Deutsche Pfandbriefbank AG

XETRA:PBB

Earnings Call Transcript 2021-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to the Deutsche Pfandbriefbank AG conference call regarding the Q1 2021 results. [Operator Instructions]Let me now turn the floor over to your host, Mr. Walter Allwicher.

[Walter Allwicher, Managing Director of Communications]

Good morning from Garching. Thank you very much for joining us on the occasion of our Q1 results call. Here with me is Andreas Arndt, our CEO. And Andreas will lead you through the presentation of the results and will, of course, be available for your questions afterwards. Andreas, please go ahead.

[Andreas Arndt, Chairman of Management Board, CEO & CFO]

Thank you, and also good morning from my side. Good morning from a very warm Munich with unusual temperatures. Welcome to our pbb Analyst Call First Quarter Results 2021.The first quarter telegram reads as follows: We had a strong start into '21 with a PBT of EUR 52 million, NII remains on high level, no accidents on the credit side, low risk provisioning levels, new business solid, with about EUR 2 billion in first quarter. All in all, we continue to pursue our proven path, careful selection of clients and properties with disciplined focus on prime business, strong covenant structures and intensive risk monitoring of our portfolio.Despite all remaining uncertainties, I think, and I believe this approach, in combination with the solid stock of provisions, puts us in a comfortable position to cope with potential former impacts from COVID-19 if and when they should occur.If you walk together with me on -- through Slide 4, the point I would like to highlight at the beginning is, again, PBT of EUR 52 million is significantly up from last year's figure of EUR 2 million which, of course, was strongly impacted by COVID-19-related effects, especially on the side of loan loss provisions and fair value measurements.The risk provisioning consequently is significantly down from EUR 34 million to EUR 10 million in Q1, of which EUR 5 million is model-based, Stage 1 and 2, and EUR 5 million for the already provisioned U.K. shopping centers in Stage 3. The fair value result is slightly positive at EUR 2 million after 17 -- minus EUR 17 million in the first quarter 2020.Furthermore, we look at NII, which continues to benefit from lower average refinancing costs, which, of course, includes the TLTRO and higher floor income, thus being EUR 12 million or 11% above last year's level.In addition, some support comes from prepayment fees, which are EUR 7 million higher than last year, accounting at EUR 21 million, which compare, and that's first quarter only, which compares to EUR 26 million in total for 2020. On the cost side, we do observe slightly higher general admin expenses, in line with our expectations. They stand at EUR 51 million, which compares with EUR 59 million, which we had last quarter 2020 and EUR 48 million first quarter 2020. That reflects mainly project-related costs.I already mentioned several times, digitalization initiatives, which eat into our cost base, especially the client portal, to which I come back later on that. But of course, to a large extent, also the ongoing regulatory requirements.Bank levy and similar expenses are also up. They usually, as you know and understand, they're usually booked to the full amount, at least as far as bank tax, the bank levy is concerned. In the first quarter, we showed EUR 28 million in total. We would expect another EUR 2 million to EUR 3 million to come for the remainder of the year, which brings us at a total of, say, EUR 31 million in bank levy and expenses against EUR 26 million, which we had last year, while this year's number and this year's forecast on that basis includes all the effects which we have to take into account after the Greensill accident.Now new business reached a strong volume of EUR 2.1 billion, all real estate finance, after EUR 1.6 billion last year, and once again demonstrates pbb's origination strength in markets with overall lower investment or transaction levels and increased competitive situation in the prime segment. Plus, as always and as usual, a careful risk selection. Average gross new interest margin is almost stable at 170 basis points over last year's first quarter, somewhat down against the full figure for 2020, which stood at 180 basis points. And now that we have the windows closed, I don't need to shout.On this basis, our strategic real estate finance portfolio has grown 2%. It's up EUR 500 million to EUR 27.5 billion, while NPLs only slightly up. I'll come back to that. They are, all in all, continuously at a low level at an NPL ratio of 0.9%.We had, likewise, a good start, a very strong start on the funding side, with 2 successful benchmark issuances, one on U.S. dollar Mortgage Pfandbriefe and one with a senior preferred green bond, successful pound sterling Mortgage Pfandbriefe benchmark in April. In total, EUR 1.4 billion in new funding in the first quarter, slightly down from last year. But given the very comfortable front-loading in 2020, we are completely comfortable and fine with the level of funding which we did in the first quarter. Funding spreads are only slightly up as spread levels have mostly tightened back to previous year levels, corona levels. And come back to that. Compares still favorably to the average funding cost which we have on our book.The capitalization remains solid with CET1 ratio of 15.4%. That's down from 16.1%. So that's quite a step. But that's mainly and mostly reflecting the increased RWA, which again stemmed from strong new business and subsequent strategic portfolio growth in [ the first hand ] and to a much lesser extent from some individual COVID-19-related deteriorations.You should also keep in mind that the level which we show, the regulatory capital does not yet include Q1 profits -- retained profits, as that is something which we do at the end of the year. And it also does not reflect compensations for expected loss shortfall, which are fully deducted and which will be corrected at the end of the year. I would guess that this makes another, say, 30, maybe 40 basis points in the CET1 on the good side.So all in all, with a strong Q1, I think we provide a good base to go into 2021 and to support our guidance, which we gave previously on to last year's PBT of EUR 154 million to be exceeded in 2021.Slide 5, just a few very short comments. While we have increased lending income quite nicely, we were keeping operating costs, I think, by and large, under control, which, in turn, results into a cost/income ratio of 38%. I think that's something which we can be proud of. It's not a figure which we expect for the entire year on average, but I think it's a good start for 2021.The other point I would like to highlight is, if you add up the risk provisioning of the last 6 quarters, you arrive at a figure of EUR 185 million, which we accumulated both in terms of Stage 1 and 2 as well as Stage 3 provisions. It's more or less exactly half-half, and it's a significant amount, which we've build up over the last 6 quarters.So a few words about markets. And I'll just give you a few highlights, and I'm fine to have more questions around that at the end. I think the first thing to be reminded of is overall investment activity has significantly dropped in commercial real estate markets. We talked about 30% for last year, both in the U.S. as well as in Europe. And it looks like what we see from preliminary investment figures for Q1 that this trend holds on and also suggests a weak start into 2021. So that's -- the "window of opportunity" for the selection of new business has been certainly reduced against what we still saw in 2019. And that also goes for first quarter.Hotel and retail business, except for retail -- for food retailing, but especially in the fashion-dominated shopping centers, continue to be mostly affected in all regions by logistics. And residential remain robust and even show -- still show further pickup in values and downturns in yields. And even office yields continue to compress, while we expect to see some structural changes coming through in the long run, mainly and mostly due to the fact that the entire structural change stemming from home office implementation is not yet fully appreciated, not fully reflected in reliable forecast. And we'll probably come back to that point in a minute.All in all, it's still high liquidity, which sort of sits in front of commercial real estate markets, which is supported by low interest rates. But we also have to say we observed continuous movement in investor sentiment back away from the pure yield difference play towards a more structural and more fundamental view on markets for the next 2 to 3 years to come. I think people become more and more aware of the fact that there will be a stronger differentiation between A locations and B locations, A properties and B properties. And that will find its fallout in pricing and the investment appetite, and we will probably see some fluctuations also and some oscillations in A properties, regardless whether you talk about France, Paris or Munich in Germany or Berlin or whatever. You will see a stronger differentiation and relative stability of yields in those markets where the B locations -- B and C locations become increasingly more difficult.Now that's, say, a view which we have since long. And that's something which we have gone by in choosing our business over the last years, I should say. And it's probably one of the reasons why we sit on a relatively stable and conservative portfolio. Now the Slide 8 gives a few words of overview on where we are on COVID-19. Challenges, I think we're doing quite well so far. We continue with our corona portfolio monitoring, and we continue to pursue our proven path in terms of careful selection of clients and properties with disciplined focus on prime business and strong covenant structures as well as strong risk monitoring.We continue to be in close dialogue with our clients. The COVID-19-related client requests remain on a moderate level. And to remind you, we explained that last time. This is basically a list where we register each and every request or each and every demand which we receive from the client. It does not necessarily mean that those are exposures which are severely reflected, but it's a monitoring tool, and it still makes constantly and very stable and on a reducing basis about 12% of our portfolio.So for those, we focus on tailor-made mid- to long-term solutions in cooperation with our clients. And amongst that, the low volume classified as forbearance remains at a manageable 40%. That sort of translated into percentage of our total portfolio is less than 4% of total real estate finance. And to remind you, all forbearance cases are performing. That is, I think, also important to keep in mind.So for the time being, we remain cautious. We expect effect from unemployment and insolvencies to have a delayed impact on property values and cash flows more towards the second half of the year. And that view is something which is supported by assumptions around state support measures, which we believe come off mostly by the middle of this year and will have some effect and will show its consecutive -- its consequences in the second half. And the same goes for the effects from labor markets, unemployment insolvencies and things like that, which have an effect -- a subsequent effect on rental markets.And the other point is which we observe, of course, in our own book, but also with other banks and clients which have engagements with other banks, and that is that quite a few client agreements on covenants or amortization schedules will expire by mid of this year. And we will have to reassess situations by then and see how clients can cope with that.So that is, say, the more macroeconomic view. That does not yet imply what structural changes will do with the portfolio in the long run. We talked many times about hotel and online shopping and things like that. We do observe, by the way, on hotels that the prices which we observed in the market seem to be bottoming out. On shopping centers, that's still a process which is underway. And we do see that on a broad basis a weakening, softening of rental prices throughout the sector. So development on retail has not yet been finished. In terms of hotels, we do believe that we sort of see light at the end of the tunnel. The big question, as already mentioned before, the big question is what will happen to office.And I refer to various, say, press release, press statements, which we saw from other banks over the last couple of days and weeks, be it HSBC, Deutsche Bank, Bayerische Landesbank, ING, to give some indications about what their office space and what their office requirements will be for the second half of the year and for the years to come. And the estimate is something between 30% to 50% less space requirements, which is a huge figure. Now I don't believe that, that will be sort of the endgame figure on the -- in the long run on average because the requirements will be very individual to each firm. There are firms which have already taken home office into account since long, such as, for instance, Microsoft. Microsoft, the new situation will be the old situation because they do have a significant share of people working from home. But for others, it will be more. So for the market itself, I would say the change -- the structural change is more in the vicinity of 15% to 20% than 30% to 50%.And also to be clear on that, it's a matter where you look. The impact in Scandinavia and Netherlands will be different from what you see in France and in Germany simply because working from home is a matter which is much more accustomed to people in Scandinavia or in Holland, in Netherlands.Coming to Page 10 or Slide #10. And as usual, a few comments on the few lines. And in this instance, with a few more comments come on the main lines of the P&L. Overall, balanced results from fair value measurements, hedge accounting, other operating income. The net income from fair value measurement is slightly positive at EUR 2 million, up from EUR 17 million minus, which we had last year, which, as I said, is -- or was the result of a severe credit spread widening in the first quarter 2020 on a relatively small portfolio, which we value at fair value. Now that's more or less completely -- not more or less, it is complete -- has completely recovered and turned positive in first quarter.Other operating income is also a small figure, but the delta to last year is significant. I explained where the releases of provisions came from, so I don't need to go into that again. And bank levy, I mentioned, accounts for EUR 28 million this quarter, which, in fact, is EUR 2 million more than we paid out last year for bank levies, bank contributions for deposit saving schemes and so on. Our expectation for the full year will be roughly EUR 28 million plus EUR 2 million or EUR 3 million for further expenses to come. So the total figure for the entire year compares at EUR 31 million against EUR 26 million last year. And that includes the effect which we expect from the Greensill accident to take place and to affect the bank, but not more than that.So our tax rate, to make it complete, at 19%, which is well below the forecasted figure of 25%, we stick to that for the time being.Now on Page 11, you'll find more details on the NII development. We still, as I said, we benefit from lower refinancing costs and improved floor income. The fact that the real estate finance portfolio did increase but did not sort of pay in on NII line stems from the fact that the increase actually did happen in the last few days of March in one go and, therefore, did not help us on the average volumes, which were still around EUR 27 billion instead of EUR 27.5 billion. What you should also take into consideration or should not forget is the rundown, the constant rundown of value portfolio, the low contribution from equity book and also lately, more amortizations from cash flow hedges, which eat into the NII, did increase, and that's the amount, that's the figure which we have to earn from regular from strategic business against.Usually, I don't say much about fee commission income. It's stable at a low level. And just to remind you, most of the fee income is -- which is contracted upfront, such as upfront fees, back-end fees and so on, is being booked in NII on a pro rata temporary basis along the lifetime of the loan. From an accounting perspective -- in this respect, the recent accounting changes was to be mentioned. Commitment fees so far were booked upfront until the end of last year and now with this quarter have to be recognized pro rata temporaries along the lifetime of the loan. That's a small amount, less than EUR 1 million in P&L, but is a EUR 19 million deduction from the equity side for backlog recognition, which reduces the regulatory capital.Now a larger impact on P&L comes from realizations from prepayment fees, which are computed at EUR 28 million, up from EUR 14 million last year. This reflects higher prepayments driven by individual opportunities of a few clients, but should not seen as a run rate, should definitely not seen as a run rate for the remainder of the year. As a comparison for the entire year 2020, we did show a figure of EUR 26 million in terms of prepayment fees.Now the good thing is the increase in prepayment fees was not accompanied by -- let's put it the other way round. There's no significant increase in prepayment volumes, which means we've been good in realizing prepayment fees without giving up volume.Now the larger portion of interest is most likely on risk provisioning. As already mentioned, risk provisioning stayed low at first quarter 2021 at a net of EUR 10 million, with EUR 5 million attributed to Stage 1 and 2 and EUR 5 million to Stage 3, which is significantly lower, other than the EUR 34 million which we did show at the onset of the corona crisis. The -- as I said, the Stages 1 and 2, mainly driven by strong new business portfolio growth, which did overcompensate for extend -- exceeding releases and overall improving risk parameters. To a very lesser extent, we also observed some PD changes on the negative side on some selected individual business partners.Now the key point here is that the pure technical rolling of the scenario model actually put some upwards pressure on the release of provisions. The latest quarter to be replaced by newly added quarter on the long end with better forecast figures basically drives the structural releases. And if we were to go and if we would have to go by that, we would have applied EUR 18 million release for technical or methodological effects, but we decided to apply a management overlay as we expect impact of the COVID-19 pandemic to surface in the second half of 2021. I mentioned that already.With that, we maintain our comfortable stock of risk provisions with the coverage on our REF portfolio to the tune of 92 basis points. I believe this is a good decision providing for more stability against potential late COVID-19-related risk provisioning needs in the future, which we see rather more on the side of Stage 3 provisioning than building new Stage 1 and 2.Further management overlays or relief measures to the good or to the bad, to the positive or negative were not applied. No smoothing of property price developments. We currently stick to our commercial real estate property price forecast, which we find confirmed in its conservative scaling by recent transaction levels and recent third-party valuations.Additions to Stage 3, which is another net EUR 5 million, are solely resulting from further adjustments of U.K. shopping centers, which were more of technical nature, but no fundamental shift in our present views on the inherent risk of these shopping centers. There was a new Stage 3 case, but no new Stage 3 provisioning against that. It's a shift from a Stage 2 loan into Stage 3 without need for specific provisioning as the market value equally covers the loan amount of EUR 15 million, 1-5 million. It's a Polish shopping center with an LTV of 41%. That's a recent and actual value where the repayment is overdue where we expect the sale of the property to come in short term. We offered the client a temporary covenant relaxation, which he refused as he's working on the sale of the property and expects this to take place soon.Now operating cost. That's on Page 13. General admin costs, slightly up from EUR 48 million to EUR 51 million. I mentioned that some of that goes into high personnel with EUR 1 million and nonpersonnel costs with EUR 2 million. The personnel expenses are mainly driven by IT sourcing and ramp-up of capacity for regulatory projects in 2020, resulting in a higher FTE number, almost 30 FTE more than last year, which is still in plan and which is still, to a large extent, the IT in-sourcing, which we have started last year and which we continue to do this year.The point which is to be kept in mind is that in-sourcing sort of changes the run rate, the P&L run rate only over time. So the relief, which we have from that from taking formerly external employees into our internal payroll is an effect, which we see over time, will be not fully compensated. We will have other measures to follow suit in order to make good for that, but it's a way of keeping our costs under control.Overall, the pressure on the cost side will continue also in 2021, especially from the regulatory side. The topic -- such topics as IT and data security, data management, data flow, data lineage, rating and backlog and ECB audits, plus large field, which we have engaged more and more, which is the ESG initiatives, will come back on us, will require more attention, will require more resources. And we'll have to find our way to, say, cost-containment measures on one hand and doing the right thing on the regulatory side on the other.Nonpersonnel expenses basically mirrored the things which I just mentioned. The -- it's basically investments which go into the digitalization initiatives. We were happy to conclude on the client portal and to let it go live by the end of March. And we were -- as we come to again, also happy to close our deal with CDC on the CAPVERIANT participation.Cost/income ratio, as I said, stands at 38%, with a significantly stronger operating income. Run rate, as I said, remains more around 45% as a realistic estimate for the entire year.Slide 15 gives you an overview on the new business. I think with -- as I said, with overall lower investments and transaction levels and increased competition around our core prime segment, we have once again demonstrated our origination strength with a new business volume of EUR 2 billion, EUR 2.1 billion, after EUR 1.6 billion. There is no new commitment, no new business in property types such as hotel and retail shopping centers since March 2020. The only thing which you see on our list is extensions on a conservative basis, and there's no forced extensions amongst them.Average gross new interest margin is almost stable at 170 basis points, as mentioned, and slightly down against full year figure. Average LTV is 54%, which is again also slightly down, but stable against the full year's figure for 2020.We continue to keep strong regional focus on Germany, with this sort of an outlier, I should say, of 57% for the first quarter. Portfolio stands at 46% (sic) [ 47% ]. France is up 17% against a portfolio of 12%. CEE, 12% against a portfolio of 7%. And the United States and the U.K. side significantly under-delivering first quarter. We should not read that as a trend, neither on the German side nor on the U.S. or U.K. side. It's the outcome of this quarter, of a couple of significant deals which we did on this quarter. We would expect that U.S. is comparatively -- and also the U.K. remains a comparatively attractive market in the long run, and we will take our opportunities at the right time there in future.With regards to property types, main focus remains on office. It's only 36% here. It used to be more around 45%, 46%, 47%. Similar picture for residential. Logistics is an outlier, quite clearly, determined by 3 large deals, which we did, and accounts for 30%. Throughout the entire year, I think we will be again closer to the 12%, which we show on the portfolio just now.Even though with less volume than precrisis, the deal pipeline looks good, looks well filled, supporting a solid new business volume for the second quarter at a stable margin level.Let's take a quick look at Page 17. All in all, relatively stable picture. Average LTV of the portfolio is at 52%, slightly down year-over-year and stable quarter-over-quarter. There are some more visible changes by regions and property types, especially the revaluations driven by increases in the U.K. from 52% to 56% and retail from 51% to 54%, which are the results of the COVID-19 pandemic and special situations of the U.K. shopping centers.On the contrary, we see also improvements in Sweden from 49% to 46% and -- but -- and that's the key message. The LTV, the overall LTV remained on a low level with solid risk buffers for potential further impacts.Page 18. NPLs remain on low level. I think the key points were just the Polish shopping center of EUR 15 million. There's also some FX change in there, which brought up the total figure by EUR 30 million. As I said, the Polish shopping center we expect to go into sale in the short term, which should give us another relief. And as mentioned, there is, almost same amount, there is FX computation of foreign exchange effects, which we did take into account.On the funding side, Page 20. I'm not yet used to the warm weather. The 2021 first quarter shows an equally strong start on the funding side. We did engage with USD 750 million Mortgage Pfandbriefe benchmark in January. We had a GBP 500 million Mortgage Pfandbriefe benchmark in April. We had some private placements in Swedish krona. And we had a very successful placement with our first green bond in senior preferred format in January. So all in all, we talk about EUR 1.4 billion for the first quarter, which is somewhat down against EUR 1.9 billion which we had. But as I said, we had the front-loading, we had the prefunding from 2020, which provides us with a significant and comfortable level or cushion of funding to go into '21.Funding spreads for new issuances have been only slightly up year-over-year. Spreads have almost reached precrisis levels again. Spreads on our funding portfolio, however, were down further, as mentioned, as our replacement levels from new issuances are still ranging below average funding cost.Page 23 gives a quick overview on the capital side of the business and the risk-weighted assets. As mentioned, we stand at 15.4 RWA, up EUR 600 million, reflecting a strong increase in REF portfolio. And as I mentioned, to a smaller degree, some deteriorations in PDs, which we also have reflected, to the tune of roughly EUR 100 million in risk-weighted assets.I did mention the effect of an accounting correction on the capital on -- the CET1 to the tune of EUR 19 million. In total, with other effects, it was EUR 29 million down on the regulatory side of the capital due to the effects which I mentioned. So that's all fairly stable and fairly straightforward.Let me conclude with a few words on strategic initiatives. You find that on Page 25, with a graph, which at least for the left half, you recognize. Again, with a few more details on the right-hand side. We continue to focus our digitalization activities on 3 pillars: customer interface, efficiency of our internal client and credit process and development of new income sources.As we did announce with full year figures, we now launched the credit portal which, in many ways, is a big step forward in our initiatives. The client portal will improve the interface for the customers, providing for information on the transactions and, more importantly, will handle document management and document exchange and therefore facilitating the interaction and the exchange between the bank, between pbb and the customer. Furthermore, this is also the first step into a workflow digitalization along the whole credit process, which is our focus as the next step, which we're basically already into. And that's the complete alignment of client entry, portal, internal processes and so on, making use of [ automization ], robot solutions, artificial intelligence and cooperations with fintechs and proptechs.CAPVERIANT, I mentioned, this stake has been now closed, or the acquisition of this stake has been closed, and 28.57% have been handed over to CDC. And we have started a number of initiatives, especially to the French market, with our friends in Paris, with our friends at CDC, which should give us structural support in the long run. At the same time, there is an interesting development on the platform business as a whole. We have more and more inquiries by partner banks who say it is good and interesting that you treat your platform as a brokerage platform, but can you help us to reorganize to reschedule our public sector lending process and can we build in your platform, your process into our public sector origination process as a means of efficiency, as a means of reducing cost and scaling volumes. And that's something which we are working on presently with 3 or 4 partners and which we believe is a very attractive addition to what the original business proposition of CAPVERIANT is.The second point I would like to point out with a bit more, say, attention and impact as we did it previously, and that's the strategic focus on ESG, in particular, on sustainable lending and climate risk. As reported, we are paving the way for green lending already since 2019 by identifying and defining suitable green criteria for our lending business, for our portfolio. As a first step, we provided the basis for our Green Bond Framework, which you should know, you've heard it. And in the second step, we're now working on developing a Green Loan Framework, for which we have defined basic criteria and concept and where we focus on finalization, on operationalization of the implementation.Main focus in this context is on measurement of defined criteria as well as the integration of the whole thing into our regular credit process and regular IT systems. This should put us in a position to assess the greenness of our new business and thus of our portfolio over time, i.e., identifying the green share of our portfolio. Subsequently, we will also be able to assess the Scope 3 carbon emission and impact of our lending business.And the flip side of it, the other side of the coin is basically the climate risk. We have launched a new project, which focuses on the structural integration of climate risk into our risk management with a target to identify and assess transitional and physical climate risk for pbb. The ECB questionnaire, which was requested and issued at the beginning of this year to be filled in and to be worked on by now, by May, plus the EBA guidelines, plus the EU Taxonomy, plus the new climate initiative from the German [Foreign Language], plus a series of other recommendations, regulations and requests from other political and regulatory quarters, I think, has made it unmistakenly clear since last year that the political side and the regulatory side consider the financial sector as a powerful tool to direct and to channel political and environmental agenda and therefore to direct investment flows to green purposes in a big way.That also affects our business. 40% of global yearly carbon emission worldwide stems from construction industry. And that is, of course, building roads, but that is even more so building commercial real estate properties, and that's our business. And that's why we set up a new governance and a new risk structure for ESG. And that's why we will not see only more green bonds to come, but also initiatives towards our clients and the business such as green loans and more things to come, which we want to share with our clients to raise awareness about the importance of greenness of, construction greenness, of buildings to finance.Let me summarize. That's on Page 27. We look at a strong Q1 result with EUR 52 million. We continue to be solid on the income of lending. The NII remains on a high level. Risk provisioning was at low level, with some increases to come over the next quarters to come. New business with a solid volume and good margins given the competitive situation and the liquidity and capitalization where we can say it stays comfortable.The development of risk provisions continues to be key given the third infection wave and uncertainties on late potential COVID-19 impacts. We think it's not yet time to be more -- to relax. It's not yet time to be more precise on the guidance because of uncertainties around the second half '21 in terms of risk development. But having said that, Q1 is clearly good basis to exceed previous year's, last year's results. As such, our guidance might be seen as a floor with some upside potential.All in all, we remain cautious and conservative, but topped up with a good amount of optimism. So much for my presentation. And now I'm happy to take questions. If you give me 2 minutes. I'll be back.

[Walter Allwicher, Managing Director of Communications]

[Operator Instructions] And we have so far one question -- actually, I shouldn't say one question. I should say we have questions registered from Johannes Thormann and Tobias Lukesch as well as Mengxian Sun. And we'll get to these questions immediately, if you give us one second. [Operator Instructions] And as I said, 3 questions registered so far, Johannes Thormann, Tobias Lukesch and Mengxian Sun. We'll be with you shortly.[Break]

[Walter Allwicher, Managing Director of Communications]

Thanks. Thanks for bearing with us. And first set of questions comes from Johannes Thormann from HSBC.

[Johannes Thormann, Global Head of Exchanges and Analyst]

Johannes Thormann, HSBC. Three questions from my side. First of all, just a follow-up on the regulatory costs. The EUR 31 million run rate for this year, is this also the run rate for the next years? And then could you exactly quantify the Greensill impact?Secondly, on working from home. You mentioned some other banks, of course. And could you also elaborate the impact on your own operations at Pfandbriefbank and how you came up with the estimated 15% to 20% decline in office demand or office space demand?And last but not least, on competition, in the new business. Do you see the competition as intense as in all property types? Or are there differences? And who is the worst offender in terms of pricing currently in the market? And when do you feel that margins would be back to precrisis lows?

[Andreas Arndt, Chairman of Management Board, CEO & CFO]

Thormann, thank you for your questions. Now the regulatory cost, as I said, Greensill is implied, is taken into account. We are not yet there to give forecast for 2022. As you know, the mainstay of that figure is dependent on what we have to pay for the SRB bank tax or Bankenabgabe. And that, again, as long as our risk profile remains unchanged, depends very much on the level of deposits on a European scale. So if that goes further up, the contribution which we have to pay, that direction will also go up. A much smaller portion is being attributed to the German [Foreign Language]. That amount is around, say, 15% of the total, but is -- has doubled and contributes -- or accounts for most of the increase, which we see between 2020 and '21.Now how that sort of works out in the next year to come and whether there's some aftereffects from Greensill which needs to be accounted for in 2022, it's too early to say. But I would not expect that we have big outliers on that figure going forward.Working from home, that's the more difficult, more tricky question. How do we come -- or how do I come to an estimate of 15% to 20%? You may call it [Foreign Language] It is simply the fact that there is nobody really sticking out his or her neck in terms of giving precise forecast on that market. Why is that so? The complexity of different factors which influence the forecast is such that nobody has a clear picture yet. So if large banks come up with the fact that they sort of free up space to the tune of 40% or 50% or whatever, that, in my view, is only half of the truth. The other bits and pieces are what are these banks and other banks or other office users taking into account in terms of new standards of distancing, new standards for teamwork and how teams meet, what kind of environment you need for that, what are the standards in terms of sanitary conditions to protect the employees. That's all not yet out. And I think there will be many, many, many participants in the market who will find themselves in correcting their forecasts. That is one thing.And the other thing is, as I mentioned, there are quite a few firms in the market which have already adjusted to a high percentage and high share of home office work they had already pre-corona crisis. So the change there will be insignificant. And all that mix together is probably not on the 0 side. It's not probably on the 40% side, but somewhere in the middle. And that's the sort of guesstimate from my side and our side.What is pbb doing about that? We are presently -- we have set up a project team to look into that. We will have less requirements, one of the preconditions, not only for us, but for almost everybody who looks into that, is the concept of how the office is going to be used in terms of desk sharing and similar things is something which has to be rethought. Presently, everybody has a desk he can return to or she can return to. That -- if we really want to go with a higher degree of home office done from home, that is something which consequently must come. We need to refocus or we need to redefine the way we use our office space. So that's underway, and there will be some cost savings in '22 to come.New business and the competition. Who are the scapegoats? I don't want to go really into that because this market continues to be -- also be very much influenced by German competitors, which have a certain attitude towards pricing. And we can't sort of walk away from that. Otherwise, I must say, for now, we find the pricing levels demanding, but we think we can still cope with that.The interesting piece, which still has to be sorted out, is what is the pricing which will be applied to A properties, prime properties, prime locations. And we see some very sort of disquieting developments there. We've turned out first-class investments, Champs-Elysées, prime property, first-class sponsors, long-term tenant agreements where the margins tend to be double digit. And that's not the business which we want to do.So -- but still, there is a place to work from. There's a place where we can do our business. And I'm still confident that on the level of, say, 170 plus/minus something, we will be able to maneuver through this year. So that's to your questions. I hope I've covered that somewhat satisfactorily.

[Johannes Thormann, Global Head of Exchanges and Analyst]

Yes.

[Walter Allwicher, Managing Director of Communications]

Next in line is Tobias Lukesch from Kepler.

[Tobias Lukesch, Equity Research Analyst]

Yes. Two questions from my side, please. Firstly, if I may come back to the TLTRO like in other con calls. Could you again please remind us of the impact in this year? You pointed out to the positive refinancing impact, potentially also on the potential lump sum with regards to lending levels reached.Secondly, on the dividend, is there any further view you potentially may give? In the slide deck, I hardly saw that topic basically touched with Q1.And lastly, on the EBA stress test. Is there any view, any insights you may already share there?

[Andreas Arndt, Chairman of Management Board, CEO & CFO]

I'll start with the EBA stress test. It's too early to say something. The only feedback which we got is that ECB has confirmed that we delivered in time and good quality and all that. As usual, there are a number of questions which were bouncing back and which we have to answer, but sort of the first round, which, by the way, also counts in their governance accounts, in their assessment of quality of delivery is that, from a formal perspective, in terms of what we have delivered, how we have delivered that quality of data has been -- interpreting the wording of the ECB has been more than satisfactory.On dividends. There is not much to be said because we've said it all at the end of -- at the end 2020, what we want to do. So let's see how we get through the next 2 quarters. In principle, there is no change to what we have said. Not only in principle, there is no change to what we have said. We have a standing and enacted dividend policy. And we do everything in order to go by that and to fulfill that.TLTRO is also relatively easy to explain. You know that we have drawn EUR 7.5 billion. That gives us 50 basis points roughly. And as that has been 1/2 of that applied to last year, 1/2 of that has been applied to this year, gives you the indication what the supporting factor is, which stems from this kind of refinancing.The big question which is not yet decided within the bank is whether we will participate in the next tranche of TLTRO 3, which is tranche 9 or 10 or whatever. And how much that will make that depends on the base which we are willing to sign. Technically spoken, we probably could do more. Whether we want to do more, we will see. And more than spoken technically, if we do that, that is something which we have not yet factored into our forecast or guidance and could be a potential uptick in terms of overall NII development.

[Walter Allwicher, Managing Director of Communications]

Next question comes from Mengxian Sun.

[Mengxian Sun, Research Analyst]

Yes. So I have 2 questions. The first one is on net interest income guidance. And the second one is on your digital customer portal. So the one on the net interest income is that you have achieved a very good new business level of EUR 2.1 billion this quarter, which exceeds even the pre-COVID level in 2019. And you also mentioned there is a good pipeline as well in the second quarter. And the guidance of flat to slightly higher level of net interest income for the full year sounds a little bit too conservative to me. Is it mainly driven by the -- because of the margin pressures? Or are there any other reasons? And if you can share your thoughts on that, it will be highly appreciated.And the second question is on the digital customer portal. And the new functions that you mentioned and the request from partner banks are very promising. And can you speak some words on the further business potential on it and also especially on the financial contribution in the medium and long run?

[Andreas Arndt, Chairman of Management Board, CEO & CFO]

Good. I hope I got it right. If not, please correct me and let me know what else I can do. Now on the digital portal, the first one, why we do that is something where we can't really put a euro behind because the question is how you define the benefit of tying up your customer through an electronic means. I think, in the long run, it's a matter of [Foreign Language] of tying in your customer, increasing customer loyalty and making sure that the customer knows what you want and knows how to deal with the tool, has a level of comfort how he deals with you on documentary and account information issues.And that is something where I think that there's a distinct advantage because we are the first commercial real estate bank to introduce that. We will have a sort of first-mover advantage because this kind of digitalization is almost unknown with our clients. Our clients tend to be very conservative in the way how they apply digitalization, the technological side of what we do. And it is definitely our target that more or less all new business from here to the end of the year will be conducted on that platform basis, on that portal basis. And we will sort of by and by sort of apply the same for the portfolio which we have once we come into annual reviews and things like that.There's a lot of positive sentiment. We still need quite a bit of a push from the bank side and the customer side to make it actually happen. But I think it's an important means or an important tool to tie in the customer, to hold the customer. That's one thing.The other side of the coin, where you basically sort of can count something, is client portal is the necessary entry of data into the bank to define proper workflow and to find efficiencies in our client and credit-related processes. So I think we have the benefit to have a relatively well-sorted process and up-to-date IT system supporting that. But what we are talking about is a bit of a new world in terms of agile programming, in terms of up-to-date workflow processes, in terms of processes which work with add-on components with artificial intelligence and so on.Now that's something which we do not for the sake of beauty, but because we expect efficiencies to be realized out of that. In the process of putting that together, we are in the process of investing, but we're also in the process of putting the figures together on the efficiency side. And as I said earlier on, we will need that efficiencies and cost reductions because we will have -- and we will meet cost reductions on the investment -- sorry, investments on the regulatory side as well as on other strategic investments, which we are looking at.So we've done a similar exercise 2 years ago or 3 years ago, which we call focus -- invest-focused activities, in terms of efficiencies and take the money and invest it. And that's basically also the recipe for this one. It's about structuring the same second half '21. And it's about realizing effects out of that in '22, '23. So that's hopefully sort of giving a picture on what we do on digitalization. On NII. I'm not 100% sure whether I got the points. I suppose that you were referring to new business, with EUR 2 billion, EUR 2.1 billion, and so, what is the level of new business which we have to write through the course in order to keep our portfolio levels good and increasing. But [Audio Gap]business guidance.

[Walter Allwicher, Managing Director of Communications]

No, NII guidance. Mengxian, I understood you that you were concerned that our NII guidance might have been too conservative in the light of our strong new business that we saw in Q1. Did I get you correctly?

[Mengxian Sun, Research Analyst]

That is correct. Yes. What is the consideration of that? Is that purely margin pressure? Or is there any other reasons on that?

[Andreas Arndt, Chairman of Management Board, CEO & CFO]

No. I mean, at the end of the day, it goes back to the points which I mentioned earlier. For the strategic business, real estate finance business, we probably expect a relatively stable or even upward trending performance based on a combination of the portfolio margin which we show, which has been relatively stable over the last quarters or even trending slightly up, plus volume development, which we expect to be on the positive side through the rest of the year, not dramatically, not significantly, but positive by the end of 2021.Now the things which work against that is, a, what I said, the loss of contribution from value portfolio, partly also public investment finance portfolio, plus what we lose on -- still lose on the equity book. The third element is we've been profiting quite a bit from stable contributions from floor income, which we were able to execute with our clients on almost 100% basis last year. Now due to competition, that is something which we see -- where we see more pressure, and that will contribute potentially to a lesser extent.And the second point, we had support in '18, '19, '20 from the fact that the new issuances on the liability side were all performing below the portfolio levels, on the on-book portfolio levels on the liability side. Now that effect is also coming towards somewhat an end. We believe that we maintain low funding levels, but the delta contributing positively to the NII line will become less. So hopefully, I'm not too complicated on that.So those are the components. And this is the reason why I'd like or I prefer to stick to a more conservative outlook on NII. We say stable to like slightly increasing. And if you look at the run rate, third quarter, fourth quarter 2020, you see that, that probably is the right direction to go.

[Mengxian Sun, Research Analyst]

That was very clear.

[Walter Allwicher, Managing Director of Communications]

So we have no further questions registered. [Operator Instructions] And we have no further questions registered, so I suppose we covered it for you, which leaves me saying thanks for joining us today, and we appreciate your continued interest in pbb. We'll be back, at the latest, with Q2 results, which is August 11. And we look forward to speaking to you in the meantime. Take care. Speak soon. Bye-bye.

[Andreas Arndt, Chairman of Management Board, CEO & CFO]

Goodbye. Thank you for joining.