November 30, 2017 / 3:17 PM / 15 days ago

Fitch: HSH Nordbank Cleans up Balance Sheet Ahead of Privatisation Deadline

(The following statement was released by the rating agency) FRANKFURT/LONDON, November 30 (Fitch) HSH Nordbank AG's (HSH) balance sheet clean-up and deleveraging progress should position the bank well for the upcoming negotiations on its privatisation, Fitch Ratings says. However, the success of the privatisation and the rating implications thereof will remain uncertain until the bidder's identity and intentions are disclosed and the sale is approved by the European Commission (EC). A sale needs to be agreed by end-February 2018 and requires a positive viability assessment from the EC over the course of 2018. Several undisclosed potential buyers have submitted binding bids for HSH at end-October 2017. HSH remained profitable in 9M17 with a modest pre-tax profit, as a EUR356 million revenue boost from bond sales helped offset restructuring charges and credit costs, which were no longer compensated by the guarantee from its federal owners. The profit and the deleveraging, driven by a reduction of the non-core portfolio's exposure at default to EUR14 billion, strengthened the pro forma CET1 ratio to 16.3%, according to the bank's calculations, excluding the risk-weighted assets (RWA) relief from the guarantee. The non-performing exposure (NPE) ratio declined significantly to 11.7% (17.5% end-2016) but remains one of the highest in the German banking sector. The non-core bank's shrinkage was primarily driven by the wind-down of non-performing shipping exposures by EUR3.2 billion since start of the year to EUR5.1 billion in 9M17, facilitated by a temporary recovery in shipping markets. In addition, exposure at default was reduced by EUR2.6 billion through market portfolio transactions in real estate, aircraft and renewable energy projects. Maintaining its wind-down momentum, HSH has set itself a more ambitious target of EUR11.8 billion exposure at default for its non-core bank by end-2017 without additional negative performance effects. Management also plans to maintain its wind-down efforts in cooperation with the new owner after the privatisation. New business increased EUR600 million yoy to EUR6.4 billion in 9M17, primarily driven by real estate and corporate clients and, to a lesser extent, by shipping, despite large early redemptions. This helps consolidate the core bank's franchise, which nevertheless remains highly concentrated on few industries. Lifting the existing restrictions on business activities post-privatisation could allow HSH's new owners to further adjust the business model during 2018 in a way that positively influences the EC's viability assessment. If HSH is privatised, it will have to leave the deposit protection scheme of the savings banks organisation with a grace period of two years and seek membership in the deposit insurance scheme of German private banks (Bundesverband deutscher Banken). Fitch will review HSH's ratings when more details about the privatisation are available. We believe a privatisation will strengthen the bank's Viability Rating. In addition, its Issuer Default Ratings (IDRs) post-privatisation would also depend on the new owner's ability and propensity to support. If the privatisation process is aborted, which we view as unlikely but still possible, we would expect HSH to be wound down in an orderly manner. Contact: Roger Schneider Director +49 69 76 80 76 242 Fitch Deutschland GmbH Neue Mainzer Strasse 46-50 Ioana Sima, CFA Associate Director + 44 203 530 1736 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. 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