German lender DZ Bank is looking to sell its shipping finance business quickly after its transport division booked provisions for bad loans of 445 million euros ($522 million) in the first half, people close to the matter said.
Potential buyers signaled interest over the summer in buying the cooperative bank’s DVB, which finances ships and aircraft, but differences over its valuation were too great and talks died down quickly, the people said.
But after DVB posted a return on equity of minus 73 percent in the first half of the year, or a net loss of 547 million euros after breaking even a year earlier, plans to sell off its loan portfolios have gained traction, they said.
DZ Bank, Germany’s second-largest lender, and DVB declined to comment.
DZ Bank bought out minority shareholders in DVB recently, potentially facilitating a potential sale of the business.
The sources said DZ Bank was working with Boston Consulting Group to evaluate options for DVB, while the transport division has hired separate advisors to assess the value of its $12.5 billion ship loan portfolio.
Boston Consulting was not immediately available for comment.
“A lot of internal discussions are ongoing currently (at DVB) and they have gained pace after the latest earnings hit,” one of the sources said.
One source said the bank was still considering whether to sell the ship loan book as a whole or in several bundles, as the second option would probably yield a better return.
“DZ Bank tried to integrate DVB earlier (into the parent bank) and that strategy failed to be implemented. They are looking for an alternative solution,” another source said.
“Offering the entire shipping portfolio for sale to whoever wants to have it is still an option,” the second source said.
Like other German banks, DVB is suffering from exposure to a prolonged long 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 DZ Bank’s AA minus rating, it would probably be downgraded significantly as a standalone business.
German banks are estimated to be holding at least $100 billion in distressed shipping loans and shipping finance sources say much of this debt is unlikely to be recouped in full, meaning heavy losses on investments.
Banks in Germany, once global leaders in ship financing, have written off billions of euros lent to shipping companies and several have quit the business.
Former market leader HSH was forced to take two bailouts from its public sector owners and is now in the midst of a privatization that may lead to the bank being wound down.
Investment funds such as KKR (KKR.N), Apollo (APO.N) and Oaktree (OAK.N) have scooped up ship loan portfolios in recent years. However, some deals have run aground, such as NordLB’s planned sale of 1.3 billion euros of loans to KKR.
Others have been smoother. Japanese financial services group Orix (8591.T) has acquired loans from the Royal Bank of Scotland (RBS.L), which is in the process of exiting shipping finance.