HSH Nordbank focuses on real estate amid volatility

HSH Nordbank’s new business volumes were significantly boosted by €4.5 billion of real estate lending during 2015, a year in which the EU and Germany provisionally agreed a restructuring plan for the state-owned bank.

Last October, it was decided that the Hamburg-based bank, which was hit hard during the downturn by its exposure to shipping loans, would be split into a holding company and an operating company, with the latter to be sold by 2018.

In its full-year results for 2015, published today (9 June), HSH Nordbank said that the real estate and renewable energy sectors had demonstrated operational strength during a “year of upheaval”.

In comparison to the €4.5 billion of new business to real estate clients last year, €3.2 billion was extended to corporate clients and just €800 million to shipping, the other two of its three main core bank segments. Overall, the bank wrote €8.8 billion of new business, down from €9.5 billion in 2014.

“Despite the difficult underlying conditions, HSH Nordbank’s new business was in total only slightly below the 2015 planned volume due to the pleasingly strong new business in the real estate clients division,” the bank said in its results.

The real estate clients division generated €180 million of net pre-tax income during 2015, up from €144 million during 2014 and the largest earnings contribution in the shipping, project and real estate financing segment of the core bank.

“The crucial factor is that we are getting better and better at balancing our loan portfolio between the shipping, corporate clients and real estate clients divisions, with each accounting for about one third of the volume,” the members of the management board wrote.

Real estate remains marginally the smallest of the three main elements of the bank’s loan portfolio, with €11 billion of assets compared to €12 billion in the corporate clients division and €13 billion in the shipping division.

“Whereas we are intentionally reducing the portfolio in the shipping division, which continues to be marked by the persistently weak shipping markets, our real estate clients and corporate clients divisions are gaining significance,” the management board members added.

Overall, the bank made consolidated pre-tax profit of €450 million, up from €278 million in 2014. The core bank made a pre-tax profit of €397 million, up from a loss of €120 million the previous year.

HSH Nordbank provides investment and development finance to the real estate industry, including residential development. The bank’s focus is on the residential, office and retail sectors. The geographic focus is northern Germany and metropolitan regions in western Germany.

In the bank’s restructuring unit, the wind-down unit which contains non-performing real estate loans as well as shipping and aircraft loans, assets were reduced by a total of €9 billion in 2015 through repayments, sales of loans and securities and structured solutions. Real estate loan portfolios were sharply reduced in the UK, Nordic countries and Netherlands, the bank said.

On the German real estate market’s prospects, the bank said: “The performances of the real estate markets in Germany should be largely positive in 2016. The excess demand in residential markets in most of the large cities will continue due to the continued high influx of migrants and despite the increased construction activity.

“The retail sector will continue to benefit from the positive consumer sentiment and increasing household income. On the office property markets, only slightly decreasing vacancies are to be expected with a noticeable higher number of completed properties and a falling demand for surfaces.”