Deutsche Pfandbriefbank Aktie

Yes. Thank you very much, and a warm welcome, ladies and gentlemen, from my side to our analyst call on PBB's first quarter 2026 results. We are happy that you have once again taken the time joining us in examining our quarterly results in more detail. As usual, my colleague, Marcus Schulte, our CFO, and I are here to guide you through the bank's key developments and IFRS figures. As always, there will be plenty of time for your questions at the end of the session.

Ladies and gentlemen, the changes we made to the structure of our Q1 report is a reflection and a testament of the strategic transformation of PBB, which we are consistently executing. For the first time, the bank is reporting on 2 distinct business segments, real estate investment -- real estate finance solutions, which encompasses our core business of Commercial real estate finance and real estate investment solutions, which includes the fee-based business of PBB Invest, including the first time fully consolidated Deutsche Investment Group as well as originate and cooperate.

In the third segment, the Corporate Center, we report on results that cannot be clearly attributed to the business segments, for example, from our investment portfolio managed by treasury and other activities. Our real estate finance solutions. We were able again to significantly increase new business volume in the first quarter to EUR 1.3 billion by almost 1/5 compared to the same period last year. Our key metric for profitability, return on tangible equity stands at 7%. At the same time, we made progress in reducing nonperforming loans, including a reduction of nearly 1/3 in our U.S. portfolio. For the first time, real estate investment solution is fully contributing to the bank's operating income with EUR 11 million from PBB Invest and originate and cooperate.

This puts us well on track for the rest of the year to achieve our target of a share of approximately 10% of the bank's total operating income. At the end of the first quarter, we reported a pretax profit of EUR 6 million. This is in line with our guidance for the full year. As expected, it reflects the costs associated with the significant risk transfer transaction related to our exit from the U.S. portfolio. In addition, the real estate finance portfolio and the noncore portion of the investment portfolio has continued to decline, driven by our risk reduction efforts, while for the first time, consolidation of Deutsche Investment has had a positive impact. Administrative expenses remained stable compared with the previous quarter. The rise in costs in our Real Estate Investment Solutions segment resulting from the first-time integration of Deutsche Investment was fully compensated by cost savings, particularly in our real estate finance business.

Liquidity remains at a comfortable level of EUR 4.8 billion. The CET1 ratio stood at 13.4% at the end of Q1 and is in line with the bank's previous guidance. The decline from 14.7% at year-end 2025 is primarily caused by regulatory adjustments on LGD treatment for the U.S. portfolio under the F-IRBA regime. More than 50% of the bank's covered funding requirements had already been met by the end of Q1 without any further substantial need for unsecured funding. The market environment in which we are systematically implementing our strategic transformation remains volatile and difficult to predict. However, thanks to a good start into the second quarter of 2026, we remain confident that we will achieve our targets for the full year.

Let us, therefore, take a look at the real estate markets and the current geopolitical and macroeconomic environment on Page 5. You are no doubt monitoring geopolitical developments just as closely as we are. When we spoke to you about 2 months ago regarding our full year results, the conflict in the Middle East just started. At that time, many market participants were still assuming it would be a freeze intervention. It is obvious today simply looking through the situation and leaving forecast for economic indicators nearly unchanged is no longer an option. The future course remains uncertain as of today. And even before the war in the Middle East, the real estate markets were recovering rather sluggish. What is certain by now is that this new conflict will dampen growth and rather fuel inflation.

Oil and gas prices have already risen significantly and with them, inflation in Europe. European real estate markets were still on a moderate recovery path in the first quarter. Further growth remains possible, but has become more uncertain. As investors were already cautious within the last month, even more projects could be paused or even suspended.

If you look on Page 6 at the forecast from ECBs and many other institutions, we see a clear trend. Growth expectations are being scaled down, whilst inflation is expected to rise. Before the conflict in the Middle East, interest rate cuts have been the general expectation. For now, ECB is obviously waiting to see how the situation develops. However, especially because of the sharp rise in energy prices, interest rate hikes have also become more likely. Looking at transaction volumes in Europe, there was still slight growth in the first quarter compared to the previous year. However, the flight to quality continues and it's primarily to the so-called bets and chest, i.e., logistics, hotel and residential property types that are benefiting. Two months ago, we had already anticipated a rather sluggish recovery in the real estate market this year. As things stand today, the outlook has certainly not improved.

Ladies and gentlemen, on Page 7, let me now turn to our Real Estate Finance Solutions segment, our core business in Commercial Real Estate Finance to show how we are performing in this market environment. As I mentioned earlier, we were able to increase our new business volume significantly by 18% to EUR 1.3 billion. This is a trend we have now been able to maintain for the third year in a row. The growing proportion of new commitments is also encouraging. They have risen from 42% in 2025 to 65% in the first quarter of 2026. The same applies to our transaction pipeline, which we were able to further expand despite challenging market conditions. It grew by 17% to EUR 12 billion with an increasing share of property types such as hotels, student housing and senior living, which are of great importance to our real estate finance solutions strategy.

In a highly competitive market environment, margins on new business remained stable at good levels of around 220 basis points. With an RoTE on new business of around 7%, we remain on track to improve the profitability of our portfolio. Despite the very strong performance of new business, we were not able to stabilize the real estate finance portfolio in the first quarter. As part of our derisking strategy and due to repayments, it declined slightly once again from EUR 27.3 billion to EUR 26.8 billion. However, we were able to slow the pace of the decline by further increasing the profitability of the entire portfolio. Before I move on to the Real Estate Investment Solutions segment, I would like to briefly give you an update on the progress of our exit from the U.S. markets.

Moving to Page 8. We are making good progress in reducing our U.S. portfolio. In the first quarter, performing loan and 4 nonperforming loans with a total volume of approximately EUR 300 million were repaid. We are particularly encouraged by the strong progress made in reducing our NPL portfolio, which we were able to cut by nearly 1/3 from EUR 900 million to EUR 600 million. We are very confident that we will achieve our 2026 reduction targets of approximately 50% as early as the first half of this year. As expected, the portfolio secured by the SRT transaction remains unchanged. Due to the movement of the dollar at the end of the first quarter, there has been a slight increase in the portfolio by roughly EUR 100 million.

Finally, on Slide 9, I would like to discuss our second business segment, Real Estate Investment Solutions before Marcus Schulte then take you through our financial figures on the quarter in way more detail. Real Estate Investment Solutions contributed EUR 11 million in revenues in the first quarter. Adjusting for purchase price and integration costs, the quarterly pretax profit amounts to approximately EUR 1 million. Compared to the same period last time -- last year, this is an improvement of approximately EUR 4 million. In line with our strategic transformation, this contribution is capital efficient and does not tie up any significant risk-weighted assets. For BBP Invest in which the bank combines its investment management activities, fee income of around EUR 8 million was generated in the first quarter. [indiscernible] Investment was fully consolidated at the start of the year and is now making a significant contribution to the segment. Originate and cooperate is contributing operating income of EUR 3 million. This includes income from syndication, loan origination and service fees.

And with that, I'm more than happy to hand over to our CFO, Marcus Schulte, who will lead you through in way more detail to our figures.

Yes. Good morning, and welcome also from my side. Thank you, Kay. As usual, I will now guide you through financials, portfolio development, capital and funding. Together with the introduction of our new segment reporting [Technical Difficulty]

We are back in the conference. We had minor technical issues. I hand back to Deutsche Pfandbriefbank.

Yes. Hello, ladies and gentlemen, sorry for that. I don't know why we dropped out on that end of the provider on our end. I'm not sure where you lost me, but essentially, I was just saying we redesigned the presentation, and we will, of course, provide you especially granularity on the new segments.

And I was just starting to lay out the key highlights of the group financials on Slide 11, which you also see in a slightly new design. The PBT of EUR 6 million for the first quarter is in line with our expectations and is driven by 3 high-level developments that's, I think, where you lost me, which is number one, operating income that is affected by the envisaged SRT costs, but also by a rather accounting-specific effect that I will again explain in quite some detail in a second. The operating cost base is stable quarter-over-quarter despite the integration of Deutsche Investment and risk costs are substantially down following our significant derisking in 2025.

Let me peel that onion for you, starting with some detail on the development in operating income. Purely on the face of it, operating income is down by EUR 29 million quarter-over-quarter from EUR 106 million to EUR 77 million due to several effects, not least on lower NII only being partly compensated by strongly increased fee income, slightly lower realization income as well as a negative fair value result in detail. NII is down EUR 15 million quarter-over-quarter, burdened by additional SRT costs of minus EUR 10 million as envisaged. But beyond that, NII is down another EUR 5 million because the reduced portfolio volume in RES and noncore could not be fully compensated by further increased RES portfolio profitability and lower funding costs. At the same time, fee income increased strongly by EUR 10 million from RAS, as mentioned by Kay, which is mainly reflecting the integration of Deutsche Investment in the first quarter.

Allow me to explain that fee income is reflected in 2 accounting lines. On the one hand, EUR 5 million net fee and commission income, which is coming from Deutsche Investments Asset Management and O&C. On the other hand, EUR 5 million in net other operating income, which contains the property and facility management income of Deutsche Investment. In line with our strategic targets, we bundled fees from these 2 accounting lines in the table you see to fee income. You can find further details on the exact derivation of these figures in the appendix and in our segment reporting. Looking then at the combined NII and fee income in the walk on the bottom left, this is only moderately down by EUR 5 million from EUR 99 million in the fourth quarter to EUR 94 million in the first quarter 2026.

So in a nutshell, the drop in NII from SRT costs and portfolio reductions by EUR 15 million could not be fully compensated by a positive jump in fee income that I explained by EUR 10 million. Realization income is down by EUR 5 million, while prepayments stayed rather stable, extraordinary income from liability buybacks and noncore asset sales was lower. The fair value result and others account for negative minus EUR 22 million, down EUR 19 million quarter-over-quarter. This is partly a reflection of the changed interest rate environment, but more importantly, down to credit-induced impact and includes minus EUR 10 million fair value risk charges for U.S. NPL, which, as you know, have to be reflected in the operating income even though they are rather risk costs from an economic point of view.

To be clear, these U.S. fair value risk charges are more than compensated by EUR 11 million positive release of U.S. Stage 3 LLPs in the risk provisioning line that I will come back to later. Adjusting operating income for this U.S. fair value risk charge, it would be EUR 87 million, down EUR 19 million from EUR 106 million, most of which is then explained by the SFC costs.

Moving on to costs in this overview. On a like-for-like basis, operating expenses are down quarter-over-quarter as a reflection of our cost discipline. Thus, we were able to keep operating expenses overall stable despite the integration of Deutsche Investment. As you can see, risk provisioning is substantially down to minus EUR 2 million following our significant derisking in '25. The additions in Stage 3 for European NPL are partly compensated by aforementioned releases in the U.S. as well as Stage 1 and 2. I will come back to that in the respective deep dive. Overall, PBT is therefore up EUR 21 million quarter-over-quarter. And is on the one hand, the result of moderately lower NII and fee income plus moderately lower realization income as well as specific effects in the fair value result, but is on the other hand, helped by stable operating costs and very significantly reduced risk costs. Importantly, PBT of EUR 6 million is in line with our expectations.

With that, let me come to our first deep dive on Slide 12. Operating expenses, including depreciation, remained stable and well managed. We successfully reduced operating expenses in RE and the overall bank operations by a combined EUR 6 million quarter-over-quarter. This is especially down to reduced IT and overall strategic consultancy costs. This saving is then fully compensated for the cost increase in rates stemming from the integration of Deutsche Investment. The elevated cost/income ratio of 88% is especially a reflection of the lower operating income level, which was also burdened by the aforementioned minus EUR 10 million U.S. fair value risk charge. Adjusting operating income for this U.S. fair value risk charge, the cost/income ratio would be 78%.

This then brings me to the deep dive on risk provisioning on Slide 13. LLP are down to minus EUR 2 million, driven by a net release of EUR 7 million in Stages 1 and 2 and net additions of minus EUR 10 million in Stage 3 as well as modifications of EUR 1 million. Net release of EUR 7 million in Stage 1 and 2 especially reflect maturity and credit-driven improvements, including a release in the management overlay for the U.S., which more than compensated for adverse development of macroeconomic parameters, i.e., GDP and interest rates. Net additions in Stage 3 are driven by additions of minus EUR 21 million for European NPL, predominantly from investment loans from Germany and France, which were partly counteracted by EUR 11 million net releases for U.S. NPL. Overall risk costs for U.S. NPL, i.e., Stage 3 loan loss provisions plus fair value risk charges and operating income are balanced, underpinning that our provisioning level for the U.S. remains adequate.

Even when including the aforementioned minus EUR 10 million fair value risk charge, total risk costs are very significantly down quarter-over-quarter to then minus EUR 12 million, which is clearly a reflection of the significant derisking we undertook in '25.

As usual, then only briefly on loss allowances themselves on Slide 14. Here you see that all in all, the development of the loss allowance is a reflection of the LLP just explained, plus consumptions from the existing stock. Stage 1 and 2 allowances are slightly down for the reasons I mentioned. Stage 3 allowances are down quite a bit as consumptions for firmly reduced U.S. NPL that Kay explained, were overcompensating LLP additions in European NPL. At the same time and driven by the U.S., the total NPL volume is down by EUR 100 million or 4% -- in reflection of consumptions for U.S. NPL, the overall RES NPL coverage ratio is slightly down to around 28% from 30% at year-end 2025.

This then brings me to our new segment reporting, and I'm starting here with Slide 16. From now on, we will report on our 2 business segments, Real Estate Finance Solutions RES and Real Estate Investment Solutions REC as well as the Corporate Center. In RES, we bundle the on-balance sheet trail lending business with its earnings and expenses as well as attributable expenses, including those of central functions plus allocated overhead costs. In Rates, we essentially bundle off-balance sheet fee income from PBB Invest, including Deutsche Investment and Originate and Corporate. Again, on the cost side, we include direct costs of these operations attributable expenses, including central functions plus allocated overhead costs. And in the Corporate Center, we essentially bundle the operating income of our treasury activities, including NOI and realization income from our investment portfolio, liability management as well as hedging activities.

Like in the other segments, corporate center costs include direct treasury costs as well as directly attributable expenses, including other central functions, plus allocate overhead costs. In addition, compulsory group costs like regulatory costs, bank levies or rating fees and group strategy expenses are also allocated to the corporate center. Earnings from equity investments are allocated across segments according to the allocated equity portion and the cost for the AT1 coupon are allocated in the same way. But they are only applied to the ROTE concept where they show, of course, a respective effect. All in all, this provides a business-oriented and economically adequate segment view, and it clearly improves transparency for you.

Starting with RES with the Real Estate Finance Solution on-balance sheet business on Slide 17. The financial performance of RES is, of course, significantly impacted by our derisking and portfolio transformations and the effects that I explained for the group. With that in mind, operating income is down quarter-over-quarter by EUR 20 million from EUR 91 million to EUR 62 million. This is, of course, a reflection of the trends already mentioned at the group level. Specifically, EUR 11 million lower NII and NCI, EUR 7 million lower realization income and EUR 11 million lower fair value result in others. NII and NCI is burdened by additional SRT costs, as mentioned, minus EUR 10 million and the reduced portfolio volume while the transformation of the portfolio into higher profitability is still ongoing.

The fair value result and other operating income item amount for negative EUR 17 million, down by EUR 11 million quarter-over-quarter. It includes the repeatedly mentioned minus EUR 10 million fair value risk charges for U.S. NPL, which, as you know, are more than balanced by the EUR 11 million release of Stage 3 U.S. LLP. I will not comment on the LIP line as they are identical to the group's as there are no risk provisions outside the RES business in the quarter. Also, our strict cost discipline and organizational optimization, namely our target operating model is bearing fruit, as you can see. Operating expenses in RES are down by EUR 4 million or 8% quarter-over-quarter with inflationary uplift on personnel expenses and the organizational transition being well managed and nonpersonnel costs and expenses reduced.

All in all, the REF portfolio remains in transition with the portfolio volume currently still being behind expectations. However, as mentioned by Kay, our overall strategic cause for on-balance sheet business is working. That is the portfolio profitability is increasing, risk costs have come down. and the operating cost base remains well managed. Just briefly now on the portfolios, which we allocate to the segment REF and therefore, show it in the REF segment. You see on the performing REF portfolio that the significant derisking is showing in the key KPI for our performing European portfolio, which further stabilized or even improved in the first quarter. This continues the trend we've now seen for several quarters.

The European NPL portfolio on Slide 19 includes German development loans, which account for 42%. Development NPL slightly decreased with one development loan of EUR 34 million having been repaid and no new development NPL in the first quarter. In light of the significant derisking of development NPL, especially in the fourth quarter of 2025, we now show an integrated European NPL slide and put the known deep dive on the development portfolio into the appendix. In the European nonperforming investment portfolio, we had 4 additions with a volume of EUR 196 million in the first quarter, one of which with a volume of EUR 94 million was rather technical and has already been repaid in April. All in all, the European NPL portfolio remains solidly covered by around 28%, down from around 31% per year-end. [Technical Difficulty]

Yes. So sorry, again, I got disconnected. We will follow up on this. Sorry for this. At this time, I think the operator was quick in reconnecting us, so I don't think you missed a lot. I was just starting to report on our real estate Investment Solutions business on Slide 20, which obviously very nicely reflects the effects of the now integrated Deutsche Investment. Operating income, as you can see, strongly increased by EUR 9 million to EUR 11 million quarter-over-quarter. There are EUR 10 million fee income and EUR 1 million NII. In one sentence, CBD Invest, which so far equals Deutsche Investment makes up for EUR 8 million fee income. There are EUR 3 million investment management fees and EUR 5 million property and facility management fees. O&C makes up for EUR 3 million, EUR 2 million fees and EUR 1 million NII.

At the same time, operating expenses in rates overall increased by EUR 6 million quarter-over-quarter, including EUR 1 million one-off integration costs and purchase price adjustments rising from the first-time consolidation of Deutsche Investment. So all in all, this sees a balanced PBT in the first quarter '26 for rates up from minus EUR 3 million in the fourth quarter '25 and minus EUR 4 million in the first quarter of last year. Adjusted for the aforementioned integration costs and purchase price adjustments, PBT for the REIS segment would have been EUR 1 million, as mentioned by Kay in the intro. With REIS, we therefore diversified our income streams. We transformed from a practically pure NII bank to an NII plus fee-generating bank, and REIS is on the way to generate profits and is a capital-light business, which we expect to become increasingly ROTE accretive as we go along.

I will skip Slide 21, which we provided as a convenience with further information on portfolio and investor base of PBB Invest and Deutsche Investments, but Kay covered that already at the beginning. So last, briefly on our Corporate Center. I'm on Slide 22. As already said, the Corporate Center importantly includes the treasury activities, including our combined investment portfolio, which comprises the former noncore portfolio and the bank's liquidity portfolio. Operating income is down quarter-over-quarter to EUR 4 million, not least because of lower NII from the maturing investment portfolio. As mentioned, expenses also include the bank's strategy costs plus compulsory costs of the group, such as bank levies. They remain relatively stable with EUR 9 million, leading to a PBT for the segment of minus EUR 5 million in Q1.

That concludes the segment reporting, and I will now come to capital on Slide 24. The CET1 ratio has come down from the full year 2025 disclosure report figure of 14.7% to 13.4% at the end of Q1. This is in line with the 2 effects that we already clearly indicated with full year results. Number one, minus circa 110 basis point reduction from the adoption of the EVA position on the nonequivalent of U.S. data for the computation of U.S. LGD and F-IRBA, which leads to a full loss of the preferential collateralized LGD treatment for the entire U.S. REIS business as per the end of the first quarter. At full year results, we indicated this effect to be around minus 135 basis points on a pro forma basis per year-end. Given that the U.S. portfolio shrank in the meantime, the effect came in lower at 110 basis points minus as was to be expected.

The second effect is a circa minus 20 basis point reduction from the acquisition of Deutsche Investment, which again was well advertised. It's again worthwhile noting that our S over RWAs are procyclically elevated so that the SOA CET1 ratio of 13.4% stands significantly below a pro forma standardized CET1 ratio of 15.2%, which many see as a regulatory floor. Nonetheless, our capital ratios remain well above SREP requirements with around about 340 basis points buffer over CET1 MDA and around 222 basis points over own funds MDA. Also allow me to say that on the basis of sufficient available distributable items and this buffer, we were very clear and easy in our decision to pay the AT1 coupon. Our long-term through-the-cycle minimum level for the CET1 ratio remains unchanged at 13%.

Finally, from my end on the funding and liquidity side, I'm now on Slide 25. We had a strong start in '26 in capital markets funding with more than 50% of the fund funding planned for '26 already completed in April '26 at a 13 basis point lower spread compared to 2025. On the senior side, our moderate needs and comfortable liquidity position enables a rather tactical funding approach. Retail deposits remain a cost-efficient source of funding. A stable volume of around EUR 7 billion is efficiently accommodating our reduced balance sheet needs. With an LCR of 185%, and NSFR of 114% and a EUR 4.8 billion liquidity position at quarter end, we remain -- we maintain a solid liquidity position.

And that concludes my remarks, Kay, and I hand over back to you.

Thank you, Marcus. And also apology from my side with regard to the technical problems. I hope that the line now stays stable. Ladies and gentlemen, let me conclude by summarizing the key points of our Q1 results on Page 26. We are in the middle of executing our strategic transformation, and we are making good progress across all segments. Our new business in real estate finance is growing, and it is growing profitably with a further increasing share in asset classes that are of strategic importance for us. And we have a strong pipeline for new transactions. Derisking and the exit of the U.S. market continues to progress.

We have reduced our U.S. NPL portfolio by almost 1/3. Real Estate Investment Solutions for the first time makes a significant revenue contribution of EUR 11 million, enhancing DBB's diversification. With a pretax profit of EUR 6 million, we are within our full year guidance. Liquidity remains robust and capital ratios are in line with our expectations. The geopolitical and macroeconomic environment remains volatile for all market participants and it's difficult to predict in terms of its impact on the European economy and the real estate markets. With the Q1 in line with expectations and a good start into the second quarter, we remain confident to achieve our full year targets even in this uncertain market environment. And thank you very much for your attention to Marcus and myself. We are both now looking forward to your questions.

[Operator Instructions] And the first question comes from Sharada Patel from Citi.

So my first question would be on the negative fair value adjustments this quarter. I'm guessing that they were U.S. NPLs held for sale. But can you remind me on why they were held for sale? -- worked out organically? And can you also give me a sense of how many U.S. loans you've got in held for sale? That's my first question.

Sorry, can you -- we apologize. We hear you, but the line was not great. Could you repeat your question? We apologize for that.

Can you explain the negative fair value adjustments taken this quarter? Why would this be sort of U.S. NPLs held for sale given I thought the intention was to work them out organically?

Yes. And the second question?

And the second kind of similar question to that is just thinking about the future and any possible volatility on this line. What's the size of the exposure of U.S. loans you've got in held for sale?

Yes. So basically, thanks for your question and allowing me to clarify that. So you're right. We have fundamentally some portion of the U.S. NPL that we have in fair value as they were restructured and the restructurings that were undertaken require them to be hedged in fair value. The bulk of the exposure is, of course, an amortized cost. Now the fair value adjustments, they occur, of course, when you get new valuations, when you get a new bid, it's pretty much the same as you would have it in the amortized cost line. It's only that, of course, you have to show it in the fair value line and not in the risk provisioning line. So the mechanics and the underlying loans are essentially identical to the other NPL loans. They just have the technical feature that they have to be accounted for in fair value. Yes. So that's the answer to that question.

Yes. That's helpful. And then as a sort of follow-up, do the fair value adjustments have any impact on your expected loss reduction? It doesn't seem like there was a change in this quarter that was flagged in the slide.

No, that's correct. Yes.

Okay. And then I just got 2 more. So is there any update on your thoughts about back to a standardized model given obviously now the U.S. RWA changes have been put in place?

Look, Sharada, I can answer on that. The short answer is no. We are a foundation IRBA bank, and that's how we report it. We know and we have explained that also in our last presentation that the FIRBA approach provides through cyclicality. And what we see right now is that we are very well below what comparatively would be a standardized approach. However, that it's just a point in time perspective and those considerations one would have to take through the cycle. So at this point in time, we are clearly an FIRBA bank and report accordingly was showing the relative situation when the bank would be a standardized approach just to outline the fact of how procyclical at this point in time of the cycle, this approach is affecting us.

Got it. And then my last question is what's the sort of nature of the new business? I know you mentioned student housing, senior living, but what do you see for this year the kind of demand with given attractive spread?

Yes. Very good question. Thanks very much for that. I think you see it from our portfolio and you have seen it from the new business. I think nearly half of the new business in the first quarter, we wrote in logistics. So we see good dynamic, and I mentioned that this is an asset class, not only we have a strong market position in. Our portfolio is our second largest part in our portfolio, but we see clear opportunities there. Coming out of the fourth quarter and also into the first quarter, student housing in certain markets, in particular, in Spain, we have seen, but also in France are providing interesting investment opportunities from a margin perspective.

And of course, and we should not write that off, right? Office remains one of the largest single assets in real estate. And we do see and come across good profitable and also from a risk return profile, attractive financing opportunities for office, although our strategy remains in place that our share of office in the bank has continued to decline, and we are targeting still remembering our strategy around 35% to 40% share of the portfolio.

And the next question comes from Tobias Lukesch from Kepler Cheuvreux.

Firstly, on capital. I was wondering you reported the core Tier 1 ratio now with the interim result included and you did not accrue for dividends. I was just wondering, is there a threshold, let's say, 13.5% or 14% from there on where you would potentially accrue for dividends throughout the year? And secondly, on the costs, just wondering like is there any particular still kind of one-off double costs involved in that Q1? Or is that a clear quarter basically to look at?

I can take your second question on the cost and Marcus is going to answer your first question on the dividend side. From a cost perspective, we clearly have the integration cost of Deutsche Investment. We highlighted that. That's the difference between the black zero and the EUR 1 million mentioned. Those are costs that are going to fade out going into the second quarter. And of course, strategically, we are working on developing the bank forward. There are minor additional costs from a strategic development standpoint. But overall, Mr. Lukesch, I would say it's a rather normal quarter, although in the last couple of quarters, that always has been the case. There has never been a big one-off item in there.

What we can clearly say is, and we have demonstrated that over the last 4 to 8 quarters that consistently our operating cost is coming down. And that trend is continuing. You've seen that, that was the key driver of us being able to compensate in just 1 quarter the integration of Deutsche Investment from a cost perspective into the bank and keeping costs stable. So those cost reduction measures that we are consistently taking and we have reported target operating model, et cetera, those are elements that consistently are going to pay in and will continue to support our cost trajectory of the firm.

[indiscernible] from my side on your question. So on a post tax and coupon basis -- actually, there was no profit to speak of, hence, also no money put aside for the dividend. And as usual, we would, of course, when we come to the year-end, then have the reservation for the dividend that we intend to pay at that point in time, which, as you said, would normally be a distribution total, meaning distribution of capital of 50%. But right now, in the first quarter, it was basically a post-tax, post coupon flat result.

Maybe a third one, if I may, on the volume development. Also, you showed a good healthy business pipeline. I was just wondering in terms of the total REF portfolio, how much more of a potential decline should we expect over the coming quarters? Do you see the bottom of that development or an impetus basically for an improvement in terms of volume size? Or is that something which may further weigh basically on '26 given that the market conditions are actually not really improving and potentially even weakening, if I understood you correctly.

Yes. Very good question, and thanks for picking up on that. And let me say, first of all, certainly a development that looking at a very strong and good quarter in new business in the first quarter, which we are clearly not satisfied with that the portfolio is continuing to reduce. Now on the one hand side, there is a derisking and exiting the U.S. portfolio consistently is a drag on the overall portfolio. So that's going to continue. However, we clearly are working and also see with the business pipeline that we are gaining a momentum there to stabilize the portfolio. We guided EUR 27 billion to EUR 28 billion.

We reconfirmed that. So we see clearly the opportunity there with the pipeline going into the second quarter to turn that development around and get a stabilization of our commercial real estate portfolio going forward. You have addressed one of the concerns, which we have been very outspoken here in this round as well, and that is certainly the macroeconomic development. Right now, with cash, we see a very strong pipeline, year-over-year up by nearly 50% from EUR 8 billion to EUR 12 billion. That shows that there is dynamic there in what is an overall sideward trending market. So our franchise has done a good job to really gain momentum, in particular on growth asset classes. However, the uncertainty is there that is for us hard to predict going into the second quarter.

Right now, what we see is that we have a strong pipeline. We work on transactions and therefore, remain confident. But we also -- that's also clear, don't have the crystal ball. The longer the Middle East conflict is dragging on, the more pressure certainly comes on that trajectory. And we are monitoring it very closely and pushing, I can say that really hard on getting good new business. That is possible. I would like to add that. So we would not make a compromise. You've seen our RoTE remaining stable at around 7%. That is also what we want to see going forward.

There are currently no further questions. [Operator Instructions] Here we go. There is one more question coming from Domenico Maggio from Jefferies.

Can you provide a bit more color on the European NPL increase? That would be one question. Then the line was a bit disturbed when you answered to the first call on the fair valuing of the portfolio. Is it possible maybe to provide a sensitivity to rates into that? I mean I know this is kind of a pro forma exercise and there are many variables. But yes, basically some sensitivity would be helpful. And yes, that would be the first 2. I might have a follow-up.

Yes. Look, I take up the first question with regard to development of the European NPL. I think Marcus just said that unfortunately, there is one transaction in there, EUR 94 million, which as we speak, has already been repaid. So you could call it really a technical default that we have been having where literally the 90 days past due passed just before the repayment that happened in April. And that repayment came without any loss. So at the end, it's a kind of a pass-through. For the other transaction, I would say a normal development, yes, that it's in line with what we expect. You cannot rule out in a quarter to have one transaction that goes into default.

So from that perspective, I would say, normal course of business Domenico with regard to the development of the European NPL. Some of the additions of the provisions that we have been making were on existing defaults as well, increasing coverage also as a reflection of, of course, in certain markets in the current macroeconomic environment, it doesn't get easier with regard to an outlook, and we have adjusted for that. But overall, the risk costs also taking the European stand-alone is developing according to our own plan and is in line with what we have expected.

Yes. And Domenico, thank you very much for your second question, and apologies if the acoustics were not so great. I think the sensitivity of our fair value accounted U.S. NPL to interest rates is not what is driving the both at all. It is rather, as I mentioned, new valuations, selling the loan, restructuring the loan, selling the underlying assets, which goes with new valuation. So it's credit induced, right? So I think it's very important to differentiate. And you can see that nicely in the segment reporting. On the one hand, we have fair value adjusted that come from credit-induced effects, and that is predominantly the U.S. fair value accounted assets. And again, these are purely credit-driven and not interest rate driven.

On the other hand, we have, of course, a portion where the fair value is informed by the hedging that we have and the interest rate development. And here, you also have some sensitivity, which is, however, low given that the bank is taking a full hedging approach. You have some structural pull to par, which comes from the -- for the reason we mentioned that on previous iterations, which comes for the reason that, of course, we sold noncore assets and the according assets, derivatives, they actually pull to par, which is a structural effect. And then you have minor adjustments in this particular quarter from tenor risk. But essentially, this is interest rate developments and must not be mixed with the fair value credit changes that we discussed previously with.

Okay. And is the SRT running down as expected? Also, if you can just reclarify the rundown because I think you flagged EUR 10 million impact on the P&L, then at Slide 38, I see like the net interest income effect and the cost. So if you could recap there would be helpful.

I think you are reflecting, if I understood it correctly, the SRT rundown, right?

Is it going as expected?

Yes, it is, as we speak, going as expected. You see the rundown profile on Page 8. And to provide the transparency that we have been giving in the backup around the cost implication, P&L implication as we speak according to plan.

Okay. So the annual cost that you see at the other slide, shall I just divide it by 4 because you provide the numbers yearly. I was just wondering quarterly, how shall we look into that?

Yes, I think that is a fair assumption, right? The portfolio is coming down. You see that from a rundown profile towards the year-end. But when you look into the respective quarter, that is probably rather towards the end of the year with the first maturities. You know that if someone invests in an SRT, they expect a certain maturity in the first place. So therefore, for this year, that's clearly a good assumption. In the next year, you can assume a more continuous paydown profile quarter-over-quarter.

If I may briefly add to that. So I think in this year, you would expect it to drop only from Q4 onwards. And you see that then also in the forecast that we have been giving in full year results where actually the estimated annual cost for this year was EUR 44 million, which is, of course, in line with the EUR 11 million as discussed by Kay, and it would come down to EUR 26 million next year, and you will start to see that in Q4.

Thank you very much. And that concludes the Q&A session. I hand back to Kay Wolf for closing words.

Thank you very much. I was just surprised. I give it a pause. Is there any additional question because you just immediately added it over after Domenico, but really give it back if any additional questions.

[Operator Instructions]

It doesn't seem to be the case. Thanks very much. I apologize again for the 2 drop-offs on our end. We will definitely review that. Appreciate very much your participation, your listening in and of course, in particular, for everybody who asked questions. Thanks very much. If there should be more questions coming up, which is not unusual, our IR team around Michael and Axel are at your availability. Please don't try away reaching out to them, which I know you don't do anyway. So much appreciated. Thanks for dialing in, and we wish you a good day. Thank you very much.

Thank you.

Hello, ladies and gentlemen, and welcome to the Deutsche Pfandbriefbank Analyst Call Regarding the Publication of the Preliminary Annual Results for 2025. [Operator Instructions] Let me now turn the floor over to your host, Kay Wolf, CEO of Deutsche Pfandbriefbank.

Thank you very much. And ladies and gentlemen, a warm welcome from my side, from our side, Marcus, our CFO, here as well. And thanks very much for taking the time joining our first analyst call in 2026. Before Marcus and I will take you through the preliminary effects and figures for 2025 and also a prolonged view on the outlook for 2026 to 2028. As usual, we are doing that based on IFRS figures for the Group.

I would like to take the opportunity to inform you that we are going to slightly amend this call going forward. And we have decided we're starting into a New Year to develop a bit further in the setting here. And going forward, not only our equity analysts, but also sell-side credit analysts who are covering pbb on a regular basis are invited to ask questions.

This is clearly aiming for even further broadening the communication and the dialogue with the community that is covering us in great detail. And I'm really looking forward together with Marcus to your questions that are coming from both of you, from our equity analysts as well as our debt analysts, both from the sell side.

And as always, there will be sufficient time left on our side for questions and answers at the end of the session. Ladies and gentlemen, 2025 was a landmark year for pbb. We made far-reaching decisions that go well beyond what we presented to you on our Capital Markets Day back in 2024. The transformation of pbb is more intense and therefore, more time-consuming than originally anticipated.

In addition, the market recovery remains sluggish, providing us with less momentum in the new business than expected and in some countries with additional regulatory headwinds. This makes it more difficult to achieve our strategic goals and limits our flexibility and also latitude for action. However, we remain fully convinced that we are on the right track. We are working hard to make the bank more resilient, profitable and diversified.

We are not losing sight of our strategic goals. Despite difficult conditions, we have already made good progress. As a result, we succeeded in significantly reducing the bank's risk profile in 2025. Repayments totaling EUR 1.4 billion and the EUR 1.7 billion significant risk transfer transaction at the end of last year enabled us to substantially reduce our risk exposure in the U.S. This represents a major step forward in our withdrawal from the U.S. market.

We were also able to reduce the risks associated with the existing nonperforming loans in our development portfolio. With that, we deem the shielding and risk coverage of the U.S. and the development books as in general completed. At the same time, we are encouraged by the significant increase in new business to EUR 6.3 billion, including prolongation larger than 1 year.

In a challenging market environment, we were able to increase new business volume by 23% compared to the previous year. In doing so, we are consistently tapping into new asset classes in order to diversify our portfolio. Nevertheless, in 2025, we remain below our original goal of between EUR 6.5 billion to EUR 7.5 billion.

However, our key indicator of profitability, return on tangible equity was around 8% for the new business, which is already in line with our strategic ambition level. We have also made progress in diversifying our income streams. The acquisition of Deutsche Investment will broaden our business model. In 2026, Deutsche Investment will make its first notable low-capital binding contribution to pbb's overall results with its commission income.

However, despite our efforts, we have not succeeded yet in placing our first own investment product in what is a difficult real estate investment market. But we continue to see the great market potential and remain committed and confident to make progress in the future. The decisions we made last year to put the bank on a more sustainable foundation for the long-term had a significant negative impact on our 2025 annual results.

With costs of around EUR 366 million the decision to exit the U.S. market and the derisking of the nonperforming development loan contributed significantly to the negative pretax result of EUR 250 million. Due to this significant negative pretax result, the bank will not pay a dividend for the financial year 2025.

With regard to AT1, the conditions for servicing instruments are currently well met. However, as you know, for regulatory reasons, we are not allowed to comment at this time on whether we will pay the AT1 coupon in April as we always -- we have always done in the past. With the CET1 ratio of 14.9% at the end of 2025, the bank remains solidly capitalized. The SRT transaction resulted in a significant RWA reduction of EUR 1.1 billion.

However, this was offset by necessary regulatory loss given default adjustments to capital requirements in our foundation IRBA regime. These adjustments are linked to country-specific and backward-looking loss developments in the respective commercial real estate markets. They are completely independent of the performance of our portfolio or individual pbb loans.

In addition, the embedded threshold and trigger mechanism increases the volatility and procyclicality of the F-IRBA capital regime for commercial real estate in the current market environment. In Q4 2025, the effects are primarily caused by the loss rate development in the countries of Poland and Finland. And we will discuss these effects in more detail later.

For 2026, we expect pretax earnings to be in the range of EUR 30 million to EUR 40 million. The U.S. exit, in particular, will continue to have a significant negative impact with SRT costs of around EUR 44 million. Additionally, sluggish market recovery will not offer significant support. The most important KPI for us remains the improvement of the return on tangible equity to 8%.

For the whole bank, we expect to achieve this profitability target in 2028, 1 year later than originally planned. Ladies and gentlemen, we are not satisfied with our 2025 results or the outlook for 2026. The transformation of pbb is more intense and therefore, more time consumed. Even more in the current market environment, it requires more resources than we had originally anticipated. Still, it remains the right thing to do, and it is necessary on this scale.

Let us now take a brief look at market developments on Page 5. We can all observe the high level of volatility at the macroeconomic and in particular the geopolitical level on a daily basis. And just last weekend, a new armed conflict broke out in engulfing the entire region, the Middle East. This volatility as well as the associated uncertainty and unpredictability are likely to remain with us for the foreseeable future.

At the same time, unstable economic outlooks and volatile tariff policies continue. We, therefore, expect growth in Europe to remain at the low level. Inflation is stable at around 2% within the ECB's target range. So interest rates in the Eurozone are not likely to fall in 2026. In economic and interest rate terms, therefore, no or only minor stimulus are to be expected.

The European real estate market remains in the phase of growth. We do not expect further continuous -- we do expect further continuous improvement, albeit at a rather modest level. In line with the consensus among many market experts and their forecast, we do not anticipate a breakthrough in 2026.

Sentiment remains subdued and investors remain cautious. However, we intend to leverage our good momentum in the new business of the fourth quarter of last year and continue to grow this year as well. However, attractive financing opportunities that meet our risk return profile remain rather underrepresented and are therefore highly competitive.

This is clearly evident in the transaction volumes in commercial real estate financing in Europe, as you can see on Page 6. In line with the significant rise in interest rates, the volume of transactions slumped by almost half. Since then, the markets have been recovering steadily but hesitantly. We expect transaction volumes in Europe in 2026 to remain notably below the 2022 level. Although the ECB's key rate has normalized, it remains well above the level seen during the historically low interest rate phase.

Everything, therefore, points to a continued sluggish market recovery in an unstable environment from which pbb can itself not completely decouple. Let me now turn to our business segments, starting with Real Estate Finance Solutions, our core business pillar on Page 7. As already mentioned, we significantly increased our new business volume by 23% to EUR 6.3 billion.

We had a stronger-than-expected fourth quarter with a high proportion of January new business commitments, which grew to 63%. The return on tangible equity in new business remains at around 8%, thus meeting our profitability requirements. We are also making progress in diversifying our book.

Our growth asset classes with hotels, data centers, student and senior housing now accounts for around 7% of our new business with a stable pipeline of just under 20%. Before I move on to Real Estate Investment Solutions, I would like to give you a deeper insight into the progress of our withdrawal from the U.S. market, all on the next 3 pages.

As you can see on Page 8, we have made strong progress in reducing the U.S. portfolio in 2025. Within the last 12 months, we were able to reduce our performing book by 1/3 from EUR 3.3 billion to EUR 2.2 billion. Of the remaining EUR 2.2 billion, the SRT covers a portfolio of EUR 1.7 billion. This leaves an economic risk position of only EUR 500 million in our performing portfolio.

You can see the rundown of our book in the top right corner of the slide. We aim to have almost completely wound down of our U.S. exposure by the end of 2029. Let me give you on Page 9, some more detailed information regarding the SRT transaction in our U.S. business, which is of strategic importance for us.

It is certainly a unique transaction for this market, both in terms of our strategic decision to exit the U.S. market and in terms of the transaction parameters. The transaction covers a performing U.S. portfolio with a volume of around EUR 1.7 billion. It comprises only 26 loans and has, therefore, a significant higher risk concentration compared to other transactions in the market.

In addition, 92% of the portfolio is concentrated in office loans. pbb retains the First Loss Piece of around EUR 51 million and is fully protected -- this is fully protected by existing Stage 1 and Stage 2 risk provisioning. The Mezzanine tranche of EUR 247 million was taken over by Oaktree, protecting pbb against future losses to this extent.

The SRT portfolio is expected to gradually reduce until 2029, aligned with expected maturities of the loan portfolio, reducing interest income over time. At the same time, the cost for the Mezzanine tranche will also decrease. The SRT transaction provided for an RWA relief in the amount of EUR 1.1 billion and a positive CET1 effect of 120 basis points. Finally, on the U.S. book on Page 10, some remarks regarding our NPL portfolio. At the end of 2025, our NPL book in the U.S. stands at EUR 900 million.

In the fourth quarter, we were able to reduce NPLs by around EUR 100 million and have built some momentum. Currently, 5 further loans totaling EUR 300 million are already in advanced exit process for the first quarter of 2026. We are able to exit these loans within our existing valuation. Hence, no further material risk provisions were required.

This makes us confident that we will be able to further reduce the NPL portfolio in 2026. The coverage ratio for the U.S. NPL book has increased significantly from 20% to 36%, a solid protection. Let me now, on Page 11, give you an update from our Real Estate Investment Solutions division, which will become pbb's second business pillar from 2026 onwards.

The integration of Deutsche Investment with assets under management of around EUR 3 billion is well advanced. Following the first-time consolidation, we expect commission income of around EUR 40 million in 2026. Together, we want to continue to grow in the investment management area, both with equity products and with debt capital markets -- debt capital solutions in the form of funds or mandates for institutional investors.

In our Originate & Cooperate business, we are currently finalizing our rollout. We have an established partner network. The sales and origination teams at our locations in London, Paris and Munich are in place. The focus in 2025 was on developing the business model. We are now well-positioned to tap into this completely new business area for pbb.

Ladies and gentlemen, let's go to Page 12. The transformation of our business model requires a transformation of the bank organization itself. We are making good progress here. And with that, we continue to reduce our operating cost base. We have been able to reduce management positions by around 20%, thereby streamlining our organization.

The new target operating model lays the foundation for a more efficient and profitable setup of the bank. We are also focusing on new technologies aligned with market and customer requirements. At the same time, the expansion of our new production hub in Madrid is also making good progress.

We successfully hired 27 colleagues, and we want to continue to grow these to around 85 by 2028. In everything we do, we will continue to keep a close eye on our costs. By 2028, administrative expenses in our business area Real Estate Finance Solutions are expected to fall by a further 7%. At the same time, we are investing in the expansion of our new businesses in Real Estate Investment Solutions.

And at this point, I would like to hand over to my colleague and our CFO, Marcus, who will now guide you through the most important developments and key figures for the Group.

Thanks, Kay, and good morning, and welcome also from my side. As usual, I will now guide you through more detail on 2025 results, portfolio developments, capital and funding. Let me start with the operating and financial highlights. The operating overview on Slide 14 illustrates the ongoing portfolio transition quite well. Kay has already discussed the pleasing profitability contribution from the REF new business.

The key good news is that the overall strategic approach works as designed. Maturing business in the back book is continuously replaced by more profitable RoTE accretive new business in the front book, thus step-by-step increasing profitability towards the target of 8% for the portfolio as a whole. However, even though new business volume has been up by 23% in '25 year-over-year, the slower-than-expected market recovery still weighs on volume.

New business is not yet enough to compensate for pre and repayments and the significant derisking of the U.S. and development exposures. Hence, the REF portfolio declined by EUR 1.7 billion in '25 to now EUR 27.3 billion. We expect this to stabilize from here as new business is expected to further improve gradually over time from here. At the same time and as intended, the noncore portfolio has come down by EUR 1.2 billion to EUR 8.5 billion year-over-year, including against some opportunistic asset sales and liability buybacks also in Q4.

This brings me to the financials overview on Slide 15. The key P&L figures reflect both the financial impact of our strategic transition and the significant derisking of the U.S. and development book. With this said, operating income is down by EUR 122 million year-over-year, EUR 57 million lower NII and EUR 65 million lower realization and other income. NII is down due to the reduced portfolio value as well as our funding cost position and capital optimization.

As you remember, among others, we optimized our capital structure with a successful EUR 300 million Tier 2 issuance in June last year, which, of course, came at a cost. Also, realization and other income was significantly down due to meaningful one-off effects. First, operating income 2025 was negatively impacted by minus EUR 32 million one-off fair value risk charges due to our strategic U.S. exit decision.

Second, realization income was down EUR 57 million year-over-year as '24 has benefited particularly strongly from significant noncore asset sales and liability buybacks. As already mentioned before, we expect realization income to remain at such lower levels, now supported mostly by ordinary REF prepayment income.

As expected, general and administrative expenses are down year-over-year by EUR 9 million, while investments into our strategic transformation are ongoing. This demonstrates our ongoing strict cost discipline. But above everything else, 2025 was burdened by the sharp increase of loan loss provisions to minus EUR 410 million. This unusually high LLP were dominated by minus EUR 334 million that were set aside for the derisking of the legacy U.S. and development exposures.

To be precise, minus EUR 235 million for the U.S. exits in the second quarter and minus EUR 99 million for German legacy development NPLs, which were meaningfully derisked further in the fourth quarter. Rather moderate loan loss provisions of EUR 68 million or 30 basis points were put aside for the European investment loan portfolio, reflective of a solid asset quality in our strategic core portfolio.

All-in-all, this resulted in a highly unsatisfactory pretax loss of minus EUR 250 million, which is, however, within our latest adjusted guidance of minus EUR 210 million to minus EUR 265 million and which has to be seen in the context of our substantial derisking. After total risk costs for the U.S. and derisking of the legacy portfolio, these were at minus EUR 366 million across all income lines.

This would then bring me to the quarterly deep dive. And first, I'm now on operating income on Slide 16. If looking at the quarterly development of operating income, also here, the impact of the portfolio and funding transition become clear. However, in the fourth quarter, NII and NCI stabilized at EUR 99 million as further increased portfolio profitability almost compensated for the slightly lower portfolio volume.

Funding in turn, now provided for a moderate tailwind as previous funding access normalized in Q4 and costly funding vintages get substituted by gradually cheaper funding. Realization and other income is in sum slightly down by EUR 4 million quarter-over-quarter as other income in the previous quarter had benefited from a significant positive one-off. All-in-all, operating income thus has come down moderately by EUR 4 million quarter-over-quarter to EUR 106 million.

On the back of EUR 4 million higher total expenses, pre-provision profit, therefore, declined by a total of EUR 8 million quarter-over-quarter to EUR 39 million. And that brings me to the next deep dive on operating expenses, and I'm here on Slide 17. Operating expenses, including depreciation, remain well managed, being down year-over-year by EUR 9 million or 3% in 2025 from EUR 266 million to EUR 257 million, while investments into our strategic transformation are ongoing.

Actually, expenses for the running bank operations in '25 have been reduced by EUR 17 million or 7%. That said, operating expense in the fourth quarter increased very moderately as envisaged. Due to EUR 5 million higher one-off costs, especially in connection with the implementation of the target operating model, while again, expenses for the running bank operations were down by EUR 1 million.

Although the cost base has been well managed, the cost/income ratio for '25 appears somewhat elevated at 61%. This is, however, more a reflection of the operating income transition, including the minus EUR 32 million one-off fair value risk charges for the U.S. exit, which has, as you know, to be shown in operating income. And now to our deep dive on the risk provisioning, I'm on Slide 18 here.

Risk provisioning of minus EUR 54 million in the fourth quarter is especially driven by a further derisking of our German legacy development NPL. With that said, net additions of minus EUR 86 million in Stage 3 result from minus EUR 55 million for derisking measures for idiosyncratic legacy development NPL and minus EUR 29 million for European investment NPL.

Only marginal minus EUR 2 million had to be booked for U.S. Stage 3 in Q4 as the substantial one-off U.S. derisking measures in Q2 again proved to remain adequate. This was partly offset by EUR 31 million net releases in Stage 1 and 2. EUR 50 million release of U.S. management overlay due to the SRT and ordinary repayment, Kay has explained that, was partly counteracted by EUR 19 million additions, mainly from market-wide macroeconomic scenario and parameter updates.

I will mostly skip Slide 19 as the development of the stock of loan loss allowance is more or less just a reflection of the risk provisioning I just explained and usage, of course, from existing stock. Just one brief comment. The REF NPL coverage ratio overall remained stable quarter-over-quarter at around 30%, up from around 22% as per year-end 2024. This brings me then to the portfolio.

As the U.S. portfolio is on exit and was already covered extensively by Kay at the beginning, I will focus on our strategic core portfolio, the European portfolio. I'm starting with the European performing portfolio on Slide 21. With the significant derisking and [indiscernible] markets gradually but slowly recovering, the quality of the performing European portfolio further stabilized with an ongoing improvement of risk KPIs for the performing investment loans since end of '24.

The average LTVs have stabilized at 55%, a solid level in view of the property price correction seen in the last 2 years. The 12-month rolling valuation adjustments have gradually improved and continued to do so in Q4. And also when looking at the exposure at risk or layered LTVs, we see a decline by 16% in '25 and 4% alone in the fourth quarter. With that said, I will leave the further details on the performing European REF portfolio, which you can find on Slide 22 for your own reading.

And I will therefore continue with Slide 23, where we discuss the European NPL portfolio. The European NPL portfolio predominantly consists of German development loans, which account for almost half of the NPL. The remaining 20% in Germany and 11% in France are mainly driven by some selective office properties of 2 new office loans with a total volume of EUR 239 million in the fourth quarter.

15% come from the U.K. and consists of legacy shopping centers known. The European NPL portfolio is solidly covered by 31%, up from 29% as of third quarter end and 27% as of year-end 2024. This brings me to our deep dive on the development portfolio on Slide 24. The development portfolio has been significantly derisked in 2025 and in particular, also in Q4. The total portfolio has been reduced by EUR 400 million or 16% to EUR 1.8 billion, while NPL has been kept largely flat with no new NPL rising in 2025.

However, legacy NPL have required focused attention with dedicated derisking and support measures of the exit strategies through the entire year. In Q4, we decided to receive particularly demanding legacy developments in the final finishing phase and put aside EUR 55 million Stage 3 loan loss provisions for those. This brings the coverage ratio for development NPLs further up to solid 29%.

All-in-all, the portfolio is now substantially derisked, and we feel comfortable with the existing coverage. And with that, I move to capital on Slide 26. With the CET1 ratio of 14.9% as per year-end, our capitalization remains solid. This is slightly down from 15.4% as of fourth quarter end. Let me explain the various effects in regulatory capital in particular RWA. RWA stayed flat at 17.5% -- EUR 17.5 billion, sorry, reflecting 2 opposing effects.

While the SRT transaction provided for a leaf of EUR 1.1 billion RWA as per year-end, a change of applicable regulatory LGD levels in F-IRBA resulted in an offsetting effect of the same amount. I will come to this on the next slide in quite some detail

At the same time, in the numerator, there was a slight reduction of regulatory capital by circa EUR 100 million in Q4 due to increased prudential backstop such as the expected loss shortfall and the NPL backstop as well as the fourth quarter loss and the preemptive AT1 coupon reduction from regulatory capital.

All-in-all, our CET1 ratio of 14.9% stays solid. SREP requirements remain well exceeded with more than 500 basis points buffer over the CET1 ratio requirement and more than 400 basis points over the own fund ratio requirement as per year-end 2025. I would also like to take this opportunity to provide some further context.

When looking at capital ratios, it is worthwhile to note that our F-IRBA RWA are procyclically elevated so that the F-IRBA CET1 ratio of 14.9% at year-end now stands below the pro forma standardized credit risk standard approach CET1 ratio of 15.3%, which by many is seen as a regulatory floor.

Also, when looking at our capital on a simplified nominal level, we observed a steady increase of our leverage ratio, now close to a healthy 8%. This is, of course, down to robust capital and consistent ongoing deleveraging. Taking into account our substantial deleveraging and derisking and our future focus on core European markets only, we now define our long-term minimum CET1 ratio at 13% through-the-cycle, still providing ample of buffer to MDA.

At this point, let me also reiterate that the conditions for the AT1 coupon payment are clearly met, as Kay said, with a buffer of MDA of more than 500 basis points and available distributable items of around EUR 2 billion. I also want to be very clear here that we continue to see debt capital and its investor base as a key cornerstone of our wholesale-led funding strategy.

This then brings me to Slide 27, where I would like to explain the aforementioned change of applicable LGD levels for commercial real estate for certain countries in F-IRBA. In the F-IRBA regime, the LGD is dependent on the country-specific eligibility for preferential collateralized treatment.

How does this work? The European Banking Supervisory Authorities of each country collect and publish the average CRE market loss rate from their national supervised banks on a regular basis. If the commercial real estate market loss rate in a respective country exceeds 0.5%, trade transactions no longer qualify for preferential collateralized LGD levels in the computation of F-IRBA RWA.

In the fourth quarter, consideration of new loss rates for Poland, Finland and Austria meant loss of the preferential collateralized LGD treatment in these countries, even though some of these countries only very marginally exceeded the loss hurdle rate of 0.5%. Given the somewhat meaningful overall pbb footprint in these countries, the underlying RWA increased by EUR 1.1 billion.

In effect, this means that the RWA relief from the SRT has been entirely consumed by the loss of the preferential collateralized LGD treatment for the aforementioned countries. In this context, I would like to make a few things clear. Number one, this development is not about pbb's own economic portfolio quality having deteriorated, but rather down to overall market-induced impact amplified by the digital nature of the F-IRBA LGD regime that I explained.

Given that Poland and Finland have only marginally exceeded the hurdle rate, a digital reversal is possible when the banking authorities in the respective countries publish updated data. With regards to portfolio volume, 3/4 of the countries pbb operates and remain eligible for preferential collateralized LGD treatment and loss rates remain far below the 0.5% hurdle rate, as you can see in the last column of the table on Page 27.

However, there has been another more recent development. On February 27, 2026, the EBA communicated its position that U.S. loss data published by the U.S. Federal Reserve is not viewed equivalent even the U.S. themselves are deemed an equivalent regime under the CRR. If applicable, preferential LGD treatment of real estate located in the U.S. would no longer apply in principle when calculating current RWA for these countries going forward.

pbb will carefully review this assessment, but if applied, this would result in a pro forma reduction of our CET1 ratio of circa 135 basis points for our entire U.S. portfolio. When also taking the envisaged first-time consolidation effect from the acquisition of Deutsche Investment into account, which is minus 26 basis points and becomes effective in Q1 2026, the pro forma CET1 ratio as of year-end 2025 would be 13.3%.

Even at this harsh pro forma level, the buffer to MDA would still be comfortable at around 340 basis points. And finally, a few remarks on the funding and liquidity side. I'm now on Slide 28. All-in-all, we maintained a resilient and balanced funding mix with ongoing focus on efficiency and cost optimization.

With EUR 2.1 billion Pfandbrief issued, a successful EUR 750 million senior and our successful EUR 300 million Tier 2 issuance, we completed our funding agenda '25 already in summer and provided for comfortable funding access. With an LCR of 379% and EUR 5 billion liquidity at year-end, we maintain a solid liquidity in line with our reduced balance sheet needs. But most important, issuance costs have come down on all instruments, slightly on Pfandbrief, more strongly on senior preferred as well as deposits.

All-in-all, we expect this, in combination with moderate funding needs to provide some ongoing tailwind on funding costs going forward. This is, of course, looking through current noise as we have no current need to issue anything. In 2026, we plan for a moderate EUR 1.75 billion in Pfandbrief issuance, of which more than 40% have already been done on further reduced costs.

In addition, we plan for a maximum [indiscernible] preferred issuance of EUR 500 million. The retail deposit volume is planned to stay largely stable at around EUR 7 billion, in line with our reduced balance sheet needs, catering for a 50-50 split in unsecured funding, 50 for each wholesale and deposit funding.

With that, Kay, I hand over back to you.

Thank you, Marcus. Ladies and gentlemen, let me now on Page 30, turn to the future. We have a challenging year 2026 ahead of us. And the overall situation hasn't gotten any easier with the recent developments since last weekend. Our full focus is on increasing operating income in our 2 core business areas: Real Estate Finance Solutions and Real Estate Investment Solutions.

However, operating income in Real Estate Finance Solutions will be affected by the cost of the SRT. Furthermore, we have to cater for lower positive one-off effects in 2026 compared to last year. We continue to exercise strong cost discipline. We continue to make our core business, real estate finance solutions more cost efficient. The initial consolidation of Deutsche Investment and the further development of our business activities account for higher operating expenses in Real Estate Investment Solutions.

In fact, we are reinvesting cost savings into our new business activities. Nevertheless, the cost/income ratio will temporarily increase to between 70% and 75%, mainly due to the development in the operating income. We expect a normalization in risk provisioning. With the U.S. and development book largely shielded last year, we anticipate in 2026 risk costs of 25 basis points to 30 basis points in our core markets in Europe.

What does that mean specifically for 2026? Let's go and move to Page 31. We want to keep our growth momentum in the new business and achieve a volume of between EUR 7.5 billion and EUR 8.5 billion in real estate financing. We expect the portfolio volume between EUR 27 billion and EUR 28 billion. In Real Estate Investment Solutions, we expect to grow assets under management to be between EUR 3.3 billion and EUR 3.7 billion.

Operating income is targeted to be in the range of EUR 357 million to EUR 425 million. Cost/income ratio between 70% and 75%. The share of fee income is expected to rise to more than 10% in 2027. As announced, pretax profit is expected to be between EUR 30 million to EUR 40 million. Moving to Page 32 and looking further ahead, we remain committed to our strategic goals and key performance indicators.

Return on tangible equity is our main KPI. We are already at around 8% in new business. We want to achieve this for the whole bank by 2028. Operating income shall amount to around EUR 600 million towards 2028. In Real Estate Finance Solutions, 3 key levers should increase the return on tangible equity. First, SRT costs will decline with the reduction of the U.S. portfolio.

Second, more profitable new business will substitute less profitable existing portfolio. And third, a more cost-efficient liability and equity side will improve refinancing costs. In Real Estate Finance Solutions, we target to grow assets under management to EUR 7 billion to EUR 8 billion. The share of operating income is expected to grow well above 10% in 2028. We have already significantly reduced the risk profile of our portfolio.

In 2028, risk costs are expected to normalize to around 15 basis points to 25 basis points. We remain focused on an efficient cost base and we continue to execute our cost measures in a disciplined manner. Cost savings in our Real Estate Finance Solutions business will be reinvested in the development of real estate investment solutions.

Overall, broadly stable operating expenses help to bring the cost/income ratio back to target level of 45% to 50% by 2028. And that brings me to our last page that summarizes our targeted key developments until 2028. Ladies and gentlemen, pbb is in the middle of its transformation to a more resilient, profitable and diversified European commercial real estate bank. We have to acknowledge that we will not be able to achieve our ambitious goals we set in 2024 within the planned timeframe.

Also, the market environment economically and geopolitically has not developed as we had expected. But we are making progress. In challenging times, we are acting decisively as our exit from the U.S. market underpins and we sustainably reduced risks in our books.

We have the momentum to grow our new business volume even in a currently sluggish CRE market, and we are doing so profitably. And in 2026, we start to see notable first capital accretive contributions from our new businesses. We are on the right track with this fundamental transformation even if it will take more time.

Thank you very much for your attention. Marcus and I are now looking forward to your questions.

[Operator Instructions] The first question is from Tobias Lukesch from Kepler Cheuvreux. Can you hear us, Mr. Lukesch?

Yes. Can you hear me? Yes. It takes 10 seconds until I'm in talk mode. Sorry for that. On the capital, the first question regarding the EBA communication of the U.S. LGD equivalents and may we see or will we see the 135 basis points negative core Tier 1 ratio impact? And if we will see it, what is the timeline for that?

Then secondly, on dividends, what is the projection for the future? I mean, yes, there were moving parts. Yes, you're cleaning up the business. You say you're on the right track for '28, but you haven't touched on dividend projections. So I was wondering what this means for capital distribution going forward, especially since you lowered the through-the-cycle threshold to 15%, even so you highlighted we might get closer to that level if we see the U.S. LGD impact.

And then on the U.S. NPL portfolio, this was now reduced to EUR 0.4 billion. What is the projected development here over the next 3 years? And maybe could you please quantify the impact on risk provisioning -- on the risk provisioning guidance you have provided, which will be lower for this year and then further lowered for the years to come?

Hello Mr. Lukesch, good to hear you. Thanks for your clarifying question on the very new statement that came out by the EBA just a few days ago, actually Friday last week. So I think the Q&A are quite clear in that they say that the EBA sees in principle that the computations as done by the Fed don't mean that the computations are eligible for the European regime, even though, again, as I said, the U.S. fundamental principle are, of course, an equivalent regime. It's very new.

So we are carefully assessing this. But at this point in time, I would expect clearly that it will happen. And I cannot rule out that this will be a Q1 effect already. And let me again say this would be 120 basis points for the commercial real estate and another 10 basis points roughly for the residential so stated that 135 basis points that you see. And that is something we expect to happen, but we have to carefully assess it, and we will update you then on Q1, but I would expect it to be reflected in Q1.

Yes, Mr. Lukesch, then I take the other 2 questions. On dividend, thanks for the clarifying question. We are sticking to our distribution guidelines that we have put out with our strategy on 2024. And thanks for raising that question.

So we want to distribute 50% of our profits, and we want to use the tool of dividends on the one hand side, but also share buybacks on the other side. And to your last question on the U.S. NPL, yes, you see we have quite a good momentum built also based, of course, on the provisioning that we did and the shielding to reduce the book. We will more than half reduce it in 2026.

And we see over the next 2 to 3 years, a full exit on that book. However, as we speak, we continuously watch and see whether we can value preserving exit those NPLs earlier. But current projection with regard to your question should be then towards '28 and '29 in line with the rundown also of the performing book.

Mr. Lukesch, does that answer your question? Do you have a follow-up? We can hear you. Then we are moving on to the next question. The next question is from Miriam Killian of Deutsche Bank.

I hope you can hear me all right. So my question would be surrounding the tax expenses that we saw in the fourth quarter that were quite a bit higher than we anticipated. If you could maybe just provide some color surrounding this. That would be my only question for now.

Yes. So as you say, for the full year result pretax minus EUR 250 million post-tax, minus EUR 284 million. Essentially, this is DTA reversals, which you have to mostly see in the context of risk provisioning, but also more importantly, in the context of the lower business projections that we have for future years, which basically mean that we have this impact from DTAs that cater for the EUR 34 million in addition to the EUR 250 million pretax loss.

The next question is from Domenico Maggio from Jefferies.

I have 4. On the expected capital erosion from Deutsche Investment acquisition, is that going to be 26 bps or 30 bps in the next quarter? Second one will be, what do you mean exactly with pro forma credit risk standardized approach? Is this pro forma for some adjustment or is this a normal standardized approach? And if the standardized model results in higher capital, then why did you transition in the foundation model?

Third question would be, are you able to switch your capital model again in the future? I assume the ECB would need to approve that. I'm asking this clearly given the unfavorable capital development and your previous transition to different capital models. And the last one, what would be the impact to RWA if all countries were to lose their preferential LGD level?

Okay. So good to hear you, Domenico. So to your first question, we've been indicating previously on the signing of the transaction in the summer that the capital effect could be around minus 30 basis points. That's the number you have in your memory. And the precise figure that I gave you is minus 26 basis points now. So it's a clarification of an estimate that you've been hearing with Q2 results.

The second point is that you were asking about the nature of the pro forma numbers we were giving. So these numbers are basically under the assumption that the bank will apply credit standardized approach in its entirety instead of the F-IRBA model computation with PDs out of the model and LGDs out of a matrix.

So it's a substitution of the entire book pro forma into standardized KSA in German, CRSA in English. And it is, of course, a pure exercise to illustrate the very high RWA density that we now have and the capital compression that we face because obviously, a lot of people who are looking at the capital ratios see the standardized capital ratios as a floor to where it would be.

And the point we are trying to illustrate that at this point, and this is the last answer to your question, at this point, at the bottom of the cycle, it happens to be that with what is happening in these digital LGD hurdle rates that I mentioned for these countries that even the standardized approach is better than the F-IRBA in this part of the cycle.

But of course, you would choose capital models through-the-cycle and it was a very conscious decision to move to F-IRBA because essentially the old IRBA, advanced IRBA, as you remember, is essentially not suited for low default portfolio. And that's, I think, why we and others moved from an IRBA approach in our case to an F-IRBA approach.

And we have to look at that on a through-the-cycle basis, on a through-the-cycle basis, the F-IRBA from our point of view is advantageous. Right now, at this part in the cycle with the few digital events that we have seen, it is not.

But as I said, Domenico, what we always have to bear in mind, the pro forma numbers that I gave, right, adding everything together, U.S. CRE, U.S. residential, the acquisition that will happen, of course, no modificating effect including, as I mentioned, that, of course, digital event, one can also flip into the other side, for example, for these countries. And lastly, what would be the RWA effect?

You see that on this table that we provided on Page 27. At the end of the day, from my point of view, the very key message of that slide is that for the vast part of the portfolio, 75% portfolio that we have in the F-IRBA, the green dots that you see, the actual losses are far, very far below the hurdle rates.

What we try to illustrate there that currently, we don't foresee at all that these countries that you see would move into such a digital situation that we've experienced, for example, in the fourth quarter with Poland, Finland and Austria, you can see how far they are away from the 0.5%.

Yes. Helpful. I was asking that just to assess the worst-case scenario. And just a quick follow-up. You mentioned that the banking supervisory authority of respective countries collect the data and then they updated during the year. Is that an annual exercise or does it occur more frequently? Just I mean.

Typical annually.

Annually.

The next question comes from Jochen Schmitt from Metzler. Mr. Schmitt, can you hear us?

It took some time until I got unmuted. I have 2 questions, please. Firstly, again, on the CET1 ratio, your new target of above 13%. How much of this change versus previously was driven by SRT and how much by the possible changes in regulatory treatment, which you mentioned on Page 27 or to ask the question in a slightly different way.

If the pro forma CET1 ratio, which you mentioned were to realize, would you possibly again review your CET1 ratio minimum target again? And secondly, very briefly on the EUR 40 million fee assumption for Deutsche Investment in '26, what is the pretax earnings contribution, which you expect from that?

Mr. Schmitt, good to hear you. Thanks for having you around. Let me take the 2 questions. And let me start with your question on CET1. The strategic adjustments around the minimum level is not driven by the capital regime under which we are reporting. It's driven by the risk profile of the firm.

I think we have outlined that always in the calls and have said originally, we set it at 14%. Now we are moving it to 13%, and that is purely driven by the risk profile of the portfolio. When we were at 14% we had still a much higher position on the U.S. portfolio, which we now have completely derisked from our perspective or nearly completely derisked economically.

And we have also shielded our development portfolio next to our strategic position to focus on the European core markets, most of which you see on Page 27, where we have allocated, and we are focusing on those markets. So overall, strategically, the steering of the capital levels for the firm for us, is not driven by the capital regime, but it's driven by the risk profile of the portfolio and how that portfolio behaves through-the-cycle.

I remember -- I would like to reiterate what Marcus said, it's a 13% through-the-cycle. And we all know here that commercial real estate markets are volatile. And that's a reflection on the 13%. With regard to your second question on the Deutsche Investment Group, we would provide, of course, way more detail when we communicate on our quarter 1 figures because there is where we first time will provide way more detail on it.

But for 2026, it's a profit before tax of around EUR 4 million. And you will have to deduct then, but we will provide more details on that, the PPA, the purchase price adjustment as well so that you should look around EUR 3 million for the Deutsche Investment Group for 2026.

Next question is from Corinne Cunningham, Autonomous.

Thanks very much for letting fixed income people speak on the call. Just a couple of quick clarifications and a few questions from me, please. When you said the 13.3% assumes the whole book moves to standardized, the calculations seem to suggest that that would include the U.S. moving to standardized and the acquisition of DIG, but not all of your core European lines of business. Can I just?

What I said was the whole U.S. book, meaning the commercial real estate book, which is in detail described on Page 27, but also the very limited residential exposure that we have that is also subject to a similar but slightly different regime and the same principle.

And with that in principle decision or wording of the EBA, we assume that we will lose the preferential treatment for LGDs for both the commercial real estate and the residential portfolio in the U.S., so the total U.S. portfolio.

That's clear. And then just you mentioned on the dividend policy, 50% distribution policy. Is that expected to apply to 2026 or not until you get to the end of your planning period?

Corinne, thanks very much, and thanks for having you. Good to hear you. It applies for the year 2026 and the coming years. So that's the dividend policy that we have set. So it's for the future years that we want to deploy and have this policy in place.

Then the other question was about the way the SRT is working in the U.S. And can you explain why it doesn't help you with the change from F-IRB to standardized given that you've now got a fairly chunky first loss cover, why are you not protected against that change out of F-IRB in the U.S. portfolio?

I can answer that in 2 ways. First of all, our -- not our entire U.S. portfolio is covered under the SRT. So there are remaining pieces and as well the 5% size of the SRT portfolio is not covered, yes. So you will see that effect. The second point, Corinne, I would make is that the SRT does provide protection for the change in the regime.

However, the loss of the preferential treatment, of course, reduces the positive effect that we mentioned of EUR 1.1 billion. It doesn't remove it completely because the other offsetting elements that you see when you look at the quota of EUR 135 million, you need to bear in mind the portfolio components that are not yet in the -- that are not covered by the SRT. I hope I was clear.

The is not covered, totally get that. So the rest is it just the senior layer that's being hit or basically the SRT is giving you less protection than you budgeted when you set it up?

I think the overall structure, the way it works from a capital regime perspective, Corinne, on the SRT, you cannot separate the senior and the math. You need to look at the entire capital structure and the entire capital structure defines the capital that needs to be put aside under the respective regimes, be it F-IRBA or standardized.

So it's not simple saying it is to be deployed on the unprotected side. It needs to be deployed on the entirety of the portfolio and the amount of capital that you have to put aside depends on the structure at the point in time. As you know, that this structure, when it starts winding down, is also starting to shift and change, and that has always an impact on the respective capital that you need to put aside.

Unfortunately, not a very straightforward mechanism, but the mechanism of how to deploy it, I think there is clearly defined rules of how the structures need to be taken into consideration when calculating under the respective rules.

Okay. And then maybe a more fundamental question about the revenues. So your revenues, you're targeting to basically increase them by 1/3. What are the main building blocks of that?

I know you talk about, obviously, the cost of the SRT should fade away, but that's still a very significant revenue build with a flat loan book. Is it based on increasing interest rates? Just very keen to hear how you would expect to build to that EUR 600 million revenue number.

Yes. I would, Corinne -- I would start with that, and I would kindly ask Marcus to chip in as well if I might not touch on all the aspects. I would probably, Corinne, draw your attention for that on Page 30, where we have the walks on the operating income side for the respective business units through 2026.

But those walks give a good indication in the direction of travel that we are going for the year 2028. First of all, on the Real Estate Finance Solutions business, you see already in 2026 positive impacts from the rebuild of the book, putting more profitable new business on, substituting less profitable business.

You see that here with EUR 15 million-plus EUR 35 million in the range, take that as a consistent rebuild of the book because our back book of EUR 27 billion still has something like EUR 20 billion in there, which will come due over that period and will be replaced by more profitable business. So that is one driver.

The second driver to it, and you referred to a flattish book is that of course, we want to also substitute and reduce our nonperforming loans. Look at the U.S. at the moment, the entire U.S. book [ 28 ] is more or less going to disappear, including the nonperforming loan side, but also on the rest that gets substituted with more profitable and interest income producing operating income on that part of the book.

So a lower NPL book is supporting this trajectory as well. And the third layer on the real estate finance side is definitely a more efficient liability and equity side. So there is funding support coming in. Marcus has outlined on the funding page in which direction the funding costs are going, and this gives us tailwind there as well.

So those are the key levers. Next to that, if you drill further down in REFS, I could also mention, of course, we are diversifying in our portfolio. So we are taking more managed properties, hotels, student housing, those asset classes on our books. They provide for a better risk return profile compared to other asset classes, most notably the office portfolio, which will more decline over time.

So there are multiple levers that all play into improving the operating income in the real estate finance side. Paying attention to real estate investment solutions, the growth here clearly to EUR 7 billion to EUR 8 billion of assets under management is literally coming from the EUR 3 billion to EUR 3.5 billion that we have when you look into real estate investment solutions for 2026 is substantially adding revenues there as well.

And we are building out our Originate & Cooperate business. So there is clear anticipation of fee income growth for real estate Investment Solutions. And in the combination of both of those elements next to the fact that the negative impact from others that you see on Page 30 is going to disappear because it's a lot of one-offs that we had in 2025 that are not coming back, that gives a consistent growth of operating income towards the mentioned EUR 600 million in 2028.

Okay. And just on the rate assumptions behind that, do you just assume current rate supply?

Correct. Yes, it's more or less current rate supply. We assume a moderate bias for rates to come down on the short end, but rather assume that rates in the middle and longer part of the curve would stay or slightly rise given funding agendas of governments, et cetera. And that's basically the assumption. So a reasonably steep curve, but no major impulse for the income as such.

However, of course, as Kay mentioned, if you, for example, look at the equity side, et cetera, interest rates going stable in medium-term and term means, of course, that investments that you make are positive yielding and not anymore 0% yielding if vintages from the low interest rate phase basically gradually wash out of the system, right? So that's essentially the effect.

The next question is from Sharada Patel of Citi.

So I've got 2 questions. So if the numbers are reviewed annually, do you know when the next review for Poland and Finland will be? And then the second one will be just some more explanation around the EBA's position on the U.S. because it seems like the market loss rate is below the 0.5% kind of threshold.

So if it's not equivalent, is there kind of a different benchmark number that they're comparing it to or is there a different data source that they can refer to and do find equivalent? Is this?

We were just wondering whether there are more questions, right? So we wait.

Yes, sorry. And just finally, so if there's -- I just wanted to know, you're expecting that this U.S. change will come in, in the first quarter, but are there any changes kind of later down in the year if they can find an equivalent data source that could mean that, that is reversed?

Thanks, Sharada, and thanks for your questions. Let me take your first question on the technicality. The national competent authorities would have to, by law, communicate latest by the 30th of June of the following year, the loss rate that triggers the treatment. That's the law. The reality is that we are continuously monitoring publications.

And they can also publish in between. So that is -- there is on the one hand side, the way it should be and there is on the other hand side, the way it happens. By a matter of fact, we are monitoring regularly because as a foundation of our bank, we need to, the respective published levels and would then respectively apply them once they are published.

And on the U.S. data, look, the U.S. is not -- does not have the same type of heart test and equivalent LGD regime, as we all know. So therefore, by a matter of fact, they do not publish exactly the same data to comply with a European rule set out in the CRR. For that purpose, equivalents should be and can be applied.

But by a matter of fact, looking into that, the conclusion of the EBA, if you read that is that there is no such data that would exactly cover the requirement of the CRR. And therefore, stating -- and also stating that what is published and could be applied to is from their perspective, limited able to apply.

And hence, their conclusion that for the U.S., despite the U.S. being a regulatory regime that is deemed by the European Commission as an equivalent regime, the level of data and information that is being published is viewed by the EBA is not sufficient for applying the respective calculation that we have been applying in the past.

There is a hell of a lot of data published in the United States, as we all know. It's the country with most of the statistical data. But of course, they do not publish 100% according to European rule regulation.

Okay. And why is this change only happening now? Because obviously you've been using F-IRBA since January '25?

And look, I mean, perhaps 2 things and just to your earlier question, Sharada. And for that reason that Kay and I explained, the 26 basis points that we compute do not matter because at the end of the day, the decision is in principle and irrespective of computation. But this is, of course, not meant to pbb. It's a clarification that the EBA has published to the market in principle, it's public. And it has come out now on the back of a question that was raised and now they've been clarifying that point to the market in general.

So it's completely irrespective of pbb per se, right? This is a clarification to a standard.

Sharada, do you find your question answered? Then the next question is from Daniel Crowe, Goldman Sachs.

These are kind of just follow-ons from what has already been asked. So just Domenico answered, and I'm not sure if you gave a full answer to this. But just given the volatility that you're seeing in your RWA measures of capital at the moment, if you wanted to move to standardize, could you actually do it?

Because we've seen quite a lot of movement in your CET1 over the last couple of years, which is obviously the moves are understandable. But if you wanted to move to standardize, could you? And then just following on from Corinne's question around the SRT and its impact on the potential impact from the U.S.

If this SRT was not in place, what would have been the capital impact there because I think there's going to be a decent bit of confusion around why that doesn't protect you a little bit more? And then just finally, just on Deutsche Invest, I know you say EUR 40 million of revenues. Could I just get the cost number for -- that's coming with Deutsche Invest as well?

Yes. Daniel, thanks and as well to you, welcome. Thanks for your question here in this round. To your first question, moving to another capital regime is, first of all, regulated under the respective rules that have to be applied for banks. And in general, it is a process that needs to be approved by ECB. So it's not on us to jump around.

And again, repeating and reiterating or making the focus of what Marcus said, what we have been seeing, and you said that over the last years in terms of volatility, that is, by a matter of fact, a reflection of the foundation approach. We called it the procyclical nature of it. And to a degree, the digital effect of being above or below a threshold for an entire portfolio without reflecting on the individual performance of the bank is one of the reasons.

And when you consider where the market has been moving and we are talking that real estate markets now on low levels being stabilized, what you see literally by a matter of fact, we are moving in the cycle through really a low point and a hard point. And considering the capital regime, you always need to look through that and we need to look through-the-cycle as a whole.

But the short answer, I gave it a little bit longer because of the consideration that I expect behind your question. The short answer is we are not free here to jump around on capital regimes. And don't view as a sloppy Marcus smiling at me, don't view it as a sloppy answer, but I want to be clear given that, that question was asked twice, Daniel.

Yes. No. And I understand like the capital itself is moving your leverage ratio is obviously in a good place. I was just wondering.

And that is a bit the situation that we also on the respective page on the capital side, wanted to give a reflection. You see the derisking of the bank, the deleveraging of the bank also reflected, I think, well in the leverage ratio and how the leverage ratio has developed. And then?

Just had the SRT not been in place, the impact of the U.S. portfolio of 135 bps, what would that have been?

I don't have the number around, Daniel. But what I can say it would be, of course, higher because there is a mitigating effect by the SRT. So the effect would be even higher. So we do here benefit from the derisking process, of course.

Overall, by the way, we also benefit from the repayments that we got on our performing book as well as a reduction in our NPLs. The entire exit of the U.S. in itself mitigates, of course, the impact, but the SRT standalone, of course, has a mitigating effect as well.

And the final one was just on costs in Deutsche Invest. I know you said EUR 40 million of revenues. I just -- I know you said costs stable across the bank, but I just wanted to check what the costs were for Deutsche Invest.

The cost for Deutsche Invest, I think when we said around EUR 40 million for 2026, we also said around EUR 4 million of profit before tax before the PPA effect. So the delta of it roughly is the cost range that you have. So you are around EUR 35 million of costs that you have in that business.

And also thank you for taking calls from the credit side. Much appreciated.

The next question is from Paul Noller, Commerzbank.

I would like to quickly go to the most recent events. You mentioned that you are guiding for loan loss provisions in '26 of between 25 basis points and 30 basis points. I don't assume that takes into account the recent rise in energy prices.

So I would be curious to see your view on if we are now looking in Europe at a protracted increase in energy prices, how that might impact the debt service coverage ratios, specifically in your European [ Rev ] portfolio. I'm thinking here about hotels, logistics and what effect you think that might have down the road on risk cost in 2026?

Yes, Paul, thanks for your question. I mean, first of all, let me clearly state that we have no active business whatsoever in the Middle East. I think that is one thing that should be said. So the impact and you're alerting to that is more an indirect impact rather than a direct impact that we will have to consider.

And whilst energy prices is the one precise one, overall, I think one could sum up, it will be inflation and inflation on the cost side and in particular, on the service properties will have an impact. The experience that we have when you consider going back to the Ukraine war and the energy price rise that we have had, although it's awful to compare wars with each other, that to clearly state that.

But take that as an example, we have the experience of those cost developments. Of course, one could say there have been mitigants and one could read now as well if it gets completely out of normalatality rises, then there will probably be additional support coming. Of course, there is a higher pressure on the cash flows that are coming.

But from the experience that we have been seeing that is within the range in our portfolio of what we guided for in terms of the cost also stressing the fact that the hotel portfolio, take this as an example, is only 2% of our portfolio. So we are not that heavily involved. We are just going into and expanding into it. So we can take those considerations, of course, when taking new loans on our balance sheet.

At the moment, there are no further questions in our queue. [Operator Instructions] So with that, thank you very much, and I'm handing the floor back over to the host.

Yes. Thank you very much. Thanks for the exchange. Thanks for the questions, in particular, Corinne, Domenico, Sharada, Daniel, thanks for your questions and looking forward to have you around in our next call.

If there should be more questions arising, which would not be unusual, you know our Investor Relations team, Michael Heuber, Axel Leupold, they are available. So please reach out. And otherwise, I wish you all a good day. And again, big thank you also in the name of Marcus for having joined our call. Thank you very much.

Thank you.

Good morning, ladies and gentlemen, and welcome to the Deutsche Pfandbriefbank AG analyst call regarding its results for the second quarter and half year 2025. [Operator Instructions] Let me now hand over to Kay Wolf.

Thank you very much, and ladies and gentlemen, very warm welcome to our analyst call and investor call today. Great that you are taking the time again, and thanks for that. As you can see and as we have mentioned in our communication over the past few weeks, there is a lot that we are currently moving forward. The transformation of PBB is taking shape with concrete steps that we take.

Today, our CFO, Marcus and I want to provide a closer look at decisions and actions that we have taken. I will focus on the strategic update. I will go into details regarding the acquisition of Deutsche Investment Group and the impact, of course, of our withdrawal from the U.S. market. Marcus will then walk you through all the figures and facts of our half year results, as always, unaudited but reviewed and based on IFRS and for the group. Of course, we will then have plenty of time for your questions.

Moving to Page 3. First news and an important achievement for us is the acquisition of a majority stake in Deutsche Investment Group, which we have just signed. This will present a giant leap forward for our Real Estate Investment Solutions business. Deutsche Investment Group has approximately EUR 3 billion in assets under management and a track record spanning over 25 years. It is specialized in equity funds, primarily investing in residential real estate across Germany, with a broad institutional investor base. Let me stress, it's a perfect strategic fit for PBB.

Second important news, the withdrawal from the U.S. real estate market to have a significant but one-off impact on our 2025 half year results. The total costs expected from this withdrawal amount to EUR 340 million and leads to a loss of EUR 249 million in the reporting period. Excluding this one-off impact, pretax profits would have been at EUR 65 million at the half year, which confirms we remain on track in our strategic business.

LTV is well capitalized to shoulder both the acquisition and the one-off costs from the U.S. exit. The exit will only have a moderate impact on the CET1 ratio amounting to 40 basis points. CET1 now stands at a solid 15.3%. The closing of the acquisition of Deutsche Investment, which is not expected before the first quarter of 2026, will impact our CET1 ratio by not more than 30 basis points.

The issuance of our Tier 2 bond in June marked the successful return to the subordinated unsecured capital market. The EUR 300 million bond issue was oversubscribed 6x or even more than 6x. For us, a clear confirmation that we are on the right track. Issuance significantly improves our capital structure. Marcus will go into that later.

Excluding the one-off U.S. effect, PBB's operating performance remained stable. Adjusted operating profit amounts to EUR 119 million in the second quarter of 2025. Our risk provisions in the second quarter are significantly influenced by one-off risk charges for the U.S. exit on which we will provide more details later. As you can see, the second quarter marks an important milestone in PBB's transformation under Strategy 2027.

Let me move to Page 4. Where are we with the implementation of our strategy. We have made good and essential progress in all 3 pillars, and we reaffirm our goals for 2027. In our core business, Real Estate Finance Solutions, we are becoming a truly European bank, diversifying our property types with an unchanged crystal-clear focus on profitable business. The Real Estate Investment Solutions, we are taking a great step forward with the acquisition of Deutsche Investment Group, generating provision and fee income fully accretive for our targets of larger than 10% fee income in 2027, and we continue to build a leaner organization with a target operating model promoting our strategic goals, always assuring strict cost discipline.

And we move on to the next page. Let me start by taking a closer look at Real Estate Finance Solutions, our core commercial real estate lending business. Ladies and gentlemen, in Europe, new business volume grew by more than 50% compared to the first half of 2024, and amounts now to EUR 2.5 billion, including extensions of more than 1 year. We expect new business between EUR 6 billion to EUR 7 billion for the full year 2025. With an overall stable real estate finance portfolio between EUR 28 billion to EUR 29 billion. I hope I took -- we expect new business of EUR 6.5 billion to EUR 7.5 billion for the full year. Portfolio at around EUR 28 billion to EUR 29 billion.

Our new businesses return on tangible equity, our main profitability KPI rose to 10% at the end of the first half of the year. This is well above the bank's 8% ROTE target for 2027. We maintained our gross interest margin at a high level of 240 basis points in the second quarter. But it's fair to say that we expect this to be the peak. The property types from which we expect particular growth, accounting for a growing share in our new business pipeline. Financing requests for hotels, data centers, in senior and student living now account for more than 20% of the pipeline.

Let me go into more detail regarding our withdrawal from the U.S. market. What you can see is that we have been significantly reducing our U.S. portfolio since the end of 2023. Starting at EUR 5.2 billion, we now stand at EUR 3.7 billion. This is an almost -- this is a reduction of almost 30%. From our perspective, medium to long-term outlook for the U.S. market remains difficult to predict. Unchanged from our assessment in our last quarter report, we expect volatility to remain high. Despite currently good stability of our performing portfolio, measured, for example, by the development of property values, some of economic key figures in our portfolio show that the strategic decision to withdraw is fully in line with our core targets for 2027, namely to build a more profitable and more resilient bank.

First of all, the risk profile of our U.S. portfolio is notably higher than in our markets in Germany and Europe. Although the U.S. business accounts for only 12% of our total portfolio, it represents around 45% of our nonperforming loans. This is not a well-balanced ratio. Second, capital consumption of our U.S. business is 1.7x higher than our European -- for our comparable European transactions. And third, that we have been able to further increase profitability in Germany and Europe, profitability of the U.S. business is notably negative.

Ladies and gentlemen, all of this clearly underlines that our future lines in Europe. Here, we are not only growing. We are growing profitably, and we are growing in a diversified manner with a good spread across property types. All this in markets that are more predictable for us and that are expected to grow more sustainably in the coming years.

If we move to Page 6, take even a closer look on the impact of the U.S. exit. Risk charges linked to the U.S. exit has a significant and one-off impact on our half year results. Our U.S. book is now marked at expected exit costs with a total one-off impact of minus EUR 314 million. These marks were confirmed by a detailed transaction-by-transaction assessment, including multiple macroeconomic scenarios. In addition, these assessments were verified by several reputable external market players as well as of course, our auditors. As a result, the coverage for our U.S. portfolio significantly increased in Q2 '25. This applies for our performing book, but even more for our NPL portfolio, where coverage now stands at 33%. And if I would include the fair value adjustments, this would increase even more to above 40%.

The effect on our CET1 ratio is limited to 40 basis points. And by the end of June, the CET1 ratio stands at a solid 15.3%. And the one-off risk charges were compensated by existing prudential backstops, according to CRR booked in previous quarters. We expect to reduce our risk position, notably over the next 6 to 12 months. We already have initiated appropriate measures, including securitization, sales and, of course, also wind down. Capital, which is freed up as a result to be redeployed to more profitable business as well as enhancing our flexibility towards executing Strategy 2027. All of this underscores our strategic part of becoming a fully focused European commercial real estate bank, and we remain committed to our targets in 2027.

Let me now come to our Real Estate Investment Solutions business, moving to Page 7. The acquisition of Deutsche Investment Group is a giant leap forward in our aim to establish a fee income generating, low capital binding real estate investment business. Deutsche Investment Group has been operating in the market for 25 years and has successfully placed 11 equity funds for German institutional investors. The Investment Manager has its headquarters in Berlin and Hamburg and is present in 5 further German locations.

This diversified institutional investor base includes pension funds, financial institutions and insurance companies. The group is specialized in managing residential and local retail real estate, both property types with sustainable investor demand and excellent growth perspectives. This is 360-degree approach. Deutsche Investment Group is a well-established real estate expert, delivering fully integrated services along the whole chain of real estate investment management.

And we move to Page 8. Deutsche Investment Group is a perfect fit for us, with assets under management of around EUR 3 billion. It materially contributes to our target of EUR 4 billion to EUR 6 billion assets under management by 2027. With a 100% recurring fee income of EUR 34 million in 2024 and a compound annual growth rate of 7% over the last 4 years, forms a strong basis for achieving our strategic goal of larger than 10% fee income on total operating income for the group.

Furthermore, the capital-light nature of this business will support us in reaching our ROTE target for 2027. We already expect to see an earnings per share accretive impact in 2026. Deutsche Investment Group also offers further strategic synergy potential for our organic growth ambition and for scaling our business activities with institutional investors in Germany and beyond. The value chain of Deutsche Investment Group ideally complements PBB's financing expertise with its investment in asset management, property and facility management. The acquisition includes the German regulated AIFM in which we acquired 89.9% stake as well as certain other group entities which we will acquire in full over a majority stake.

Senior management and other key personnel will continue to develop this business with us over the coming years. The purchase price is in the mid-double-digit million range, including performance-related price components. No own book investments are required for this acquisition. The impact on the CET1 ratio will be no more than 30 basis points. Closing of the transaction is subject to customary closing conditions, such as you know, regulatory approvals and is not expected before the first quarter of 2026.

And with that, I'll hand over to Marcus to you for giving us a closer look on our figures.

Thanks a lot, Kay, and good morning also from my side. As usual, let me start with the operating and financial highlights, which when taking off the one-off U.S. risk charges, continue to show a solid underlying performance.

Starting on Slide 10, the revenue business volume, including extensions of more than 1 year, significantly up by 37% or EUR 700 million year-over-year to EUR 2.6 billion in H1. Also on a quarter-over-quarter basis, revenue business volume is up 36%. This growth was achieved in Europe with strict focus on profitability and reflects the ongoing gradual recovery of commercial real estate markets. We kept the average gross interest margin stable at around 240 basis points. This translates into a new business royalty of around 10% in the first half of '25, i.e., new business continued to pay into our Strategy 2027 profitability target of 8%.

The REF portfolio is still coming down somewhat to EUR 28.2 billion per quarter end. This reflects both our ongoing selective new business approach, but also our active balance sheet management and significant derisking of the portfolio, especially in the U.S. and for German development loans. However, the quarter-over-quarter decline from EUR 28.9 billion in Q1 to EUR 28.2 billion in Q2 is mostly explained by the U.S. dollar depreciation effect of minus EUR 500 million. In the interest of time, I am skipping ordinary noncore assets and retail deposit developments, that brings me to the P&L overview on Slide 11.

As already mentioned by Kay, Q2 and thereby, H1 '25 was strongly impacted by the decision to book upfront a total of minus EUR 300 million one-off risk charges for the U.S. exit. With marking the U.S. book at expected exit costs in the second quarter, we booked minus EUR 283 million in risk provisioning and minus EUR 31 million in the fair value and equity accounting lines. Fair value charges of minus EUR 31 million for the U.S. exit are part of operating income, which on a reported basis is therefore clearly down to EUR 206 million in H1 '25. When normalizing operating income for these one-off U.S. fair value risk charges, adjusted operating income amounted to a solid EUR 237 million in the first half of 2025. As such, adjusted operating income is now stable for the last 3 quarters, it should not come as a surprise that it is down from the EUR 278 million in H1 last year. The year-over-year decrease with recently more plateauing income is reflecting the already known deliberate choices of active portfolio management and derisking.

Together with selected new business, they are resulting in a reduced but incrementally more profitable portfolio. As a result, NII/NCI decreased year-over-year from EUR 249 million in H1 last year to EUR 215 million in H1 this year. And NII/NCI is now gradually plateauing and only marginally down from the EUR 221 million in H2 '24. Core adjusted realization and other income of EUR 22 million in H1 this year, is simply the reflection of less extraordinary income. In H1 '25, we had less noncore asset sales and liability buybacks compared to a year ago. As expected, general and administrative expenses are significantly down to EUR 115 million in the first half of '25, up to EUR 130 million in the second half of '24, driven by the successful finalization of our IT transformation.

The fact that G&E are stable at EUR 115 million year-over-year is particularly noteworthy as most acquisition-related site costs for the Deutsche Investment Group acquisition already reflected in H1 2025. In the second half of '25, we, however, expect a moderate G&E uplift, mainly from administrative costs related to the U.S. exit and further investments into our strategic transformation. As already said, risk provisioning of minus EUR 323 million in the first half of '25 is predominantly driven by one-off loan loss provisions of minus EUR 280 million booked upfront in Q2 '25 for expected U.S. exit costs. I want to, of course, come back to that in more detail, but let me stress already here that the U.S. risk charges are based on expected exit prices and thus include transactional discount elements over previous holding valuations.

Adjusted for these one-off U.S. loan loss provisions of minus EUR 283 million in Q2, this provisioning in H1 is actually down to minus EUR 40 million from minus EUR 67 million in H2 '24 and minus EUR 103 million in H1 last year. This reflects our ongoing derisking of the portfolio and overall bottoming out of gray markets. All in all, this resulted in a pretax loss of minus EUR 249 million in the first half of '25. Adjusted for the entire one-off U.S. risk charges of, in total, EUR 314 million booked in Q2, we observed a rather solid, underlying pretax profit of EUR 65 million in the first half of '25.

To put it briefly, adjusted for the U.S. exit one-off charges booked in Q2. The underlying operating performance remains solid with adjusted income starting to plateau and operating expenses well managed. Underlying risk costs, excluding one-off U.S. charges continue to gradually come down and as a result, underlying profitability is increasing. This key takeaway becomes even clearer when we look into the quarterly deep dive of pre-provision profits on Slide 12.

As already said, reported operating income is impacted by the one-off U.S. fair value risk charges of minus EUR 31 million in the second quarter '25 and is, therefore, down to EUR 88 million in Q2. Adjusted for these one-off fair value charges, operating income remains on a stable plateau since Q4 '24, and is actually up by EUR 1 million quarter-over-quarter to EUR 119 million. NII/NCI is slightly down by EUR 3 million quarter-over-quarter to EUR 106 million due to lower portfolio volumes despite increased portfolio margins.

At the same time, realization income is up by EUR 4 million quarter-over-quarter to EUR 6 million, also benefiting from a noncore asset sale. Excluding U.S. risk charges, other income is stable quarter-over-quarter at EUR 7 million. Operating expenses, including depreciation, remained well managed and decreased by EUR 2 million quarter-over-quarter to EUR 62 million in the second quarter '25. Personnel expenses came down by EUR 5 million. Non-personnel expenses are only slightly up by EUR 2 million, where most of the acquisition-related site costs have already been booked in Q2, as mentioned.

Although the cost base was lower, the cost income ratio rose to 70%, this increase was entirely driven by the lower operating income base which was dragged down by the mentioned minus U.S. EUR 31 million fair value risk charges. Adjusted for these one-off charges, the cost income ratio actually came down quarter-over-quarter to 52%. In total, pre-provision profit adjusted for the one-off U.S. fair value risk charges of minus EUR 31 million has come down a moderate EUR 3 million to EUR 51 million quarter-over-quarter.

Now to our deep dive on risk provisioning on Slide 13. Risk provisioning in Q2 is almost entirely driven by the decision to exit the U.S. as the U.S. portfolio has now been marked at exit prices, i.e., transactional sales prices. These reflect return expectations of customary buyers of performing and nonperforming U.S. commercial real estate loans and therefore, includes significant discount elements versus previous hold valuations.

As a result, minus EUR 283 million one-off loan loss provisions were booked upfront in Q2 to reflect the decision to exit the U.S. As Kay mentioned, actual sales or securitization will, of course, happen in a value-preserving manner over time and some parts of the portfolio will actually be wound down by the bank itself.

Stage 1 and 2 additions of minus EUR 75 million are fully related to a management overlay for performing U.S. loans, the context of the planned U.S. exit. The overlay is calibrated to U.S. exit prices for the performing U.S. book, I would come back to that. Stage 3 additions of minus EUR 22 million include one-off Stage 3 loan loss provisions of minus EUR 208 million for the U.S. exit, which are by far the dominant driver of U.S. exit-related risk charges. Moderate minus EUR 14 million Stage 3 additions related to European loans, predominantly existing nonperforming German development.

Looking at the total stock of loan loss allowances on Slide 14 now, we see that the U.S. coverage has increased substantially. For U.S. for performing U.S. loans under Stages 1 and 2, risk coverage has now increased to EUR 137 million, i.e., from 2% as per end of March to now 5% by end of June. For U.S. nonperforming loans, Stage 3 LLP have increased strongly to EUR 292 million. Therefore, the NPL coverage ratio has almost doubled from 17% to 33%. With that, the total NPL coverage ratio is now at 30%, up from 23% as per end of March.

Let's now take a brief look at the developments in the portfolio. I'm starting with the total performing portfolio on Slide 16. Irrespective of the risk charges booked for the planned U.S. exit, the underlying quality of the performing portfolio stabilized further, reflecting a continued bottoming out of the commercial real estate market as well as our previously actioned derisking in the U.S. and for German developments.

On Slide 16, we show the development of 3 key risk parameters in our performing REF portfolio for the total REF portfolio and for the European portfolio. Our previously shared risk KPIs show a further stabilization of portfolio quality. Average LTVs remained stable quarter-over-quarter, 56% for the total performing REF portfolio, 55% for the European. 12-month rolling valuation adjustments stayed below peak levels, having stabilized in the total performance portfolio and have even further improved in the European portfolio. Also, when looking at layered LTVs, the exposure risk declined actually by 11% in the total REF portfolio when compared to the previous quarter.

Overall, these indicators continue to show improving risk dynamics underpinning our ongoing active derisking and further stabilization in 3 markets. Please note that the Stage 1 and 2 management overlay of minus EUR 75 million for the performing U.S. loans in Q2 has been booked despite of that stabilization in the underlying performing markets. Management overlay for the U.S. performing book has been calibrated to exit price, reflecting transactional charges based on investors' return expectations. Our full and usual portfolio disclosure can be found in the appendix.

I would now just briefly comment on the area of focus, starting with NPLs on Slide 17. Total NPLs are slightly up in the second quarter by EUR 71 million to EUR 1.958 billion, mainly driven by 3 NPL additions of in total EUR 238 million, 2 U.S. zones and 1 European office zone. This was not fully matched by 2 NPL reductions of EUR 103 million, 1 repaid U.S. office loans and 1 repaid European hotel loan. NPLs were also helped by positive FX effects, again namely the depreciating dollar.

Our previously reported 3 U.S. loans, which were economically healed, but not regulatorily cured ,probation periods were evoked in connection with the planned U.S. exits and remain included in the NPL walk but are no longer shown separately. With that the U.S. makes up for a disproportionately large share of 45% of NPLs, while the overall U.S. portfolio share is only 10%. Development of the U.S. NPL continues to show the previously mentioned trends as some investment markets in the U.S. remain hesitant in light of ongoing uncertainty and volatility. Thus ordinary course of business clearing of U.S. NPL has been slower than previously anticipated.

As you know, this development also contributed to our decision to exit the U.S. And now marking the U.S. NPL book at exit prices, irrespective if loans are booked at amortized cost or fair value, we performed a thorough bottom-up assessment for each individual loan and attached exit prices under challenging market conditions for U.S. nonperforming loans. As mentioned, the NPL coverage ratio for the U.S., therefore almost doubled from 17% at the end of March to now 33%. When also including the one-off U.S. fair value exit charges of minus EUR 31 million, NPL coverage would actually be more around 40%.

Moving to the risk profile in the development portfolio, which has further improved. Portfolio has been reduced by EUR 500 million in the first half of this year, EUR 300 million of which in the second quarter '25. Development portfolio is now down to EUR 1.7 billion. In the second quarter, 5 loans have been repaid or transferred into an investment zone. Our focus remains on managing the risk in the construction phase. We further derisked this phase, now accounting for 19% versus 21% at the end of Q1. The development remain part of our overall strategy. We also did 2 new developments in the second quarter. We had no new development NPL in H1, but 2 reductions.

Just briefly on the European office portfolio as office makes up a large part of our portfolio, and Europe is now our full focus in new business. I'm on Slide 19. All in all, the portfolio is of solid quality, reflecting our focus on prime properties in inner city location and strict risk parameters. LTVs in the performing investment portfolio are coming down slightly to an average of 59%. And looking at layer LTVs, the exposure at risk is rather low at 3.3% of that portfolio. The overall European office market is expected to further stabilize based on stable demand and below average supply pipeline, supporting demand for existing office profits.

With that, I'm moving over to capital, which is also positive news. Even though booking one of U.S. risk charges of minus EUR 340 million in Q2, the regulatory capital effect of minus 40 basis points compared to Q1 is moderate. This is because the now booked accounting risk charges have already been partially deducted from regulatory capital through prudential backed stocks, including, amongst others, the expected loss shortfall. RWA remained stable in the second quarter. Increases from internal rating downgrades have been compensated by FX and portfolio effects.

All in all, we maintained a solid capitalization with a CET1 ratio of 15.3%. Our overall ambition level through the cycle of at least 14%, CET1 remains unchanged. Our very successful partial buyback of existing legacy Tier 2 with a parallel EUR 300 million Tier 2 new issue was done in June, but settled in July. So that both standard legacy and new Tier 2 are not considered in Q2 for regulatory accounting purposes.

On Page 22, we therefore show the pro forma effect of the successful Tier 1 tender new issue for end of June. Buying back EUR 250 million legacy Tier 2, which has amortized down to less than 50% regulatory capital content and more than replacing it with EUR 300 million new Tier 2 almost doubled the Tier 2 bucket from 140 basis points to 270 basis points after the transaction. With that, we made our capital structure more efficient, created more own funds and improved overall strategic flexibility for the bank.

After 8 years of absence in the debt capital space, the new issue was very positively received with a high-quality order book and EUR 1.9 billion demand for EUR 300 million no-grow offering. Thus, PBB has addressed its debt capital appetite for the foreseeable future. Our debt capital products remain an integral part of PBB's capital and funding strategy. In that context, let me mention that with EUR 2.1 billion, our available distributable items remain very comfortable also after having taken discussed one-off U.S. risk charges.

This brings me to funding and liquidity on Slide 23, just briefly. All in all, we will maintain a resilient and balanced funding mix. We focus on efficiency and cost optimization. The first half of the year, we already executed EUR 1.6 billion or 80% of our planned fund refunding for '25. Our secondary spreads have continued to tighten across all credit products, including the recent new Tier 2.

As you can see on Page 24, also our liquidity remained strong with the LCR up to 330% for Q2 from 211% in the previous quarter.

That's it from my side, and I would now hand back to Kay for closing remarks.

Thank you very much, Marcus. Ladies and gentlemen, as I said at the beginning, there are a lot of things that we have moved forward over the last couple of months, in particular, in the second quarter. Transformation of PBB is taking shape, very concrete steps that we have been taking.

Before we move in our Q&A session, please allow me, therefore, to summarize on Page 26. In the first half of the year, we really have accelerated the transformation to achieve our strategic 2027 targets. On the one hand, the acquisition of Deutsche Investment Group is a substantial step forward for our Real Estate Investment Solutions business and an important step to diversify our income stream. On the other hand, Real Estate Finance Solutions business, the exit from the U.S. market had a significant but one-off impact on our half year results. It is expected to free up capital within the next 6 to 12 months, enhancing our strategic flexibility.

We are focusing even more on becoming a truly European bank. Our new businesses ROTE of 10% in the first half of 2025 in our home markets confirm our strategic direction. Our adjusted operating results are stable. We expect a significant positive pretax result for the second half of 2025. Our capital base remains solid with a 15.3% CET1 ratio and throughout the cycle. We confirm our ambition of a core capital ratio of more than 14%.

Ladies and gentlemen, thank you very much for your attention, and Marcus and I are now very much looking forward to your questions.

[Operator Instructions] And first up is Borja Ramirez from Citi.

I have 2. Firstly is, if you could please provide some guidance on the net interest income going forward. So should -- have we seen the trough or also stabilized? And then my second question would be related to the provisioning. If you could kindly provide some details on what assumptions you have behind the U.S. So if you assume you have some disposals lined up or some SRTs? And also if you kindly -- lastly, if you could please provide some details on expected evolution of the NPL ratio going forward?

Thanks for your questions. On NII, look, you heard me saying I think, we've been seeing plateauing for the last 3 quarters, essentially, we saw for NII/NCI 108, 109, 106, meaning that we think that we have now come to a plateau where we now, as Kay said, see more new business. We see -- continue to see healthy margins, which may have peaked on the one hand. On the other hand, of course, you saw that spread for our funding products come down. And as you saw, we also have been doing some prefunding. So overall we think that we should have reached the plateau at this kind of level.

Borja, thanks for your question. I take the question on the U.S. exit. Look, it is a very diversified portfolio. It includes performing and nonperforming assets in very different markets in the U.S. So literally, our strategy will be to use a set of tools that are available for us on that. Of course, there are transactions on the book, Borja, that we expect we wind down because they come due, and we have a clear view on that.

We will also look, and you know from last year, we do have our experience on loan sales, on the performing loan side, in particular. And we also, of course, are looking into tools like securitizations that you also mentioned. So we are trying to make sure that we use the entire toolbox. Process-wise, we have already started working on that literally on not only one, but multiple of those tools as our clear focus is over the next 6 to 12 months to substantially reduce the risk decision out of our performing and nonperforming booking.

The next question comes from Tobias Lukesch from Kepler Cheuvreux.

A couple of questions on my side, please. Firstly, on the U.S. margins, could you please share with us the kind of gross margin, the net margin of the U.S. business and compare that to our European business, preferably excluding Germany? And again, I mean, on the NII, maybe you can help us with a percentage, what is coming actually from the U.S. business.

Then on the portfolio side as the second question. You said you managed the exit basically and will replace it by European exposure. So I was wondering how this change should happen over the next 6 to 12 months and how we should think about the period over the next 2 to 3 years then.

And another one on the funding side, you just mentioned that the spreads came down. I was wondering, I think you funded quite -- rather on the short-term side recently, please correct me if I'm wrong. So I was really -- again, I was like wondering if the funding impact for the margin could be a positive, neutral or negative. I understand it's more the kind of neutral to positive you're seeing that to give a bit more flavor on that would be great. And then I have a couple of more, but I would just go for another outlook and dividend question.

With the press release on the 18th of June, you mentioned the U.S. exit for the first time. There you said that you will announce a new guidance for '25 in due course. So I was just wondering like is there a bit more guidance you would give for '25 except for the total result to be negative? And on dividends, you haven't talked about dividends really, what should investors expect here on the distribution side.

Tobias, let me take a couple of your questions and the remaining one, Marcus will go in to answer, yes. On your question around U.S. margins and the comparison to the European book. Look, the way we look at the portfolio is not from a margin perspective, but it is from a return over capital. And when you only look at margin, you can be, from our perspective, wrongly guided. Yes, we always talk about our gross interest margin when it comes down to new business. But the key driver for us is return on tangible equity. And when you look at the book and the numbers that we have been given that you see that our U.S. book on that measurement is substantially negative in terms of profitability compared to our European book.

So therefore, our key focus is on that KPI. And that's why we also have put that into the presentation to outline the fact that the exit for the U.S. economically will free up capital as it consumes at the moment, much higher capital compared to our European business. And at the same time, it will be profitability enhancing as the way our U.S. business is currently being on the books, it is unfortunately destroying value.

On your questions around the portfolio on -- and how you should think about that for the next 6 to 12 months, but also more on the medium-term side with regard to replacing exit out of the U.S. with European business. Hopefully, best to answer that, Tobias, is we clearly set a hold point on our overall portfolio, with our guidance and strategic direction for 2027. We want to run our real estate finance business with a portfolio of around EUR 29 billion. We are currently at EUR 28.2 billion, Marcus explained why it has come down from a currency perspective.

So -- and to your question, how you should think about that for the next 6 to 12 months and into the 2027 targets, we can think about that on a flattish perspective. We want to ensure that, and we see opportunity there to increase our business in Europe to do that profitably, so that the U.S. exit in itself will be replaced. Of course, there is one element to it. And that touches Borja's question as well. is which tools that we are using, and this will be a driver for the portfolio. And as I said, we are looking into different tool set and therefore, have not yet finally decided which one we are using. But what we can confirm for 2027 is definitely that we want to have a real estate finance book of around EUR 29 billion.

And then I would take the last question as well before for the funding question, Marcus, handing over to you. Tobias, with regard to dividends and all of that, we feel at the moment, it's too early to say anything about that. The one-off loss definitely we will not be able to fully recoup in the second half, although it is clearly expected with our stable performance of the first half to see that continuing so that we are clearly making a -- expecting to make a profit in the second half, but this will not fully compensate in our expectation, the losses.

But we have not yet made the final decision on dividend nor have we made the decision with regards -- finally, with regard to share buyback. And this is also a component that is left open as we want to make sure that we understand the direction of travel for the next 6 to 12 months better around the U.S. exit and the capital that is going to be relieved out of those transactions. And with that, I'll probably hand over Marcus to you.

Yes. Basically, one has to of course, always consider various effects to your questions on the funding impact of NII. I think positive, clearly, if you look at where we funded our fund brief versus we offer 60 in May, 48 -- 60 in January, 48 in May. And now the most recent steps and all that is public were 38, and we've been now doing and also that you can compute EUR 1.8 billion versus the EUR 1.6 billion that are shown in there for the H1. So the message here is not only have secondary spreads come in a lot for the fund brief, but also primary clearing levels for our fund brief have been coming in sharply, and we can now be very opportunistic in terms of doing the residual funding that we need, including prefunding for the next year. And also the important message is we've been front-loading funding, meaning that, of course, also that is a burden that we have in NII. So far that will gradually come down because we will, of course, now reduce the pace of fund refunding.

On the other hand, of course, we will have, and we always said that and you can see that on the slide, we have the plan to come every year with a senior benchmark. Also for senior, I think, it's almost fair to say that our spreads have kind of halved since we did our last issuance in November last year, but of course, that will be coming at a cost, however, substantially lower than we planned for.

And then lastly, of course, we've been doing the Tier 2 issue, which again came sharply lower than expectations, but it's, of course, now burdening NII with 480 basis points that we had around the offer. So there's different effects. The actual funding should be a relief also because we will be selective on deposits. You saw we've been coming down from 7.6 to 7.5. I think with the senior that we would be planning to do we can afford to go down also here opportunistically to perhaps 7.3 as we guided previously. That shows again, and you can see that in that one chart that I show that we can also be very opportunistic on deposits and have attractive margins on that business as well.

Very clear, if I may, one follow-up on the margin side. So just thinking conceptionally, I mean, now you have taken all the risk cuts in terms of the U.S. business upfront. Let's assume both U.S. business and European business is risk-free. You obviously have a higher margin also after funding costs and hedging costs and ForEx costs on U.S. side. So I was just wondering in terms of capital consumption is, in order to have the same revenue contribution from European business going forward, if you do not need more capital allocated actually to the loan book than it was the case with the U.S. business as it is today basically marked to market at fair value. Could you maybe elaborate on that likely?

I hope, Tobias, that I get the question right. I think what you're looking is into top line, yes, and how to think into top line of adjusting U.S. with European business, right? That's just to reconfirm the direction of your question to get that answer?

Exactly. I mean the thinking is to keep the revenue base stable, right, and replace U.S. business with European. I'm just wondering if that doesn't need more RWA since U.S. business was just giving higher margins basically.

Look, we will have to balance that out, yes? Why do I answer it in that way because you ask us right now what would be the priority? And the priority would be to ensure that the business that we take in gets the right return on the invested capital. So what I'm saying with that Tobias is, we are not primarily guided by the top line number, but we are steering the business towards capital-efficient returns.

Why that? Because that allows us to free up capital to then invest that capital into our Strategy 2027. And you know that there are different levels of that strategy that, by the way, includes as well capital distribution, yes. Not to forget that this is part of the capital. But that would probably be my guidance. It could be in certain situations that on a net-net basis, the top line on the same volume number might be a bit lower from an NII perspective. But as said, we stick to our guidance for 2027. And honestly speaking, we have demonstrated in the first half that we are able to generate very profitable business.

By the way, also at the level that we would not have expected already. It shows that the markets are there. Certainly, I carefully said, on the margins that they might have peaked. That might have depending on funding cost also an impact on overall profitability. But this is still the primary steering of that. And looking at Marcus, something from your side as well.

Perhaps only 2 half thoughts, Lukesch, I mean the one is, I think Kay had that in this chart, which I think is illustrating the point of the capital consumption quite nicely, which, again, as you know, is not only driven by RWA, but it's also driven by prudential backstop, which means that the capital density for the U.S. business is more like 100% and for the European is 58%, that basically reinforces, Kay's point, it's by a factor of 1.7x higher making the efficiency better on a kind of like-for-like top line on the one hand. And the other second half remark is that we only -- of course, have to not only look at the substitution of business on balance sheet but also to the substitution of business to our European off-balance sheet proposition, which, as you know, is targeted to be 10% in '27 and where we've made a huge step forward with the acquisition now.

And next up is Jochen Schmitt from Metzler.

I have 2 questions, please. Firstly, could you provide a figure how loan loss provisioning for the U.S. loan book would have developed in Q2 if you have not booked the extra provisions for your planned exit? Second question, again, on net interest income. I mean obviously, this is difficult to model bearing in mind that you aim to sell and or run down your U.S. loan book. My question is what do you consider to be the bottom of quarterly group NII in your plans?

Right. On your first question, Jochen, thanks very much. Welcome to you as well. Around the how to think about the LLP, if we would not have considered that move, honestly speaking, that is hard to touch. Why? Because on our side, the way we have looked at holistically at the portfolio, it is exactly on the strategy that we now have put in place. So therefore, in terms of the figures, I would not go into -- would not go into that. What you see on the NPL walk is that when you look and exclude the U.S. numbers, the trend on LLP remains the same. We see a lower LLP figure coming through the European book.

And on the U.S. side, honestly speaking, we have had to look holistically on the strategy reflecting the exit, yes. So we have not split that across and don't want to split that in that view and Marcus, handing over to you on the second part.

On the second part, I would just say or repeat what I said, which is that I think, we've been seeing now that with the different trends I described to Borja's question at the beginning, we've been seeing a plateauing of NII/NCI around that level, which we are right now slightly down quarter-over-quarter on a similar level than in Q4. And as I mentioned, with the various effects on the asset side, on the liability side, we think that we kind of should have reached a plateau here at that kind of level. And then, of course, looking into next year, commission income will start to kick in because Kay mentioned the fee income, which is, of course, substantial and positive impact on that starting next year.

Allow me -- Jochen, allow me to add here, because -- please bear in mind, right? The reason why we have also made a strategic decision on the U.S. market also has been that we have seen volatility, yes. So therefore, bear in mind, I wanted to add that, that we have seen more challenging. That's why from an exit perspective, in particular, on the NPL side, I think, I mentioned that also when we communicated around making the review on the U.S. business as part of our first quarter results, of course, we have seen those challenges, yes. So I want to add that, but we don't split that in the 2 parts that you are looking for as we have made a decision, and we have reflected that decision now on the holistic, on the entire portfolio.

And we have a follow-up question coming from Tobias Lukesch from Kepler Cheuvreux.

Yes. Two quick follow-ups, if I may. One on the capital, there was a positive EUR 200 million RWA effect, and you said that's coming from the CRR3 regulation. Maybe you can give a quick elaboration on that and also give a bit of guidance. Like if you think that kind of methodology changes, regulatory issues will still impact in H2 or next year. And then on the Deutsche Investment Group, you provided an average EBITDA number, EUR 5 million over the last years. Maybe you could give here the '24 number, maybe also net profit number. And Also, is it fair to assume that by '27, we could assume a kind of EUR 10 million pretax contribution from that acquisition?

Let me start on -- Tobias, on your second question. First of all, we deliberately have informed period. Why? Because this -- the Deutsche Investment Group was profitable throughout that period, which when you look into investment managers, in particular of investment manager of that side, but also bigger ones. In particular, 2024 and also 2023 has been more challenging. The 2024 number in terms of top line is fully 100% recurring, which is important because the revenue mix and therefore, the stability of the profitability, you always need to look what is one-off transaction related and what is recurring. Deutsche Investment Management, 100% recurring revenues. That's a reflection of the market. Of course, that has also a reflection of profitability when we look into 2024. But the way you should look into it is that it is below the EUR 5 million, but it's substantially positive underneath that. That's the way I would look into that.

In terms of outlook, we have been targeting more than 10% of our income coming from fee and commission income. Majority part of that or a good part of that out of the PBB Invest business that we continue to grow. We still have also our organic growth. So therefore, I would not want to jump into more guidance on the bottom line other than saying this investment is clearly an accelerator for us. Inorganically, we said that, done and executed. But also, it will be an accelerator for our organic growth, yes, because we can combine the strength of our team, of the strength of the Deutsche Investment team and that should move us well forward in our PBB invest business.

And to your other question, I think, you are referring to the fact that when we presented Q1 results, we were reflecting a 15.5% CET1 ratio. And then at that point in time, there were still some details of the CRR regulations, including comments becoming clearer over time. So we had a correction, an upward correction because we have been taking a careful stance, mainly on op risk, but also CVA charges, which meant that the actual Q1 figure, including these later incoming CRR interpretations was better 15.7% compared to the 15.5% previously reported. That was your question, Lukesch.

Yes, but there's nothing more to come than basically, right? So we are clean...

Correct. Also, I would like to add, of course, we are monitoring any development that is out there. We are a foundation-based bank. New CRR is in play. So we are monitoring that. What we see at the moment, there is nothing that we need to reflect right now. But certainly, right, there is a consistent change. And once there is anything we will, of course, reflect that in our numbers.

That brings us to the end of the question-and-answer session. And I now hand the floor back to Kay Wolf.

Yes. Thank you very much. Thanks for your questions. Thanks for taking the time, again, on us. If there are more questions afterwards, which might come up, you know Michael, Axel and the team are available for you as well.

Let me put today one additional closing remark, right? We're making substantial steps forward in executing on our strategy. And that is the key takeaway on the one hand side with the decisive -- with the decisive actions around our real estate finance business, exiting the U.S. market, at the same time, paying a lot of attention on growing our business in Europe.

And second part, and I think for this round, even more important, with a clear decisive action on our Real Estate Investment Solutions business, which you know from a strategic perspective, is a core pillar of the transformation of the bank. And therefore, Q2, with all the numbers and everything, and Marcus had a tough ride there, really marks an important milestone on our strategy in 2020 to reach our goals for 2027. Thanks for your participation and looking forward to see you in one or the other location. Thanks very much.

Thank you. Bye-bye.