HSH Nordbank AG, the world’s biggest shipping lender, passed a stress test by the European Central Bank as a 10-billion euro ($12.7 billion) state guarantee sheltered it from the crisis-ridden maritime industry.
The ECB agreed with the Hamburg-based bank’s calculation of a 10 percent common equity Tier 1 ratio, a key measure of financial strength, in an Asset-Quality Review of balance sheets as of Dec. 31, 2013, according to the results published on the central bank’s website today. In the stress test, the second part of the probe, HSH exceeded the minimum CET1 ratio threshold of 5.5 percent, scoring 6.1 percent.
Fellow German shipping lenders Commerzbank AG (CBK) and Norddeutsche Landesbank Girozentrale also passed the health check, which is at the root of the ECB’s effort to rekindle confidence in the banking system after six years of turmoil. The ECB had singled out shipping loans as among the riskiest assets on banks’ balance sheets and those most prone to misstatement by lenders. No German bank was required to raise additional capital in the ECB’s assessment.
“Shipping lenders obviously are seen at the historic nadir of their market’s crisis by the ECB, with no additional risks to be expected,” said Klaus Fleischer, a professor of finance at the University of Applied Sciences in Munich, in an interview. “Banks such as HSH, NordLB and Commerzbank obviously did their homework quite well by getting rid of the most risky assets and significantly reducing their shipping exposure.”
Container Slump
German shipping lenders saw their assets devalued by as much as 18 percent in the ECB review, a senior executive with knowledge of the procedure said this week.
The prospect of writedowns stoked speculation that shipping lenders were at risk of failing the stress test as loans to the industry, which is struggling to emerge from a six-year slump in the container vessel market, soured.
HSH had 20 billion euros in shipping debt at the end of June, almost one-fifth of its total assets. In 2013, it posted a loss of 814 million euros, its biggest since 2008, as it set aside more funds to cover risky loans.
This year, it’s targeting a profit before and after tax, helped by relief in loan-loss provisioning, it said in July.
HSH’s owners, the states of Hamburg and Schleswig-Holstein, last year raised a guarantee to 10 billion euros from 7 billion euros to cover potential losses at the bank, a step the European Union approved on a preliminary basis in June 2013. Final EU approval is conditional on the bank demonstrating that it has viable business model.
State Guarantees
“The replenishment of the guarantee from 7 to 10 billion euros by the federal states of Hamburg and Schleswig-Holstein in summer 2013 made a substantial contribution” to HSH passing the ECB test, the bank said in a statement today.
HSH’s 6.1 percent ratio in the ECB’s adverse scenario means the bank “needs to think about how to improve its capital position in that respect in the medium term,” Andreas Plaesier, a banking analyst at M.M. Warburg, said by phone from Hamburg.
Commerzbank had a CET1 ratio of 8 percent in the adverse scenario of the ECB’s stress test, which assessed banks’ ability to withstand shocks, while NordLB had 8.8 percent.
German banks “shouldn’t rest on their laurels,” said Elke Koenig, the president of German financial regulator BaFin, in a statement referring to the 24 German lenders that came under the ECB’s scrutiny. Caution is still needed in market segments such as shipping and real-estate finance, she said.
Only one of the 24 German banks failed the stress test: Muenchener Hypothekenbank eG. Steps taken this year mean it “more than meets” capital requirements set by the ECB, the Munich-based property lender said in a statement.