Amid echoes of the 2008 financial crisis, German banks find themselves entangled in the throes of another American investment debacle, facing substantial losses once again. The collapse of the US commercial real estate market is now dragging specific German banks into its downward spiral.

According to Bloomberg, the plunge in the US commercial real estate sector has reverberated across the Atlantic, wreaking havoc on real estate-focused German lenders. Morgan Stanley's warning to divest from senior bonds tied to Deutsche Pfandbriefbank AG, citing its significant exposure to the US CRE market, has intensified the turmoil.

This week witnessed a severe blow to Deutsche Pfandbriefbank, as its €150 million ($161 million) tier 2 bond plummeted to 52 cents on the euro—a staggering 17.4 cents decline in a single day, marking its most significant drop to date. Similarly, its senior bonds followed suit, exacerbating the bank's woes. Additionally, its more junior €300 million additional tier 1 note suffered a sharp 9.5 cents decline, surpassing the losses incurred during Credit Suisse's AT1 wipeout last year. Both securities continued to deteriorate on Wednesday.

Although the turmoil underscores challenges in profitability, rather than solvency, given the bank's robust capital buffers, it underscores the vulnerability of German banks amidst their substantial exposure to commercial real estate. Deutsche Pfandbriefbank and Aareal Bank stand out as German issuers grappling with some of the highest commercial real estate exposures relative to their total lending portfolios.