HSH Nordbank to draw on more state aid

HSH Nordbank said it expected to draw on €2.1bn in state guarantees, marking the second time in a year that the German Landesbank has raised its estimate of how much public aid it will need.

The world's largest provider of shipping loans had to be bailed out by its state owners, Hamburg and Schleswig Holstein, after the financial crisis precipitated a collapse in global trade, which in turn put pressure on shipping groups and caused large numbers of shipping loans to go bad.

The north German bank is supported by a €10bn state guarantee that is still awaiting final approval from the European Commission. HSH had expected to use €1.3bn in guarantees between 2019 and 2025, before raising its projection to €1.6bn last April.

In its annual report, which was published on Wednesday, the bank said that the latest increase in its expected aid requirement was because of the fall in value of the euro against the dollar, as well lower estimates of ship charter rates.

"This has an impact on the size of the expected payment shortfall, since the risk provisions of the guaranteed portfolio are partly held in US dollars," the bank said.

HSH is hoping that the European Commission's decision into the validity of the guarantee programme will be completed by the middle of this year.

The bank said that it also hopes to adjust the structure of the guarantee scheme - for which it paid €861m in 2014 - "in order to ease the pressure on HSH Nordbank's expenses over the coming years and to strengthen its capital base".

"The task here will be to take into account the continuing reduction of risks and the previous restructuring benefits as well as premium payments already made and the general level of interest rates," the bank said, adding that the "base fees" for the guarantee had cost it €2.2bn since 2009.

HSH reported net earnings of €160m for 2014, up from a net loss of €769m in 2013, and the first time that the bank had turned a profit since 2010.

However, the bank's figures were helped by a one-off €781m boost from reclaiming guarantee fees for which the bank had already provisioned under a clause in the guarantee scheme designed to prevent the bank's core tier one capital ratio - a closely watched measure of financial strength - falling below 10 per cent.

"It is now important that, working in close collaboration with our shareholders, we also initiate structural changes to ensure that HSH Nordbank is the strong regional bank in the north over the long term," said Constantin von Oesterreich, chief executive.

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