HSH Nordbank has agreed a restructuring deal with the European Commission that will allow the German regional lender to offload billions of euros in troubled assets onto its government owners and avoid being shut down, saving around 2,500 jobs.
The bankâ€™s owners, which bailed out HSH in the financial crisis, will have two years to privatise the shipping lender, pending the final EU decision in the first half of 2016, HSH and the European Commission said on Monday.
HSH is the last German lender to reach a deal on its revamp. While several other banks, except failed WestLB, have recovered since near-collapse in the wake of the Lehman insolvency in 2008, HSH has continued to struggle to turn a profit.
The European Commission requires banks that receive state aid to undergo substantial restructuring and shrink their balance sheets.
HSH Nordbank, majority-owned by the regional states of Schleswig-Holstein and Hamburg, turned to its owners after risky assets turned sour in 2008 and it got hit by the slump in global trade in the wake of the financial crisis.
But the legacy ship portfolio and the burden of paying fees for the 10 billion euros (7 billion pounds) in guarantees provided by the two state governments in 2009 continued to weigh on HSH.
The Commission, HSH and its owners negotiated for years over a plan to restore HSH to health and to avoid the need for new state aid in future.
The deal allows the bank to offload assets worth 6.2 billion euros â€” mainly non-performing ship loans â€” from the bankâ€™s balance sheet to a run-down vehicle set up by its owners.
HSH is selling an additional 2 billion euros in assets on the market. The steps will roughly halve the 15 billion euros in bad assets on the bankâ€™s asset sheet, significantly less than HSH had initially hoped for.
By transferring the assets at a discounted price, HSH faces a large, one-off loss that is mostly covered by existing state guarantees. It also imposes a hefty one-off cost on the states of Schleswig-Holstein and Hamburg.
For HSH, the remaining, reduced state guarantee resulting from the deal cost HSH less in annual fees and will therefore improve its profitability. Fees will be lowered to 2.2 percent from 4 percent and will only apply to the yet undrawn part of the 10 billion euros guarantee.
The privatisation deadline can be extended by six months and Hamburg and Schleswig-Holstein will be allowed to retain 25 percent ownership after the divestment.
â€œItâ€™s not impossible to find investors within that timeframe,â€ a person familiar with the industry said, adding WestLB in 2012 sold viable parts of its business to peer Helaba.
Should the sales process fail, the bank will have to cease new business activities and wind down its remaining assets, the EU Commission said in a statement.
â€œAs I donâ€™t really see an obvious buyer for HSH the bank would likely have to take the IPO route. Germanyâ€™s PBB has shown that this can work, although it remains to be seen if HSH will be profitable enough to attract investors in a potential market listing,â€ said another person familiar with the industry.