Anche i tedeschi hanno le loro Banca delle Marche
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July 29, 2015 5:05 pm
HSH Nordbank’s fate set to be decided by EU and Germany
James Shotter
©Bloomberg HSH Nordbank is one of the world’s biggest providers of shipping finance
Crunch time is approaching for HSH Nordbank. In the coming months, authorities in Brussels and in Germany will decide how to deal with the Hamburg-based lender, which is still grappling with the fallout of the financial crisis.
What to do with the bank has been complicated by the political involvement in regional banks.
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As one of the world’s biggest providers of shipping finance,
HSH found itself in trouble in 2008 after the financial crisis sparked a collapse in global trade, which in turn caused billions of euros worth of maritime loans it had extended to go bad.
After six years of restructuring, the bank’s non-core unit houses €36.2bn of assets, €9.7bn of which are shipping loans. A further group of shipping loans that the bank kept in its core business have also gone bad. In all, the bank has about €15.9bn in non-performing loans.
The bank’s problems do not stop there. In 2009, it was rescued by Hamburg and Schleswig Holstein, the two north German states that between them now own 85 per cent of it. Yet the cure has proven only marginally less painful than the disease.
In exchange for a €10bn guarantee — which the bank has not yet drawn upon, but will have to use between 2019 and 2025 — HSH has to pay a fee each year. Since 2009, this arrangement has cost HSH €3.2bn, of which €2.4bn has been paid in cash — a steady outflow that is throttling its attempts to return to normality.
“They could continue like this for years, but it wouldn’t make them a viable bank,” says Roger Schneider, from Fitch, the rating agency. “They can’t build up capital because of the fees they have to pay. Something has to change, that’s pretty clear.”
This recognition is gaining traction, and the European Commission and HSH’s owners have recently been looking for a better solution.
At the centre of the talks is a quid pro quo under which some of the bank’s toxic assets are transferred to a special purpose vehicle, which is most likely to be owned by Hamburg and Schleswig Holstein. In exchange, the €10bn guarantee — and the fees HSH must pay for it — would be reduced.
The commission and the European Central Bank — which is not party to the negotiations, but is taking an interest in its new role as European banking supervisor — would like as many toxic assets to be transferred as possible, according to people familiar with the situation.
The Commission, Hamburg and Schleswig Holstein confirmed that they were in talks to find a solution, but declined to comment further. HSH and the ECB also declined to comment.
A complete transfer would allow the guarantee to be removed, which would give the bank the ability to fund itself competitively and without which its prospects are bleak.
The problem is that this is politically difficult. The transfer of assets to the special purpose vehicle will have to be done at market prices. Even if the illiquidity of the market for some assets allows some room for interpretation, the losses that HSH is likely to realise will trigger Hamburg’s and Schleswig Holstein’s guarantee, potentially costing the owners billions of euros.
As a result, a compromise involving a transfer of some but not all toxic assets — running into the double-digit billions of euros — is being considered. In exchange, the guarantee would be reduced, but not removed, according to people close to the situation.
Other scenarios, including winding down the bank altogether, have also been discussed. However, a complete wind-down of the bank is the least likely scenario, one person says, because it would remove any chance of recovering much value from the troubled assets.
“The key questions are how do they find a solution that doesn’t impose too much of an additional burden on the owners, and how do they avoid another state aid discussion,” says Mr Schneider of Fitch.
Earlier this year, there had been hopes that a deal could be reached before the summer. But it is now likely that the final decision on HSH’s future will have to wait until the autumn.
“At the moment I have low confidence of a final deal before the break. But there needs to be one sooner rather than later,” says one person involved. “It’s a game of political strength. Ultimately, it’s a question of what Berlin can achieve in Brussels.”
