Our Portfolio

In order to relieve the bank’s balance sheet of distressed loans, Hamburg Commercial Bank AG (formerly HSH Nordbank AG) economically transferred to portfoliomanagement a portfolio of non-performing shipping loans with effect from 1 July 2016. The original exposure at default (EaD) as at the reporting date of 31 December 2015 amounted to about five billion euros. After restructuring measures and adjustments to the portfolio, an EaD of about 4.1 billion euros was transferred. The purchase price amounted to about 2.4 billion euros, which was the value established by the European Commission as the maximum permissible purchase price under the state-aid scheme.

Composition of the Initial Portfolio

The portfolio transferred (“Initial Portfolio”) consisted of 590 loan agreements with 193 borrowers. The funds had been used to finance 256 ships (as at the reference date of 31 December 2015) which serve as collateral. At the time of the transfer, 253 ships were transferred as collateral to portfoliomanagement. The three other ships were excluded from the portfolio due to sale or reclassification. About two thirds of the ships involved are container vessels, tankers and bulkers and to a smaller extent other types of ships. Due to the continual reduction of the portfolio, the number of ships in the portfolio is gradually declining. The overview below shows a classification of the Initial Portfolio.

The vast majority of the portfolio’s ship collateral consists of 158 Container vessels making up 62 per cent of the portfolio, followed by 46 Tankers (18 per cent)  and 24 Bulkers (10 per cent). Finally, the portfolio contains 25 MPP (multipurpose) and general cargo vessels representing 10 per cent of the collateral in the portfolio.

Overview of the shipping markets in 2020

Prices on the shipping markets are primarily determined by the relationship between supply and demand.
In shipping, this means the balance between the amount of available tonnage and the demand for maritime transport capacity. The amount of available tonnage is calculated based on the total transport capacity of the relevant fleet. It increases when new ships are delivered and decreases when ships go out of service, usually as a result of demolition or decommissioning. On the other hand, demand is impacted by various segment-specific macroeconomic factors depending on the market segment. Across all segments, demand for maritime transport generally correlates strongly with trends in international trade, more than 80% of which is conducted by sea.

The coronavirus pandemic was the dominant issue for global merchant shipping in 2020. The individual segments were affected by the global containment measures in different ways, with the container and tanker markets in particular showing quite significant, but also completely divergent, reactions. In contrast, the introduction of the global sulphur cap at the beginning of the year, which was still expected to be an important influencing factor in the previous year, receded into the background.

 

OUR COURSE OF BUSINESS IN 2020

  • REDUCTION OF THE PORTFOLIO CONTINUED BY 10 SHIPS IN 2020 TO 144

  • REDUCTION OF LOAN PORTFOLIO OF EUR 147 MIO. BY REPAYMENTS AND GENERATED PROCEEDS

The business activity and the annual result of portfoliomanagement were characterised by the management of the loan portfolio and its performance in the 2020 financial year. The first half of the year was strongly marked by the negative impact of the coronavirus pandemic on the global economy and on the shipping markets relevant to portfoliomanagement. During the second half of the year, the general conditions – especially in container shipping, the most important ship segment for portfoliomanagement due to the volume of receivables and the number of financed ships brightened considerably in favour of the borrowers of portfoliomanagement. Furthermore, in the first half of 2020, portfoliomanagement completed the transfer of essential administrative activities to support portfolio processing to the new service provider IBM Deutschland GmbH (hereinafter “IBM”) and the migration of the loan and treasury portfolios to its IT systems. This laid the foundation for a significantly reduced cost base for servicing the loan portfolio in the future.

The business performance of portfoliomanagement was strongly influenced by the coronavirus pandemic in the past financial year. A crisis team was set up at the beginning of the pandemic in order to be able to assess the impact on portfoliomanagement at any time. portfoliomanagement introduced various measures to protect its employees and business partners against infection and comply with the regulations issued by the authorities. This involved, among other things, establishing a working-from-home concept for staff with most staff working temporarily largely from home and business trips no longer taking place.
Staff also monitored the effects of uncertainties in the market environment on the loan portfolios of portfoliomanagement.

In particular, they analysed the effects of the coronavirus pandemic on the market values and charter rates of the ships and the respective loan loss allowances and provisions on an ongoing basis.
The negative economic and industry developments caused by the pandemic had a significant negative impact on the shipping markets following the outbreak of the coronavirus pandemic and the collapse of world trade in the first and second quarters, which were then close to historic lows. In the first half of the year, considerable additions to portfoliomanagement’s loan loss allowances and provisions were necessary. From the third quarter onwards, there was a recovery in the shipping markets. In addition, portfoliomanagement adjusted the strategic resolution plan to more short- and medium-term disposal scenarios.

In 2020, portfoliomanagement reported a result before loan loss allowances and provisions and foreign currency translation of EUR 9.8 million (previous year: EUR 0.2 million). This was mainly due to a significant increase in net interest income and net commission income to a combined total of EUR 26.7 million (previous year: EUR 23.1 million), which was offset by sharply reduced general administrative expenses of EUR 18.4 million (previous year: EUR 25.0 million) In the past year, there was a significantly negative net result on loan loss allowances and provisions of EUR -243.6 million (previous year: EUR -5.3 million), in particular due to the high allocations to provisions required in the second quarter of 2020 as a result of the pandemic. Together with a moderate net loss on foreign currency translation of EUR 0.8 million (previous year: EUR 0.4 million), this resulted in a net loss for the year of EUR 234.6 million (previous year: EUR 5.5 million).

 

You will find the most frequently asked questions here.

WHAT IS AN “EXPOSURE AT DEFAULT”, EAD?

The Exposure at Default (EaD) denotes the amount of the existing loan receivables at the time a borrower defaults. A borrower is deemed to have defaulted if they have delayed the payment of interest and the repayment of capital for more than 90 days.

DO FLUCTUATIONS OF THE U.S.-DOLLAR EXCHANGE RATE AFFECT THE SUCCESS OF PORTFOLIOMANAGEMENT?

portfoliomanagement is not exposed to a direct currency risk, as the portfolio was acquired with a currency-matching refinancing, so that there are no open foreign exchange positions in the long term. A large portion of the ship loans administered are denominated in U.S. dollars and reported in euros. A rise in the value of the dollar will thus increase the reported outstanding receivables volume. By analogy, a fall in the value of the dollar will reduce the receivables volume.

HAS THE SCOPE OF PORTFOLIO TRANSFER BEEN FULLY UTILIZED BY HAMBURG COMMERCIAL BANK (FORMERLY HSH NORDBANK AG)?

Hamburg Commercial Bank (formerly HSH Nordbank AG) has so far not fully utilized the scope for portfolio transfer granted by the European commission. At a later time, a further sub-portfolio with a receivables volume of up to about 1.2 billion euros (in terms of the EAD as at 31 December 2015) could be acquired. The market value of this additional portfolio would then have to be determined separately, as the transfer values determined by the European Commission ceased to be relevant on 1 September 2016.

HOW WAS THE MARKET VALUE OF THE PORTFOLIO DETERMINED?

From the point of view of budgetary law, the states of Schleswig-Holstein and Hamburg engaged their own auditor.To verify whether the market value of the loan portfolio as at 30 June 2016 on the basis of the documents provided by Hamburg Commercial Bank (formerly HSH Nordbank AG) reached at least the figure of EUR 2,426,724,041.42 which resulted from the figures determined by the European Commission. On 30 June 2016, the auditor reported: “According to our assessment on the basis of the findings of our audit, the market value of the credit portfolio as at 30 June 2016, based on the documents provided to us in the Hamburg Commercial Bank (formerly HSH Nordbank AG) data room, amounts to at least the value of Euro 2,426,724,041.42 which resulted from the figures determined by the European Commission.” The transaction was thus lawful from both the State Aid and budgetary law points of view.

WHAT IS A FEEDER / FEEDER-MAX CONTAINER VESSEL?

Feeder and feeder-max are smaller vessels serving as feeder and distributor of containers and cars for large seagoing ships and seaports, where the routes are not navigable or are uneconomical for large ships.

WHAT IS A HANDY / HANDY-MAX CONTAINER VESSEL?

Handy and handy-max are smaller container vessels with shallow draught. They are suitable for smaller ports that cannot be called at by larger container vessels.

WHAT IS A PANAMAX / SUB-PANAMAX- CONTAINER VESSEL?

Sub-Panamax and Panamax are medium-sized container vessels which were already able to travel through the Panama Canal prior to its widening. Post-Panamax and Super-Post-Panamax make up the second largest container vessel category for the transport of large volumes of containers and can call at only a few large ports.

WHAT ARE CRUDE OIL TANKER / CHEMICAL TANKER / PRODUCT TANKER?

Crude oil tanker are larger tanker mainly used for the transport of unrefined crude oil, e.g. from drilling rigs to refineries. Product/chemical tanker are larger tanker used for the transport of various fluid chemicals and other sensitive products such as palm oil. Product tanker are smaller tanker used, among other things, for the transport of higher-grade products (diesel oil, heating oil etc.) from refineries to consumer-facing ports.

WHAT IS A BULK CARRIER / OPEN HATCH CARRIER?

Bulk carriers are used for the transport of loose (non-liquid) bulk goods such as ore, coal, grain, etc. Open hatch carriers are special bulk carriers open at the top for the transport of bulk goods and containers. The open construction facilitates loading and unloading of specific commodities.

WHAT IS A MPP / GENERAL CARGO VESSEL?

MPPs are multipurpose vessels that can be used both for the transport of various goods and as a working vessel. They often have their own loading gear. General cargo vessels carry various goods such as chemicals, food, machinery, clothes, etc.

WHAT IS THE AVERAGE AGE OF THE VESSELS?

The average age of the vessels in the Initial Portfolio was 9.3 years. Due to the reduction of the portfolio, the average age is subject to constant change.