A consortium of private investment firms has agreed to purchase 94.9 percent of HSH Nordbank AG, which was at one time the largest provider of ship financing in the world, for around 1 billion euros (U.S. $1.2 billion).
The German federal state owners of HSH Nordbank AG, which was at one time the largest provider of ship financing in the world, have agreed to sell the bank to private shareholders, the company said in a statement.
Independent affiliates of Cerberus European Investments, J. C. Flowers & Co., GoldenTree Asset Management, Centaurus Capital LP and BAWAG will pay around 1 billion euros (U.S. $1.2 billion) for 94.9 percent of HSH Nordbank, marking the first privatization of a federal state bank in Germany.
HSH said the transaction remains subject to various state and regulatory approvals, including from the European Commission and European Central Bank, which will only green light the deal if HSH is able to show a viable business model moving forward, but is expected to close in the second or third quarter of 2018.
“This is the start of a new era for our bank – our future owners are among the world’s most experienced financial investors in the banking sector, particularly in Germany and continental Europe,” HSH Nordbank CEO Stefan Ermisch said of the deal. “This will open up new opportunities for us to compete in the market without any current EU restrictions.
“The change of ownership offers good prospects for the bank, our employees, customers and the economic development of our home region,” he added
Questions remain, however, about the bank’s well-publicized non-performing loan assets, primarily in ship finance, which are being separated and transferred into an acquisition vehicle to be purchased by affiliates of Cerberus Capital Management, J.C. Flowers & Co., GoldenTree Asset Management and Centaurus Capital LP.
“The carve-out of the portfolio improves the credit quality of the future bank across the board,” HSH said in a statement. “From the present perspective, the non-performing exposure (NPE) ratio will fall to under two percent, compared with 11.7 percent as at 30 September 2017, thus reaching a good value in a Europe-wide comparison.”
As a result, the bank’s shipping portfolio will only make up about 8 percent of its total balance sheet, which will “make the bank far more resistant to future crises,” HSH said.
According to a report from Reuters news service, the owners of HSH, the German federal states of Hamburg and Schleswig-Holstein, had been in exclusive talks with the consortium since mid-January after a slumping shipping sector triggered two separate state bailouts.
In 2009, when the global financial crisis and overcapacity were taking their toll on the entire shipping industry, Hamburg and Schleswig-Holstein injected 3 billion euros in equity into HSH and a 10 billion euro guarantee. That guarantee was reduced to 7 billion euros in 2011, but HSH requested it be returned to 10 billion euros in 2013, according to Reuters.
HSH said that as a result of the transaction, in particular the disposal of its bad shipping loans and other non-performers, the bank would likely report a loss before taxes in the “mid three-digit million” range for the 2017 financial year.
According to Reuters, total losses incurred by Hamburg and Schleswig-Holstein resulting from HSH would total between 10.8 billion euros and 14 billion euros.
Despite a massive restructuring that saw HSH reduce its staff from 4,750 in 2007 to 1,960 in 2017, Reuters cited “sources close to the matter” that said the new owners could further cut jobs by one-third following the sale
Ermisch noted that the sale was only the beginning of what would be a “challenging transformation” for HSH.
“Now it is a matter of continuing to develop HSH Nordbank as a focused, agile bank from northern Germany for medium-sized enterprises nationwide,” said Ermisch. “In addition, we will cautiously step up our international activities in selected business units. We have a series of own initiatives in preparation, and we will also benefit from the expertise of our new owners.”
“HSH Nordbank is a well-positioned bank, with a strong franchise, a loyal client base, and a management team focused on building a leading financial institution in Germany and across Europe,” said J. Christopher Flowers, CEO of J.C. Flowers & Co, which already held a 5 percent share in HSH prior to the sale. “We have a long relationship with the bank, and our new investment reinforces our commitment to the institution and our confidence in its future.”
State owners sell HSH Nordbank to private investors
