The dent in Deutsche Bank AG’s profitability from US commercial property loans hit a new high last quarter, with the lender warning that offices are unlikely to see an improvement anytime soon.

Credit provisions for the asset class rose to a peak for data going back to 2022, almost doubling from a year earlier, according to an investor presentation published Thursday. While Deutsche Bank is “seeing some stabilisation” in the broader US commercial real estate market, the office part of that will likely “continue to be impacted” for the rest of the year, chief financial officer James von Moltke said on a call with fixed-income investors on the same day.

The remarks highlight how Deutsche Bank’s unique position as one of the biggest European lenders to developers of US commercial real estate - and offices in particular - will continue to be a sore point for investors. Even though its US CRE exposure accounts for only about 3% of its total loan book, it was the source for more than a quarter of the bank’s credit provisions in the last three-month period.

The average loan-to-value in its US office loan segment remained at 81% as of end-June, the bank said. That compares with an average CRE portfolio LTV between 50% and 60% at large German banks last year, according to a report from Fitch Ratings.

A previously expected recovery in the asset class hasn’t yet materialised, Deutsche Bank said during its earnings presentation on Wednesday, causing it to give a worsened outlook for full-year credit provisions. Shares tanked as much as 9%.

Elsewhere, New York Community Bancorp’s stock fell as much as 17% after reporting provisions for loan losses that were higher than every analyst’s estimate. That was linked to increasing charge-offs, primarily office loans, it said.

The commercial property market has been hard hit by interest rate rises, which have raised borrowing costs. US offices are among the worst performers as they have also experienced rising vacancies on the back of higher rates of remote working.

  - Bloomberg