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Another Bank Bailout

NordLB non-exec chair Peter-Juergen Schneider also supersvisory board member at Bremer Landesbank source Julian Stratenschulte dpa 61630375
Peter-Jürgen Schneider is willing to help Bremer Landesbank.
  • Why it matters

    Why it matters

    Some German state-owned banks are still feeling the aftermath of the financial crisis and economic downturn in 2008. It may prompt them to raise capital.

  • Facts

    Facts

    • The ongoing slump in the shipping industry, along with excess capacity, has created a difficult environment for banks with large ship loan portfolios.
    • Partially state-owned banks such as Bremer Landesbank, NordLB and HSH Nordbank have been hit by writedowns on loans provided to the shipping companies.
    • The city-state of Bremen, which owns a 41 percent stake in BLB, is financially ailing and in position to inject cash into the bank.
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    Audio

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NordLB is looking to bring its long-struggling Bremen subsidiary back from the brink. The state-backed bank owns 54.8 percent of Bremer Landesbank, which needs hundreds of millions of euros in fresh capital to survive.

Bremer Landesbank and NordLB, two regional banks partially owned by German states home to the country’s main ports Bremen and Hamburg, have suffered from a downturn in the global shipping industry, one of the banks’ main clients.

Faced with overcapacity since the financial crisis of 2008, shipping companies have seen revenue drop and some were unable to service their loans, triggering losses at the banks.

To manage fresh charges on shipping loans, which could total €700 million, or $786 million, NordLB’s non-executive supervisory board chief, Peter-Jürgen Schneider, told Handelsblatt his institution would be willing to take over Bremer Landesbank entirely.

“The capital requirement of Bremer Landesbank ranges from €400 million to €500 million.”

Peter-Jürgen Schneider, Chairman, NordLB

“Bremer Landesbank needs to come under the roof of NordLB,” he said in an interview. “That’s the only way to ensure the risk-bearing capacity of the bank.”

Mr. Schneider is the finance minister of the state of Lower Saxony, which is the biggest stakeholder in NordLB. Employment in the state partially depends on the well-being of the shipping industry, as Lower Saxony geographically surrounds Bremen and borders Germany’s biggest port, Hamburg.

NordLB is willing to offer a sum in the three-digit millions – or 6 to 7 percent in shares of the bank – in exchange for Bremen’s 41 percent-stake in Bremer Landesbank, Mr. Schneider said. “The capital requirement of Bremer Landesbank ranges from €400 million to €500 million.”

The city-state of Bremen is itself financially strapped and faces another deficit this year, making it difficult to bail out the bank, which is headquartered in the port city.

A review by the European Central Bank showed Bremer Landesbank needs to set aside an additional €700 million to cope with bad shipping loans, Mr. Schneider said. It will be a big hit for a bank which only made a profit of €5 million last year.

Last week, HSH Nordbank, headquartered in Hamburg took a charge of €3 billion and accepted guarantees from the bank’s majority shareholders, the German states of Schleswig-Holstein and Hamburg to keep the bank afloat. In 2009, HSH had already received a €3 billion state-funded capital injection and a €10 billion credit guarantee through the state-run HSH Finanzfonds.

Commerzbank, Germany’s second-largest bank which has received a state bailout, was once one of Germany’s largest ship financiers, but it withdrew from the business years ago and is now merely liquidating its inventories of about €8 billion.

 

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As the global shipping industry enters its eighth year of crisis, Bremer Landesbank is expected to report a substantial loss for the year, in the triple-digit millions, according to the company.

NordLB’s takeover of Bremer Landesbank would plug the capital gap arising from the loss, but it comes at a price. Mr. Schneider acknowledged that NordLB’s takeover could trigger layoffs in the range of up to 10 percent of Bremer Landesbank’s 1,000 employees.

One shipping company has particularly weighed on Bremer Landesbank’s books, the MV Hudson River cargo ship. The bank has repeatedly helped the ship’s owner service its debt. Eventually, however, MV Hudson River and its five identical sister ships were handed over to a restructuring firm last year.

“The shipping markets have developed far more negatively than forecast,” Mr. Schneider said. “At times, there was hope that markets would stabilize. Perhaps the executive board has been a bit too optimistic. But fundamentally, I do not see a reason to criticize the Bremer Landesbank’s board.”

Companies – and the banks that lend to them – have been hurt by global trade woes and an excess of container ships, many of which were ordered when business was still booming.

The situation reached a critical point last fall when the European Central Bank launched a comprehensive review of banks’ shipping loans. “We still haven’t seen the final report,” Mr. Schneider said. “But Bremer Landesbank was informed that an additional €700 million would have to be secured to manage risks.”

He dismissed speculation that NordLB’s takeover of the bank could push its own capital ratio to an unsustainable level.

 

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As the second-largest stakeholder in Bremer Landesbank, the city-state of Bremen had initially asked for a capital infusion from NordLB’s majority owner, the state of Lower Saxony. When the request was denied, Bremen accused the state of extortion.

“It’s all nonsense, of course,” Mr. Schneider said. “A situation has arisen that we all would have rather avoided. The fact is that Bremer Landesbank has exhausted all its efforts to withstand the crisis.”

Moody’s decision last week to cut one of Bremer Landesbank’s ratings by four notches – from B1 to Caa2 – was the final straw, the supervisor said.

For Bremen, the choice will be whether to exchange the city-state’s 41-percent stake in Bremer Landesbank for up to 7 percent of NordLB’s shares – or take a payout. Mr. Schneider said the purchase price would run into the hundreds of millions of euros, but that he expects differences of opinion regarding BLB’s valuation from Bremen officials.

And while Bremen is likely to seek guarantees meant to reduce job cuts and keep the bank’s headquarters, Nord LB’s takeover wouldn’t come without changes. “Of course we will look to enhance synergies – in the back office, for instance – and there’s also some overlap on the business side,” Mr. Schneider told Handelsblatt.

He pointed to Deutsche Hypo, which has been a subsidiary of NordLB since 2008, as a model for Bremer Landesbank’s future. “The bank will still be located next to Bremen’s City Hall, and it will keep its good name,” Mr. Schneider said. “But the group will manage the risks.”

 

Handelsblatt’s Frank Drost covers financial supervision and banks. To contact the author: drost@handelsblatt.com

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