HSH Nordbank Profit Triples as Provisions on Ship Loans Reduced

HSH Nordbank AG nearly tripled its profit in the first quarter as the world’s largest shipping lender cut loan-loss provisions by 81 percent and new credit deals almost doubled driven by the real estate business.

The state-owned bank, a focus of the European Central Bank’s asset quality review along with other vessel financiers, recorded a profit of 213 million euros ($291 million) compared with 74 million euros a year earlier, it said in a statement today. It reiterated its full-year forecast of a profit before and after tax after suffering the worst loss since the start of the global financial crisis last year.

“The bank regards itself as well-prepared for the business and regulatory challenges ahead,” HSH said, referring to the “persisting shipping crisis,” the ECB review and the European Union state-aid proceedings. Its owners, the states of Hamburg and Schleswig-Holstein, last year raised a guarantee to 10 billion euros from 7 billion euros to cover potential losses. The EU only approved the package on a preliminary basis.

European shipping lenders, which also include Commerzbank AG and Norddeutsche Landesbank Girozentrale, are under increased scrutiny by the ECB as it examines the continent’s largest banks before it takes over as regulator. Shipping loans have soured with a glut in the container vessel market lowering transport prices.

HSH posted a loss of 814 million euros last year, its biggest since 2008, as it set aside more funds to cover risky loans. This year HSH Nordbank will see less risk provisions “than the monstrous wave seen in 2013” Chief Financial Officer Stefan Ermisch said on April 10.

State Guarantee

The bank cut its shipping loan book by about 1 billion euros to 20 billion euros in the first three months. Non-performing shipping loans remained nearly unchanged at nearly 9 billion euros. The bank still doesn’t expect a recovery in the industry before the end of next year.

HSH is under pressure to convince the EU that it has viable business model in order to get the final nod for the state guarantee. The bank doesn’t expect this to happen before the start of 2015 after the ECB completes its review. The lender expects to draw as much as 1.6 billion euros from the state guarantee from 2019 to 2025.

New credit business rose by 91 percent to 2.1 billion euros spurred by real estate deals that accounted for 1.2 billion euros, HSH said. “The interest margins achieved remained at an adequate level despite the fiercer competition on the German banking market.”

Pretax profit grew fivefold to 354 million euros in the quarter, while income fell 43 percent to 238 million euros, the lender said.

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