This is how the US commercial real estate crisis is affecting Europe

The commercial real estate crisis that hit banks in New York and Japan is now spreading across Europe. (Reuters/Kai Faffenbach)

problems of US commercial real estate marketWhich has already affected the banks New York And Japanmoved this week EuropeFear of widespread infection is increasing.

The latest victim is the German bank Deutsche Pfandbriefbank AG, which has seen its bonds decline due to concerns about its exposure to the sector. It responded by issuing an unspecified statement on Wednesday and February in which it said it had increased the provisions “Continued weakness in the real estate market.”, He described the current unrest as “The biggest real estate crisis since the financial crisis.”

Lenders are increasing provisions on loans given to property owners and developers as loans begin to shrink following a decline in the value of buildings worldwide due to rising interest rates. on Tuesday, February 6 US Treasury Secretary, janet yellenSaid that losses in commercial real estate are a concern that will stress homeowners, but He said he believed the problem could be managed,

for the offices of usaWhile the return to work following the pandemic has been slow and low-key, the destruction of value has been particularly severe and some estimate that The total impact has not yet been fully assessed, analysts of green Street They confirm that new depreciation of up to 15% may be necessary this year.

The commercial real estate sector is under pressure as rising interest rates have led to a decline in property values ​​globally. (Reuters/Kai Faffenbach)

“Appraisal values ​​are still very high,” they write in a note. “Lenders who base their decisions on these appraisals are more likely to suffer value losses” and some may face “stress” as a result.

The collapse of German lenders’ bonds was the latest in a series of warning signs. Moody’s Investors Service Rating reduced to “junk” New York Community Bancorp After pointing out real estate problems, while Japanese banks Aozora Bank It recorded its first loss in 15 years due to loan provisions made against US commercial properties.

Paul van der Westhuizencredit strategist RabobankI confirm this “There are serious concerns in the US real estate market.”, “This is not a problem for larger US and European banks, but smaller German banks that focus on the real estate sector are suffering a bit. However, right now it is more a problem of profitability than solvency for them. “They have adequate capital and are less vulnerable to the threat of mass withdrawals of deposits than purely retail banks.”

In its results from last week, Deutsche Bank AG Provisions for losses in the US commercial real estate sector recorded four times more than the previous year. He warned that refinancing is the biggest risk to the struggling sector as asset values ​​suffer.

The slow return to in-person work after the pandemic has accelerated the depreciation of value in offices in the United States. (Reuters/Kai Faffenbach)

in other places of EuropeSwitzerland Julius Baer Group Limited Said it would forgive huge loans given to bankrupt real estate company Signal, Although this is a specific problem, it raises general concerns about the scope of the situation.

on Tuesday, Morgan Stanley Customers were called and recommended to sell senior bonds Deutsche PBB, Bonds maturing in 2027 fell more than 5 cents to 97, according to data from the. CBBT collector bloomberg, For their part, the bond at 1 The bank’s value fell 15 cents to 36 cents between Tuesday and Wednesday.

Deutsche PBB It said this Wednesday, however, that it increased provisions for bad loans to 210-215 million euros for the full year. “Remains profitable due to its financial strength”, Sonja Forstervice president of European Financial Institution Rating In Morningstar DBRSSaid that “the approach of PBB in privileged places and LTV “Relatively conservative people provide some negative protection.”

“However, given that refinancing risks remain high and new capital is available to borrowers, we are monitoring the situation very closely,” he said.

Concerns are heightened by the possibility of a scenario similar to the 2008 financial crisis, with banks facing difficulties due to problem loans. (Reuters/Kai Faffenbach)

concern of PBB Has spread to other banks with exposure of CRE, Ariel Bank AG Bond They have fallen about 10 points over the past two days and are now trading at 76 euro cents. In November, it reported that the value of non-performing loans usa It had increased four times compared to last year. a spokesperson for aerial Declined to comment.

actions of Deutsche Bank They were down about 3.7% at 2:40 p.m. frankfurtand their Commerzbank AG Fell 3.2%, below both indexes euro bank stocks, baffinThe country’s banking regulator said it was monitoring the situation and declined to comment on specific lenders.

The German central bank last year warned of risks around the commercial real estate sector, saying it could “Significant Adjustment” Due to which defaults and loan losses increased. “The outstanding volume of loans made by the German banking system to the US commercial real estate market is comparatively small, but relatively concentrated in individual banks,” it said. Bundesbank,

While larger banks may be sheltered more, smaller institutions, particularly in Germany, are seeing their profitability hit. (Reuters/Kai Faffenbach)

Landesbanken The Germans have also felt the pain of their exposure to the commercial real estate sector; Major public sector banks in the first half of 2023 – it froze, bayernlb, lbbw And nordlb -A total provision of about $436 million was recorded.

loss of agar CRE extended to Europe Through smaller German banks, there would be echoes of the global financial crisis of 2008. At the time, it was the regional banks that got into trouble when they had exposure to subprime mortgages. usa Billions of euros were lost.

“You have to be careful, because you don’t know where you hit rock bottom.”he says raphael thuinHead of Capital Market Strategies tikehau capital, “We know there could be more pain to come in commercial real estate.”

©2024 Bloomberg

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