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NORD/LB to sell Deutsche Hypothekenbank only with significant capital gain

Hanover, Germany-based Norddeutsche Landesbank Girozentrale, or NORD/LB, would sell Deutsche Hypothekenbank AG only if it would significantly boost its capital ratios, according to Deputy Chairman Hinrich Holm.

A potential sale of Deutsche Hypothekenbank, one of Germany's largest mortgage banks with €25 billion in total assets, was mentioned in a Süddeutsche Zeitung report and cited by other German media. A NORD/LB spokesman was quoted as saying it was too early to comment on specific units, but that the One Bank restructuring program announced in April included the review of all operations as well as existing subsidiaries.

Speaking on a first-quarter earnings call May 30, Holm said NORD/LB would only off-load the subsidiary if it had a tangible positive effect on the former's common equity Tier 1 ratio. He did not provide further details.

NORD/LB, which has struggled with losses related to the shipping sector, saw its first-quarter CET1 ratio fall to 10.46%, from 11.27% three months earlier and 13.07% at the end of 2015. Its total capital ratio stood at 15.19% at March 31, compared to 16.32% at Dec. 31, 2016. Its first-quarter leverage ratio, Holm told analysts, was 3.1% on a fully loaded basis.

The One Bank restructuring program is aimed at generating savings of between €150 million and €200 million by 2020 and helping NORD/LB return to profitability. The group, which is majority-owned by the German state of Lower Saxony, reported a full-year 2016 net loss of €1.96 billion after booking a more than fourfold increase in loan loss provisions. This was mainly related to shipping lender Bremer Landesbank Kreditanstalt Oldenburg-Girozentrale, which has been a fully owned subsidiary since January. The group expects to fully integrate Bremer Landesbank by the end of August.

NORD/LB increased its shipping loan loss provisions to €2.94 billion in 2016 from €916 million in the previous year. In the first quarter of 2017, the shipping loan loss provisions remained relatively high at €85 million, accounting for over two-thirds of the overall loan loss provisions for the period, of €126 million.

Nevertheless, total loan loss provisions in the first three months of this year were well below the €435 million booked for the same quarter of 2016. This helped NORD/LB swing to a €231 million first-quarter consolidated attributable profit. A year earlier, the bank reported a loss of €75 million.

For shipping finance risks in 2017, NORD/LB plans to set aside a sum in the range of the provisions made in 2013 and 2015, Holm said. This puts the amount somewhere between €676 million and €916 million.

NORD/LB is on track with the reduction of its shipping portfolio and expects to be able to lower its total exposure by around €3 billion in 2017. At the end of March, the total value of the portfolio was €15.9 billion, down from €16.8 billion at end-2016 and €19.0 billion at the end of 2015. It aims to further reduce the portfolio to between €12 billion and €14 billion by the end of 2018.