HSH Nordbank

Plugging a Financial Black Hole

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HSH Nordbank had been staring into the abyss until its latest bailout.
  • Why it matters

    Why it matters

    The second bailout since 2009 for beleaguered northern German state bank HSH Nordbank sets a course for privatization while putting the onus on states – and their taxpayers – to extract value from its bad debt.

  • Facts


    • HSH Nordbank’s CEO says the two-year-long E.U. proceeding “ended positively” for the state-owned bank.
    • The bank now has the “financial leeway” to undergo privatization, he added.
    • State lawmakers express concern over assuming HSH’s liabilities.
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He doesn’t float like a butterfly or sting like a bee, but banker Constantin von Oesterreich claimed victory in pugilistic terms this week after the European Commission approved a taxpayer-funded bailout worth billions of euros for HSH Nordbank, the beleaguered northern German state bank he leads.

“I feel like a boxer who won on points after the twelfth round,” Mr. von Oesterreich, HSH’s chief executive, told Handelsblatt in an interview.

His comments came after E.U. competition watchdogs on Monday accepted a restructuring plan to relieve the bank of €8.2 billion, or $9.3 billion, in bad debt, mostly in the form of non-performing shipping loans.

“The proceeding lasted more than two years and it ended positively for us. We can live with the result,” said Mr. von Oesterreich, who defended the size of the bailout even though it only liberates HSH from just over half of its bad debt.

“The extent of losses incurred depends on how the value of the portfolios develop.”

Monika Heinold, Schleswig-Holstein Finance Minister

“We are getting another kind of relief,” he said, pointing to a reduction in annual fees the bank has been required to pay the states of Hamburg and Schleswig-Holstein – its majority shareholders – for their €10 billion credit guarantee.

Not only will those fees drop almost in half to 2.2 percent, he noted, but the basis for calculating them will also fall by several billion euros.

“We are getting out from under charges in the triple-digit millions. That is a good result for us.”

But the battle over HSH Nordbank’s lingering liabilities, which were triggered by the 2008 financial crisis and have been exacerbated by weakness in the global shipping market, is far from finished.

Just ask lawmakers in the northern German regions of Hamburg and Schleswig-Holstein, whose taxpayers are footing the bill of billions of euros after E.U. commissioners allowed HSH to sell up to €6.2 billion in bad loans to the states and use losses to offset their credit guarantee.

“The European Commission’s ‘yes’ to restructuring is no reason to breathe a sigh of relief,” said Tobias Koch, a member of the opposition Christian Democratic Union in the Schleswig-Holstein state government in Kiel. “The states and their taxpayers are taking over the bank’s liabilities without being relieved of their financial responsibility for HSH Nordbank.”

The states will need to create a new institution to sell the bad shipping loans. Only once that mission is complete will their losses be reflected in state budgets. The bank’s majority shareholders hope a recovery in the shipping market bolsters prices for loans.

“The extent of losses incurred depends on how the value of the portfolios develops,” said Schleswig-Holstein Finance Minister Monika Heinold, a member of the Green Party. That’s also true for the nearly €2 billion in non-performing shipping loans approved for sale to third parties.

From Mr. von Oesterreich’s perspective, unloading the bank’s bad debt onto this new vehicle will give it the “financial leeway” to prepare for privatization. “We always stressed our belief in the bank’s ability to privatize if the conditions were right, “he said. “We have a functional business model that we will build on. And we will free ourselves of additional liabilities.”

This is the second time the states have had to prop up the bank. In 2009, they resuscitated HSH with a €3 billion capital injection and a €10 billion credit guarantee through the state-run HSH Finanzfonds.

Shareholders envisioned a very different future than the one they now face when the state banks of Schleswig-Holstein and Hamburg merged into HSH Nordbank in 2003.

“We were all more or less intoxicated by the idea that HSH, as a global player, would always bring in meaty profits,” recalled former state premier Heide Simonis, a member of the Social Democrats.

Instead, the European Union now is calling on the bank’s owners to sell HSH to private investors – or to take it public – by 2018. If unsuccessful, liquidation is on the cards.

In other words, when the fight for HSH’s future finally concludes, Mr. von Oesterreich’s victory this week could still become a Pyrrhic one in the long run, reminiscent more of a technical knockout than victory by points.

Frank Drost is a Handelsblatt Editor in Berlin, covering financial supervision and banks. To contact the author: drost@handelsblatt.com

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