HSH Nordbank to dispose of portfolios – guarantee fee down significantly – Laender agree on privatisation

• EU approves € 10 billion guarantee
  
• New guarantee fee structure provides relief
  
• Federal states to take on up to € 6.2 billion in legacy assets
  
• Further portfolio disposals of € 2 billion on the market
  
  

Hamburg/Kiel, October 19, 2015 - The public-sector shareholders in HSH Nordbank and the EU Commission have reached an agreement in principle involving direction-setting strategic steps in the state aid proceedings.

This includes a large disposal of HSH Nordbank’s legacy assets to its majority shareholders, the federal states of Hamburg and Schleswig-Holstein, as well as disposal of further non-performing loans on the market and setting off the losses against the guarantee. At the same time, HSH Nordbank’ operating company will pay significantly lower fees on the guarantee under its new structure. The outcome will strengthen the capital and risk profile of HSH Nordbank’s operating company substantially.

HSH Nordbank’s second state aid proceedings have thereby been resolved in principle: the EU will confirm its provisional authorisation of the re-increase of the guarantee from € 7 t0 € 10 billion issued in 2013. Furthermore, the path will in the medium term be cleared for HSH Nordbank to have a new shareholder structure, which can of course also happen with the active participation of other landesbanks.

The final decision, including details of the options for disposal and processes, will be based on today’s agreement. Privatisation of the operating company shall occur within 24 months from the binding decision of the EU Commission; the Bank expects this decision to be taken in the first half-year 2016. This deadline may be extended by six additional months due to reasons not under the control of the Bank and the states. Following this privatisation, the federal states of Hamburg and Schleswig-Holstein will be permitted to retain a 25-percent stake for up to four years.

“This agreement in principle is extremely important and demonstrates the constructive willingness of all concerned parties. The Bank will be better able to deploy its capabilities, and to show this, once relieved of major legacy assets. This will mean more stability as well as planning certainty for shareholders, staff and clients and thereby a stronger position in the marketplace. The substantially lower guarantee fees and future easing of adverse portfolio items will in addition improve the quality of our earnings," said Constantin von Oesterreich, Chairman of the Management Board of HSH Nordbank AG.

A key point of the agreement with the EU Commission involves the future structure of the guarantee fees, which will tie in with the establishment of a holding company and an operating subsidiary, which will continue to run all of today’s business. The latter will thereby be substantially relieved of the guarantee fees given that the base premium it will have to pay annually in future for provision of the guarantee facility will be 2.20 percent rather than previously 4.00 percent in cash. This will be paid to the federal states of Hamburg and Schleswig-Holstein based no longer on € 10 billion, but rather only on the proportion of the guarantee not drawn upon as it drops in the wake of utilisation.

The plan provides for the base premium of currently € 400 million to drop to about € 100 million per annum following complete implementation of the portfolio transactions. The additional premium that has applied up to now will no longer do so under the new structure for the operating company. In detail, the federal states will take on portfolios amounting up to € 6.2 billion at market prices; the Bank will be able to dispose of a further € 2 billion worth of non-performing loans on the market. This will cut the total of non-performing loans of currently more than € 15 billion by more than half. The Bank will furthermore continue, as it already has been doing for years now, to steadily reduce its legacy assets.

“All in all, there will be a sustained improvement in the financial and risk profile of HSH Nordbank. Our exposure to the shipping business, which has been crisis-prone for years, and thus also to the US dollar will decrease significantly. There will also be a drop in charges due to the guarantee premiums. The guarantee will be less complex and will in future no longer have a distorting impact on our income statement. We will thus substantially strengthen our position on the capital market,” said Stefan Ermisch, Deputy Chairman of the Management Board and Chief Financial Officer of HSH Nordbank AG.

The state parliaments of Hamburg and of Schleswig-Holstein in Kiel have yet to approve the agreements.

HSH Nordbank has paid base premium of about € 2.5 billion in cash to its guarantors Hamburg and Schleswig-Holstein since 2009. The business model of HSH Nordbank has in recent years proven itself in the marketplace, having brought about a return to profit in 2014. The Core Bank's operating income stripped of all guarantee and exceptional items as well as legacy assets rose to € 268 (previous year: 236) million after the first half of 2015, thereby showing that the business model – when relieved of legacy assets – is heading in the right direction. At Group level, the Bank earned pre-tax profit of € 222 (432) million as at 30 June; after taxes the result came to € 147 (301) million.