billion in new business, including extensions beyond one year). pbb originated an additional €0.4 billion in new Public Investment Finance business (9m 201 /PIF: €0.6 billion).
Germany remained the biggest individual market for pbb's Real Estate Finance segment, accounting for a slightly lower share of 45%. pbb further expanded its US business, which accounted for a 14% share, during the period under review (9m 2017: 10%). In terms of property type, the main focus of new business was on office properties, whose share increased to 51% (9m 2017: 41%).
The average gross margin on new business in the REF segment stood at around 160 basis points during the first nine months of 2018, slightly below the figure for the same period of the previous year (9m 2017: >160 bp), yet still ahead of the level for the full year 2017.
2. Funding
During the first nine months of the current year, pbb raised new long-term funding of €4.5 billion (9m 2017: €5.3 billion). Pfandbriefe accounted for the lion's share of approximately €2.9 billion (9m 2017: €3.2 billion), with €1.3 billion placed in unsecured issues (9m 2017: €2.1 billion). Furthermore, pbb issued additional tier 1 capital (AT1 capital) in the amount of €0.3 billion in the second quarter. As in the past, pbb not only issued securities denominated in Euro, but also in Pound Sterling and Swedish Krona. Retail deposits currently account for some €3.1 billion (12/2017: €3.3 billion).
The spreads paid on secured and unsecured issues tightened significantly year-on-year, with spreads for Mortgage Pfandbrief issues down markedly to 3 bp (9m 2017: 17 bp), and spreads for unsecured issues falling to 46 bp (9m 2017: 77 bp).
3. Regulatory indicators
Regulatory indicators improved further as at 30 September 2018, compared to the 2017 year-end. Effects from the first-time application of IFRS 9 increased equity, whilst risk-weighted assets continued to decrease. The tier 1 ratio, as well as the own funds ratio, benefited additionally from issuance of additional tier 1 (AT 1) capital.
The CET1 ratio as at 30 September 2018 rose to 19.7% (31 Dec 2017: 17.6% – 2017 ratios 'fully loaded“), the Tier 1 ratio to 21.9% (31 Dec 2017: 17.6%), and the own funds ratio to 26.7% (31 Dec 2017: 22.2%). The Leverage Ratio increased to 5.3% (31 Dec 2017: 4.5%).