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Shipping Lender NordLB Gets $4 Billion State Rescue as Cerberus Loses Out

Germany’s NordLB will be bailed out by public-sector savings banks and the state of Lower Saxony at a cost of as much as 3.7 billion euros ($4.2 billion), thwarting a bid by Cerberus Capital Management and Centerbridge Partners for a stake in the struggling lender.

The restructuring package, which Lower Saxony Premier Stephan Weil called “the best of all possible options,” involves as much as 1.2 billion euros from the savings banks group and up to 1.5 billion euros in capital from Lower Saxony. An additional contribution from the state — NordLB’s main shareholder — could add another 1 billion euros.

Helmut Schleweis, the president of the DSGV German savings banks association, has for months been trying to persuade public-sector banks to inject money into NordLB, which needs billions of euros to replenish capital eroded by souring shipping loans. Of the money pledged by the savings banks, about a third will come from those with a direct stake in NordLB, with around two thirds provided by the savings bank group, a person with knowledge of the rescue plan has said.

The state of Saxony-Anhalt, a minority owner, “foresees no direct capital injection into NordLB,” the state’s finance ministry said in an emailed statement.

NordLB is one of the biggest so-called Landesbanks — wholesale lenders that cater to almost 400 local savings banks known as Sparkassen. It survived the financial crisis without aid, but has been weighed down for years by the shipping loans. The problem was made worse by its full takeover of Bremer Landesbank in 2016. In total, NordLB had 7.3 billion euros worth of bad loans at the end of September.

The bank’s owners rejected the offer from Cerberus and Centerbridge, but said the private equity firms might still be able to bid for part of NordLB’s shipping portfolio.

The deal with the savings banks will, over time, cost the state less than if NordLB had accepted the offer from the private equity companies, said Reinhold Hilbers, the finance minister of Lower Saxony and head of the company’s supervisory board. According to their proposal, many legacy liabilities would have remained with the current owners, while a large portion of future revenues would have flowed to the private investors, he said.

“NordLB should focus in the future much more strongly on regional business,” the Lower Saxony government said in a statement. “It will become smaller but also stronger and profitable in a sustainable way. The transfer and a further reduction of jobs at NordLB are unavoidable.”

The package will be discussed with the European Central Bank and Germany’s financial regulator BaFin, as well as the European Commission, Lower Saxony said, adding that the state government will argue that a solution is possible that is in line with EU rules on state aid.

DBRS Ratings said late Thursday that “in the event of a public sector solution, EU state aid procedures could be triggered, leading to a requirement for burden-sharing with junior creditors and further restructuring.”
Source: Bloomberg

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