Deutsche Bank DB plans to offload almost $1 billion of its U.S. commercial property loans to trim down commercial and real estate (CRE) loan exposure, per a Bloomberg report. The move comes as rising interest rates have weighed on profits in the bank’s real estate portfolio.
The Frankfurt-based bank is marketing the loan book to secure some capital relief.
Deutsche Bank is one of the largest lenders to U.S. commercial real estate developers and especially offices. As of Jun 30, 2024, DB’s loan portfolio comprised $16 billion in U.S. commercial real estate loans, of which $7 billion was tied specifically to office properties.
The company has been witnessing elevated provisions for commercial property for the past few years. The company’s provision for credit losses witnessed a CAGR of 23.4% over the last five years (ended 2023). In the first half of 2024, for the investment bank segment, provisions were materially higher compared with the previous year, particularly due to the CRE sector. This indicates that the bank will need to take further steps to alleviate the strain on its holdings.
The commercial property market has been severely affected by the rise in borrowing costs. Due to an increase in remote work, the U.S. offices have seen an increase in vacancies, making them among the lowest performing.
Other banks are also reducing their exposure to CRE loans. In May, Canadian Imperial Bank of Commerce CM signed agreements with multiple buyers to divest U.S.-based office loans worth $316 million at a discount. CM’s provisions also surged in its second quarter due to its exposure to CRE. Also, in the same month, WaFd, Inc. WAFD entered into an agreement to sell 2,000 commercial multi-family real estate loans to Bank of America for $2.9 billion. These WAFD loans have an unpaid principal balance of $3.2 billion.
Over the past six months, shares of DB have gained 11.9% on the NYSE compared with the industry’s growth of 10.3%.
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Currently, Deutsche Bank carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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