HSH Nordbank is hoping for clarification this autumn over its year-long request to transfer the bulk, or all, of its remaining €15bn of non-performing loans (NPLs) into a State-owned bad bank.
Germany’s federal states of Hamburg and Schleswig Holstein, which together own 85.4% of HSH Nordbank after a State bailout in 2009, have been deliberating the politics and economics of a ‘bad bank’ transfer – as adopted by banks such as WestLB and Hypo Real Estate – and what the correct transfer volume should be.
HSH Nordbank’s restructuring unit (RU) – comprising the majority of the bank’s NPLs as well as performing loans of discontinued business lines – had €31bn of outstanding loans at the end of June, as reported in the bank’s half year results today. This reflects a €70bn, or 65% fall on 2008 year end’s €101bn.
Real estate exposures in RU has fallen by almost €10bn – from €16bn in 2009 to €6.2bn at Q2 2015, according to company presentation slides. In addition, there is also a very small number of real estate NPLs in HSH’s core bank.
“The talks ensuing from the ongoing state aid proceedings – primarily between the majority shareholders in HSH Nordbank, i.e. Hamburg and Schleswig Holstein, as well as the EU Commission – continue unabated,” a statement by HSH said today alongside the bank’s half-year results.
The statement added: “This dialogue is in-depth and constructive. The target is to reach a general agreement with the shareholding federal states by the autumn of 2015.”
For HSH Nordbank, the transfer of its legacy NPLs would have immediate positive impacts: an instant upgrading of its ratings which, in turn, would reduce its funding costs and allow the remaining good bank to lend more competitively and profitability.
Intriguingly, if Germany and Brussels agree to transfer the bulk or all of HSH’s legacy loans into a bad bank, in a special purpose vehicle controlled by the State, it raises the prospect of what the wind-down strategy would be: long-term wind down, bulk loan and or asset sales, or a large scale portfolio trade.
West LB’s bad bank, Erste Abwicklungsanstalt (EAA), eventually managed to sell WestImmo to Aareal Bank for €350m in June this year after an aborted private equity sale to Apollo Global Management fell through four years earlier.
Commerzbank’s has also had success in selling its UK and Spanish Eurohypo lending platform’s and Dutch bad bank Propertize’s government owners is also deliberating a platform sale.
HSH reported a pre-tax profit of €222m this morning but admitted its “legacy shipping loan portfolio continues to weigh heavily on the bank”.
In total, HSH Nordbank has repaid €2.5bn to its guarantors, Hamburg and Schleswig-Holstein, since 2009.
Constantin von Oesterreich, Chairman of the Management Board of HSH Nordbank said in today’s statement: “To this day, HSH Nordbank’s suffers from the serious omissions and poor decisions of the past.
“We will also continue to resolutely address the mistakes of the past and simultaneously take the right, though sometimes also unpopular, strategic decisions for the future. With a view to the ongoing state aid proceedings in Brussels we believe that our shareholders will soon reach a decision with the EU Commission.”
HSH Nordbank declined to comment beyond the press statement.