HSH Nordbank battles for survival

HSH Nordbank, one of Germany's few remaining state-owned Landesbanks, is set to reveal its worst set of results since 2008 on Thursday, with an annual net loss close to €800m, according to people familiar with the lender's figures. 

That will widen the gulf further between the stronger and the weaker of the five Landesbanks left in Germany after the financial crisis: Frankfurt-based Helaba and Stuttgart-based LBBW last week both reported strong profits for 2013. On the weaker side, Hannover-based Nord LB is grappling with an overexposure to shipping, while BayernLB in Munich still needs to sell its lossmaking Hungarian arm. HSH declined to comment on the bank's results.

The Hamburg and Kiel based group is battling on multiple fronts. It needs to reduce its bulging shipping portfolio, which still accounts for a fifth of the bank's overall exposure and has mostly been shunted into the so-called bad bank. Battered by the global downturn in shipping after the financial crisis, the lender took fresh loan loss provisions late last year, in part in an attempt to prepare for the European Central Bank's stress tests.

Its results for 2013 will also be hampered by charges taken in the fourth quarter after the bank discovered "suspicious" transactions by its proprietary trading desk in so-called dividend stripping practices that could attract a fine.

HSH is also paying hundreds of millions of euros a year in return for €10bn in state guarantees from its two majority state owners, granted on a provisional basis last year by the European Commission.

The crucial question is whether the ECB will take this guarantee into account in the stress tests. While bankers at HSH are confident it will, the central bank has yet to make clear exactly how it will conduct the probe, which is due to begin this summer.

However the lender is trying to move forward, building up corporate and real estate lending to diversify its portfolio and reduce the reliance on shipping. Convincing regulators that it has a viable new business model is one of HSH's main tasks, with the bank hoping to show on Thursday it has grown new lending enough to satisfy the commission. HSH bankers will meet Brussels officials in the coming weeks to discuss its future, with the bank hoping to secure a permanent approval from the commission for its state guarantees by the end of this year.

Some analysts have speculated that a merger could still be on the cards - with close neighbour Nord LB seen as a possible candidate. Political resistance to winding down a Landesbank is generally high: local politicians sit on the supervisory boards of their state-owned banks and have historically viewed their institutions with regional pride.

Still, not all shareholders are against the idea. The head of the savings banks association that owns 5 per cent of HSH said earlier this year he would welcome a merger of the two shipping groups - prompting Gunter Dunkel, the head of Nord LB, to state he thought it was a bad idea.

If HSH is allowed to carry on, this year could offer some comfort: insiders at HSH believe that while 2013 was a period of upheaval, 2014 will see it turn a profit again.

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