China Not Europe May Salvage HSH as German Bank Looks East

Updated on
  • Chairman says bank’s Mittelstand ties have appeal in China
  • Macquarie and BofA buy aviation, real estate loans from HSH

As Thomas Mirow considers potential acquirers for HSH Nordbank AG, the German state-owned lender put up for sale this week, he says a Chinese suitor is more likely than a buyer from a nearby country.

Despite a push by European lawmakers to bolster cross-border ties, banks are “shrinking their balance sheets rather than expanding them” because of tougher regulations and reduced profitability, said Mirow, the supervisory board chief at HSH.

The Hamburg-based bank, with 88 billion euros ($94 billion) in assets, could be attractive to a Chinese buyer seeking access to Germany’s so-called Mittelstand, the medium-sized businesses that are the backbone of the country’s economy, he said in an interview in Frankfurt. 

HSH’s close connections to such companies might make it “an interesting asset from the Chinese point of view,” said Mirow, 64.

A lack of cross-border interest within Europe means HSH’s majority owners, the states of Hamburg and Schleswig-Holstein, may have to pin their hopes on a sale to a strategic investor from Asia or Germany by the end of February next year, under a European Union-imposed deadline. Wider interest could bolster bidding prices and also increase its chances of survival.

In Retreat

Mirow’s view runs counter to the aims of EU lawmakers and supervisors to shore up the pan-European financial system via what they call a banking union across the bloc. The region’s biggest banks, slow to boost capital levels after the financial crisis, are retreating to national markets and scaling back risk as they work to satisfy regulators trying to make lenders more resilient to shocks.

The sale was ordered by the EU as part of a restructuring to keep the bank in business. HSH has transferred 5 billion euros of bad debt into a separate bad bank controlled by the states and started selling an extra 3.2 billion euros in legacy loans, including shipping and real estate credits, as it seeks to sell the rest of the bank.

In an initial deal, Australia’s Macquarie Bank and Bank of America Merill Lynch bought 800 million euros in aviation loans and 540 million euros in real estate credits, respectively, HSH said in a statement on Friday. A further 300 million euros in credits went to individual unidentified investors in the sale managed by UBS Group AG. The sale of half the loans cuts HSH’s non-performing exposure by 1.3 percentage points versus the 17 percent reported at the end of September. Talks to divest further packages are at an advanced stage, HSH said.

HSH buckled under excessive risk-taking prior to the financial crisis, when it had sought to expand beyond its roots as a regional lender to companies and savings banks into global capital markets.

While European investments by Chinese firms are drawing closer regulatory scrutiny as countries assess possible national security concerns, HSH’s location in Germany’s biggest port, with strong trading links to Asia, makes the bank more open to such scenarios, Mirow said.

Mirow, who succeeded ex-Deutsche Bank AG chief Hilmar Kopper at HSH in 2013, also sees potential interest from German lenders in a takeover “simply because it would make sense,” he said, without elaborating further.

Strategic Interest

Mirow echoed comments by HSH Chief Executive Officer Stefan Ermisch in December that bidders with a strategic interest in the bank’s corporate funding business may team up with distressed-loan investors. Those companies have said they see an opportunity to profit from HSH’s faulty loans, which include about 8 billion euros in the shipping segment.

“The owners would clearly prefer a single strategic buyer for the whole bank, but you must face reality,” Mirow said. While interested parties can submit indicative bids as early as March, final offers in the sale, managed by Citigroup Inc., are expected by the late summer. Should the process fail, the EU has ordered that the bank be wound down.

— With assistance by Jan-Patrick Barnert, Angela Cullen, and David Rocks

(Updates with HSH statement on loan sale beginning in seventh paragraph.)
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