Shipping and the Landesbank

By Urs Dür

In 2005, the German state banks, Landesbanks (LB), will lose their state guaranteed loan collateralization thus making likely marked changes in their overall operating strategy because of the likely loss of their ‘AAA’/'AA’ ratings and their endeavor to compensate for such. The maintenance obligation and the statutory guarantees that are currently in place will be maintained until July 18th 2005 and the Landesbanks can and will issue debt under the current guaranteed regime until then but after that, its anyone’s guess. Therefore the preliminary conclusion of this piece is that for the moment, the only conclusion regarding issues for shipping finance and the changes coming in the Landesbank regime is “wait and see”. However there are some very serious and interesting considerations for shipping finance to have in mind while this scenario plays out.

BUSINESS MOD – ELS, FUNDING, PRO FITIBILITY TO CHANGE

Currently, Landesbanks are suffering from weak core profitability and capital levels which are further aggravated by rising loan-loss provisions in the wake of the difficult economic environment. Diversification of income by merging with retail savings operations is one proposed way to improve profitability. In the past, conflicting interests in the ownership structures between the Landesbanks and the retail savings institutions in Germany have created different strategies, risk appetites and rivalries that have prevented closer cooperation. It is highly likely this will have to change in order for the Landesbanks to remain competitive in the international shipping arena. Private German investment banks already under-price the Landesbanks so integration with non-internationally based revenue retail banks in Germany is one way to change the competitive structure.

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