German shipping lender Nord/LB is pulling out of ship financing as it looks to restructure with a capital injection of EUR 3.5bn ($3.9bn).
The bank hopes to push through a refinancing deal involving its state owners and the German Savings Banks Association (DSGV) in the third quarter.
It has been shedding non-performing loans (NPL) in shipping at a fast rate and has taken huge provisions on the maritime book in recent years.
"Nord/LB will fully withdraw from ship financing," it said on Thursday.
It will focus on energy, infrastructure, property and aircraft.
The shipping portfolio has been slashed to EUR 10.3bn, from EUR 16.9bn at the end of 2016.
Owing to the run-down of bad loans from ship financing, it set aside additional risk provisions of EUR 1.89bn last year, compared to EUR 991m in 2017.
This brings the running total to EUR 4.9bn, equivalent to a core risk coverage of 65% for the NPL portfolio, which stood at EUR 7.5bn at year-end.
If the market value of the ships is also taken into consideration, core risk coverage is 123%.
Urgent run-down of bad loans
"The NPL portfolio is to be run down as a matter of urgency," the bank said.
The bank has agreed to sell one of its ship-financing portfolios to Cerberus for about EUR 2.7bn.
Nord/LB was said to have been marketing two ship loan portfolios — called Big Ben and Tower Bridge — worth EUR 2.5bn and EUR 4bn, respectively.
The pre-tax loss for 2018 was EUR 2.35bn, against profit of EUR 195m the year before, while shipping woes pushed the net loss to EUR 2.1bn.
“Such a heavy loss for 2018 is painful,” said Thomas Burkle.
“But ridding ourselves of bad loans from ship financing will give us a new start. We now have clarity regarding the bank’s future path.
"We will combine the strengths Nord/LB is known for as a financier of SMEs with particular expertise in structured financing.”
Burkle added: "Overall, Nord/LB has not only scaled back its ship loan volume to a significant degree; it has also provided a comfortable cushion for the remaining NPL portfolio, so that no more expenses are expected in this regard in future."
Net interest income amounted to EUR 1.28bn, down from EUR 1.42bn in 2017.
There was a substantial drop in earnings from the ship financing portfolio in particular, it said.
Restructuring billions poured in
The refinancing will see the federal state of Lower Saxony pump in roughly EUR 1.5bn and Saxony-Anhalt put in another EUR 200m. DSGV will provide EUR 1.13bn.
Lower Saxony will also be contributing EUR 800m in capital relief measures.
The EU Commission has yet to conduct a state-aid assessment of these moves.
The bank intends to become profitable by 2020 at the latest, it said.
