Deutsche Pfandbriefbank AG

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.