When most recently reporting on the latest European banking crisis, yesterday we observed a surprising development involving Deutsche Bank, namely the bank’s decision to quietly liquidate some of its shipping loans. As Reuters reported, “Deutsche Bank is looking to sell at least $1 billion of shipping loans to lighten its exposure to the sector whose lenders face closer scrutiny from the European Central Bank.
“They are looking to lighten their portfolio and this includes toxic debt. It makes commercial sense to try and sell off some of their book,” one finance source said. Deutsche Bank, which has around $5 billion to $6 billion worth of total exposure to the shipping sector, declined to comment.”
This confirms what had long been speculated, if not confirmed, namely that German banks have been some of the biggest lenders to the shipping sector, a sector which has since found itself in significant trouble as a result of the ongoing slowdown in global trade.
And now, it appears that some shipping loans gone very bad could be the catalyst for Europe’s banking crisis to finally breach the most impenetrable border of all, that of Germany.
Because it is in Germany where we find what may be the next domino to fall as part of Europe’s latest banking crisis incarnation: Bremen Landesbank.
Several weeks ago, the FT reported that the German Landesbank NordLB was considering taking full control of its smaller peer Bremer Landesbank (BLB), which is struggling under the weight of a portfolio of bad shipping loans. BLB, in which NordLB already owns 54.8%, warned last week that it would have to take a €400m writedown on its shipping portfolio, and that as a result it was facing a “mid-triple-digit million loss” this year.
As the FT added, the admission prompted concerns about the health of the Bremen-based bank, which had €29bn in assets at the end of 2015, and BLB’s owners have since been holding talks on how to bolster the stricken lender’s capital position.
In a statement made one month ago, NordLB’s chief executive, Gunter Dunkel, and Bremen’s finance minister, Karoline Linnert, said that BLB’s owners — NordLB, the city of Bremen, and the savings banks association in Northrhine Westphalia — had agreed to keep BLB’s capital “intact at an appropriate level”. “The form and size of the capital increase are currently being intensively discussed,” NordLB and the city of Bremen said. “The necessary decisions will be carried out by the end of 2016.”
The market quickly read, and internalized the news, then promptly moved on: after all, with a bigger backer set to rescue the bank, there is nothing to worry about.
Just one problem: that may no longer be the case.
In an article released moments ago by Germany’s Handelsblatt titled a “Capital increase for ailing Landesbank is questionable“, the German paper writes that “shipping loans have brought Bremer LB into distress and the bank can not survive without government help, but a direct capital injection from Lower Saxony now looks unlikey.”
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