Failed venture in America
Business leaders around the world suddenly soften their tone when asked to assess US policy under President Donald Trump. Business comes before honesty, is the motto. In doing so, the CEOs are following in the footsteps of top politicians such as British Prime Minister Keir Starmer, whose visit to the White House in February was generally regarded as smart, but ultimately left a sense of second-hand embarrassment.
In this respect, it makes one sit up and take notice when a CEO speaks plain language. Kay Wolf does. The head of Deutsche Pfandbriefbank attests that the US government is acting inconsistently, which is fuelling volatility. In his view, this is poison for investors and banks alike.
Four billion euros in the fire
Wolf does not stop at words. The property financier is drawing the lessons. The Germans probably no longer want to be involved in the United States. They have stopped concluding new deals in the long-term business, and are examining all options for the remaining portfolio of 4 billion euros.
However, it would be too easy to blame Trump & Co. for the US withdrawal. Admittedly, it is clear that the chaos in the trade conflict and on the capital markets is reducing the confidence of property investors in the market. The wave of redundancies among federal civil servants will also reduce the demand for office space. But the Pfandbriefbank's US problems are largely home-made, and they date back a long way.
Suffering shareholders
When Wolf's predecessor Andreas Arndt looked into entering the US market in 2016, the aim was to tap into additional sources of income. This went wrong and the investment ultimately resulted in high losses. The bank was in the wrong place at the wrong time. The coronavirus pandemic devalued a large amount of office space, and inflation accelerated this development. As a result, the Pfandbriefbank's loan loss provisions skyrocketed – long before the second Trump election victory.
Pfandbriefbank shareholders are used to suffering. The share price is trading well below former highs, and last week it continued to fall. The fact that the Management Board is once again postponing the share buyback, which has only just been added to the toolbox of capital market maintenance, is foreboding.
The bank is currently on a shrinking course. This cannot continue indefinitely. It now urgently needs new business successes in its European home market and in ramping up its commission business.
