HSH Nordbank Reports Worst Loss Since 2008 on Shipping

HSH Nordbank AG, the world’s largest financier of ships, recorded the worst full-year result since 2008 as the shipping crisis and additional tax payments prompted the bank to boost provisions.

The lender, which was bailed out by its state owners Hamburg and Schleswig-Holstein in 2009, saw its loss widen to 814 million euros ($1.1 billion) from 124 million euros in 2012, it said in a statement. In 2008, the year of the collapse of Lehman Brothers Holding Inc., HSH Nordbank posted a loss of 3 billion euros.

“It is a massive result following some massive restructuring last year,” Chief Financial Officer Stefan Ermisch said at the annual press conference at the bank’s headquarter in Hamburg.

HSH Nordbank, like shipping lenders including Commerzbank AG and Norddeutsche Landesbank Girozentrale, is suffering from rising credit default risks. The container industry, which accounts for the biggest share of ship loans among German lenders, has suffered from overcapacity since the global financial crisis triggered a trade slump and the worst decline in ship charter prices in decades.

HSH Nordbank cut its shipping loans to 21 billion euros from 23 billion euros in the fourth quarter, while increasing risk provisions in that segment to 3.3 billion euros from 2.7 billion euros, it said. Non-performing shipping loans rose to 9 billion euros from 8 billion euros in the fourth quarter.

Shipping Orders

The bank still has about 2,500 vessels as collateral for loans, Chief Executive Officer Constantin von Oesterreich said at the same briefing. HSH doesn’t see a recovery before 2015, as an oversupply of ships persists, he added.

Companies have begun to buy new vessels again, taking advantage of a drop in prices. Container shippers ordered 234 vessels with a total capacity of 1.8 million standard containers last year, which corresponds to about 22 percent of the global fleet, according to estimates in January by Hamburg-based vessel owner Hansa Treuhand.

At HSH, new credit rose 12 percent to 7.6 billion euros, with loans to small and mid-sized companies and the real estate industry accounting for 76 percent, and shipping for 12 percent, Oesterreich said. In 2008, shipping and transport accounted for 43 percent of new financing deals, he added.

The bank set aside 127 million euros in provisions after it discovered that HSH traders from 2008 through 2011 executed questionable dividend arbitrage, or dividend stripping, with a “handful of foreign brokers,” the company announced in December. The trades generated tax credits on capital gains for deals that state-owned bank didn’t pay tax on, the bank said.

ECB Review

HSH Nordbank is among the more than 120 euro-area lenders facing an assessment by the European Central Bank as it prepares to take over as banking supervisor.

To cover potential losses at HSH Nordbank, Hamburg and Schleswig-Holstein raised a guarantee to 10 billion euros from 7 billion euros, which was approved by the European Union on a preliminary basis. HSH Nordbank doesn’t see a final EU decision before the completion of the ECB review toward the end of the year, Oesterreich said.

The lender expects to draw as much as 1.6 billion euros from the state guarantee from 2019 to 2025, compared with the 1.3 billion euros previously envisaged, Oesterreich said. The fees paid for using the facility will substantially exceed the planned draw-down, HSH said. In 2013, guarantee fees amounted to 900 million euros, including 400 million euros in cash, the lender said. This year it expects at least 500 million euros in costs for the guarantee.

‘Monstrous Wave’

“This year we will see less risk provisions than the monstrous wave seen in 2013 and lower costs connected to the state guarantee,” Ermisch said. That will help the bank to return to a “solid profit” following expected earnings of about 200 million euros in the first quarter, Oesterreich said.

The bank this year plans to boost its new financing business, particularly to small- and mid-sized companies and real estate projects, by nearly a quarter to about 9.4 billion euros, Oesterreich said.

HSH has a core tier one capital ratio of 11.7 percent at the end of the year, down from 12.1 percent three months earlier. The ratio rises to 16.9 percent when the state guarantee is included.

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