Risk provisions at NORD/LB in connection with a significant ship financing portfolio transaction lead to an annual loss and a temporary decrease in capital ratios of NORD/LB.
Deutsche Hypothekenbank (Actien-Gesellschaft) is a wholly-owned subsidiary of Norddeutsche Landesbank – Girozentrale (“NORD/LB”) and is closely linked to its parent company by a control and profit and loss transfer agreement and a waiver rule in accordance with Art. 7 (1) CRR and Section 2a (1) of the German Banking Act (KWG). On 02 February 2019 NORD/LB published the following ad hoc announcement:
“At today’s meeting of the owners (Trägerversammlung) of Norddeutsche Landesbank – Girozentrale – (“NORD/LB”) – the State of Lower Saxony, the State of Saxony-Anhalt, the Association of the Savings Banks of Lower Saxony (Sparkassenverband Niedersachsen) as well as the Holding Association of the Savings Banks of Saxony-Anhalt (Sparkassenbeteiligungsverband Sachsen-Anhalt) and the Special Purpose Holding Association of the Savings Banks of Mecklenburg-Western Pomerania (Sparkassenbeteiligungszweckverband Mecklenburg-Vorpommern) (together referred to as the “Owners” (Träger)) –, the Owners decided, following a detailed evaluation of a joint bid by two financial investors submitted as part of a bidding process, to postpone this option for the time being and to focus on a joint solution with the German Savings Banks and Giro Association (Sparkassen- und Giroverband e.V.) (“DSGV”) in the public sector. After representatives of the DSGV and the Owners have discussed the key points of this proposed solution for the capital strengthening and realignment of the bank with the relevant supervisory authorities on 1 February 2019, this solution will be specified in further meetings with the DSGV and must be discussed with the relevant supervisory authorities as well as the EU Commission under aspects of State Aid Law. In light of these forthcoming measures to strengthen the capital base of the bank, the management board of NORD/LB and its Owners have decided in their today’s meetings to transfer a significant part of the ship financing portfolio of NORD/LB in a volume of approximately EUR 2.7 billion to an external investor by way of a portfolio transaction. This portfolio contains approximately 90 % of non-performing loans (“NPL”). In addition, the management board of the bank has decided to create a comprehensive additional risk provision for the entire NPL portfolio for the 2018 financial year, resulting in a total risk provision for the 2018 financial year of up to EUR 2.5 billion. Based on the currently available figures for the 2018 financial year, this will result in an annual loss for the NORD/LB group of approximately EUR 2.7 billion after tax. The result in accordance with HGB (German Commercial Code (Handelsgesetzbuch)) for the 2018 financial year will show an annual loss of approximately EUR 2.5 billion after tax. The aforementioned loss for the 2018 financial year will have a corresponding effect on the capital ratios in such a way that the common equity tier 1 capital ratio will decrease to about 6 to 6.5 % and thus the thresholds required by supervisory law will temporarily not be met. The supervisory authority has been informed about this and will request a specific capital plan from NORD/LB in the coming weeks. NORD/LB will draw up such a capital plan on the basis of today’s resolution by the Owners with regard to the DSGV’s proposed solution and assumes that with the implementation of the measures contained therein for the capital strengthening and realignment of the bank, the capital ratios will again increase significantly and meet all regulatory requirements.”