Deutsche Pfandbriefbank AG (PBB) Earnings Call Transcript & Summary

Thank you very much, ladies and gentlemen. A warm welcome to our analyst call on the results of the second quarter of 2026. Thanks very much for taking the time once again as in generally, in particular, in Europe, a very hot summer in the middle of it and maybe there is even more to come for reviewing pbb's second quarter and therefore, also the half year results. Our CFO, Marcus Schulte and I will guide you through the key developments of the past quarter and the IFRS key figures for the pbb Group. Afterwards, as always, we will have plenty of time reserved for your questions. Ladies and gentlemen, all of you follow global developments and their effects on markets on a daily basis. Volatility again dominated the second quarter of 2026. And the commercial real estate markets cannot completely escape this environment. Fluctuating interest rates and moderate transaction activities characterized the past few months, and the outlook remains uncertain. In this, I would say, turbulent and unpredictable market environment, we have achieved a solid result without letting up on the execution of our strategic transformation. In Real Estate Finance Solutions, we increased new business volume by almost 1/5 to EUR 3.1 billion in the first half of the year. We have now been on a sustainable growth trajectory in this segment for 2 years. And we are growing profitably. The return on tangible equity of our new business in the first half of the year stood at over 7%. In addition, we are gradually diversifying our financing book further. The asset classes, hotel, senior living, student housing and data centers, which are key of our strategic growth are becoming increasingly important. In the second quarter, they already accounted for almost 1/4 of the bank's new business volume. At the same time, we are making fast progress in reducing our U.S. portfolio. Since the start of the year, we have reduced our U.S. nonperforming loans by more than 40% to EUR 500 million. No new nonperforming loans have been added. Our financing business is, therefore, continuing to grow profitably, whilst we are able to reduce risks, particularly outside our core markets. Real Estate Investment Solutions has shown a positive development. We generated operating income of EUR 25 million in the first half of the year, of which EUR 14 million alone in the second quarter. With that, the share of fee-based income on total operating income is already exceeding 10%, one of our strategic targets. Overall, pbb generated a pretax profit of EUR 16 million in the first half of 2026, thereof EUR 10 million in the second quarter. This is in line with our expectations and full year guidance. General and administrative expenses remained at EUR 69 million, virtually unchanged from the previous quarter. In the first half of the year, total expenses amounted to EUR 126 million compared to EUR 115 million in the first half of 2025. The increase was driven by investments in our new business, Real Estate Investment Solutions. On the other hand, we were able to further reduce costs in our financing business, Real Estate Finance Solutions. Risk provisioning in the second quarter remained at a significantly normalized level of EUR 11 million. In particular, worth noting that no further risk costs were added to our U.S. and development portfolio. pbb remains solidly capitalized. In the second quarter, common equity Tier 1 ratio rose by around 120 basis points to 14.6%. This increase and reversal of previous quarter developments is in particular driven by beneficial regulatory adjustments within the Foundation IRBA regime. Newly published data from EBA showed that Poland, Finland, Austria and Belgium regained the eligibility of preferential LGD treatment. In addition to that, an active portfolio management also contributed to an overall reduction of risk-weighted assets by EUR 1.6 billion in the second quarter. Our liquidity position remains solid. We have largely completed our funding activities for the entire year. And to even better meet our investors' expectation, we have expanded the coverage of external ratings for our unsecured bonds and added Moody's as a second rating agency in addition to Standard & Poor's. I have already briefly touched upon the capital and property markets. Let us now take a slightly deeper look at the current geopolitical and macroeconomic environment on Page 5. The second quarter was particularly dominated by the war in the Middle East. Unfortunately, a swift resolution, which some market participants had also been hoping for, is currently not in sight. It remains nearly impossible to predict how the situation will develop. The impact on economic development in Europe is already evident. Growth forecasts have been revised downwards and inflation forecasts going up. Consequently, markets expect the ECB to raise interest rates once more this year. In commercial real estate, however, transaction activities remained comparatively robust in the first half of the year, although still at a moderate level by historical standards. Despite geopolitical tensions and volatile interest rates, transaction volumes improved by 9% in the first half of 2026. However, we are noticing in discussion with our clients that caution is mounting once again and that the risk of deals being postponed is increasing. It therefore, also remains difficult to predict further developments in the commercial real estate markets. Ladies and gentlemen, let us now take a look at the performance across our business segments. We start with Real Estate Finance Solutions on Page 6. As I mentioned at the beginning, in the first half of 2026, we were able to increase our new business volume, including extensions of more than 1 year by 18% to EUR 3.1 billion. It continues a steady increase that we have shown over the past 2 years. Another positive aspect is the share of new commitments, which stood at 67% in the first half of this year. As a reminder, in the first half of 2025, only 23% of business were new commitments. The asset classes, hotels, senior living, student housing as well as data centers, which are key for our strategic growth path account for 14% of new business in the first half of the year. In the second quarter, it already was as much as 23%. Compared to the first 6 months of 2025, this represents a significant increase in the relative share of our growth asset classes and now at a significantly higher volume of overall new business. So the diversification of our portfolio is thus making clear progress. We also remain successful in terms of profitability as underlined by a return on tangible equity of 7%, fully accretive to our strategic target. Despite the challenging market conditions described, we are also satisfied with our new business pipeline. With EUR 10.4 billion, it remains well stocked. pbb's financing portfolio remained stable at EUR 26.8 billion in the second quarter. And we have achieved this even though the reduction of the U.S. portfolio progressed faster than expected. And that brings us on Slide 7 to our exit from the U.S. market that is another key component of our transformation. We made very good progress in reducing our U.S. portfolio in the second quarter. 2 performing loans and 2 nonperforming loans with a total volume of EUR 200 million were repaid. This represents a reduction of 9% in the second quarter. Over the first half of the year, this reduction amounts to as much as 14%. It is encouraging that we are making faster progress than planned in reducing our U.S. nonperforming loans. As a result, we were able to reduce NPLs by 19% in the second quarter and almost halve them overall in the first half of the year. We are, therefore, very confident that we will achieve our annual reduction target of U.S. NPL portfolio to EUR 400 million sooner than originally planned. We are also well on track with regards to our SRT transaction, which was agreed last December. In the second quarter already, the first transaction repaid earlier than contractually agreed, and we expect further repayments over the course of the year. Let me now move on to the update on our second business segment, Real Estate Investment Solutions on Page 8. In the second quarter, it generated a solid operating income of EUR 14 million, an increase of EUR 3 million compared to the first quarter. This was driven by pbb invest, our Investment Management, which contributed EUR 12 million, representing a growth of EUR 4 million compared to the previous quarter. This growth was primarily driven by good transaction activities. Assets under management rose to EUR 3.1 billion. Additionally, we have outstanding capital commitments of around EUR 175 million. Our partner business Originate and Cooperate contributed additionally operating income of EUR 2 million to the segment. As a result, Real Estate Investment Solutions posted a pretax profit of EUR 2 million in the second quarter and the first half of the year. The return on tangible equity for the same period stood at around 7%, a considerable capital-efficient contribution to profit without any significant commitment of risk-weighted assets. And with that, I will now hand over to our CFO, Marcus, who will guide you through the bank's key financial figures in more detail.

Thank you very much, Kay, and good morning, and welcome also from my side. As usual, I will take over to walk you through financials, portfolio development, capital and funding. As outlined by Kay, all in all, we report a solid second quarter and first half year with a pretax profit of EUR 10 million and EUR 16 million, respectively. The first half is therefore in line with our expectation for this truly transformational year 2026. And that brings me already to our group P&L on Slide 10. In comparison to the previous year, pretax profit for the half year is significantly up from minus EUR 249 million to positive plus EUR 16 million. As you know, last year's figures have been heavily affected by the one-off risk charges in connection with the decision to exit the U.S. Since then, we have driven forward a lot in our strategic transformation, i.e., we closed the SRT and significantly reduced the U.S. portfolio. We derisked the development portfolio, closed the acquisition of Deutsche Investment, implemented our target operating model and stringently worked on increasing the REFS portfolio profitability. With this strategic transformation, our average REFS portfolio volume has come down from EUR 28.7 billion in H1 2025 to on average EUR 27 billion in H1 2026. So NII, which also had to digest EUR 22 million SRT costs in H1 is down by EUR 46 million year-over-year. On the flip side, REIS fee income is up by [ EUR 22 million ]. However, this increase is not yet compensating for the effect of the mentioned portfolio derisking. So overall, operating income is down by EUR 39 million year-over-year. At the same time, and this is important, the one-off U.S. risk charges of H1 last year were and remain entirely adequate, and the derisking has been successful with no additional net risk cost for the U.S. ever since our decision to exit the U.S. in Q2 last year. So overall risk costs have normalized in line with our guidance and profit is back and up, albeit at the projected moderate level. After the significant portfolio derisking of 2025, this year is now more about the continuous and step-by-step progress in our strategic transformation. Therefore, in the following, I will focus entirely on quarter-over-quarter rather than year-over-year development. Headline operating income is up EUR 13 million from EUR 77 million in Q1 to EUR 90 million in Q2. Even if positively adjusting Q1 for the minus EUR 10 million U.S. fair value risk charges back in the quarter, operating income would still be up by EUR 3 million from so adjusted EUR 87 million. As a brief reminder, in Q1, operating income was a bit distorted by a minus EUR 10 million fair value risk charge, which accounting-wise had to be shown in the operating income, but is economically speaking, risk costs, which, by the way, back then were more than compensated by a U.S. Stage 3 release of EUR 11 million in the risk provision line. Beyond that minus EUR 10 million Q1 adjustment, the fair value and other results normalized by a further EUR 10 million in the second quarter and was therefore overcompensating the minus EUR 6 million lower realization income in Q2 by net EUR 4 million. At the same time, net interest and fee income was slightly down by EUR 1 million, minus EUR 1 million to EUR 93 million. So these headline developments then sum up to the aforementioned increase of adjusted operating income by EUR 3 million or unadjusted operating income by EUR 13 million. So after this headline overview of the positive operating income development, let me briefly walk you through the development of NII and fee income in more detail at the bottom left of this page. Overall, NII was down by EUR 3 million to EUR 81 million. While NII in REFS remained stable on a stabilized portfolio of EUR 26.8 billion at quarter end and the stable REFS margin, our ongoing prefunding activities and a EUR 200 million lower investment portfolio burdened NII in total, minus EUR 2 million NII, which are reflected in the Corporate Center. In addition, EUR 1 million NII in O&C in the first quarter did not repeat as such in the second quarter. However, on the other hand, fee income in REIS increased by EUR 2 million to EUR 12 million. So the increase in fee income by EUR 2 million was not fully compensating for the NII reduction of minus EUR 3 million. Expenses remain strictly managed. General admin expenses as well as total costs remained stable quarter-over-quarter. Risk provision is optically up quarter-over-quarter from minus EUR 2 million to minus EUR 11 million. Additions in Stage 3 for European NPL have been partly compensated by releases in Stage 1 and 2. However, if adding the aforementioned minus EUR 10 million U.S. fair value risk charges in Q1, total risk costs actually would have been down by EUR 1 million from an adjusted minus EUR 12 million in Q1 to minus EUR 11 million in Q2. All in all, total risk costs remain in line with our expectations. I will come back to more details on actual Q2 risk provisioning in our second deep dive. But before that, I would briefly spend a few words on operating expenses on Slide 11. We continue to keep costs strictly managed with investments basically being financed through cost efficiency measures, i.e., the implementation of our target operating model, including internalization, IT and process optimization as well as digitalization. And operating expenses decreased quarter-over-quarter in our core REFS business segment, while having slightly increased in [ REIS ] in Corporate Center, mainly due to investments and IT costs. Across segments, however, G&A were stable quarter-over-quarter, where operating expenses marginally increased by EUR 1 million quarter-over-quarter due to depreciation. Total costs again were fully stable. Adjusted by the aforementioned minus EUR 10 million fair value risk charges in the first quarter, the cost/income ratio stands at 77% for the first half year. Thus, we remain on track for our guided cost income ratio of 70% to 75% by year-end. This then brings me to the envisaged deep dive on Q2 risk provisioning on Slide 12. Net releases of EUR 6 million in Stages 1 and 2 mainly reflect positive effects from portfolio development and interest rates, which were actually down quarter-over-quarter and net additions of minus EUR 17 million in Stage 3 are driven by minus EUR 18 million additions for European NPL, while the further U.S. NPL reductions that Kay explained came with a small net release of plus EUR 1 million for U.S. Stage 3 loans. On loss allowances on Slide 3, they all in all remain virtually stable as net additions -- 13 -- sorry, all in all, they remain virtually stable as net additions for the European NPL were marginally overcompensate for consumptions in relation to the reduction of U.S. NPL. This said, overall NPL increased by around EUR 100 million. European NPL increased by around net EUR 200 million, whereas U.S. NPL, as Kay mentioned, decreased by around minus EUR 100 million. As Kay said, there was no new development NPL and no further need for LLP for our development loans. In reflection of the higher coverage ratio for the reduced U.S. NPL, the overall REFS NPL coverage ratio is slightly down to around 27% from 28% at the end of the first quarter. And this then brings us to our segment reporting, where I would start as usual with the Real Estate Finance Solutions, REFS business, which is our on-balance sheet business, as you know, on Slide 15. All in all, the improved financial performance of the REFS segment predominantly reflects the stabilized portfolio and REFS margin, resulting in a stable NII of EUR 80 million. At the same time, costs are lower, so profit is up. In more detail, when again, adjusting operating income for the aforementioned minus EUR 10 million U.S. fair value risk charges in the first quarter, operating income has also stayed entirely stable at EUR 72 million quarter-over-quarter. This includes stable SRT costs of minus EUR 11 million in each quarter. Operating expenses, however, are down by minus EUR 2 million, mainly reflecting seasonal effects of ongoing cost efficiency measures and personnel costs. They are overcompensating for investments and IT costs. Q2 risk provisioning again entirely stems from REFS. Our remarks on the group level, therefore, apply one by one for the REFS segment. Also here, optically, LLP up by EUR 9 million to minus EUR 11 million. But when again adjusting Q1 for the EUR 10 million fair value risk charge, risk costs are actually marginally better by EUR 1 million from minus EUR 12 million to minus EUR 11 million quarter-over-quarter. All in all, this results in a EUR 3 million pretax profit increase in REFS to EUR 14 million, which is again explained by adjusted income, which is stable, but supported by lower costs and slightly lower total risk costs. I will now spend a few words as usual on the KPIs of our performing REFS portfolio before going to the NPL. They are showing that the overall risk profile remains solid following our derisking in 2025. CRE markets continue their slow recovery even though CRE market activity remains currently subdued in the context of rate volatility and the impact of the Middle East conflict. This said, the average LTV stabilized at 55% with valuations changes having stabilized on a very low level. The exposure at risk defined as the volume with a layered LTV above 70% for the performing portfolio further improved by almost 1/3 in the second quarter. On the one hand, this is in part the result of some shift of performing loans into NPL. But on the other hand, this also reflects a continuous improvement of the performing portfolios. Now moving on to the NPL portfolio in Europe on Slide 17. As already mentioned earlier, the European NPL portfolio increased by around net EUR 200 million in the second quarter. This was driven by 3 new additions of around plus EUR 300 million and 1 NPL repayment by around minus EUR 100 million. Let me say we are not satisfied with this development. However, it is important to note that the 3 European assets NPL additions are idiosyncratic in nature and were clearly on our radar. These specific additions do not represent a broader trend for the office portfolio. The quality of our European portfolio overall remains solid as is evidenced among other by the aforementioned clear improvement in the portfolio's KPIs. That said, looking forward, specific office properties in specific submarkets as well as our development exposure, where we expect to continue making very good progress will remain closely monitored and actively managed. Moving forward, we also remain highly focused on diversification, i.e., mitigating concentration risk with regard to ticket size, regions, property types and sponsors. With this in mind, the share of office new business was down to our target lending range of around 30% and the share of growth asset class in the new business increased to 23% in the second quarter. Overall, we expect total NPL, including the U.S. to come down to below EUR 2 billion by year-end. This then brings me to our business segment Real Estate Investment Solutions, REIS, our off-balance sheet business. REIS increasingly contributes to income following the consolidation of Deutsche Investment at the beginning of the year, and it is now also showing a EUR 2 million pretax profit for the second quarter. In some more detail, REIS operating income is mainly driven by regular asset management, property and facility management fees from pbb invest. Operating income from pbb invest increased by EUR 4 million quarter-over-quarter to EUR 12 million in the second quarter and was helped by EUR 3 million additional performance and transaction fees. The EUR 4 million increase in income from pbb invest was overcompensating the EUR 1 million lower income from O&C, so net income for the segment overall was up by EUR 3 million. O&C itself contributed EUR 2 million from regular agency and syndication fees, slightly down from EUR 3 million in the first quarter. At the same time, expenses in REIS are slightly up by EUR 1 million to EUR 12 million in the second quarter, mainly reflecting planned increased FTE. All in all, REIS PBT, therefore, increased by EUR 2 million in the second quarter. As you know, this is capital-light business and with a RoTE of 7.6% in Q2, it is already accretive to our medium-term RoTE target for the group. I will skip Slide 19 and move on to our third segment, the Corporate Center, and I'm now on Slide 20. Here, as you know, we bundle our treasury activities, including the investment portfolio, which is including the former loan portfolio. Before starting, allow me to summarize that the higher pretax profit from REFS, explained EUR 3 million and REIS explained EUR 2 million is marginally counteracted by a minus EUR 1 million lower pretax profit in the Corporate Center so that group PBT across segments is up by EUR 4 million quarter-over-quarter, as explained. With that, I would like to make 3 brief comments on the Corporate Center itself. While operating income in Corporate Center remains stable, operating and other expenses are up by EUR 1 million due to increased strategic investments, which are also reflected in the Corporate Center. In sum, this means that PBT in Corporate Center is down by EUR 1 million quarter-over-quarter. As mentioned before, within operating income, NII is slightly down by EUR 2 million quarter-over-quarter in this segment, which is driven by our ongoing prefunding activities and the EUR 200 million lower investment portfolio. However, this is balanced by a normalizing fair value result, which is up by EUR 8 million, overcompensating a reduction in realization income by EUR 6 million. Let me remind you that the Corporate Center is in general not seen as a structural defining profit contributor. I now come to capital and funding, and I'm starting with usual with capital, and I'm on Slide 22. The CET1 ratio increased by around 120 basis points to 14.6% in the second quarter. This is mainly a reflection of several countries having regained eligibility of preferential LGD treatment under the F-IRBA regime due to newly published loss data from the EBA at the beginning of July. After the loss of preferential collateralized LGD treatment for those countries has cost us around 120 basis points in the fourth quarter of 2025, the reversal for Poland, Austria and Finland essentially brought those back in the second quarter. Looking at from an RWA point of view, this resulted in an RWA reduction of minus EUR 1.2 billion from these countries, which is essentially reversing exactly what we had added in Q4 2025. Furthermore, ongoing portfolio optimization and other effects have led to further RWA reduction of EUR 400 million. In total, an RWA reduction minus EUR 1.6 billion quarter-over-quarter. Capital ratios continue to provide solid buffers over the regulatory requirements with more than 450 basis points to CET1 MDA and more than 350 basis points over own funds MDA. Our long-term through-the-cycle minimum level for the CET1 ratio remains unchanged at 13%. And this brings me to my last observations on funding and liquidity, and I'm on Slide 23. Our funding plan 2026 is almost completed with more than 85% of Pfandbrief funding needs covered and our EUR 500 million green senior preferred benchmark issued in July, covering most of our 2026 senior funding needs. While the average funding spread year-to-date for the Pfandbrief came in 14 basis points lower compared to 2025, the unsecured funding spread was 38 basis points higher. That said, unsecured wholesale funding costs are still significantly lower than in 2024 and 2023. And by the way, they only represent 1/4 of the total wholesale funding volume of EUR 2 billion year-to-date. Retail deposits remain a cost-efficient source of funding where costs have actually come down further, partially compensating for the aforementioned increase in wholesale unsecured funding costs. At the same time, we were able to further increase the duration of our deposits. The rather stable volume of around EUR 7 billion is efficiently accommodating our reduced balance sheet. As a result of our proactive funding year-to-date, our liquidity position remains robust. And as Kay already mentioned shortly at the beginning, we now complement our covered bond ratings from Moody's with Moody's unsecured ratings. With that, we now also show a Baa2 Moody's senior preferred rating in addition to the BBB- S&P rating. In summary, we expand our rating agency coverage to better align with the market expectations and our investors. And with that, Kay, I hand back over to you.

Thank you, Marcus. Ladies and gentlemen, the bank achieved a solid first half year despite the ongoing challenging market environment. Let me summarize the key points before we move on to your questions. We are making good progress with our strategic transformation, both diversification and profitability is increasing. We have been able to stabilize our real estate finance portfolio at nearly EUR 27 billion despite the reduction of the U.S. portfolio proceeding faster than originally planned. At the same time, the share of asset classes that are particularly important for our strategic growth is increasing in new business. The pair of fees within our operating income continues to grow. In our Real Estate Investment Solutions segment, we achieved a pretax profit of EUR 2 million. The pretax profit for the bank was EUR 16 million in the first half of the year and is in line with our expectations, especially taking into account the strategic transformation we are currently undergoing in an ongoing challenging market environment. Our CET1 ratio increased significantly by around 120 basis points to 14.6%. This confirms our solid capital position. Looking ahead, we remain confident that despite ongoing geopolitical and macroeconomic uncertainty, we will close the 2026 financial year in line with our expectations. Ladies and gentlemen, thank you very much for your attention, and Marcus and I are now looking forward to your questions.

[Operator Instructions] And we will start with Jochen Schmitt from Metzler.

I have 2 questions, please. Firstly, it concerns the European NPL book, specifically the 3 office loans added in Q2. Could you provide some more details about the underlying properties? I respect that you do probably not want to give details on individual exposures, but any comment about the properties would be helpful, for example, in terms of vacancy, location, i.e., prime or non-prime, potential modernization needs and whether these are multi-tenant or single-tenant objects? And second question, Mr. Schulte, you mentioned an expectation of less than EUR 2 billion for the total NPL book for year-end '26. Within that figure, what's the expectation for the European NPL book?

Thank you very much, Mr. Schmitt, for your question. I think with regard to your first question, although understanding the level of granularity and detail that you are looking for, we have provided over the last quarters, a lot of transparency of how transactions, asset classes are moving, we would abstain from going deeper into the respective details of the transactions because then you gain closer to maybe understand more on the specific asset and can track that specific asset further down. We would abstain from that. But let me add and say, and I think repeating to a degree what Marcus was saying, those are transactions that we have on the radar for quite a while and working on those transactions together with the borrower and also the financing partners, if there are partners in those transactions. You have seen our exposure at risk coming down quite substantially. It's also driven on the performing book that is driven by those exposure unfortunately materializing as defaults but we have them on the radar screen and know the developments and monitoring those developments very closely. With regards to the NPL trajectory, that relates back to the entire NPL development. Marcus said, we are not satisfied with the development in the second quarter. And as this is on a case-by-case basis, you sometimes think you are very close in resolving and then sometimes you have to start back from scratch because it does not materialize. However, what we are clearly seeing looking into Q3 and Q4 and already have materialized partially in the third quarter is that we see a clear reduction of the NPL coming through. And therefore, we are very confident that we are getting that down below the EUR 2 billion by the end of this year. That will be fueled by U.S. NPL reduction that we continue to focus on, but also by a reduction in our European book. That is the clear expectation that we currently see based on transaction by transaction close monitoring of the respective deals.

And we have the next question from Tobias Lukesch from Kepler Cheuvreux.

Also 3 questions from my side, please. First, touching on the core Tier 1 ratio has been a bit of a roller coaster ride recently. Is there -- is the current RWA base and the resulting 14.6% core Tier 1 ratio now a kind of new normal? Or might there be additional adjustments to follow? Secondly, on the net operating income, maybe you can help a bit like to shed some more light on that number, how that compares to earlier quarters? What drove the strong number this quarter? And how we should think about that going forward? And also the net fair value development, maybe you could remind us a bit about the developments here and how this is developing over the quarters to come.

So I will address, I think, both of these questions. So on the CET1 question, you're right that we had some volatility and you know the reasons, right? At the end of the day, we were spending a great amount of time explaining the development that we had in Q4 2025 and then in Q1 '26, which are largely driven by the fact that for using collateralized LGDs under the F-IRBA, you have to be below a certain loss threshold. And in the first place, the overall is eligible for the computation under the EBA's remit. And on the former point, as you know, we had these 3 specific countries: Poland, Austria and Finland which were, in the case of Poland, very narrowly falling above that threshold, which meant that digitally, we entirely had to compute the LGD for these countries on an uncollateralized basis. And that, of course, produced that swing that we saw in Q4 last year by plus EUR 1.2 billion. And you're absolutely right. We are now seeing that a year later, essentially, if you look at the under schedule that the EBA is publicizing, we see that for Poland by a very small margin and for the others by a bigger margin, we are now falling in below that market loss threshold. And therefore, we can consider a collateralized LGD again, and therefore, the RWA go down. If you look at Page 39 of the presentation, you will again see what that now means for our European portfolio. You will be able to see that for the vast majority of the countries, we are now well above the loss threshold of 50 basis points. And only for Poland, we are very close to it. So essentially, we are very closely monitoring Poland, and we will, of course, continue to manage RWA very carefully because it is possible that in a year's time, especially Poland could fall on the other way. So we will have to drive that a little bit with care given the way F-IRBA regime works. Yes. So that's basically, I think, addressing your question.

May I add Mr. Lukesch. Marcus, may I add, I think we elaborated long on year-end and how the computation works. And I remember there was a question at that time how this publication is working. I think it's fair to add that with the EBA publication, which is new, which did not exist a year ago, the countries are now addressed all at the same time. So from that perspective, there is a change and from our perspective, also some more certainty and clarity for the next 12 months as this publication has now been done. I think that is also a change as the regime last year got into force. And now we have with the support of EBA for all F-IRBA banks clarity around that for the next 12 months on that. I wanted to add that because you asked for the question of stability going forward out of that corner, we certainly are currently in a better position than we have been 12 months ago.

Thank you, Kay. Good addition. So on Page 10, if you want to flip back to that Mr. Lukesch and colleagues to your question on the underlying developments in operating income, I think it was your question and what it means from here. I think we've been trying to explain that, of course, the reduction of the REFS book from last year onwards, the risk management actions that we've been taking has come to a stabilization in the second quarter. So I think what is important to note again is that the REFS portfolio and also the margin in REFS has been stable, and that means that in REFS, the NII has been stable at EUR 80 million. And frankly speaking, the changes that you saw in NII were largely explained in the Corporate Center and by the lack of NII in O&C this time around, which is only EUR 1 million. In the Corporate Center, as I mentioned, this is mainly a result of the fact that we have essentially done our funding already at the midyear data point in an uncertain environment. We think that is prudent. So we have derisked the funding agenda. But of course, we have now more funding on balance sheet. And the excess funding, which is not drawn by the REFS business is essentially mirroring additional interest expenses in the Corporate Center, which means they lose EUR 1 million. And then also, as you know, the noncore portfolio comes down. Now looking forward, I think, as I mentioned, we have done EUR 500 million senior only in July. So that continues to be an effect in Q3 that is prefunding again. But of course, now as the business draws on the prefunding that we've been doing, this effect that I described in the Corporate Center should gradually subside and therefore, NII for the group should gradually stabilize. If the business is growing as expected, around EUR 7.5 billion to EUR 8.5 billion and the stock of business is above EUR 27 billion. And then I think in the fair value results, I explained that we have some specific developments with accounting rules in Q1, which essentially I would personally always look through and say they are actually risk costs. But even beyond that, as I mentioned, we've seen a further normalization of the fair value result by another EUR 10 million, and that is mainly also in the Corporate Center. And it is simply down to the fact that in Q1, you remember, we saw a very sharp increase in short-term interest rates, which is affecting a little bit the fair value result in the Corporate Center, which is part of that normalization. The realization income, I think was affected also by the fact that we did some portfolio management in Q2. I mean, we continue to manage our RWA actively. We manage RWA intense business. And optically, that meant we had a slight realization loss for that management, which, however, was compensated by reduced risk costs on the other side. So again, something I would rather look -- like to look through. So going forward, I think we would also expect kind of a 0 to positive realization income. So normalized fair value, slightly positive realization income and on the conditions that I mentioned, stabilizing NII and fee income.