Commerzbank /quotes/zigman/15806913/delayed CRZBY -0.67% AG on Thursday warned that its losses on shipping loans could be as high as €600 million ($641 million) this year after nearly doubling last year to €559 million. Last week, Deutsche Bank /quotes/zigman/207002/composite DB -2.68% AG, Germany’s largest bank, said its expected losses from shipping loans nearly tripled, to €346 million, from a year earlier.
In Germany’s port of Hamburg—one of Europe’s richest cities—state-owned HSH Nordbank is racing to find a buyer or face liquidation after suffering massive losses on shipping-related debt.
Analysts say the continued wave of write-downs indicates German banks remain hesitant to take the painful measures needed to restructure their businesses, almost a decade after the global economic crisis.
Before the crisis, German lenders became the world’s biggest issuers of shipping loans. As of last year they owned roughly $90 billion worth, or almost one-fourth of all outstanding shipping loans made by large banks, according to Petrofin Global Bank Research. German banks and investors own more of the world’s containership capacity than any other country—roughly 29%, according to the German Shipowners’ Association.
Plunging world shipping rates and the bankruptcy of South Korea’s Hanjin Shipping last year helped create a bloodbath for the sector, which had previously seemed a safe bet for export-oriented Germany. Banks world-wide now are racing to dump bad shipping loans while shippers scramble to unload worthless ships.
“The market is deteriorating and everybody is trying to exit,” said Basil Karatzas, founder of Karatzas Marine Advisors & Co. in New York.
Shipping losses are especially hard on German banks, which are trying to recover from the euro crisis, record-low interest rates and, at Deutsche Bank, scandals. Rather than aggressively write down shipping loans early, German banks let them linger and eat into profits. The eurozone’s banking watchdog has said it is increasing on-site inspections at several German banks to resolve shipping-loan problems. Banks are lobbying global regulators to relax rules on how much capital must be held against these loans.
No bank epitomizes the problem more clearly than HSH Nordbank, whose lending spree left it owning a commercial fleet larger than the British, French and German military navies combined. European Union authorities have ordered the bank to be privatized by early next year or shut. Taxpayers in northern Germany face losses of up to €15 billion, or over €3,000 a person.
“It’s a catastrophe,” said Rainer Kerstin, the head of the taxpayer’s association in the German state of Schleswig-Holstein, which with Hamburg owns HSH.
During the boom years, HSH bankers would mingle with local politicians and shipping magnates in a vast beer hall under Hamburg city hall. Several of those same politicians and businessmen sat on HSH’s supervisory board and encouraged it to become the world’s biggest shipping lender.
After the shipping collapse, HSH’s owners rescued it by pumping in billions of taxpayer euros and pledging to reimburse HSH for €10 billion of losses on dud loans. EU authorities deemed that illegal state aid. HSH’s government owners were ordered to sell their 85% stake by next February.
The bank is racing to make itself attractive. It created a “bad bank” that last year took ownership of 253 container ships. HSH’s management has conducted roadshows in London marketed to potential Asian investors.
Indicative bids for the bank are expected later in February. Any deal requires EU approval, adding another hurdle.
In Hamburg, the fallout is spreading. Hamburg businessman Bernd Kortüm sat on HSH’s advisory board from 2004 to June 2015, a period in which the bank extended billions of euros in credit to his shipping firm. Late last year, his company received some €500 million in debt relief from HSH. Around that time Mr. Kortüm purchased a 130-foot racing yacht.
Local politicians were outraged. “I’m totally disgusted by it,” said Wolfgang Kubicki , member of Schleswig-Holstein’s state parliament for the pro-business FDP party. “We have to build schools, fund police, fix streets, but this millionaire gets debts written off. I cannot see any justification for it.”
Mr. Kortüm said that if the shipping market improves, HSH will get all its money back. He declined to say more, referring to other interviews in which he said the timing of his yacht purchase was “unfortunate.”
HSH Chief Executive Officer Stefan Ermisch recently told staff in a memo that “heated” discussions of the “sad” past events could damage the cleanup and privatization.
The short privatization time scale means the bank will probably need to sell bad loans at sharply discounted values, exhausting its €10 billion in state guarantees, Mr. Ermisch told staff. Some costs are proving hard to cut: HSH by law must maintain headquarters in both the federal states that own it.
Source: Wall Street Journal
