Even though it is traded as a separate entity, it is a subsidiary of Genco Shipping & Trading Limited (GNK), of Peter Georgiopoulos’ fame.   Genco has a 25% ownership stake in BALT, although it exercises full managerial & ownership control.

BALT had its IPO in March 2010, when it raised a whopping $210 million in net proceeds, by selling 16,300,000 shares to the public at $14 per share.  Since then, the company’s stock has drifted steadily lower, in line with every other dry cargo shipping company.  The whole segment has been plagued by a massive oversupply of tonnage, and BALT, which operates all its vessels in the spot market, or in spot index-related time charters, is no exception.  Based on Monday’s closing price of $3.42 per share, BALT had a market capitalization of just $79 million.

I like the company because it operates a modern fleet, has little debt outstanding, and trades at a low price vis-à-vis its Net Asset Value (NAV).

Baltic Trading is scheduled to report earnings for the quarter ending March 31st, 2013, after market closing on Wednesday May 1st.  I estimate BALT to report a net loss of ($5,000,000) for the quarter or the equivalent of ($0.22) per share.  TCE revenues were negatively affected by continuing softness in spot freight markets, especially in the cape size sector.  I estimate that TCE revenues were $5,625,000.  The fleet average TCE per day was $6,950, below the company’s operating cash break-even rate of about $7,900.  I expect BALT to report negative EBITDA & Operating Cash Flow for the quarter.

OSLO/STOCKHOLM, April 26 (Reuters) – Norway’s largest bank, DNB, said on Friday it may have seen the worst for bad loans in the troubled shipping sector and forecast stronger lending income in the months ahead after reporting better than expected first-quarter profits.

Norway’s hydrocarbon-rich economy is one of Europe’s best performers and its banks got through the global financial crisis relatively unscathed.

However, DNB, one the world’s largest lenders to the shipping industry has struggled with souring loans in the sector, which has been plagued by global overcapacity depressing freight rates.

But Chief Executive Rune Bjerke said on Friday there was now cause for some optimism.

“Shipping provisions increased as expected but we believe the level we see on a quarterly basis is the bottom,” he told a results news conference. “We see some bright spots that make us more optimistic than one quarter ago.”

Rival Nordea, which also has extensive shipping interests, had said on Thursday that credit quality in the sector had stabilized.

Their outlooks contrasted with a report by Fitch this week which said the shipping crisis would likely last longer than originally expected and that impaired loans and losses would remain high.

DNB added, however, that Nordic banks had been able to offset the weaker performance in shipping with resilient Swedish and Norwegian loan portfolios which have been backed by strong economies.

It said overall loan impairments in the last quarter amounted to 737 million Norwegian crowns ($125 million), which was below expectations, while credit losses this year are forecast to be at a similar level to 2012.

Meanwhile rate increases on mortgages and some corporate loans implemented by the bank in the first quarter will bring a rise in interest income from the second quarter, it said.

DNB’s results follow buoyant earnings from Swedish peers this week, though most said overall lending would remain relatively weak as customers worried about stability in other parts of Europe.

DNB has also suffered from somewhat slower demand internationally and amongst its largest corporate clients.

“In spite of a relatively strong financial market trend in the first quarter, it appears that it will take some time before Norway’s main trading partners experience an economic recovery,” the bank said.

However, DNB’s net profit surged 80 percent to 3.18 billion Norwegian crowns ($541 million) in the three months just ended, beating the 2.6 billion expected in a poll of analysts.

“These were good, solid numbers that were better than expected,” said Bengt Kirkoen, a Swedbank First Securities analyst.

Shares in DNB were up 5 percent at 92.35 crowns by 1130 GMT, outperforming an Oslo benchmark index down 0.05 percent and the Stoxx 600 Europe index, down 0.5 percent. ($1=5.8793 Norwegian kroner) (Additional reporting by Gwladys Fouche in Oslo; Editing by Greg Mahlich)

(c) 2013 Thomson Reuters Click For Restrictions

“There are signs that we have passed the cyclical low point in shipping markets,” Chief Executive Gunter Dunkel said at the state-owned lender’s annual press conference on Tuesday, adding that he did not expect the crisis to end in the near term.

NordLB expects its provisions for bad loans, especially in shipping, to remain above average this year, after seeing them spike to 598 million euros ($779 million) last year from 197 million in 2011.

In contrast to loss-making peer HSH Nordbank, NordLB posted a profit of 80 million euros in 2012, though that still represented a drop from a 536 million euro profit in 2011.

($1 = 0.7674 euros) (Reporting by Arno Schuetze; Editing by Maria Sheahan)
(c) 2013 Thomson Reuters, Click For Restrictions

By Lambros Papaeconomou, NYFEX Asset Management LLC

Dry cargo shipping company Excel Maritime Carriers Ltd. (EXM) saw its share price drop almost 45% yesterday.  The stock closed at $0.43 (down $0.35 for the day) on very heavy trading, amid persistent rumors of am imminent bankruptcy filing, and even a formal inquiry by the New York Stock Exchange that necessitated a “no comment” response from the company.

Via Google Finance, click for larger

As sad as it is to watch the once almighty shipping company falling from grace, its demise should not come as a surprise.  Saddled with a total debt burden in excess of $1 billion, Excel has straggled to meet the covenant terms of its main syndicated credit facility with Nordea Bank, and bilateral facilities with DVB & ABN, despite amended agreements with its lenders just last March.

In addition, Excel has yet to file audited financial statements for fiscal year 2012.  The current “D-Day” for the company to meet its end of the bargain with its lenders is April 30, 2013.  Given the sad state of freight markets, and increased pressure on commercial banks to cut their credit exposure to the industry amid regulatory concerns, the company’s filing for bankruptcy protection is an issue of when rather than if.

Speculative-minded investors would fare better if they sat on the sidelines at this juncture, as the risk of bankruptcy far outweighs any short-term bounce in the stock price.

Scandlines ferry “Prinsesse Benedikte”, image courtesy Alexander Marks

FRANKFURT, April 5 (Reuters) – Private equity groups 3i and Allianz Capital Partners have attracted three tentative bids for their jointly-owned ferry group Scandlines, a person close to the transaction said.

“The offers handed in by the Friday (April 5) deadline all came from private equity investors,” the person said.

3i and ACP each own 50 percent of the southern Baltic’s largest ferry group, which carries roughly 12 million passengers annually. In October, the investors appointed Goldman Sachs and ING to organise the sale, hoping to get up to 1.4 billion euros ($1.80 billion) for the group.

Private equity investors including Apollo, Axa Private Equity and Nordic Capital have shown interest in Scandlines, the source said, adding it remained unclear if they were the among the bidders.

Danish rival DFDS Seaways and Italian peer Grimaldi, shipping industry players that had been expected to consider a bid for Scandlines, did not participate in the auction, the source said.

3i and ACP, the private equity arm of German insurer Allianz declined to comment, while Apollo, Axa and Nordic were not immediately available for comment.

3i and ACP bought Scandlines at the peak of the buyouts boom in 2007, paying 1.5 billions euros backed with 1.28 billion euros of debt, according to Thomson Reuters LPC data, alongside minority investor Deutsche Seereederei which was bought out in 2010.

Scandlines had revenue of 611 million euros in 2011 and total earnings before interest, tax, depreciation and amortisation of 167 million.

The group will publish 2012 figures next week but has already said that freight and passenger volume on its vital Germany-Denmark services has risen compared to the year earlier.

Scandlines has been buffeted by high oil prices, competition from toll bridges on some routes and faces a threat to onboard retail sales as the harmonisation of taxes between Denmark, Germany and Sweden reduces the incentive for passengers to buy wines and spirits.

Separately, an undersea road and rail tunnel between Denmark and Germany across the Fehmarn Belt is being planned for 2020. If it goes ahead, it would hit passenger numbers on one of busiest routes for Scandlines.

(c) 2013 Thomson Reuters, Click For Restrictions

STX Dalian, Image: STX

By Joyce Lee

SEOUL, April 2 (Reuters) – South Korea’s STX Offshore & Shipbuilding Co Ltd is seeking a corporate restructuring agreement from its creditors as various asset sales by its parent firm have failed to resolve the ailing shipbuilder’s mounting debt problems.

STX Offshore & Shipbuilding asked creditors to help resolve the shipbuilder’s liquidity crunch caused by the sector’s prolonged downturn in return for restructuring efforts, its parent firm, STX Corp, said in a statement on Tuesday.

Representatives of creditor banks, including main creditor Korea Development Bank (KDB), Export-Import Bank of Korea , Nonghyup, Woori Bank and Shinhan Bank met on Tuesday to discuss the agreement.

The banks could reach a decision as soon as this week, a source with direct knowledge of the matter told Reuters.

Shares in STX Offshore & Shipbuilding and affiliates fell or nearly fell by the daily limit of 15 percent, while the local currency declined against the dollar on Tuesday as STX Offshore’s request for creditor support added to risk aversion.

Shares in financial holding companies such as Woori Finance Holdings also slid more than 5 percent as their banking units’ exposure to the STX unit was expected to be in the hundreds of billions of Korean won.

STX Offshore & Shipbuilding reported a net loss of 782 billion won ($701 million) in 2012 compared to a 168 billion won net profit in 2011.

The shipbuilder also had a consolidated debt of 12.2 trillion Korean won as of end-2012 with equity of 1.31 trillion won, leading to a debt ratio of 927.7 percent.

STX Corp, a holding company of STX Group, raised a total 1.13 trillion won by shedding assets including a stake in affiliate STX Energy and the controlling stake in Singapore-listed STX OSV Holdings since last year.

However, the sales were not enough to solve the shipbuilder’s liquidity issues due to falling ship prices following the global financial crisis, disadvantageous payment conditions in a buyer’s market and difficulties in issuing corporate bonds, STX Corp said.

An attempt to sell off the controlling stake in affiliate shipper STX Pan Ocean Co on Friday failed to attract any bids.

($1 = 1114.8000 Korean won) (Editing by Matt Driskill)

(c) 2013 Thomson Reuters, Click For Restrictions

Peter Evensen, President and CEO of Teekay, and 2013 Commodore of the Connecticut Maritime Association, image via Teekay’s Facebook page

RA: Where are you from originally Peter?

PE: I’m from originally outside Washington, DC. in Arlington, Virginia.

I can never really tell people I’m a Virginian because they then say, “oh, well that’s Arlington.”  And then you can never say you’re from Washington, DC.

Are you from the area?

RA: I live in the Mt. Vernon Square area.

PE: Oh really?  I didn’t know that.  I’m a Washington Redskins season ticket holder.

RA: Do you ever get to go to the games?

PE: (Laughing) Not that many.  I was there for the Dallas – Washington game, we stood the whole time at FedEx Stadium.  It was awesome.  You know, we hadn’t won in however long, it was awesome.

But yea, it isn’t good to live in Connecticut, work in Vancouver, and be a Redskins fan.  That isn’t great.

So I grew up in Washington, DC, I’m half Norwegian and half American.  When I graduated from school I said I was given two great gifts in life, one is graduating debt free, and the other is not having to fight in war.

RA:  Where did you go to school?

PE:  Amherst College.

So, I went to Norway worked in Norway and Denmark for a year and a half, and then I was a ski bum (at Alta), and then figured out I had it all wrong when it came to going to Norway.  I had to go back to America and get a job where they would send me to Norway.

So that’s what I did, I went back and I joined a bank.

RA: Did it beat being a ski bum?

PE: Yea (laughing).  Although we did get 60 feet of snow that year.

RA: That’s hard to beat.

PE: Skied over 95 days that year.  So then I went to Norway, worked there for 4 years, started to concentrate on shipping, because I really liked the people, and then I went to London for eight years, then to Connecticut.

In 2003 I was out pitching some financial solutions to Teekay.  Bjorn Moller the CEO asked if I had ever thought about being the CFO of Teekay and so I thought about it.

Actually, I had just came back from a heli-skiing trip, I was at the CMH, the Canadian Mountain Holidays and so I said to myself, “I have to take this job.”

And believe it or not, it took me another four or five years to get back heli-skiing because I got so busy at Teekay!

But I really like Teekay because it operates under a team concept and a lot of shipping companies are very hierarchical and Teekay is very much based on team-based concept.  So, I really enjoyed that.

We’ve gone on and created these daughter companies as I’m sure you’re aware of.  People like to copy that, and there are good reasons behind that which is to source low cost capital and it’s a pure-play for investors.  Then Bjorn decided to retire about 2.5 years ago and I got the nod.

RA:  Looking back at your career, did you have a mentor?

PE: Yeah, I think what really prepared me was that as a banker, I got to get to know a lot of shipowners.  I think the biggest was a Norwegian named Kristian Gerhard Jebsen.  He controlled Gearbulk and some OBOs, and I used to go all around the world with him raising money, doing all his deals, and he taught me a lot about shipping.

RA: Last year at Marine Money in New York, there was talk between the differences of a publicly traded shipping company and a privately-held one.

Image courtesy Teekay

PE:  I think what the shipping and the investors universe are finding is that not all shipping companies are the same.  People had a sort of universal view sometimes when I talked to them in 2005, 2006, and 2007 that we were a play on China.  And, it was hard assets and you had inflation, and you had rising rates.

Now, people are understanding that shipping and offshore models are different.

Teekay is very much a play on the build-out of the world’s energy infrastructure, but how we make our money is different.  We’re making our money off the general partner interests rather than owning assets, and we develop a whole bunch of projects.

We’ve introduced a lot more technology into shipping and offshore than we’ve seen.  When I took over and was talking with the Teekay staff, I told them that I believed we would see more change in shipping in the next 10 years than we’ve seen in the last 25.  In the last 25, we basically just made ships bigger.

While that drives down unit cost, what we’re seeing are investments in fuel-saving technology, Remora Hi-Load, we just ordered a pair of next generation LNG carriers with the ME-GI engine, which MAN is talking about.  And we were the first in doing that.

It’s more than just being an “eco-ship.”

We’ve done a lot of tank-testing on this and so we’ve done it on LNGs and I anticipate we’ll order a new design of tankers going forward, but we’ve done a lot of work on what is the right hull form, propeller, and engine.

And so, I would say that how people are making their money is different, and investors are understanding that and pricing accordingly.

Petrojarl Knarr, image (c) Teekay

RA: The Petrojarl Knarr FPSO has a 10 year contract with BG and it’s not out of the shipyard yet.  That’s pretty good news for you.

PE:  Which part?  The 10 year contract or the fact it’s not out of the shipyard yet?  I would love it out of the shipyard!

RA: How much more expansion do you see for Teekay in the FPSO market?

PE:  A lot.  We’ve invested 3.5 billion, but we are looking beyond that.  We have front end engineering studies going on for high profile FPSO solutions that we’re competing on.  We’re already focusing in on 2016 from a project standpoint.

RA:  Looking at the growth of shale gas in the US as production comes on line into 2016.  How do your operations start to evolve?

PE: The two LNG ships that we just ordered will be delivered in 2016 and will be the biggest LNG carriers to transit through the new Panama canal, which is coming in 2014.  These ships are 173k cbm, compared to Golar LNG which are at 160k and GasLog at 155k.

RA:  What about some of the more stationary vessels like FSRUs?

PE:  We have an ownership stake in one with Exmar right now, and we are competing on them right now.  Again, you see a change in technology.  First, it was the conversions of 125 – 135k cubic ships, but you can’t show up with a 173k cubic against a storage unit that can only take two-thirds of that.  So, they’ve gotten bigger, and people aren’t interested in conversions now, and it’s on to new builds.

We haven’t speculatively ordered any FSRUs, but we’re competing on projects that will need them.  I’m sure we’ll be successful, but we don’t just look at raw risk, we measure it up against risk/return.  There’s a lot of time that we spend figuring out the correlation coefficients between our various projects because you can’t just look at a project by itself, you have to look at how it fits as part of a portfolio.

So, one of the things Teekay has done is to look at what is the business model here?  Are we doing build-to-suit on LNG? Are we spec-ordering? What is our business model here?

This goes back to what I said earlier… Investors and financiers understand that people’s business models are as important as what industry they are in.

RA:  Does Teekay Parent own any assets right now?

PE:  Yes, we do.  We own four conventional tankers.

RA:  Are you looking to change that?

PE:  Ultimately we will.  We are in the process of dropping down assets, and we have made public that we are on our way to becoming net debt-free.

We were approaching this status at the end of 2011, and then we saw this great opportunity with Sevan, so then we levered up for that and now we are finishing up those assets and we’re dropping them down.  So that actually helps the growth of the daughters, which in turn, helps the growth of Teekay.

RA: You have 8 LPG ships being built at the moment.  What’s the market look like for LPG?

PE:  Just like you’re going to see increased exports of US natural gas in the coming years, you’re going to see increased exports of LPG and its derivatives.  Because it’s just a cheaper feed stock price.  Everyone loves to talk about these big refineries, and how efficient they are, but the real kicker is, “what’s your feed stock price?”

So, I think the petrochemical and other export markets in the US will be beneficiaries of low nat gas price.

Regarding the LPG newbuildings that we are working with Exmar on…

First we looked at Exmar and said, we can’t do it as well as they do, so let’s combine forces.  We have a good relationship with them, I have a good relationship with Nicolas Saverys, and so we thought this is a great chance to come together.

I think people are already acknowledging it because we went out to go refinance the bank facility, and it was already well oversubscribed.  And so, part of the whole deal that we talked about with them was, let’s renew the fleet.  So now we’ve done that.

RA: You have a VLCC that’s scheduled to be delivered this year.

PE:  Yes, that’s also a joint venture.  This joint venture partner is with Wah Kwong Shipping in Hong Kong, and they actually run it.  It’s a Chinese-built ship and it’s going on to a Chinese-owned charter for 5 years.

RA: Is there any chance Teekay can get into the Jones Act market?

PE:  We are constrained by a max 25% ownership stake in a Jones Act, so I don’t think that’s interesting to us.

RA:  What about Skaugen PetroTrans?

PE:  We own 50% of Skaugen PetroTrans, and just like the VLCC we are a passive partner in that venture.

RA:  I.M. Skaugen came out with a statement in their 2012 annual report saying:

“SPT Ltd needs more equity in order to continue to engage itself in this business. No decision has been made by IMS as to whether they will continue to support SPT Ltd. (through PTH Ltd) with capital injections or whether it will discontinue this business entity.”

PE: Look what happened, the US is importing less oil, so the full service ship-to-ship transfer in the Gulf of Mexico, is a much-reduced business.  If you look quite carefully at OSG’s financials they admitted they were losing money in their lightering business.

So, yea, let’s just call it what it is.

RA: Switching gears a bit, let’s talk ship security.  Do a lot of your ships use embarked security teams?

PE: We do a risk analysis for each voyage going through a sensitive area and we determine what sort of security measures we’re going to need, including armed guards.    So we obviously don’t say which ships have them, but yes, depending on the voyage, the type of the ship, the speed of the ship, and the area, we will employ armed guards.

RA:  Do the ship’s crew feel that these teams are an added value for them?  What has the response been like?

PE: I think they are more interested in the route that we choose to go because we actually spend more money to route up close to India and go across closer to Yemen, than it does to cut straight across.  So it costs many more days of fuel, but they are far more interested to know that we have their welfare as our primary concern.

And, let’s call it what it is… it’s kidnapping.  It’s not piracy.

Unfortunately the places where you have to be conscious of security are growing.

RA:  How have the teams you have used in the past worked out for you? Any feedback?  There are a lot of security companies out there who are trying to gain some perspective on this.

PE:  I think the companies we do business with are top-notch.  Obviously there have been a lot of people who have gone into the business.  I get a lot of solicitations, but as usual we vet them out just as we would with any supplier.  Knock-on-wood, it’s been good.

I just want to emphasize that the routing of the ship is just as important.  Everyone focuses on the armed guards, but there’s a whole other risk analysis that goes into how you route.  There are many considerations and when you see ships that have been taken, there’s probably something that has been overlooked.

RA:  What about insurance premiums?  How does using PMSCs affect that?

PE:  It doesn’t affect it at all.

JAKARTA, March 14 (Reuters) – Indonesia’s leading oil and gas shipper PT Berlian Laju Tanker reached a deal with creditors to restructure its $1.9 billion debt, averting what could have been one of the country’s biggest bankruptcies in years.

Once the world’s third-largest chemical shipper, the group secured support for its restructuring plan on Thursday just four days before a court-mandated deadline.

“A deal has been reached with 100 percent of secured creditors voting for it,”

William Shia, head of Asian investments at Berlian Laju creditor Gramercy, told Reuters shortly after the vote. “The next step is for (Berlian Laju) to implement its plan.”

As part of the restructuring plan, the company will have to sell a number of its oil and chemical tankers to pay back some of its debt, said two lawyers representing creditors at the meeting.

Before last year’s loan default, Berlian Laju managed a fleet of 64 chemical tankers, 13 oil vessels, 16 gas ships and two floating, production, storage and offloading tankers, according to Reuters data.

Berlian Laju, which translates into English as Fast Diamond, defaulted on several debt instruments last year after being squeezed between weak freight rates and higher fuel costs in a shipping market struggling through a global downturn.

Berlian Laju’s problems were compounded by loans it took out to fund its $850 million acquisition of U.S.-based Chembulk at the peak of the shipping market in 2007.

The industry splurged on ordering new ships in 2007-08 that are now being delivered just as demand slumps, particularly on once-lucrative oil export routes between the Middle East and Asia.

The world’s benchmark supertanker export route from the Middle East Gulf to Japan <DFRT-ME-JAP> has posted daily negative earnings since late January, meaning shipowners are losing money on journeys.

The downturn has led shipbuilders and freight groups from Japan to Italy and Germany to go out of business or scramble to renegotiate with creditors. (Additional reporting by Umesh Desai in Hong Kong; Editing by Jason Neely and David Holmes)

(c) 2013 Thomson Reuters, Click For Restrictions

MC Seamax Shipping Opportunities Fund will acquire and manage 25 to 35 container ships for lease to liner companies, according to a marketing presentation, a copy of which was obtained by Bloomberg News.

The strategy offers “significant” capital-gains potential as vessel oversupply corrects, demand continues to grow and buyer competition remains low, according to the Mitsubishi arm, Stamford, Connecticut-based MC Asset Management Holdings. Container-ship values are approaching 25-year lows, the presentation shows.

Scott MacDonald, a senior managing director at MC Asset Management Holdings, didn’t respond to an e-mail and phone call seeking comment.

The fund will be run by Cao Deambrosio and Ron Petrunoff, who work together as shipping consultants at Seamax Partners. Deambrosio was previously head of shipping at GE Capital, the middle-market finance arm of General Electric, where he worked for 15 years. Petrunoff was president of GE’s transportation finance business.

Mitsubishi will commit $50 million to the fund and provide a $50 million debt warehouse facility while the fund is raising capital, according to the presentation.

Higher Hurdle

The fund offers a higher preferred return hurdle, 12 percent, to investors who commit before a first close. After that, the preferred return is 10 percent. Private-equity funds must typically meet certain return thresholds, known as preferred returns, before general partners can partake in any of the profits. The new fund will charge a 1.25 percent management fee on committed capital and 20 percent carried interest, or the cut of profits to the general partner.

The firm can lever the fund with as much as a 60 percent loan-to-value ratio, using debt to amplify returns, according to the presentation.

MC Asset Management Holdings is focused on real asset strategies that intersect with the core businesses of Tokyo- based Mitsubishi, Japan’s largest trading company. Mitsubishi has $137 billion in assets, the documents show.

- Sabrina Willmer, Copyright 2013 Bloomberg.

(Bloomberg) — Deutsche Bank AG and two other German lenders providing about 14 percent of credit to ship owners are forgoing seizing vessels even after soured loans to the industry rose to a record.

Europe’s biggest bank by assets, as well as HSH Nordbank AG, the largest in the market, and Norddeutsche Landesbank Girozentrale, which finances 1,500 ships, are restructuring loans and setting money aside instead of repossessing vessels, officials from the companies said. They have about $69 billion in loans to the industry out of $500 billion in total, according to data compiled by the banks and Petrofin Research SA, an Athens-based consultant.

Owners from Denmark to Indonesia defaulted in the past year, while U.S. tanker company Overseas Shipholding Group Inc. sought bankruptcy protection and ship earnings fell to a record last month. An unprecedented $80 billion out of $125 billion of German loans to the industry aren’t performing as they should, estimates Paul Slater, chairman of Naples, Florida-based ship- finance consultant First International Corp.

“We have to ride out the storm,” Oliver Faak, head of shipping at Hanover-based Norddeutsche Landesbank, said by phone Feb. 25. “There’s no use selling, as this floods the market with ships. We have to protect their values so banks don’t realize a loss at the low of the market.”

NordLB, as the lender is known, won’t foreclose even if ships are worth less than the outstanding debt and owners can’t meet repayments, he said. The bank has lent owners 18 billion euros ($23.5 billion), including 7 billion euros from subsidiary Bremer Landesbank. NordLB set aside 352 million euros for the first nine months of last year, primarily relating to shipping.

Better Than Losses

“We try to take a long-term view as well, as we try to avoid losses,” Christian Nieswandt, global head of shipping for HSH Nordbank’s domestic clients, said at an industry conference in Hamburg on Feb. 21. “Loss provision is much better in our book than a realized loss. As long as we think that the potential loss on the project will not widen in the foreseeable future, we stick to the project.”

HSH Nordbank has shipping loans of 29 billion euros covering about 2,800 vessels, according to Nieswandt. It set aside 458 million euros in net loan-loss provisions in the third quarter, the “lion’s share” relating to shipping, the company said in December.

Earnings Collapse

Deutsche Bank had 5.8 billion euros in loans to shipping as of March 2012, according to a statement at the time. Foreclosing on a loan is a last resort, global co-head of shipping Ralf Bedranowsky said at the conference. About 30 percent of the bank’s maritime loans are to domestic clients, he said.

Deutsche Bank doesn’t specify loan loss provisions from the industry, spokesman Ronald Weichert said by phone Feb. 26.

The ClarkSea Index, a measure of earnings from all ships, fell to $7,111 a day in the week ended Feb. 22, the lowest since Clarkson Plc, the world’s largest shipbroker, began compiling the price 23 years ago. The largest oil tankers hauling 2 million-barrel cargoes of crude cost $54.2 million in the secondhand market, 68 percent less than their peak in 2008, according to data from the Baltic Exchange in London. Capesize vessels hauling 90 percent of the world’s iron ore cost $29.6 million, compared with $153.8 million five years ago.

The top 10 banks in Germany have 98 billion euros ($128 billion) of shipping loans outstanding, Moody’s Investors Service said in a report in October. That compares with German banks’ $75.3 billion in bonds and loans to the public sectors of Portugal, Italy, Ireland, Greece and Spain as of the third quarter, according to Bank for International Settlements data compiled by Bloomberg Industries.

Balloon Payments

Shipowners with loans maturing to HSH Nordbank have been unable to make the final, or balloon, payments since the start of 2011, Nieswandt said.

Banks loaned a record $129.2 billion in 2007 and supplied 75 percent of capital raised that year to fund purchasing of new and secondhand ships, according to Marine Money International, a Stamford, Connecticut-based publisher and researcher. An estimated $114.9 billion was raised by banks the following year, the second-highest. That declined to $34.2 billion in the first nine months of 2012.

Banks need to tackle the loans, said Slater of First International, whose experience in ship finance spans 40 years. The concentration of bad debts amassed by the German lenders is the biggest in one region in history, he said.

“In some of these portfolios, there’s more debt out there by a long way than the actual value of the assets,” he said at the event. “The ships aren’t going to get any more valuable.”

- Michelle Wiese Bockmann, Copyright 2013 Bloomberg.