German Bank Says Shipping Outlook Threatens Its 2014 Goal

By MarEx 2013-08-30 14:49:00

Struggling German lender HSH Nordbank on Friday posted a rise in first-half profits, but doubled risk provisions and warned that a health check of risky assets by the European Central Bank (ECB) may reveal further holes in its balance sheet.

"We presume this will be the case," Chief Executive Constantin von Oesterreich told Reuters in response to a question about whether the ECB's asset quality review will result in having to make extra provisions.

Hamburg-based HSH, a major lender to the shipping industry, reiterated it expected to post a net loss this year.

It estimated that for 2013, loan loss provisions of 1.2 billion euros ($1.6 billion) would be sufficient, the same level as last year, even after the asset quality review.

The outcome of the ECB asset check will feed into the next round of pan-European banking stress tests, which are set to be carried out by the European Banking Authority in 2014 for all 27 EU countries.

A crisis in the shipping industry, combined with an obligation to pay 520 million euros in fees for using state guarantees, will also crimp the German lender's ability to post a profit in 2014.

"On this basis it will be very challenging to get into the black next year," von Oesterreich said. In February, HSH said it expected to post a loss in 2013 but was likely to break even in 2014.

Earlier this year HSH had asked its owners - the regional states of Hamburg and Schleswig-Holstein - to hike guarantees to 10 billion euros ($13 billion) from 7 billion, to cope with rising provisions for bad ship loans.

On Friday, the Hamburg-based bank said it hiked risk provisions to 224 million euros in the first half, up from 111 million in the year-earlier period, because of a gloomy outlook in the shipping sector.

"There is nothing positive to say about shipping. Even if there are glimmers of light on the horizon every now and then, these disappear quickly," von Oesterreich said.

Still, valuation gains boosted pretax profit to 98 million euros from 19 million in the year-earlier period.

HSH, along with other regional state-owned German lenders known as landesbanks, lost billions of euros on risky investments in the financial crisis, forcing its owners to prop it up with a 3 billion euro capital injection and an additional 10 billion euros in loan guarantees. ($1 = 0.7584 euros)

By Jan Schwartz; Writing by Edward Taylor; Editing by David Holmes (C) Reuters 2013.