Failing Bank

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HSH Was Their Fate

  • Why it matters

    Why it matters

    HSH Nordbank, formed in 2003 by the merger of two north German state-owned banks, is in trouble due to bad ship loans. The European Commission wants the bank to be sold or liquidated by the spring of 2018.

  • Facts

    Facts

    • Whether HSH is sold or liquidated, the two state owners could end up with €20 billion in losses.
    • HSH Nordbank is the world’s largest provider of ship loans.
    • The list of potential buyers of HSH Nordbank includes Chinese investors.
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    Audio

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Schleswig-Holstein is strapped for cash. And yet the state, a co-owner of struggling HSH Nordbank, has forked out funds for four new permanent positions in its HSH department at the state finance ministry in Kiel. “There is a lot of work to do, and we want to be less dependent on outside expertise,” said Finance Minister Monika Heinold, a Green Party member.

The new employees will be handed a thankless task. According to a requirement by the European Union, majority owners Schleswig-Holstein and Hamburg must sell or liquidate ailing HSH Nordbank by spring next year. The selling process began recently. Potential buyers must submit their non-binding bids by the end of March. But whether or not the sale succeeds, the consequences will be serious for everyone involved: The cash-strapped states, which could be stuck with €20 billion ($21.5 billion) in losses; the regional savings banks, which could be asked to pay up; and the private small investors, who have entrusted HSH with €7 billion in certificates.

Probably no other German bank has presented its owners with bigger problems in recent years than state-owned HSH, based in Kiel and Hamburg. The world’s largest provider of ship finance was once expected to fill the states’ coffers. Yet since the financial crisis, Kiel and Hamburg have felt more as if the bank were holding them hostage. Since 2008, there has been nothing but bad news. Management errors, coupled with an underdeveloped awareness of risk and lack of control, almost destroyed the bank. Only under chief executive Stefan Ermisch and his predecessor Constantin von Oesterreich did HSH finally enter calmer waters.

It was not the major owners’ decision to sell the bank in a period of low interest rates. After the bank had to increase its balance sheet guarantee because of its erroneous assessment of shipping markets, Brussels stepped in. The European Commission approved a second subsidy – under one condition: The bank be sold by the spring of 2018.

The owners are trying to stay optimistic. Ms. Heinold said the selling process, which is expected to be highly inconvenient in light of upcoming state elections in May, has been met with “gratifying resonance.” According to financial insiders, Anglo-Saxon investors are among the potential buyers, which number in the double digits. Strategic investors from China, which are usually ICBC and the Bank of China, are also reportedly on the list. On Friday, HSH chief Mr. Ermisch said there was “great interest” from China. NordLB, another German state-owned bank, is also a potential buyer.

But even if the privatization is successful, the states will be left with billions in losses. These days, the owners must feel like protagonists in a Greek tragedy. No matter which path they choose, the outcome will be disastrous for taxpayers.

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