HSH Nordbank sells further NPL tranche as it readies for sale
Mid-sized northern German Landesbank HSH Nordbank made a further significant step towards cleaning up its balance sheet by selling off €1.64bn of legacy loans, as part of its mission to ready itself for new ownership as decreed by the EU following the bank's state bailout during the financial crisis.
After what were apparently lengthy negotiations, about €800m of the portfolio were aviation loans, sold to Australian bank Macquarie, while a further €540m of commercial real estate loans were sold to US lender Bank of America Merrill Lynch. The remaining €300m of loans were sold to a variety of further investors, in the sale managed by UBS Group.
The real estate loans are primarily on assets in the UK, Denmark and the Netherlands, with a portion relating to German properties. They are said to be mostly non-performing.
CEO Stefan Ermisch described the sales as "an important milestone on the road to a change of ownership". He added, “We are currently involved in talks at an advanced stage about the sale of further packages from this market portfolio. These also relate to non-strategic legacy exposures in the areas of energy as well as international real estate." The disposals are expected by the middle of the year, and also amount to about €1.6bn.
HSH's owners - the German states of Schleswig-Holstein and Hamburg jointly hold 85% - are committed to privatising the bank under European state-aid rules by the end of February 2018, and have hired Citigroup to organise the process. HSH last month invited expressions of interest from potential buyers, who have until the end of February to make their interest known to Citigroup. Final offers are expected by the late summer.
The bank is still an active real estate lender, of course. Last year it examined more than €20bn of financing proposals, and ultimately financed about €4bn of new business, down from €4.5bn in 2015m, spread roughly equally across office, residential and retail. Head of real estate lending Peter Axmann said in a media interview recently he was cautiously optimistic about this year, forecasting however that "the investment volume this year is likely to sink again, mainly due to the lack of suitable properties to lend against."
As to the future ownership of the bank, supervisory board chief Thomas Mirow said in a recent interview in Frankfurt that the Hamburg-based bank, with €88bn in assets, might be attractive to a Chinese buyer seeking access to Germany's Mittelstand, medium-sized businesses that make up the backbone of German industry, with which HSH Nordbank has traditionally had close relationships. The bank's close asociation with the port of Hamburg, with its strong Asian trading links, might also be a factor, he suggested.
Although sales to Asian owners were not exactly what the EU had in mind when imposing sale deadlines on recalcitrant banks during the crisis, the fact is that most European banks are retreating back behind their own national borders, boosting their own more demanding capital levels at home, rather than showing great interest in creating a strong banking union across the eurozone.
The bank may have to sell itself off in parts, if no complete buyer is forthcoming. “The owners would clearly prefer a single strategic buyer for the whole bank, but you must face reality,” Mirow said.