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Experienced Private Owners for HSH Nordbank

HSH Nordbank AG is to become a corporate bank with entirely private shareholders, including independent affiliates of Cerberus European Investments, J. C. Flowers & Co., GoldenTree Asset Management, Centaurus Capital LP and BAWAG.

The federal state owners Hamburg and Schleswig-Holstein and the Savings Bank Association of Schleswig-Holstein have concluded a contract to sell all of their indirectly held HSH Nordbank AG shares (in total 94,9 percent), thus achieving the first successful privatisation of a federal state bank in Germany.
The agreement remains subject to various approval procedures. This includes the ownership control procedures of the banking supervision, as well as approvals from the European Commission and the state parliaments in Hamburg and Schleswig-Holstein. Subject to all outstanding checks, the closing of the transaction is expected to occur in the second or third quarter of 2018.
“This is the start of a new era for our bank – our future owners are among the world’s most experienced financial investors in the banking sector, particularly in Germany and continental Europe. This will open up new opportunities for us to compete in the market without any current EU restrictions. Also on behalf of all the employees, today I extend our thanks to the existing owners for this successful privatisation. The change of ownership offers good prospects for the bank, our employees, customers and the economic development of our home region,” said Stefan Ermisch, Chief Executive Officer of HSH Nordbank AG.
In recent years, the bank itself has brought about all the conditions for a successful change of ownership, thanks to its solid operational performance. It has also managed to continuously expand its customer base across many sectors. This goes hand-in-hand with the noticeable reduction of almost all legacy assets from the years prior to 2009: last year alone, HSH Nordbank cut the non-performing exposures pooled in the Non-Core Bank by more than half to approximately € 6.0 (31.12.2016: 13.6) billion. In addition, the bank has considerably shored up its capital position – even without the guarantee provided by the federal states of Hamburg and Schleswig-Holstein – in the run-up to the privatisation.
“Now it is a matter of continuing to develop HSH Nordbank as a focused, agile bank from northern Germany for medium-sized enterprises nationwide. In addition, we will cautiously step up our international activities in selected business units. We have a series of own initiatives in preparation, and we will also benefit from the expertise of our new owners. The management and the entire workforce are aware that a challenging transformation lies ahead, one that we will tackle together with full commitment,” said Stefan Ermisch.
“HSH Nordbank is a well-positioned bank, with a strong franchise, a loyal client base, and a management team focused on building a leading financial institution in Germany and across Europe,” said J. Christopher Flowers, CEO of J.C. Flowers & Co. “We have a long relationship with the bank, and our new investment reinforces our commitment to the institution and our confidence in its future.”

“Cerberus has an extensive track record of investing in Europe and in the global financial services sector,” said David Teitelbaum, Head of Cerberus’s European Advisory Offices. “Cerberus is excited about this new opportunity to be a long-term shareholder of HSH Nordbank. We believe Germany is a highly attractive place to invest and the long-term opportunities in corporate banking are particularly strong. We are pleased to be associated with HSH’s new future, which will be driven by its strong leadership team and its people’s foresight, passion, and initiative.”
“GoldenTree has a strong local presence in Europe spanning two decades,” said GoldenTree’s CIO Steve Tananbaum. “We are pleased to be associated with the successful privatization of HSH Nordbank and are excited about being a part of its future success."
“Centaurus Capital LP is committed to the opportunity to be a long term shareholder of HSH and support management,” said Allen Gibson, CIO of Centaurus Capital LP.
“The investment is a unique opportunity for BAWAG Group to drive strategic partnerships in Germany and the broader DACH region. HSH Nordbank has achieved a lot in terms of reshaping its business in the past few years. We look forward to working with the bank and the new shareholders to position the franchise for future success,” said Anas Abuzaakouk, CEO of BAWAG Group.
Legacy assets to be carved out – One-off valuation losses from transaction
In the course of the privatisation, the bank will be relieved of nearly all legacy assets, as these are being carved out at the date of closing and transferred to an acquisition vehicle, purchased by affiliates of Cerberus Capital Management, J.C. Flowers & Co., GoldenTree Asset Management and Centaurus Capital LP. Specifically, this predominantly applies to non-performing loans, mainly from ship finance. Consequently, the Non-Core Bank will cease to exist, which means the guarantee of Hamburg and Schleswig-Holstein will be fully terminated after the closing of the entire transaction.
The carve-out of the portfolio improves the credit quality of the future bank across the board. From the present perspective, the non-performing exposure (NPE) ratio will fall to under two percent, compared with 11.7 percent as at 30 September 2017, thus reaching a good value in a Europe-wide comparison. In addition, the shipping portfolio will only make up around eight percent of the balance sheet total. This will make the bank far more resistant to future crises.
The bank will immediately examine the potential impacts for its accounting in the 2017 Financial Statements. This is likely to take several weeks, which means that the preparation of the Financial Statements will be delayed accordingly. The annual results press conference has been rescheduled to 26 April 2018. Due to privatisation effects – i.e. the carve-out of legacy assets from the Non-Core Bank – there will be one-off valuation losses that will impact the 2017 Financial Statements. It is already clear that HSH Nordbank will consequently report a loss before taxes for the 2017 financial year in the mid three-digit million.

Nevertheless, the bank is well prepared to absorb the burden resulting from the portfolio reduction, thanks to its very comfortable capital position: even after the transaction, the bank expects to have a Common Equity Tier 1 (CET1) ratio of around 15 percent.
Preliminary figures for 2017 show good performance
The preliminary figures for the 2017 financial year – not accounting for privatisation effects – are now available. They reveal a solid operational performance with stable new business, consistently high cost discipline and the resolute reduction of legacy assets:
Preliminary pre-tax profit– without accounting for the transaction – stands at around € 290 (121) million. Total income rose by one third to approximately € 1.2 (0.92) billion, including realisation of unrealised gains. The bank’s strict cost management is taking effect: administrative expenses were down approximately 20 percent to around € -500 (-634) million.
In new business HSH Nordbank reached a total of € 8.5 (8.9) billion, which is in line with expectations, given the general market environment, the sustained period of low interest rates and, not least, the uncertainties during the sale process.
One particularly pleasing aspect is that approximately €2.3 billion of this new business was concluded with over 120 corporate customers who chose to partner with HSH Nordbank for the first time.
The CET1 ratio stood at around 18 percent at 31 December 2017 – before accounting for privatisation effects resulting from the transaction.
As a privately held bank almost entirely relieved of its legacy assets, HSH Nordbank expects to have a CET1 ratio of around 15 percent in 2018, which is strong both in Germany and in a Europe-wide comparison. From the present perspective, the NPE ratio will fall to under two percent after closing of the transaction, compared with 11.7 percent as at 30 September 2017.
About J.C. Flowers & Co.
J.C. Flowers & Co. is a leading private investment firm dedicated to investing globally in the financial services industry. Founded in 1998, the firm has invested more than $15 billion of capital in 50 portfolio companies in 17 countries across a range of industry subsectors including banking, insurance and reinsurance, securities firms, specialty finance, and services and asset management. With approximately $6 billion of assets under management, J.C. Flowers has offices in New York and London. For more information, visit jcfco.com.
About Cerberus Capital Management, L.P.
Established in 1992, Cerberus Capital Management, L.P. is a global leader in alternative investing with more than US $34 billion under management across complementary credit, private equity, and real estate strategies. From its headquarters in New York City and network of affiliate and advisory offices in the U.S., Europe, and Asia, Cerberus has the on-the-ground presence to invest in multiple asset classes globally.

About GoldenTree Asset Management
GoldenTree is an employee owned asset management firm that specializes in asset classes including high yield bonds, leveraged loans, distressed debt, structured products, credit-themed equities, private equity and emerging markets. GoldenTree is one of the largest independent asset managers focused on credit with approximately $26 billion in assets under management. The firm has been managing assets on behalf of its clients for over 18 years.
About Centaurus Capital LP
Centaurus Capital LP is a privately held family office and global investor in financial services, energy, and credit investments, based in Houston (TX).
About BAWAG Group AG
BAWAG Group AG is the listed holding company of BAWAG P.S.K., which is headquartered in Vienna, Austria, with the main banking subsidiaries easybank and start:bausparkasse in Austria and Südwestbank in Germany. With more than 2.5 million customers, BAWAG P.S.K. is one of Austria’s largest banks operating under a well-recognized national brand and applies a low-risk, efficient, simple and transparent business model focused on Austria, Germany and developed markets. The Bank serves retail, small business and corporate customers offering comprehensive savings, payment, lending, leasing, investment, building society and insurance products and services through various online and offline channels.