German cooperative lender DZ Bank is moving ahead with plans to sell its DVB transport finance arm, after being hit by large provisions for bad shipping loans, people familiar with the matter said.
Germany’s second-largest lender after Deutsche Bank has hired Goldman Sachs to advise it on strategic options for the DVB unit, including a sale in one go or in segments, they added.
No decision has been taken and DZ Bank will not sell DVB if it fails to get the price it seeks.
DZ Bank, DVB and Goldman Sachs declined to comment.
DVB’s lending volumes stood at 11 billion euros ($13 billion) in ship finance in June 2017, while aviation accounted for 7.2 billion, offshore for 2.1 billion and land transport for 1.5 billion.
German banks, once world leaders in ship finance, are estimated to be holding at least $100 billion in distressed shipping loans. Shipping finance sources say much of this debt is unlikely to be recouped in full, meaning heavy losses on investments.
Like other German banks, DVB is suffering from exposure to a prolonged slump in the global container shipping industry, which has been struggling with too many vessels and sluggish trade growth for nearly a decade.
One of the issues for potential buyers would be the cost of refinancing the ship loans in the future. While DVB benefits from DZ Bank’s AA minus rating, it would probably be downgraded significantly as a standalone business.
DZ Bank had been in talks to sell DVB to Mitsubishi UFJ in 2015, but no deal ever materialised.
Last summer, potential buyers again signalled interest in buying DVB, which finances ships, aircraft, offshore oil rigs and the rail industry, but talks petered out quickly over differences over valuation, people close to matter said in September.
After DVB posted a return on equity of minus 73 percent in the first half of 2017, internal discussions over the future of DVB gained pace, the sources said.
The departure last month of Bart Veldhuizen, DVB board member for ship finance, contributed to the decision to move ahead with the planned sale, one of the people said.
“The sense is that it will be a three to six-month process minimum overall, with potential to drag out longer,” another source added.
Another source said that while a sale of the shipping division is expected to be challenging, the other divisions would likely find buyers easily.
DZ Bank bought out minority shareholders in DVB recently, potentially facilitating a sale of the business.