GARCHING (dpa-AFX) - Deutsche Pfandbriefbank (pbb) wants to significantly increase its returns in the next few years and is initially accepting a further decline in profits to do so. In the current year, pre-tax profit is likely to fall from the recent 213 million euros to 170 to 200 million euros, the commercial real estate financier announced on Thursday in Garching near Munich. By 2026, it should then rise to more than 300 million euros. A few weeks ago, the activist hedge fund Petrus Advisers had accused the bank's management of "significant strategic weaknesses" and an insufficient return on capital.

Thursday's news was received positively on the stock market. In the morning, the Pfandbriefbank share rose by around two percent to 9.62 euros, making it one of the strongest stocks in the SDax small cap index. The shares of Pfandbriefbank thus extended the price gains of recent weeks. The stock market value increased by one third to 1.3 billion euros since the end of 2022.

In the past year, the bank's pre-tax profit fell by 12 percent to 213 million euros, but was surprisingly in the upper half of the forecast issued by the Management Board. As recently as November, Bank CEO Andreas Arndt had predicted a result rather at the lower end of the target range of 200 to 220 million euros, and analysts had also recently expected an average of only 203 million.

In 2021, Pfandbriefbank had benefited unusually strongly from the fact that many customers redeemed their loans early and paid high prepayment penalties. This was not repeated in 2022 in view of the sharp rise in interest rates. In addition, the bank's net interest income declined by one percent to 489 million euros, so that total operating income fell by 10 percent to 531 million euros.

It is true that the bank set aside only just over half as much money for impending loan defaults as in the previous year, at 44 million euros. Nevertheless, net income fell by 18 percent to 187 million euros due to lower earnings. Shareholders are now to receive a dividend of 95 cents per share, after the institute had paid out 1.18 euros for 2021.

In order for the bank to generate higher profits in the future, the Management Board is looking to build up new business areas: In the area of real estate investment management, pbb wants to enter the real estate sales business. In addition, it wants to enable the placement of risks with banks, insurers and pension funds with the new product pbb Debt from the second half of 2023. This could sustainably increase the return on the loan portfolio, it said.

The bank also plans to increase its loan volume by 3.5 billion euros to 33 billion euros by 2026. The overnight and time deposit business is expected to grow from 4.4 billion to up to 8 billion euros by then.

As a result, pre-tax profit is expected to rise to more than 300 million euros by 2026. Initially, however, the expenses are likely to eat into earnings: CEO Arndt expects pre-tax profit to fall to between 170 and 200 million euros in 2023. This is likely to result in a further drop in the return on capital. Most recently, the bank achieved a pre-tax return on equity of 6.3 percent, down from 7.5 percent in 2021. The return is now expected to rise to more than 10 percent by 2026.

A few weeks ago, the activist hedge fund Petrus Advisers sharply criticized the management of Deutsche Pfandbriefbank. The commercial real estate financier had never earned its cost of capital since its IPO in 2015. The bank had rejected the criticism./stw/zb/mis