The Management Board of Deutsche Pfandbriefbank has opted for the „horror ending“ option. However, it will be some time before the financing of investments in commercial property in the USA is hewed off. On average, the contracts will run for another two and a half years. It is therefore not yet possible to draw up a precise balance sheet for the adventure in America, which only began in 2017. However, it has long been clear that it will be negative. Shareholders even have to fear a consolidated loss for this year.

Withdrawal from the USA is expensive. This raises general questions about the collateralisation of loans. As long as properties are not sold and, above all, do not have to be sold, all parties involved trust the values recognised in the books. However, Pfandbriefbank must now reckon with losses if it sells off its portfolio – whether by securitising or selling the financing.

Pfandbriefbank suffered from shortcomings in risk assessment. But at least the Supervisory Board and CEO Kay Wolf moved to replace the Chief Risk Officer. Wolf has been at the helm of the bank since March 2024, and has been busy with tidying up. His predecessor Andreas Arndt had hoped that the leap across the Atlantic would provide an additional source of income. However, the new market turned out to be a bottomless pit.

Tragically, it was also the wrong time: due to the coronavirus pandemic, and strong inflation, office property lost considerable value. Pfandbriefbank had to respond by drastically increasing its loan loss provisions. The property values were still significantly overestimated, as is now apparent.

Wolf, who came from Deutsche Bank with a wealth of experience in risk management, has no intention of playing catch-up. In response to questions from shareholders about the past, and mistakes made by the previous Management Board, he replied at the Annual General Meeting that he did not want to comment on the work done before he took up his post. His attitude is understandable, but unsatisfactory for the shareholders. After all, two of the five members were already on the Management Board at the time.

Ending things in the USA with a jolt is the right decision. Wolf is shedding ballast and avoiding an endless spiral of devaluation and risk provisioning. This creates more room for manoeuvre to tackle new business opportunities. This is the right thing to do, because shrinking alone would not help the bank move forward. However, management must pay attention to the risks – much more than in the past.