The NYT suggests in an article that Europe’s toothless recovery is perhaps in for some nasty surprises. True, they never dabbled big in sub-prime mortgages but big, very big, in funding the building of ships.
When Eastwind Maritime, a medium-size carrier company, went bankrupt this summer, few banks in the United States took notice.
But in Europe, where banks hold over $350 billion of increasingly dubious shipping industry loans, the inability of Eastwind, which is based in New York,to handle its debt of more than $300 million set off an anxiety attack on lending desks across the Continent.
Banks with large shipping industry portfolios — among them Royal Bank of Scotland and Lloyds, and HSH Nordbank and Commerzbank in Germany — could face meaningful write-downs as ship owners confront plummeting charter rates from a 25 percent drop in global trade.
“Peak of defaults is generally one year after the trough of the economy,” said Scott Bugie, a European bank analyst at Standard & Poor’s. “In the U.S., the debt workouts have been faster and the economy also bottomed out before Europe.”
HSH Nordbank, a leading lender to the shipping industry, set aside close to $800 million in provisions for its shipping-related loans this spring, and it has already received 13 billion euros ($19.4 billion) in support from its owners, the regional German states of Hamburg and Schleswig-Holstein.
Have banks adjusted their books or even made provisions? No.
Banks in Europe have stubbornly resisted taking write-downs for their shipping industry debts. They concede that the global cargo sector is troubled, but as long as companies continue to pay interest on their loans — which most are still doing — the banks contend that there is no need to write them off.
and does the future look good. Hell, no.
“We estimate that there will be a 50 percent oversupply in container ships,” Mr. Brahde said.
Most vulnerable is HSH Nordbank, which is exposed to the industry’s weakest segment, container ships. It has $50 billion in shipping loans, or about seven times its equity.
The exposures of other major ship lenders include Commerzbank, with $37 billion; R.B.S. with $25 billion; and Lloyds TSB with $23.9 billion, according to estimates made by ING Bank.
