13 Billion Euro Bailout Germany's HSH Nordbank Saved from Collapse

After losing almost 2.8 billion euros in 2008, shipping lender HSH Nordbank was in trouble. On Tuesday, two German states agreed on a 13 billion euro bailout plan for the financial institution. But more may be necessary.

Another day, another bailout: Yet another German bank is getting state aid to stop it from going under as a result of the global financial crisis.

HSH Nordbank, which specializes in the shipping industry, has been saved by a state bailout.

HSH Nordbank, which specializes in the shipping industry, has been saved by a state bailout.

The troubled HSH Nordbank is to receive a capital injection of €3 billion ($3.8 billion) from the state of Schleswig-Holstein and the city-state of Hamburg under a deal announced Tuesday by Schleswig-Holstein Governor Peter Harry Carstensen and Hamburg Mayor Ole von Beust. The bank will also receive a state-backed credit guarantee worth €10 billion.

The cabinets of the two states, each of which holds about 30 percent of the Hamburg-based bank, had met in Kiel to try to find a solution to the bank's woes. The two states will share the cost of the aid, which needs to be approved by the state assemblies.

"We had to act in this way," explained Schleswig-Holstein Governor Carstensen, saying that there was no alternative as it was impossible to find a partner or buyer for the bank.

The states were forced to intervene after the Soffin fund, which was set up by the federal government last year to stabilize the financial markets, said it could not help out HSH Nordbank until it got rid of all its bad debts. Carstensen said that Soffin may still help the bank out in the future, however.

But the €3 billion injection may not be enough to save the bank. Wolfgang Kubicki, floor leader for the business-friendly Free Democratic Party in the Schleswig-Holstein state assembly, told Reuters Tuesday that HSH may need up to €9 billion in fresh capital over the next four to five years.

HSH Nordbank, which specializes in financing the shipbuilding industry, had posted a pre-tax loss of €2.8 billion in 2008 as a result of the global financial crisis. If the institute had not received state aid, it would have been closed down by the German financial services regulatory authority BaFin.

As part of a major restructuring, HSH Nordbank plans to focus on its core business activities, such as ship financing, private banking and corporate clients, and spin other businesses and toxic assets off into a so-called "bad bank." The bank is planning to cut around 1,100 jobs from its staff of 4,000.

Last week the German government agreed on a draft expropriation law which would allow the state to seize control of the crisis-ridden Munich-based lender Hypo Real Estate. US investor JC Flowers, which faces potential heavy losses over its 24 percent stake in HRE, also owns almost 26 percent of HSH Nordbank. It is not clear what role, if any, the US firm will play in the HSH Nordbank rescue.

dgs -- with wire reports


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