A small German mortgage lender has become one of Europe’s most bet-against stocks as it battles a surge in souring loans tied to US commercial property.

Deutsche Pfandbriefbank, which has a market value of €511mn, this month warned it was facing the biggest crisis in the real estate sector since 2008. Its assurance that capital ratios remain “well above” regulatory requirements failed to prevent a sharp sell-off in its shares, which are down 39 per cent this year, or its usually staid covered bonds.

PBB’s difficulties over recent months have drawn the attention of big-name hedge funds, who have upped their bets against the stock this year. Short interest hit a record high of 17 per cent last week and is now just below those levels, according to data from S&P Global Market Intelligence. That compares with 1 per cent early last year.