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Josef Pschorn

lines on the record: 72
first: 2024-02-23
most recent: 2024-02-23
sittings or episodes: 1
sources: podcast

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“They earned an extra income there. So their net income last year was also relatively stable. But that could be a drawback going forward.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“It has a different profile given that it's much more diversified but also more exposure to the US. It seems also that there are, let's say, more specialized lender than Deutsche Fumpries, given that, for example, like they have a very large share in lending towards hotels. So they do like one third of the loan book is towards hotels. But the general thing is that they do have a bit more deposits which are on site, which could be pulled out. So that's the bigger issue. They also benefited last year from that. So when generally like rates increased and basically also the margins on their loans, they could reprice loans. So basically the income increased and they didn't need to pay up for their deposit because the deposits stayed relatively low.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“And for no reason. Just because if you do see, let's say in the case of Deutsche Pump Rift, you do see like issues coming up with Deutsche Pumpbreif, you instantly say, okay, what does Deutsche Bumpifank has on his book? It has a lot of real estate loans. And you look around who is also real estate loans on its book. And even if there are slightly different, you always make inference between the bumpy bunk and a similar bank or like with assets on the balance sheet. So that's a thing. I would argue a regulator tries to avoid.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“You just said is that a bank basically becomes a solvent. I don't remember the last time this has really happened, where you really have an issue where your liabilities are larger than your assets just because you have lost so much money. So usually that regulator is much more quicker in stepping in and then resolving the bank just because there are also ripple effects they want to preserve like the funding channel in the term or in the case of a CAE bank. Also like you also have like issues if the tension stays too high and we also have like ripple effects on other banks. And generally like sentiment doesn't improve unless you resolve a situation. Remember also last year when CS went under there were also like big scrutiny about Deutsche Bank.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Right, yeah, and so early when I talked about Reeds, in my mind, instruments that had positive convexity, I was thinking of properties that own the actual buildings and are borrowers. You talked about mortgage reeds, which credit rates, so they basically own loans. So it's kind of similar to a bank, but it's not a bank. And they, yeah, Colarza was CLOs. And that's another issue about everyone can wax, you know, doom and gloom about CLOs. But I think the reality is that structure of a lot of CLO is the issue seven-year debt. They issue 10-year debt. And, you know, like the things of Fondrief Bank, that money is theirs to play with for seven years and it can't be pulled. So it sounds like there are many negatives of Pond Rifbank, but the one perhaps silver lining I would say is that, again, it has those longer duration liabilities. So if it has a longer duration liabilities, but do you think it's more likely that a regular steps in than if it just”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“And I think that is also an interesting analogy between both. Because what is generally interesting with, let's say, cupboards and also this collateralization with mortgage trusts, that the more Value gets drawn in into this collateralization that reduces generally the recovery for more junior investors in the case of an insolvency.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“And I mean, you also mentioned a couple of very interesting details, you also checked and also looked at the trade in general. And I mean, like what he said was that you do have a lot of interest rate caps and interest rate swaps coming off this year. So I think that's also a very interesting thing to notice that you will have also for like the banks and also the mortgage reeds, they will see like the asset owners will do see like higher higher interest rates going forward and this will probably also be felt with a lag by like banks and mortgage reeds. And I think what's also very interesting analogy between the coverts and like the mortgage reads is that also mortgage retreats do have at the very top of the capital structure some of their loans packaged in some form of collateral. With banks.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely correct. But at the moment, I think there's a decent chance that the mark assesses this correctly. But I think another thing you just mentioned are like the mortgage reads in the US, right? You had very recently Carson Block on the podcast.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Right. And going back to our first. Office loans as opposed to office buildings is that the best you're going to get is par. So you have to buy them at a distressed value if you want to. But you said the AT1 additional tier one bonds were trading at 20 cents on the dollar. I mean, does that imply that the markets thinks there's an 80% chance that the bank is going to fail or be taken over? And like if you think that there's only a 60% chance that it's going to fail, you might, you know, buy it and you're risk-adjusted value is 100%, right?”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“So, what we've heard from Ariel Bank is that they have an NPL. So they said this on the Q3 call last year. They have a US office here e building, which is or was worth valued at $150 million. They have a loan 90 million, but the bid for that loan, if they would like to sell it, is like at 50. And that basically implies that it would take like close to a 50% haircut on that loan. And the issue with that generally is you need a more supportive backdrop for CIE in general. You need more transactions. You need more, generally a better market environment for the asset class. And that will definitely help. Because the more uncertainty you have in that asset class, the also the bigger the discounts are generally.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“I think which is definitely positive at the moment. I generally like the market backdrop in credit is very strong. You do see that like new issues are oversubscribed. So generally the market backdrop is good. If you would see also lower rates that would definitely help on the funding side as well as on the valuation side for buildings. And that holds especially true for, let's say, development because Office CIE market in the US also I mean has this structural problem which also has some rate aspect to it. I mean like valuation or like lower rates do help but it is still a structural problem so that would definitely help and in addition but also would be would be beneficial if we do generally see a bid for CAE to come back.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“And then the question is, okay, if I'm, let's say, LBBW, that's the Londesbank of Swabia, they also have real estate exposure. They are saying, okay, I also have like exposure. Why should I take over a bank, which was even more exposure and even pay with my capital? And it comes at the same time when banks generally are pulling back on lending, being more restrictive, and also need to preserve capital and liquidity.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Supports that one bank. Similarly with the private banks where Deutsche Famprif would also be a part of or Comments Bank or Deutsche, they have also similar mechanism where they also support each other. And that could also be an issue in resolution. So if there is doubts about the future of Deutsche Bumptefunk and they could be the decision made by Baffin okay, we need to bail that in or resolve that bank and the question is where do you put that bank and where and who is going to pay for it? Because there could be the case that you also need some support from the deposit scheme.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“So there is in general a deposit scheme at the federal level. So that's up to 100,000 euros. And there is an addition like some form of support scheme across the private banks, but also like the savings banks and the Landesbank. So they also have support mechanisms. So let's say if a smaller smaller savings bank fails, there is a support mechanism from first and nearby savings banks. Then let's say the savings banks from the federal district. And though that increases so that at some point basically the whole savings bank and London spanking system.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Got it. Thank you. And then what about insurance? So in America, FDIC insurance is above a quarter million dollars. You raised, I think, during the great financial crisis. When Silicon Valley Bank failed, all uninsured deposits were made whole. That was kind of a special circumstance. What is the deposit insurance scheme like in Germany and how exposed are people who would be above a deposit threshold?”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Not 100% sure, to be brutally honest. I do know that there is, I think, in the interbank lending market, there is usually like something like a break fee or something. So you could get money also back, but I don't know if that's also the case in the retail deposit market.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Right, you're saying that the loans that Deutsche Pondry makes to real estate developers, those developers are not necessarily holding that money as a deposit in the bank. So it's not a relationship bank. They're funding it in the wholesale market, fund reef market, or capital markets, sometimes in America we call it broker deposits, but kind of is kind of different. And those customers might not be loyal. But there is a positive that they do have a longer duration that are fixed. Do you know, so Deutsche Pony, if you own a fund reef that you want to get, I guess you can sell that font reef, but if you own a term CD or a term deposit, can you withdraw it or no?”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“I assume that's different for some of the US regional banks and I also personally believe that would change generally something even though it's probably very Very dreamlike that you do see something similar with like European banks or banks in general because if there's more trust and grind between the asset and liability side, you do definitely decrease the risk of a bank run. Obviously probably the sentiment has definitely changed over the last 10 years with like internet banking, everything at your fingertips. I mean like it's so fast to pull money out. And I think that's has been shown last year and probably will be also shown in the future.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, there's wholesale funding and retail deposits And the thing is probably very similar if you're at, let's say, a credit fund manager and you do have an exposure to trip with Fump and it's very small portfolio, why do you want to hold on to something which is relatively small in your portfolio? You don't really know what's going on. Similarly, if you are retails deposits with the bank, you only went there for an attractive yield on your deposits. But if you do get a similar yield on your deposits with less perceived risk or less real risk, why not go somewhere else? And similar, if you look at the asset side, all the loans are on SPVs. All those are like with big funds. You don't really have a connection between like the guys you do the loans with and like basically the guys who have the liability or the deposit with you.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“The thing which I think is important to notice here that the regulatory changes were all very well intended and led to probably a safer or at least safer regarded banking system. The issue with ups and downs in banks where you have like credit losses at some point, these like ups and downs can't be really endured because If you only a depositor at a bank and you go shopping for deposits and are not really a client of a bank, then you just go somewhere else and take your deposits with you overnight.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“I mean, you're absolutely right. Deutsche Bumfrief has done a terrific job in basically getting deposits in and term deposits and basically ensuring that the bank stays liquid over the next couple of months. The bigger issue in general is that as soon, and we have seen that with Credit Suisse last year and also like with Silicon Valley Bank and First Republic, we hear that the problems with Americans were probably a bit more severe that as soon as you have your target on your back, you are basically gone. And that was different a decade ago when you also had like in Europe a lot of banks which were loaded with NPLs. So you had the Greek ones of like 50% NPLs, Italian, Spanish with 15% ones. And there were no bank runs.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“But also a good thing about Vodmie Breg is their liability structure is termed out so they would have time to work things out. In other words, with Silicon Valley Bank, even though there was no credit risk issue, like the assets they own, it wasn't that they weren't going to get paid back. They lost a lot of in terms of interest rate risk. And they were technically insolvent if you include those losses. But there was a bank run. It was all pulled out overnight. And that's the thing about banking is like you have a liability that banks lend short and sorry, bongers short and lend long is actually not true because generally liability structure of deposits is very long except it has an option value that can be one day so you think it has liability a duration of 30 years and it has a duration of one year one day but with neutral foundry bank i mean they've issued all of this bear bond paper in the fund reef market and they have the long-term thing so”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“First of all, I think that the inclusion of BRD, so how banks are getting resolved, that was all made stricter and also led to a kind of more safe banking space. But if you have like things happening at the moment with like real estate where you have or could have asset lossing piling up relatively quickly, the regulation which is very well intended doesn't really help.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“A utility if it fails, right? Because as a central credit channel, banks are so important simply. So I think that's a very interesting angle that basically that doesn't seem to be a business model which allows banks, there's no business model which basically banks on trust over time. So if you say, hey, I'm having these credit losses, but I'm going to work out of them. The market is simply not giving you the time because the wholesale market is saying, no, I don't want to fund that. And the depositors are saying, no, I can have my money somewhere else. I mean, like Greek depositors or Italian or Spanish depositors, just stay with the banks, even though they were burdened with MPLs.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Credits was very similar, they didn't have asset situation, but as soon as you have your target on your back, you are basically gone. And the issue is that we are more and more looking at the banks like a utility, while it does have much more negative repercussions as a”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“It's very tough where spreads and we're like once trade at the moment just because of the self-fulfilling prophecy even though it looks for the moment to be overdone but just like the future is getting pulled towards now. What also is very interesting for a lot of your listeners is that in the past there were like in Europe there were like banks which had a lot of MPLs on their books, right? I like Greek banks 50% Italian banks 15 Spanish banks 15 and they got time to work out out of that and basically through the introduction of all these resolution mechanisms and increased fungibility of deposits you basically increase basic or decrease the time between like there is an issue and this bank getting resolved so basically as with”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“And if that happens, you would probably see some spread widening also for the larger German banks. So Deutsche Bank or Comatz Bank, that would probably be the base case because like even if it probably wouldn't make sense to make a lender like Deutsche Bank or like enlarge it with like two failed property banks because like you just make like consecration even even larger There will be question asked”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“That would definitely signal that there are larger issues within the CAE market. And it could also signal because in Germany there are also like the Londes banks and also like the savings banks. They're also relatively large in CI lending and they could also like lead to ripple effects. I'm not saying that it's getting systemic but what it would or it could lead to questions getting asked how is this resolved? Who is taking over? Who is paying for it?”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“The moment the market assigns a high probability to at least Budget Van Bricbank getting resolved or getting bailed in, just what like market prices do indicate. And you have seen over the last week or so, you have also a similar movement with the 81s of Ariel Bank. The issue generally is that it would be a problem generally to bail them in because that would signal the whole market that there is an issue with commercial real estate. If you put, and I think that's the important message, you do have like two lenders which did CI lending but at a relatively conservative side they were not much more aggressive than others. They also lend at 60% ATV which also others did. But if you say, hey, we have a problem. With two banks, which did 60% ATV lending, and we now need to bail them in.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Failures last year were extremely costly for the American taxpayer. And at least these costs could have been avoided if there would have been enough capital in the form of preferred senior debt. And there is also, I think, initiative to introduce that as well, like for smaller US banks still extremely large, but I mean not GZIP, so global systemically important banks because they do have already these capital buffers.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“The user way is that you put a bank, the resolution, there you have various ways how to resolve a bank. So you could sell parts of it, put it into a transitional entity. You could also sell it to another bank. Or what's the best way is basically if you bail in some parts of the capital structure. So and that will be then first equity, then second 81s, third tier twos, and then non-preferred senior. And even if that's not enough, then you would also look to bail-in preferred senior and deposit. But the non-preferred senior part of the capital structure was created to allow for a better bail-in and basically avoid the issue that you have if deposits are at stake. I think that the three banks.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“And what you do at the moment is that there is still a gap between eighty ones and tier twos. And from our experience it could be very well the case that both parts would get bailed in in a recovery case. And then you would basically make money if you long AG1s and short tier 2s. That would be a trade which you could set up bail-in means if the bank needs to get resolved. So the regulator basically decides that the bank is no longer viable and should be transformed into a different VT, if you may put it like that, then that would lead to resolution. So what we also had with credit suise or with other banks.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“What's always very interesting is that the AT1s can be either written down to zero or can also convert it into equity. And the issue with that is that if you are a credit manager, to some extent you can't buy those securities because they could be converted into equity. So if they have this equity conversion feature, you can't buy them in your funds. So that would make it relatively tough for some investors to buy AT1s. Whereas the next layer and the T2s can be bought by pretty much everybody as long as the rating good enough. Usually you always have this mispricing between AT1 and Tier 2s. And if you look at the last bail-in experiences was Banco Popola in, I think 2017, back then what they did is they bailed in tier 81s. They bailed in tier 2s. And then they sold it for like one euro to Banco Santander.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“For PBB, you can't buy puts. What do you think about the credit instruments, though the students themselves? Obviously, your relative value, so you're not going to take a pure long position and not have a short against it. But how would you evaluate the credit of those AT1s selling at 20 cents?”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“You can't get short squeezed. And that's a big advantage in what we really like. So in the case of PV and also Ariel was taking private, but there's nobody selling puts there. And this is also the case over the last year. So we were always looking at like doing the trade 81 versus puts because this was like a great trade last year. So after like credit suise was taken over by UBS, 81s got extremely cheap. And you could basically hedge the full default risk by buying puts. So you basically then were long 81s and like just paid very little, let's say 3% running for your like your put hedge but could benefit from the whole upside and also enjoy some some carry and that for example worked relatively well so we were also inclined to Set it up similarly for Deutsche Pump, but unfortunately the liquidity is just not there in the option market.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“So we have looked at it, but the issue is with especially very small cap equities that you can't really short them. And it's all like it's very tough to short them. And what you usually like to do is usually we try to buy puts because that has a very limited downside risk. I mean, look, if you have puts, you know what your downset is basically. That's what you paid for your puts.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“You or your firm, your relative value credit trader, do you have a position in any of these banks? I mean, have you evaluated the trader? Like, let's go long, a credit instrument of PBB, fund banks. I go either the secured bonds or the AT1 bonds that are trading at 20 cents. And let's short the stock or something like that. Have you evaluated that trade? And are you in it or not and why?”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Currently it's higher than that, so that makes it very, very tough to keep going. And I think that's also very, very relevant topic going forward. If you do print like expensive paper, And put on expensive term funding from term. So let's say if you could find yourself very cheaply, I don't have to pay anything for deposits. And now you buy somebody who has like very expensive deposits. And what they printed were like in a very long range. So they printed five to 10 year deposits, which were good for them because they could term out funding, but at a cost, right?”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Plus 200 over, and you're basically your funding cost is so much elevated, you basically have a negative net interest margin, which makes it very tough to sustain that over the long run.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Vera now is bread. Exactly, extremely narrow spray. And usually they could also like finance themselves at like interpretert senior market, also at 50 bips over swaps. So that was a very comfortable funding situation. And now basically this funding situation has changed. So then now I have to pay midswaps plus 80 or at least that's where they trade. They have said they could issue there and probably also investors will be inclined to buy them because it's a very attractive yield for a fund if you get 80 bips over swaps. Similarly if you look at like the preferred senior situation that trades at now I think 500 bips in spread and that's just not reliable. So if you if you make loans in the case of fund priest bump of 150”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Came at like mid swaps flat, so they could issue at mid swaps plus Europe. That's basically the swap rate. So if you have 10 years swaps that trade at close to 3% in Europe now, then they basically can issue at around that level. That's just how you would basically trade or how you would”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“It so they can hold a lot of them and they don't have to hold equity risk capital against that. Okay, got it. So a fun brief has never failed. What's your expectation about the font briefs issued by PBB?”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“So, usually, if you have an asset on your balance sheet as a bank, it comes at a cost, right? So let's say Treasuries or government securities are cheaper than, let's say, high-level bonds.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“And this makes them as they have, let's say, a LTV of around 30 to 40 percent an extremely safe form. So other banks invest in its insurance have invested in the past. So it's a very safe tool and also is relatively capital efficient tool for banks to have them as an asset.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Farm briefs are one of the biggest foundations of basically the German and European financial system. So they were developed in the 1800s in Prussia and have since then served as refinancing tool for banks. And since then, there was never a default in Apfankri. So it's a very safe tool to refinance and utterly important for refinancing banks in Europe. How it works is basically you have a certain amount of loans, usually CRE loans can be mortgages can be used in the air for one brief. They go into a cover pool and then a certain amount of the cover pool can be issued in the form of one brief. Or cup”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Their liability structure is of their deposits, a lot of them are term deposits. There are some overnight deposits, but not a lot. So term deposits in America known as CDs. So that bank has that money for a certain amount of time. And customers can't withdraw it. Although I think in the US, you can withdraw. There's just a penalty so no one does. Yeah, I don't know if a push comes to shove how that might work out. But then a ton of the liabilities of the bank of Deutsche Fondrefank, also known as PBB, a ton of their liabilities are fund briefs, so also known as covered bonds. So they're called Deutsch Fondrief, but they also issue fund briefs. What is the covered bond fund reef market? Tell us about the history of that, as well as the structure.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“They were able to place a covered bond for the next six months, the situation does look okay. The thing is like you can be solvent and like your assets are had and your liabilities. But the question is always when does the regulator step in? And we have seen it in the case of Credit Suisse last year, or where the scars are still very fresh, that even though the bank might not be insolvent, the regulator is coming after you just because there is generally a negative sentiment from the market and also not really investor appetite to finance the bank going forward.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“I think what Deutsche Humphunk and also Arialbank did very well is that they basically lured in a lot of retail investors to provide them with term deposits. So you do have a relatively large share of their deposits in the form of term deposits. And that definitely helps them. So they don't have any funding need for the next six months. And they were even able to place Schultz in like a cupboard bond earlier this year.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Got it. Thank you. Yeah, I did see that article from Reuters that an investor in Provon Reefbank not only sold his position but actually shortened it shorted the stock, which is pretty incredible story. Okay, so that's the asset side. Tell us about the liability side. Can there be sort of a run on the bank of Fund Briefbank as there was for Silicon Valley Bank? Or are the liabilities more longer term, in which case, even if the assets are bad, you know, it's hard for there to be a run on the bank?”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“They did recognize on NPLs and they also provision to some extent for it. But for example, like there's also a hedge fund Peter's advisors who was before an investor in PBB sold his position, I think now even short. And he also expressed his concern that the bank under provisions. What I've heard also from Ariel Bank is also that they provision more than, let's say, PBB.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT