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German banks: shipping's next victim?

Friday, September 16, 2016 - 01:43

German banks are counting the cost of the global shipping crisis that has already claimed Hanjin as a victim, with their exposure thought to amount to $100 billion of loans. As Ivor Bennett reports, a worsening in the crisis could land them with huge losses.

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The shipping industry is used to riding the waves of commerce. But perhaps not as rough as this. The collapse of Hanjin the latest sign of an industry taking on water. SOUNDBITE (English) JUSTIN URQUHART STEWART, HEAD OF CORPORATE DEVELOPMENT, SEVEN INVESTMENT MANAGEMENT, SAYING: "We saw the boom in trade, and the result is, there was a shortage of capacity. Inevitably further capacity was built. When that boom drops down, you've now got excess capacity. Always a good measure for this is to stand at the Straits of Singapore and just count how many ships are riding high on their anchor. And at the moment, that figure is looking pretty high." It's a similar sight off the coast of South Korea. Before the financial crisis, a ship like this could earn over 200,000 dollars a day. Now it's lucky to get 15,000. SOUNDBITE (English) JUSTIN URQUHART STEWART, HEAD OF CORPORATE DEVELOPMENT, SEVEN INVESTMENT MANAGEMENT, SAYING: "Whereas you used to have long distance manufacturing, therefore requiring long-distance shipping, you're now seeing a greater focus on shorter areas of delivery. Therefore not such demand for longer term." It's not just the shippers who are in trouble, but their lenders too. German banks are among the most exposed. Collectively, it's thought they're behind up to 100 billion dollars of outstanding loans. SOUNDBITE (English) JUSTIN URQUHART STEWART, HEAD OF CORPORATE DEVELOPMENT, SEVEN INVESTMENT MANAGEMENT, SAYING: "I'm afraid that a lot of banks are going to be exposed to this, both on a primary basis - of lending they've carried out directly to this particular company but others - but also on a secondary basis, because a lot of these debts would've actually been passed around other banks. So they'll be significant issues of write-offs going through the banking system at the moment." The scale of the losses may depend on how strict the ECB is. And whether they force the banks to set aside any capital. In the meantime, attempts to offload the debt are at full pace. But given the toxic nature of the cargo, that may take some skill.

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German banks: shipping's next victim?

Friday, September 16, 2016 - 01:43