DNB and Nordea are better positioned to lend money because smaller shipping banks are more vulnerable to slumping freight rates and overcapacity. The two Nordic banks also need to raise less capital because of new banking rules than larger rivals do.
“All of them apart from DNB and Nordea will probably scale back their shipping businesses, because the first thing a bank does to improve its capital ratio is to exit loan agreements to cut their balance sheets,” said Matti Ahokas, an analyst at Svenska Handelsbanken AB in Helsinki, in a phone interview.
UniCredit SpA, whose German unit is one of the country’s biggest shipping lenders, and Commerzbank AG, which owns Deutsche Schiffsbank AG, each need to raise more than 5 billion euros ($6.5 billion) to meet tighter rules imposed by the European Banking Authority.
DNB needs to boost its cash buffer by 1.5 billion euros while Nordea, the Nordic region’s largest bank, doesn’t have to raise any new cash, according to stress-test results released Dec. 9.
Nordea, based in Stockholm, has lost 28 percent in trading this year and Oslo-based DNB has declined 30 percent. Milan- based UniCredit, which needs to raise 8 billion euros by mid- 2012, has dropped a steeper 52 percent. Commerzbank in Frankfurt has slumped 70 percent on concern its 5.3 billion-euro capital shortage will push it toward a second bailout.
“We are benefiting as we’re the No. 1 shipping bank in the world,” Nordea Chief Executive Officer Christian Clausen said in an interview on Dec. 9. “While the amount we have on our balance sheet is not going to increase, we are gaining position.”
Europe’s debt crunch is threatening growth in the container industry while the introduction of new ships means shipping lines may face half a decade of oversupply. That has sent freight rates plunging 70 percent since a 2010 peak, in turn putting pressure on the profitability of shipping companies.
In Germany, home to the world’s third-largest container fleet, small and mid-sized shipping companies along the North Sea coast face potential insolvency as banks demand more collateral for critical loans and they struggle to pay principal and interest on credit, Max Johns, spokesman for Germany’s VDR shipping association, said in an interview.
So far, Germany’s Beluga shipping line has filed for bankruptcy while Sietas KG, Germany’s oldest shipyard, has filed for insolvency because it can’t pay debt and salaries.
“This is the worst crisis since World War II,” Johns said. “A lot of the charter owners cannot pay interest rates to the banks because of unusually low charter rates.”
DNB focuses on the largest shipping companies, which shields it more from market fluctuations, according to Leif Teksum, group executive vice president and head of the Large Corporates and International unit, Harald Serck-Hanssen, head of shipping, offshore and logistics, and Trygve Young, chief risk officer. They spoke on a Dec. 16 conference call.
“It is remarkable to see how small the losses have been,” Young said. DNB, which has financed the shipping industry for about 150 years, may have some “challenging cases” in the next two years, Serck-Hanssen said.
Of 250 DNB clients, 50 were in breach of loan agreements over the last three years, Serck-Hanssen said. Of those 50, 15 were restructured and in three cases DNB had to take over assets. Loan losses are likely to rise from third-quarter levels because of the shipping crisis, he added.
“As one of the leading global lenders to shipping, DNB will invariably be affected by the cyclicality in the sector, although its long-standing relationship with most of its customers and experience in the sector is likely to mitigate this,” Fitch Ratings said on Dec. 16 when it affirmed DNB’s long-term issuer default rating at A+.
“DNB in Norway has its main exposure and revenue stream from a strong domestic economy that is doing far better than economies in other European countries,” Bengt Kirkoen, an analyst at First Securities ASA in Oslo, said in a phone interview.
Nordea, which navigated the 2008 financial crisis without a state bailout, hasn’t reported a quarterly loss since the fourth quarter of 1998. Its focus on retail banking in Sweden, Finland, Norway and Denmark made it less vulnerable to loan losses than most European peers, Ahokas said.
Low Funding Costs
“DNB and Nordea have some of the lowest funding costs in Europe, and their wholesale funding costs are a great competitive advantage,” he said. “A lot of banks would probably want to be more active in shipping finance, because of the high margins, but they cannot because of the funding situation.”
Price competition in the industry means that many companies with smaller fleets of 15 vessels or less can’t compete with their larger rivals and are operating at a loss.
“We’re not happy with the market at the moment, as it has turned negative since the summer,” said Oliver Faak, managing director for Norddeutsche Landesbank Girozentrale’s German shipping unit. The lending environment has also “become much tougher and much more demanding” as banks have to demand tougher terms for loans, he said.
Still, the Hanover, Germany-based bank, known as NordLB, expects its shipping portfolio to “moderately” grow in size in 2012. NordLB is about to hire another 15 people for its ship- finance business in coming months in part to help clients who are in financial trouble restructure their businesses, he said.
Other banks also aim to gain from the turbulence in the industry. Hamburg-based HSH Nordbank AG is likely to benefit from lenders retreating from ship financing, Financial Times Deutschland reported Nov. 21, citing management board member Torsten Temp. The lender, one of the world’s biggest shipping financers, on Dec. 16 said it hired Ingmar Loges from UniCredit as the new head of its new Shipping Clients International unit.
UniCredit’s German shipping unit, which in January forecast its shipping portfolio would grow as much as 10 percent this year, expects it will be reduced in 2012, said Holger Janssen, head of global shipping at UniCredit Bank AG in Hamburg.
“Shipping companies are favoring their own tonnage, which is why tonnage providers and hence the time charter rates may become the victims of overcapacity,” he said. “It is not surprising that in the current shipping market climate bank lending will continue to tighten.”
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