Several major banks' moves to sell their loans to private equity funds - including loans to Danish Torm that have been activated by Nordea, French BNP Paribas, and Danish Ship Finance - will influence the considerations currently being weighed by numerous German banks with significant exposure to the shipping industry, along with their accountants, sources from the industry tell ShippingWatch.
They point out that several well-known examples of major banks' exits from shipping portfolios will trigger a much greater activity in German shipping in 2014 than seen so far during the crisis in terms of ship and loan divestments.
And recent information made available by the media, for instance regarding how much Nordea has paid to get out of Torm, will have an impact on the many strained German shipping banks that have - according to widespread opinion - been far too restrained in terms of performing the necessary deferrals in their ledgers, and which have so far been able to convince their accountants that the drastically declining ship values constitute a temporary phenomenon, insisting that values would rise again.
"For a long time the major accounting firms bought into the German banks' explanations. Now we're looking at a situation where certain banks in large syndicates, as in Torm, for example, have started divesting their lending stakes at around 60-70 cent to the dollar. This does not fit with the fact that German banks have till now demanded 90 or 95 cent to the dollar, and the banks' accountants are now questioning this development big-time. This has increased the pressure on the banks significantly," says a centrally placed source who, like several other international equity funds and shipping interests, is currently circling investments and business opportunities in Germany.
The European Central Bank (ECB) will soon take over supervision of approximately 150 major banks. This happens as a consequence of the banks' behavior ahead of the global financial crisis in 2008, and the process increases the requirements for the banks' capital resources - and many German shipping banks - in particular - fear the result of this development.
Rating bureau Moody's estimates that eight German banks have combined loans for more than USD 136 billion, that one fifth of these loans are problematic, and that loan loss provisions will remain at a high level throughout 2014. HSH Nordbank, KfW IPEX Bank, and NordLB are particularly exposed to shipping.
"The consequence of this development is that the banks in 2014 will increase their deferrals on shipping, and this will ultimately result in more divestments of both lending commitments as well as ships, when loan after loan is scrutinized to discern whether the asset values are market based. As such, we're going to experience a significantly larger scope of activity in 2014 than we've seen during recent years," says one source, adding that the painful process will begin now, after the banks have published their annual reports and financial results for 2013.
Nordea Head of Shipping, Hans Christian Kjelsrud, recently confirmed to ShippingWatch that the bank had pulled out of its lending commitment to Torm - a loan estimated by several media to be worth approximately USD 166 million.
According to ShippingWatch's information, Nordeal sold its Torm loan at around 60-70 percent, meaning that the bank lost approximately one third of the original figure paid out. Thus the figure - according to sources ShippingWatch has spoke to - was fairly low, a factor indicating that Nordea had a similarly low faith in Torm.
And major French bank BNP Paribas also recently sold its stake of USD 119 million in Torm to a series of financial investors, allegedly at a similarly low price as Nordea.
German HSH Nordbank, one of the world's biggest lenders to the shipping industry, recently merged the three German companies Ahrenkiel, MPC, and Thien & Heyenga in a move to cut a sizeable chunk of the bank's total commitment to financially struggling Ahrenkien. The bank - which in 2013 increased its loan loss provisions in shipping to EUR 882 million, up from EUR 656 million in 2012 - warned a few months ago that German shipping might face one or more large-scale collapses among major shipowners and operators, and that several players are either headed toward or nearing insolvency.