UPDATE 1-HSH owners to cut stake below 50 pct by 2014

* Hamburg, Schleswig Holstein to cut stake below 50 pct by 2014 * HSH CEO sees IPO, strategic partnership as options * HSH posted a 700 million euro ($962 million) loss in 2009

(adds detail, background)

HANNOVER, March 16 (Reuters) - HSH Nordbank's [HSH.UL] chief executive said he expects the current owners to cut their stakes in the loss-making lender below 50 percent by 2014, opening the way to a consolidation of Germany's troubled Landesbank sector.

The German government has long pushed for mergers among the Landesbanks, which are owned by the federal states and local savings banks, but regional politics and disagreements on how to proceed have slowed reform.

But continued losses and the strong arm of the European Union may lead force change in one of most entrenched parts of the German banking sector.

HSH, which specialises in shipping finance, has cut its net loss in 2009 down to 700 million euros from a 2.8 billion euro loss in 2008, the bank said.

The Hamburg-based lender hopes to win European Union approval for a restructuring plan by mid-year, chief executive Dirk Jens Nonnenmacher said late Monday in remarks released early Tuesday.

HSH is considering an initial public offering or a strategic partnership as the owners cut their 85 percent stake to below 50 percent by 2013/2014, Nonnenmacher said.

EU anti-trust regulators have already demanded a change in ownership at rival Landesbank WestLB [WDLG.UL], and need to sign off on the bailouts of BayernLB [BAYLB.UL] and LBBW [LBBW.UL].

Nonnenmacher has been tasked with returning the bank to profitability but HSH remains dogged by regulatory problems and management turmoil. [ID:nGEE5B30ZM] [ID:nLA724318]

HSH's majority owners, the city state of Hamburg and the state of Schleswig Holstein, were forced to prop up the lender with 10 billion euros in guarantees and a capital injection of 3 billion euros.

Even relatively sophisticated investors like J.C Flowers made huge losses from their investment in HSH, one of the first Landesbanks to allow an outside investor to take a minority stake.[ID:nN21180325]

HSH's core capital ratio was at 10.5 percent at the end of 2009, the bank said.

Landesbanks expanded into higher-margin but risky investment banking activities after the European Commission imposed a ban on state guarantees in 2005, crimping their ability to lend to firms at razor-thin margins.

Landesbanks traditionally provide treasury, capital markets, and transaction processing services for local savings banks.

(Reporting by Arno Schuetze in Hanover and Edward Taylor in Frankfurt, +49 69 7565 1187; edward.taylor@thomsonreuters.com) ($1=.7274 Euro)