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NORD/LB to absorb Bremer Landesbank as shipping-loan losses bite

Norddeutsche Landesbank Girozentrale reported a consolidated net loss of €1.96 billion for the 2016 full year, compared to a year-ago net profit of €518 million, after booking a more than fourfold increase in loan-loss provisions.

The German lender provisioned €2.96 billion for loan losses during 2016, up from just €698 million the previous year. Net interest income declined to €1.74 billion from €1.97 billion in 2015, while net commission income also dropped year over year to €219 million from €234 million.

NORD/LB set aside €2.94 billion for ship-financing risks in 2016, compared to €840 million a year earlier. This "huge increase in the risk provisioning for ship financing" mainly relates to subsidiary Bremer Landesbank Kreditanstalt Oldenburg-Girozentrale, which NORD/LB will now move to absorb to "obtain the maximum synergies" and help cut costs by €150 million to €200 million by 2020-end.

While Bremer Landesbank will be fully merged with NORD/LB in organization and legal terms, the business will continue to operate under its own brand and will in future concentrate mainly on corporate customers, private banking and energy financing in Germany. Ship financing, which was previously run as a separate business segment at both banks, will be brought together at NORD/LB, as well as the two banks' capital markets businesses.

NORD/LB said it reduced its shipping-loan portfolio to €16.8 billion in 2016 from €19.0 billion and aims to further reduce its size to between €12 billion and €14 billion by 2018-end. The bank noted that it would have reached its target of reducing the portfolio by €3 billion in 2016 had it not been for the appreciation of the dollar against the euro.

ROE reached negative 24.5% in 2016, compared to 8.7% a year earlier.

The common equity Tier 1 ratio stood at 11.3% as of Dec. 31, 2016, down from 13.1% at the end of the previous year ago but "still significantly exceeding" regulatory requirements. NORD/LB must reach a minimum CET1 ratio of 8.33% under the ECB's Supervisory Review and Evaluation Process.

NORD/LB said it "got off to a very good start" in 2017 and expects to end the first quarter with a positive result. The bank added that it will "continue to have to cope with heavy burdens from the shipping crisis in the coming quarters," but nevertheless expects to post a full-year profit in 2017.