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 2018

As in other sectors, 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 scrapping or decommissioning. On the other hand, demand is impacted by various macroeconomic factors depending on the market segment. Demand for maritime transport generally correlates strongly with trends in international trade, more than 80% of which is conducted by sea.

The improved overall market position from the previous year was consolidated in 2018. Fleet growth in the shipping segments relevant to portfoliomanagement remained limited amid solid growth in demand.
However, economic risks caused by the trade dispute between the USA and China, recent Iran sanctions, a lack of clarity over Brexit and weaker economic data from countries such as Germany increased during the summer months. As a result, the charter market for container ships in particular cooled noticeably in the second half of the year. While maritime trade volumes ultimately grew by around 2.7% for the year as a whole, this growth clearly lagged behind global economic output of approximately 3.7%.

Over the year as a whole, the container and bulk shipping segments recorded further improvements in average charter rates and ship prices compared to the previous year’s figures. While the first half of the year was once again negative for tanker shipping, this segment recorded significant improvements towards the end of the third quarter and in the fourth quarter in particular. However, it should be noted that portfoliomanagement’s portfolio is dominated by container ships. The following sections provide a more detailed view of the individual market segments.

OUR COURSE OF BUSINESS IN 2018

  • Reduction of the Portfolio Continued by 41 ships in 2018 to 173 shipS

  • PM ACHIEVED AN OPERATING RESULT AND SHOWS NET PROFIT OF EUR 15.1 MIO. FOR 2018
  • REDUCTION OF LOAN PORTFOLIO OF EUR 245 MIO. BY REPAYMENTS AND GENERATED PROCEEDS

The business activities and results of portfoliomanagement in financial year 2018 were dominated by comprehensive measures to restructure the loan portfolio. The entity achieved extensive success in reducing the loan portfolio during financial year 2018. For financial year 2018, portfoliomanagement reported a positive result before loan loss allowances and provisions, and before foreign currency translation of EUR 8.6 million (previous year: EUR -32.9 million). Net interest and net commission income totaling EUR 33.6 million (previous year: EUR 0.6 million) and net other comprehensive income of EUR 3.1 million (previous year: EUR 0.9 million) were reduced by other administrative expenses of EUR 21.4 million (previous year: EUR 28.4 million) and by personnel expenses of EUR 6.6 million (previous year: EUR 5.9 million). The decline in other administrative expenses is primarily attributable to lower expenses for establishing and developing the organizational structure (EUR -4.1 million), material outsourcing costs (EUR -1.4 million), register corrections (EUR -1.4 million) and legal consulting services (EUR -1.1 million). The gains realized as part of the restructuring measures resulted in a positive net result from loan loss allowances and provisions of EUR 7.3 million (previous year: EUR -2.4 million). Together with a slight negative result from foreign currency translation of EUR -0.8 Million (previous year: EUR -9.1 million), this resulted in a net income for the year of EUR 15.1 million (previous year: net loss for the year of EUR 44.4 million). On the whole, business performance in 2018 was substantially better than projected, primarily as a result of the restructuring measures implemented in connection with credit exposures. While net interest and net commission income was almost in line with plans overall, administrative and personnel expenses were lower than projected. Other comprehensive income was higher than expected, as the entity received significant reimbursements from customers for legal consulting costs and Portfolio insurance. Net interest and net commission income benefitted from successful restructuring during the financial year under review, which caused the result to exceed the target figure. On the other hand, higher interest expenses had an adverse impact on the bottom line due to the stronger-than-planned rise in US dollar LIBOR. By far the largest portion of the stronger than expected decrease in administrative expenses was achieved because project budgets were not fully utilized. Personnel expenses were lower due to the lack of recruitment resulting from strategic developments, contrary to original expectations. In particular, the successfully completed restructuring contributed significantly to the fact that loan loss allowances and provisions developed significantly better than expected. Overall, all of the entity’s earnings drivers helped to generate an unexpected net income for the year.

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.