Commerzbank warns of continuing losses with shipping loans

Commerzbank warns of continuing losses with shipping loans

GERMANY'S second largest bank, Commerzbank, announced it has raised its loan loss provisions to EUR900 million (US$956 million) in its earnings report, describing the move as a "timely response to the deterioration in the shipping markets."

14 February 2017 - 20:00 - Update: 14 February 2017 - 23:07

It warned that its losses on shipping loans alone could reach EUR600 million in 2017 after having nearly doubled to EUR559 million last year, reports UK's Business Insider.

Commerzbank said its net profit fell in the fourth quarter, due in part to a sharp rise in loan loss provisions on ship finance. It reported a EUR183 million net profit in the three months to the end of December, compared with EUR193 million in the same quarter last year.

At one point, Commerzbank had EUR18 billion in shipping loans. Over the years, as the shipping crisis worsened, it has whittled down its shipping loan portfolio to EUR5 billion.

But Commerzbank is neither alone nor the biggest player among German lenders. Before the financial crisis, German lenders went on a wild binge and became the world's biggest issuers of shipping loans that ended up funding horrendous overcapacity of ships, just when global trade would face enormous challenges. Of the $400 billion in maritime loans issued by large banks, German banks hold nearly $100 billion.

Bankruptcies have cascaded through the shipping industry, starting with bulk carriers during the financial crisis then converging on container carriers. In August last year it sunk Hanjin, the sixth largest container carrier in the world. In Germany, these bankruptcies have created a financial bloodbath that has led to serial bank bailouts with much more pain to come.

German banks are also exposed to closed investment funds, called KG funds. They've been lovingly called "the dentist ship fund," because these funds were offered to retail investors seeking low-risk returns over a long period. These funds bought ships and leased them to big shipping companies, like Hanjin.

These funds now own ships that are rusting away off-shore somewhere, waiting for better days.

The largest player globally in the global shipping-loan fiasco is HSH Nordbank, with EUR23 billion in shipping loans as of last summer. Its two main owners are the German states of Hamburg and Schleswig-Holstein. It had already been bailed out in 2008, re-collapsed, and was re-bailed out, including with EUR10 billion in loan guarantees by the states.

EU regulators determined the most recent bailout to be illegal state aid and ordered the bank to be privatised by February 2018 or be liquidated.





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