Agreement reached in EU proceedings: relief for HSH Nordbank

Hamburg/Kiel, March 21, 2016 - The European Commission (EC) and the Federal Republic of Germany have reached an agreement in the state aid proceedings of HSH Nordbank. In principle today’s decision is in line with the informal agreement that the negotiating partners reached on 19 October 2015. This means all open questions relating to HSH Nordbank’s balance sheet have been resolved, including the valuation of the portfolio to be transferred to the federal states of Hamburg and Schleswig-Holstein.

“The European Commission and the German Government have reached a sustainable agreement for the Bank. With the upcoming privatisation we have our sights on a challenging course and a joint goal," said Constantin von Oesterreich, Chairman of the Management Board of HSH Nordbank AG.

In the course of this transaction the Bank will report a common equity Tier 1 ratio (CET-1) of more than 12 percent in 2016, which is an adequate figure based on a market comparison. The negotiating partners have agreed that HSH Nordbank will transfer a portion of its legacy assets to the sphere of the majority shareholders Hamburg and Schleswig-Holstein, that it will sell further non-performing loans on the market and that it will at the same time pay lower fees for the guarantee to the federal state shareholders.

Specifically, the federal states will take on portfolios with a size of initially EUR 5 billion at mid-year, as planned, at transfer prices determined by the EC. The Bank will moreover be able to sell an additional volume of up to EUR 3.2 billion in non-performing loans on the market and immediately offset the resultant losses against the guarantee. Moreover, the Bank will continue to reduce its legacy assets further, as it has been doing for years.

In addition, according to the EC's ruling, HSH Nordbank is to be privatised by 2018. This may happen through a sale to strategic investors from Germany or abroad and also with the participation of other landesbanks. Hamburg and Schleswig-Holstein will, according to the agreement, dispose of their majority stake although they will be allowed to retain a joint share of 25 percent for a period of up to four years.

The EC decision is based on the informal general agreement that was reached in October 2015: a key feature is the future structure of the guarantee fees in tandem with the estab-lishment of a holding company and an operating subsidiary that will continue all current business operations. The latter will receive relief from the guarantee fees since the base premium it will have to pay in future in return for the provision of the guarantee facility will in future be 2.20 percent per annum instead of 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 base premium currently totalling EUR 400 million per annum will decline considerably once all portfolio transactions have been fully implemented. Moreover, in contrast to the past, the operating company of HSH Nordbank will not incur any additional charges from other premium components.