HSH Nordbank

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Hamburg Commercial Bank
Aktiengesellschaft
IndustryBanking
FoundedJune 2, 2003
HeadquartersHamburg, Germany
Key people
Stefan Ermisch[1] (CEO)
Thomas Mirow (Pres. of supervisory board)
ProductsFinancial services
Decrease € 124 million (2012)
Total assetsDecrease € 130.6 billion (2012)
Total equity12.3% (2012)
Number of employees
2,000 (2017)[2]
Websitewww.hsh-nordbank.com

Hamburg Commercial Bank (formerly HSH Nordbank) is a commercial bank in northern Europe with headquarters in Hamburg as well as Kiel, Germany. It is active in corporate and private banking. Considered to be the world’s largest provider of maritime finance,[3] its main focus is on shipping, transportation, real estate and renewable energy. HSH has significant operations in Luxembourg, New York City, London (the Bank no longer has an office in London) and Singapore.

Ownership[edit]

The shareholders are:

Owner Share
HSH Finanzfonds AoR 65.00%
Hamburg 10.80%
Schleswig-Holstein 9.58%
J.C. Flowers & Co. 9.31%
Savings Banks Association of Schleswig-Holstein 5.31%

In the merger the City of Hamburg and the State of Schleswig-Holstein agreed to hold the majority of shares at least until the end of 2013.

History[edit]

Early beginnings[edit]

HSH Nordbank was created as a result of a merger between Hamburgische Landesbank and Landesbank Schleswig-Holstein on June 2, 2003. In the course of the merger HSH was transformed into a joint-stock company (Aktiengesellschaft) and thereby formally privatised, i.e. the bank is not anymore governed by public law.[4] In 2003, the bank had a balance sheet total of 172 billion euros and employed 4,500 people.

In 2006, HSH Nordbank pledged to seek an unprecedented stock market listing, edging out its chief executive Alexander Stuhlmann to prepare the way.[5] Shortly after, WestLB agreed to sell its 26.6 per cent stake in HSH Nordbank to a consortium of five institutional investors,[6] led by J.C. Flowers & Co., for 1.25 billion euros.[7] Flowers had competed with three investors – Cerberus Capital Management, Hellman & Friedman, and Corsair Capital – for the stake.[8] The investment marked the first part-privatisation of a Landesbank[9] and its experience was being closely watched as an indicator of how difficult it would be for others to prise open the state-controlled sector.[10] By 2008, J.C. Flowers injected about 300 million euros of fresh equity, in spite of the bank’s failure to have an initial public offering that year.[11]

Financial crisis of 2007-2010[edit]

Similarly to peers such as NORD/LB, Commerzbank, Deutsche Hypothekenbank and KfW, HSH Nordbank buckled under excessive risk-taking prior to the financial crisis of 2007-2010, when it had sought to expand beyond its roots as a regional lender to companies and savings banks into global capital markets.[12][13] It had done so in anticipation of the expiry of a rule that allowed for generous refinancing of German state-backed banks.[14] With the beginning of the crisis, HSH had to report losses on their credit investment portfolio. In September 2008 HSH Nordbank announced further writedowns. As a direct consequence the CEO Hans Berger stepped down and in the following weeks HSH announced extensive restructuring.[15] Branches in Copenhagen and Hong Kong were reduced to representations and new business was focused on the core region in northern Germany.

In December 2008, HSH Nordbank was granted to issue up to 30 billion euros guaranteed notes under the German SoFFin program. One requirement that was imposed on HSH was to raise the capital ratio to at least 8%. On January 20, 2009 3 billion euros 3 year guaranteed notes were issued.[16] On February 24, 2009 HSH received new capital of EUR 3 billion and credit guarantees of 10 billion euros by the two main shareholders, the states of Hamburg and Schleswig-Holstein.[17] The other shareholders, JC Flowers and the Savings Banks Association of Schleswig-Holstein, did not participate in the capital infusion. Together with this increase of its core-capital, HSH announced further restructuring. It planned to spin off non-strategic activities and the toxic asset portfolio into a—yet to be created—Bad Bank.

In 2008, HSH Nordbank filed a claim with the New York Supreme Court against UBS over losses it says it suffered on a $500 million portfolio of collateralized debt obligations linked to the U.S. mortgage market.[18] By 2012, the court found that HSH should have been able to conduct its own due diligence and dismissed the fraud claim, a decision that lawyers interpreted as having broader implications for investors seeking damages for losses incurred in the financial crisis.[19]

On April 9, 2009, president of supervisory board Wolfgang Peiner appointed Freshfields Bruckhaus Deringer to investigate recent management decisions of the Vorstand.[20] On April 17, 2009 the supervisory board of HSH Nordbank relieved Frank Roth, member of the management board of his duties and started pressing criminal charges against him. The bank claims that Roth leaked strictly confidential information to outside parties.[21]

In May 2009 Standard & Poor’s dowgraded HSH to BBB+.

On October 13, 2009, Norddeutscher Rundfunk reported on a questionable CDO deal codenamed "Omega 55" between HSH Nordbank and BNP Paribas in late 2007, that eventually cost HSH Nordbank 500 million euros. Parts of that deal were not disclosed to the German Federal Financial Supervisory Authority (BaFin).[22] Omega 55 was a hybrid CDO which exposed HSH Nordbank to the risks of default of other financial institutions including the now bankrupt Lehman Brothers and Washington Mutual. However, also included in the deal were several billion euros of risk tied to HSH Nordbank's own assets. It is alleged that he inclusion of this last element allowed HSH Nordbank to move several billions of risky assets off its balance sheet at year end and avoid costly capital reserves which BaFin would require the bank to post. The assets were repurchased several weeks later after auditors had closed the books of the bank for the year.

In 2009, HSH Nordbank had a balance sheet of 174.5 billion euros and reported a loss of 678 million euros.[23]

Restructuring[edit]

The European Commission, HSH Nordbank and its owners negotiated for years over a plan to restore the bank to health and avoid future state aid.[24] In September 2011, all sides reached a settlement with the European Commission, ending state aid proceedings in return for tough limits on the size of the bank’s balance sheet and a one-off financial penalty of 500 million euros.[25] Under the settlement, the bank was to pull out of asset-backed aviation finance and to limit property finance to its home market by 2014. It also included plans to reduce its staff from 3,300 to 2,100.[26] For 2013, the bank presented its worst set of results since 2008, with an annual net loss close to 800 million euros.[27]

In 2015, Minister-President Torsten Albig of Schleswig-Holstein and First Mayor of Hamburg Olaf Scholz negotiated a restructuring deal with the European Commission that allowed HSH Nordbank to offload 6.2 billion euros in troubled assets – mainly non-performing ship loans – onto its government majority owners and avoid being shut down, saving around 2,500 jobs.[28] The agreement stipulated that if no private-sector buyer emerged by 2018, HSH Nordbank had to be wound down.[29]

The European Commission approved a bailout in March 2016 and HSH asked investment bank UBS to find buyers for the loans which were extended to shipping and aircraft companies and for real estate and renewable energy projects.[30] In an initial deal, Macquarie Bank and Merrill Lynch bought 800 million euros in aviation loans and 540 million euros in real estate credits, respectively.[31]

Privatization[edit]

In mid-2016, the bank’s owners hired Citigroup to organize the process to privatize HSH Nordbank under European state-aid rules by the end of February 2018. Over the course of 2017, Apollo Global Management of the United States[32] as well as Anbang Insurance Group,[33]HNA Group and ICBC[34] of China were considered as interested buyers but ultimately did not sumbit a bid for the bank.[35] By the end of the year, bids were submitted by Apollo, Socrates and a consortium of private equity groups Cerberus Capital Management and J.C. Flowers.[36]

In February 2018, the state governments of Schleswig-Holstein and Hamburg – at the time led by Daniel Günther and Olaf Scholz – agreed to sell their shares for an estimated 1 billion euros to a group of private equity investors led by Cerberus and JC Flowers. Other funds involved were GoldenTree Asset Management and Centaurus.[37] In addition, Austrian bank BAWAG also contributed. The transaction also saw the bank’s non-performing loan portfolio, principally shipping-related, sold to a special purpose vehicle set up by Cerberus, JC Flowers, GoldenTree and Centaurus at a price below its current book value.[38][39] The sale is subject to the approval of the European Commission and the European Central Bank. After its privatization, HSH Nordbank will also have to leave the deposit insurance scheme of Germany’s publicly owned banks and join the private sector plan.[40]

Hamburg and Schleswig-Holstein later said that total losses they incurred in their HSH investment would range from 10.8 billion to a maximum of 14 billion euros.[41]

References[edit]

  1. ^ New CEO for HSH Nordbank – Stefan Ermisch becomes Chairman of the Management Board HSH Nordbank, press release of May 9, 2016.
  2. ^ Olaf Storbeck (October 24, 2017), Clock ticking on the future of state-owned HSH Nordbank Financial Times.
  3. ^ Jack Ewing (December 4, 2012), Global Shipping Industry’s Troubles Are Threat for Biggest German Banks New York Times.
  4. ^ Subject: NN 71/2005 – Capital increase HSH Nordbank AG, Germany European Commission.
  5. ^ Ivar Simensen (August 16, 2006), HSH edges out chief to make way for IPO Financial Times.
  6. ^ Meike Schreiber and Ivar Simensen (August 31, 2006), International banks share in HSH stake Financial Times.
  7. ^ Ivar Simensen (August 30, 2006), Private equity buys stake in HSH Nordbank Financial Times.
  8. ^ Meike Schreiber, Tim Bartz and Sven Clausen (August 3, 2006), Flowers plots Europe initiative Financial Times.
  9. ^ Ivar Simensen (August 30, 2006), Private equity buys stake in HSH Nordbank Financial Times.
  10. ^ James Wilson (May 20, 2008), Flowers to inject €300m into HSH Nordbank Financial Times.
  11. ^ James Wilson (May 20, 2008), Flowers to inject €300m into HSH Nordbank Financial Times.
  12. ^ Nicholas Brautlecht, Nicholas Comfort and Steven Arons (January 26, 2017), China Not Europe May Salvage HSH as German Bank Looks East Bloomberg News.
  13. ^ Jack Ewing (December 4, 2012), Global Shipping Industry’s Troubles Are Threat for Biggest German Banks New York Times.
  14. ^ Klaus Lauer (April 25, 2018), HSH to post pretax loss of more than 400 mln euros - sources Reuters.
  15. ^ "Chief Executive Officer Hans Berger resigns" (Press release). HSH Nordbank. 10 September 2008. Archived from the original on 12 July 2011. Retrieved 2009-03-09.
  16. ^ "Fitch rates HSH Nordbak AG's guaranteed issue 'AAA'" (PDF). Fitch Ratings. 14 January 2009. Archived from the original (PDF) on 12 July 2011. Retrieved 2009-03-09.
  17. ^ "Germany's HSH Nordbank Saved from Collapse". Spiegel Online. SPIEGELnet GmbH. 24 February 2009. Retrieved 2009-03-09.
  18. ^ Richard Barley (February 26, 2008), HSH says filed CDO suit against UBS Reuters.
  19. ^ Tom Braithwaite and Shahien Nasiripour (March 28, 2012), New York court rejects claim against UBS Financial Times.
  20. ^ "HSH Nordbank: Überprüfung der Vorstände angeordnet". NDR. 9 April 2009. Archived from the original on 12 April 2009.
  21. ^ "HSH Nordbank to press criminal charges against Management Board member Frank Roth". HSH Nordbank. 17 April 2009. Archived from the original on 4 September 2012. Retrieved 4 June 2009.
  22. ^ Hornung, Peter; Webermann, Jürgen (October 13, 2009), "HSH-Chef genehmigte offenbar verlustreiches Geschäft", NDR Info.
  23. ^ "Annual Report as of 31 December 2009" (PDF). HSH Nordbank. 15 April 2010. Archived from the original (PDF) on 26 November 2010. Retrieved 2010-04-15.
  24. ^ Andreas Kröner and Maria Sheahan (January 23, 2017), HSH Nordbank invites indicative bids from potential buyers Reuters.
  25. ^ James Wilson (September 20, 2011), HSH Nordbank overhaul spells end of state aid Financial Times.
  26. ^ James Wilson (September 20, 2011), HSH Nordbank overhaul spells end of state aid Financial Times.
  27. ^ Alice Ross (April 8, 2014), HSH Nordbank poised for worst results since 2008 Financial Times.
  28. ^ Arno Schuetze and Foo Yun Chee (May 27, 2015), HSH Nordbank strikes rescue deal with EU Reuters.
  29. ^ Olaf Storbeck (October 24, 2017), Clock ticking on the future of state-owned HSH Nordbank Financial Times.
  30. ^ Arno Schuetze (June 8, 2016), HSH Nordbank plans to sell $3.7 bln in bad loans under bailout programme -sources Reuters.
  31. ^ Nicholas Brautlecht, Nicholas Comfort and Steven Arons (January 26, 2017), China Not Europe May Salvage HSH as German Bank Looks East Bloomberg News.
  32. ^ Alexander Hübner (April 2, 2017), HNA, Apollo Global among bidders vying for HSH Nordbank: sources Reuters.
  33. ^ Tom Sims (May 9, 2017), German regulator welcomes Chinese interest in nation's banks Reuters.
  34. ^ Arno Schuetze and Jan Schwartz (February 27, 2017), HSH Nordbank attracts handful of potential bidders - sources Reuters.
  35. ^ Maria Sheahan (May 10, 2017), HNA won't submit bid for Germany's HSH Nordbank: Handelsblatt Reuters.
  36. ^ Arno Schuetze, Klaus Lauer and Jonathan Saul (November 29, 2017), Three rivals vie to buy Germany's HSH Nordbank Reuters.
  37. ^ Christopher Spink (March 1, 2018), HSH Nordbank bondholders fear privatisation measures Reuters.
  38. ^ Klaus Lauer (February 26, 2018), HSH Nordbank sale in separate private equity vehicles: sources Reuters.
  39. ^ Christopher Spink (March 1, 2018), HSH Nordbank bondholders fear privatisation measures Reuters.
  40. ^ Olaf Storbeck (February 28, 2018), HSH Nordbank to be sold to US private equity consortium Financial Times.
  41. ^ Klaus Lauer (April 25, 2018), HSH to post pretax loss of more than 400 mln euros - sources Reuters.

External links[edit]