HSH Co-Owner Says Bad Bank May Resell Faulty Shipping Loans

  • $6.7-billion bad bank to market bad loans: Schleswig-Holstein
  • HSH owners to select manager of bad bank in public tender

HSH Nordbank AG’s state-owners may resell portions of soured shipping loans after the 6.2 billion euros ($6.7 billion) of debt is transferred to a bad bank under their control as ordered by the European Union last month.

The northern German states of Schleswig-Holstein and Hamburg, which jointly hold 85 percent of the Hamburg lender, may offer the loans to hedge funds and private equity investors if they deem market prices to be appropriate, Philipp Nimmermann, deputy finance minister of the state of Schleswig-Holstein, said in an interview.

“The faster we reduce the assets the better,” said Nimmermann, who previously worked as chief economist of BHF Bank AG in Frankfurt, by phone. “There will definitely be demand for the loans but we will have to see whether prices fulfill our expectations.” A Hamburg finance ministry spokesman declined to comment on details of the future bad bank’s strategy.

The 6.2 billion-euro bad bank, which the states plan to create by the end of the year pending parliamentary approval, is part of an Oct. 19 informal agreement with the EU to more than halve HSH’s distressed loans, which made up a quarter of its total credit book at the end of June, according to the company. The EU also ordered HSH to sell an additional 2 billion euros in faulty loans directly on the market under the terms of the agreement that’s set to become legally binding in early 2016.

Faulty Loans

It will be a “huge challenge” to determine a price for the total 8.2 billion-euro loan package, Nimmermann said. “That’s why only 2 billion euros are going directly on the market,” while the remaining loans will initially be transferred to the states before being offered to investors, he said.

Hamburg and Schleswig-Holstein will select a company to manage the bad bank in a public tender, said Nimmermann, who also sits on HSH’s supervisory board. “We are already getting many, many requests from financial service providers that want to help us with that,” he said. “Eventually, we will pick a company that knows how to manage non-performing shipping loans. This may also be HSH itself.”

HSH, which is struggling under the legacy of the bank’s excessive risk-taking in the pre-financial-crisis period, expects to map out the sales process by the end of February, Torsten Temp, who’s responsible for shipping on the bank’s management board, said in a Nov. 3 interview. Losses resulting from the asset transfer will be covered by the 10 billion-euro state guarantee that was also part of the EU agreement. Schleswig-Holstein’s Nimmermann declined to estimate how much of the guarantee will be absorbed through that transfer.