HSH Nordbank sale to Cerberus and JC Flowers imminent

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It now looks certain that ailing state-owned HSH Nordbank will be bought by US private equity firms Cerberus and JC Flowers, and a deal could be announced as early as this week, according to local business reports in Hamburg.

As we reported in the January issue of REFIRE, news agency Reuters quoted three people close to the negotiations as saying that the two potential buyout groups were being given about two weeks to negotiate a deal with the two German regional states of Schleswig Holstein and Hamburg, which together hold 89% of the bank. J.C. Flowers already owns 5% of HSH Nordbank, with local savings banks holding 6%. The buyer has to decide on a buyer by the end of February or face liquidation.

The two firms are likely paying around €1bn for the bank, using separate vehicles to house the bank's core lending operations, and the 'bad bank', set up in 2009, which would include its non-performing assets, say local observers. This division into two parts is now seen as critical to enable HSH Nordbank to reduce its proportion of non-performing loans to about 2% from the 11.7% as of September 30th.

It would also permit HSH Nordbank to be included in the German banks' deposit protection scheme, which no longer includes protection for Germany's savings banks and 'Landesbanken'.

HSH’s core portfolio includes infrastructure, renewable energy, commercial real estate, logistics and shipping. It cut its balance sheet to about €72 billion at the end of last year from €84 billion in 2016, with its ship portfolio standing at €5.5 billion. Its non-performing loans are around €7 billion, less than half the amount at the end of 2016.

The bank is expected to more than double its 2017 pretax profit to around €290 million and the new owners plan to sell all the sour loans to other investors.

CEO Stefan Ermisch is thought to be planning to remain as the bank's boss under the new ownership regime, and recently unveiled plans for the bank's new future as a privately-held institution. He plans to shrink the balance sheet by 2022 from currently €74 billion to €55 billion, whilst increasing pre-tax profits from €290m to €446m euros. He also wants to reduce the bank's headcount by 30% from 1,900 to 1,300 employees.