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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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“Out. So, usually, in the last 10 years, rates have gone down and basically values have gone up. So each time you refine with the building, you could take out equity. But this time you need to put in equity just to keep the trade going. And the thing is, if basically the loss on the property is high enough to put the equity investor out of the money, he's less inclined to put money in. So that's what we also heard from Ariel when they told me about some of the lenders in the US and what we also see from like developers in Europe that like the increase in rates and basically the fall in valuations was so rapid that you put a lot of equity investors out of the money. And if you're out of the money, you're less inclined to put new money in to stabilize your investment.”
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 have building valued at 100. Like I see 3% cap rate. And now you go to a 4% cap rate, which is not outrageously, right? And now you go to 75%. But if you have like conservatively financed your building, let's say with a 60% LTV, you're basically down 25 million on your investment. So that's just a very, very, very simple example. And now it comes a bit down how that rest of the financing works. So let's say you have put in like 40 million equity, 60 million debt. Now you're down to 75 and now you need, or you don't need, but probably that the lender is interested in keeping a stable loan-to-value ratio. Loan to value should stay at 60. Very, very simple. But what does this imply? You're not taking...”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Situation. And I don't think that's existential for the CE market in general and also not for the banking market, but you do need like capacities to take care of unraveling it. It's similar. If you have a workout of too many MPLs, just needs time and capacity. And that's one thing. And apart from that, you do have just very many developers defaulting. And the issue there is relatively simple. They're just the increase in rates have pushed them out of the money. So let's say you have a building, which is worth, let's say, 100 million and this has like a 3% cap rate. That's not a natural for US office in Germany. And you just go from 100 to 75. It's like 100% increase in cap rate.”
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's an Austrian self-made billionaire who started, I think, in 1997. And from that build it basically an empire, a huge real estate empire. I mean, he even owns parts of the Chrysler building and two Austrian newspapers just to allow for some diversification. And last year, basically, he wasn't able to secure enough funds to keep the machine going. And then had to file for insolvency. Now everything slowly unravels. And I mean, there were like some bonds on some of this development projects. So they are like now quoted in their teens. So you do have like significant default risks. And the issue as well is that the structure is extremely complex. It's also very tough to really get a hold of the situation.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“My two cents here is what you have seen is that very many developers have defaulted. PVBs share to developers it's 10% of the loan book and to many of them they have exposure. You've also seen like a very large default last year with the Signer group, which was like 27 billion in assets, where a lot of German savings bank insurers are already like hit.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“How bad is the commercial real estate situation in Germany and how bad compared to the US? I feel like, I mean, people have been telling me or people, I've been listening to people talk about how commercial real estate is weak for nearly four years. So it's a very slow moving crisis, or if it is a crisis, I'm not saying it is. And I might ask you to explain why you want to do this interview on Thursday, February 22nd instead of early March. Like, why is this moving you think moving so quickly as opposed to, let's say, okay, yeah, maybe the investment returns of those loans won't be great, but similar to a private equity situation, like no one's going to figure out how bad it is until year, maybe two years, maybe three years later, and things can be worked out.”
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's only like the US part. So in other parts, there are more diversified. That's for sure. But that's generally true. I mean, the thing is, I would say with US or general like with the book concentration, that Ariel was always perceived as a very, very good lender also came out very well through the A 2009 crisis and seems to have like a strong workout group, have been very capitalized. And last year there was like a buyout where Fund put in like 2 billion to buy them out. So they have a strong software product. I mean, like are well respected? So there is like they are not per se like bad or rich as lender. So that's, I think just the wrong assumption, it's more like that they are exposed very much to a certain sector which Dramatically underperforms. And I think that's the takeaway.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Yes, 80% office of a CRE portfolio is, I would say anecdotally huge. A lot of banks that, oh my God, their commercial real estate exposure is so large. It's typically like 15 to 30 percent office, I would say, in some cases less. So yeah, 80% office is very large.”
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 US book is 80% offices, and that makes them relatively concentrated towards risk at the CAE market, and especially the US office market. And other U.S. German lenders are not exposed to the US Offenberg to the same degree. But similarly to European CAE 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
“I mean, like the big issue is that they are solely CIE lenders. So their whole loan book is basically CIE. And that's the same for Ariel Bank as it is for Deutsche Van Briefbank. And that also, I mean, if you just look at the USE exposure for Ariel Bank in this case, that's like 8.6 billion out of $32 billion book. So that's pretty pretty big. Same for like if you just look at the office exposure, that's like 4.6 billion. And that's like much larger than their CET1, so like the equity there. So that's like their concerns people have, which could be warranted given where AT1's trade. If you look at fund-free banks, they're a bit smaller in the US.”
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 is unique about these banks? Let's talk about PBB Fond Their commercial real estate risk. I imagine there are a lot of German banks that have loans against apartment buildings, offices. Why Plot Brief?”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Especially, I mean, considering that other parts of the ATM1 market are very hot. I mean, you've seen a lot of issues in the H1 market, they are performing extremely well, especially since last November, when the market generally turned up as a whole.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Okay, interesting. Yeah, I know just from looking at the American bank preferred market where it's priced in $25, not $100, the lowest it got intraday for some banks was, I mean, for the banks that failed, it obviously went to zero, but was like $8, which is times four dollars. So $20 on a bond is pretty 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
“Yeah, I mean, like, it's still a 500 million stock ride trades that are priced to book of like 0.16. So that also prices in a relatively high degree of default. I mean, what you usually see, and that is not exclusive to banks, is that usually you have like your equity reaction, equity comes down. and then basically credit hits your hard interface than equity does. So you have credit underperformance because credit anticipates it and then at the end equity catches up.”
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 the additional tier one, which is senior to the equity, is trading at 20 cents on the dollar. How come the stock is only down? I mean, it's down from what, 10 to 3. But I feel like if that's true, it should be down more, 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, in general You just look at basically where things trade. And I think first we have to look at basically how the capital structure in European banks is set up. So yeah, at the very bottom, you have like your equity. Then on top of that, you have like your AT1s. So your additional tier one, then tier two, then non-preferred senior, which could be also bailed in in case of a bankruptcy or a resolution event. And on top of the preferred senior deposits and on top of that covered bonds. So it's a relatively complex capital structure. And probably also different compared to banks in the US with like a balance sheet size of 50 million. And what you do see that 81s for PVB traded at 20 cents on the dollar. So they do indicate a certain degree of distress. Also like the tier 2 in the 30s and non-preferred. Senior in like the 40s”
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 so, Ariel Bank is not publicly traded. It was taken private. Fun brief bank, PBB is publicly traded on the, I think, the German stock exchange. What is it about these two banks that have a heightened risk profile? Because I imagine a lot of banks, whether in Germany, wherever, have a lot of commercial real estate loans. What it is about these two banks where the risk, you know, in your view and in the view of some market participants is higher.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“In commercial real estate. You have budget monthly funk and Ariel Bank. Both are like lenders with each around 50 billion. Both have around 30 billion in loans. I mean, if you look at both lenders, they do are active in the commercial real estate market, while PPB is much more active in the German market. They are much more after low margin lending. Ariel, on the other hand, is much more specialized lender. So the loans are much more drawn out. So they're also very active in the US and also therefore relatively exposed to the US CE market. Something you wouldn't expect from, let's say, a typical German lender.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Is very interesting in the European credit market, in financial especially, is that generally the whole market trades very tight. So differentials between different parts of the capital structure. So senior debt versus sub-date trades at relatively compressed levels. So if you look like, let's say, at an Italian lender, and these are Sampaolo, I mean that the differential trades now at 84 while I mean at the historical tides while last year they were, let's say, trading at 250 during the banking crisis in the US. Similarly, similar case with Kumerzbank also trades very tight and also banks are performing relatively well as a whole. But within that, you do see extreme weakness within two banks in Germany, which have a lot of concentration.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Thanks. Yeah, so convexity is how much you're risking to how much you earn. So, like owning a lottery ticket is probably the most positive convexity thing, not that it has a positive expected return. And that's the thing about owning a bond. If you get the best scenario is you get paid, the worst scenario is it's a zero. Interesting about convexity and then CDS is credible default swap. So pretty advanced financial instruments. Yosef, you emailed me one or two weeks ago about an ongoing issue in the German banking sector. What caused you to write that email? And I should say I said, okay, Joseph, very interesting. Can we do an interview in March? And you said, no, things are moving pretty quickly. We should probably do this next week. So what caused you to write that email? What have you been observing with, let's just call it the bank a Deutsche Fondrief, also known as 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
“We have hedged out the interest rate at the credit risk and therefore only along the optionality of the convertible. That would be one example.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT
“Hey, thanks for having me here. So I started my career out at RBC in London within the credit division, then moved over to a small fund in Munich. And I'm now with Sire for a little bit more over two years. So what do you do at Xia is basically concentrate a lot on relative value credit? So between cash bonds and CDS, between different parts of the capital structure, between credit and equity. So that's what we are daily doing. We are a very nimble firm try to eliminate the negative convexity there and try to create some positive convexity within credit portfolios. So what we generally do is try to combine two instruments and therefore destroy this negative convexity. Let's say we had a convertible bond with CDS.”
2024-02-23 · Forward Guidance · Real Estate Crisis Hits Two German Banks | Josef Pschorn on Deutsche Pfandbriefbank and Aareal Bank · IDENTIFIED FROM THE TRANSCRIPT