How do Banks Deal with Problem Loans – Marine Money Ship Finance London Jan 2013 Part 2.


Commercial Banking Panel Session

This section addressed how banks dealt with problem loans, what is the level of bank activity at the moment, and advice for shipowners seeking loans.

Moderator: Robin Das, Director Auld Partners Ltd.

Panel;

  • Mark Long, Head of Transport, Shipping Services and Offshore, HSBC Bank plc.
  • Thor Erling Kylstad, Head of Shipping, London Branch, Nordea Bank.
  • Nigel Anton, MD and Head of Shipping, Standard Chartered Bank.
  • Stephen Fewster, MD, Global Head, Shipping & Transportation Finance, ING Bank.
  • Alex Ryland, Senior VP, Shipping, Offshore & Logistics, DNB Bank ASA.

 Problem loans; what is the solution?

 The panel predictably said a solution was determined on a case-by-case basis and there wasn’t a one size fits all solution. If the owner has money and will put some more into the deal, the bank will try to match it, and maybe grant waivers (this is presumably with a client the bank wants to retain a relationship). Mr Fewster of ING said that they see the shipping industry as a “mean reverting industry” and rates will swing back to the average and that they should give the owner time. (This, of course, depends on when the loan was granted and the average rates used in the loan repayment and cash flow projections). Other solutions include the sale of the loan to a hedge fund or another bank. One bank reported selling a bilateral loan in the secondary market for more than book value – result! However, there is the remote danger that due to “Chinese Walls” between the different parts of the bank, the loan could end up back in the bank, at a higher price!

 The panel admitted that syndicate banks are the major obstacle to achieving a solution (in a syndicated loan). The owner can pick up on this and play one bank against another. It depends on how the bank runs its problem loan book. Does the problem loan stay with the relationship manager, or is it taken away and dealt with by a special solutions group?

But most often it was a question of what is the level of trust between bank and bank and owner? Will the owner with money put more into the deal or are they being dishonest? Of course, the owner knows banks are very reluctant to takeover the ship and realise the loss. An arrest will mean the loss of oil major approval, so reducing the value of a tanker even further.

 Sometimes a loan is doomed, and the panel pointed to certain characteristics that have become evident during restructuring. One is a high chartered-in position with high operational leverage. The second is very high lending rates, for example ships bought at the peak of the market. Another characteristic highlighted by Mr Ryland of DNB is SOS – small, old and specialised! This is where the bank tends to lose money (remember the fees generated are relatively small and writing off a loan can destroy the division profit for that

The panel felt that there will be more restructuring in 2013. The ships are getting older and the restructuring of a few years ago in the expectation of a market upturn may no longer be commercially viable. The so-called “Zombie” companies as Lloyd’s List (David Osler) put it are being supported because the banks do not want to arrest the vessels.

 Going forward several of the banks on the panel expect to do new business in 2013, and have mandates to grow the shipping book. The offshore, cruise and gas (LNG) sectors were mentioned as sectors that meet the banks credit and return expectations. The panel see consolidation among shipping companies as a feature in 2013, and although some banks are growing their books, the overall effect will be less credit available to a smaller group of clients. These clients can be shipping companies with financial investors. Banks will always consider the same factors;

  • The management, financial, commercial and technical.
  • The business plan
  • The initial capital structure
  • The mix of employment on the vessels

 The client profile today would be corporate and could include capital private equity with the banks having comfort from recourse to a corporate balance sheet with protection of covenants. There would also have to cross sell to other products within the bank, so that the bank is optimising its use of its capital, which is now a scarce resource. Banks would also like to see evidence of long term commitment to shipping. A typical market clearing transaction today would be:

  • 65-70% financing
  • 15 year profile
  • 5-7 year tenor
  • Pricing at plus or minus 300 bps
  • Upfront fees 1-1.25%
  • Plus the usual covenants.

Mr Ryland of DNB pointed at that LTVs today are checked dynamically every six months to test the banks security, and not historically every twelve months as in the past.

 There was a very interesting question from Richard Greiner of the shipping accountants Moore Stephens. “What is your position about actually having ships on your balance sheet?”

Mr Anton said “Standard Chartered does own ships, we have a leasing division.” The panel said that generally the banks don’t want to own ships on the balance sheet. In the short term banks will warehouse troubled ships with friendly clients or convert loans into leasing deals, and so avoiding taking ships on the balance sheet. Mr Greiner pointed out that the auditors are beginning to scrutinise the warehousing solution and these ships will be treated as being on the balance sheet.

Marine Money Ship Finance London Jan 2013 (Part 1).


The cliché here would be to say “the good and great gathered at the Dorchester Hotel to discuss the current state of shipping under the auspices of the 2013 Marine Money Ship Finance Forum”, but that is exactly what happened. Unfortunately I was in meeting on the other side of town in the morning and missed those sessions. Marine Money will be posting those on the presentation section of the website later.

I did arrive in time for the afternoon session of “Strategic Banking and Strategic Investors”. This was a panel discussion about if, when and how banks can sell off all or part of the shipping portfolio. The moderator was Bart Veldhuizen, who as the head of shipping at Lloyds Bank has “seen it, done it, bought the T-shirt”. On the panel was the legendary Michael Parker of Citi, which bought part of the SocGen portfolio in 2012, and Dr Stefan Otto of Commerzbank, whose portfolio is for currently for sale. Also taking part is Chris Lowe, a lawyer from Eatson, Farley & Williams, a law firm that is involved in these portfolio transactions. Jasvinder Khaira is from the Blackstone private equity group, and clearly on the panel because it has been involved in the portfolio sale process. I was particularly interested in this session as I was part of the Fortis Bank shipping team when the portfolio was taken over by BNP Paribas.

Moderator; Bart Veldhuizen (ex-Head of Shipping Lloyds Bank), Independent Advisor

The panel;
Dr Stefan Otto, Divisional Board Member Deutsche Schiffsbank, Commerzbank AG.
Michael Parker, Global Head of Shipping, Citi.
Jasvinder Khaira, Principle, Tactical Opportunities, The Blackstone Group.
Harold Malone, Senior VP, Jefferies & Co.
Chris Lowe, Partner, Farley & Williams.

Question: Why have their not been more sales of shipping portfolios by banks?

The panel felt the principal reason was that banks had not felt enough pressure. It is only now, nearly five years after the start of the financial crisis, that regulators are looking closely at the shipping books. Most of the deals were done in a time of high liquidity and low funding costs and there were no realisable losses for the banks

The drivers to sell portfolios are coming from the regulators looking to reduce the concentration of risk, according to Mr Veldhuizen. The panel agreed and Dr Stefan Otto noted that the German banks are feeling that regulatory pressure now, and the panel felt that it would soon be arriving at the American banks’ doors. But Dr Stefan pointed out that Commerzbank could allow a natural amortisation of the book. There was no reason to take a haircut on the portfolio (sell at a discount).

What about a synthetic exit (securitising part of the portfolio)?
This was a possibility, felt the panel, but the banks must be transparent. The danger is that in unpacking the portfolio there may be some mis-pricing. There is also the issue of rating the package. Another way of reducing the size of the portfolio is “regulatory trades”, where part of a portfolio is bought by private equity. This is something I need to look into.

Chris Lowe, the lawyer with Farley & Williams, pointed out the inherent cost of selling a portfolio. Each loan generates a huge amount of documentation and particular clauses have to be checked very carefully. Simply physically dumping piles of documents into a data room is a costly use of lawyers time. Mr Lowe asked bankers to consider using a simple questionnaire covering;

  • FACTA
  • Agency
  • Waivers
  • Guarantees

(Having been involved in the mechanics of transferring a portfolio from one bank to another I would also add insurance certificates, ship registration, and list of documentation from the KYC department).

In conclusion the panel felt that the pressures coming to bear from regulators meant that 2013 would be the year of portfolio sales.

What OOCL can teach its rivals


For the new-look Containerisation International I researched and wrote a six-page feature on OOCL; What OOCL can teach its rivals. The article features in the January issue of CI, and has also been re-printed in today’s Lloyd’s List.

I enjoyed researching the article, although getting up a 3.00 am to speak to Hong Kong was less of a joy. Meanwhile I am working on a few other features, and I will keep you posted.

Costa Concordia Documentary on Discovery Channel


Costa Concordia Documentary

This two part documentary was first shown in the UK last weekend. The first part deals with the Costa Concordia incident. The second part is fascinating. It details how they are securing the ship and how they are going to re-float her for removal.

Where are the Shipping Jobs?


If like me you are looking for a full-time position in commercial shipping and wondering where the jobs are; I have some good news and some bad news. There are jobs out there, but not many, and if you are based in Europe you may have to move.

There are currently 102 shipbroking-related jobs advertised on the websites of the three main shipping recruiters, Spinnaker, Faststream and Halcyon. In fact, the number is probably 10-20% less than that as there will be some overlap between the three agencies, but on the other hand I have taken a tight interpretation of commercial shipping. I searched the websites for commercial shipping jobs that involved chartering, broking (including bunkers), post-fixture and vessel operations.

The chart below shows that most of the advertised vacancies are in Singapore (44%). I asked Heidi Heseltine of Halcyon Recruitment, which has an office in Singapore, why Singapore ranked higher than a “traditional” shipping centre like London. Ms Heseltine pointed out that the list is inherently skewed because competitive shipbrokers feel their networks are sufficiently strong to recruit among themselves. There are probably vacancies to be filled in London and Europe, but they are not advertised as competitive brokers rarely approach specialist recruiters.

Job Locations

This would explain the lack of London-based commercial shipping jobs (only 16% of the vacancies), but why is Singapore so dominant? “Singapore is dominant because it is still in expansion mode. Asia Pacific trades are playing an important role in shipping life and Singapore itself offers some good incentives to companies to base themselves there. As a location at the moment it is often seen to be more attractive due to its low taxation and stable economy, European locations are struggling to entice newcomers in many locations.” explained Ms Heseltine.

This isn’t great news for those of us looking for work in commercial shipping in Europe. There is still a great depth of shipping companies and shipbrokers in Europe but some are moving their chartering and broking operations eastward. Job availability also depends on the fortunes of the shipping sector. Over half (53%) of the jobs related to the dry bulk sector, followed by bunkers (11%) and tankers (6%). So does this mean UK jobseekers in commercial shipping with dry bulk experience can find work in Singapore? Not necessarily. “Some roles in Singapore will take people from the UK but only if they are not available locally. The Singapore government is putting increased pressure on employers to recruit from the local market and of course this also keeps costs down for employers. The employment of individuals from outside of Singapore continues of course but the focus is very much on finding people locally if possible so ‘external’ recruitment will only take place for roles requiring specialist experience that is not readily found in Singapore itself. For recent graduates or those with 2-3 years experience, it is increasingly difficult to be recruited from the UK or Europe for a role in Singapore for the reasons already stated.” said Ms Heseltine of Halcyon Recruitment.

As well as the three above agencies I use LinkedIn a lot for job searching, but how useful is it for finding a job? I would like to hear from anyone who has found a commercial shipping or ship finance job directly through LinkedIn or via an agent who saw your LinkedIn page.

Ship Finance Poll and LinkedIn


Will shipping finance expand, contract or remain the same in 2013? Below is a poll I have posted on various LinkedIn shipping groups to gauge sentiment about the prospects for shipping finance in 2013.

I have found the LinkedIn polls a useful source of copy and opinion but there are some annoying limitations on polls. First, the limit on 40 character length means the questions have to be very simple. The second is that at the moment there isn’t a survey function. Of course, I can do surveys on the blog, but it would be more efficient when LinkedIn has added this feature. It is also interesting to see which LinkedIn groups generate responses and which are billy-no-mates. I haven’t posted this poll on the shipping media groups (although it is not always obvious if a Group has a media link) as I feel this is a point of etiquette. I am not exactly sure what etiquette is involved, and I may have to review. Any thoughts on the issue?

The poll – Ship finance prospects in 2013. Compared to 2012, arranging a newbuilding or secondhand purchase loan from your current bank in 2013 will be;

  1. Easier than 2012. Bank expanding book.
  2. No change to policy. Same as 2012.
  3. Harder; smaller allocation for shipping.
  4. Very difficult. Commitments only.
  5. Impossible. Bank exiting from shipping.

You can take part in this poll one of the following LinkedIn groups;

Shipping, Trade & Finance group

Commercial Shipping

Finance and Investment Strategies – Shipping

Executive and Expert Search in Ship…

Dry Bulk Chartering

Maritime

Maritime Network

Shipping Business Innovation

Shipping Markets

Shipping Network

Tanker Shipping and Trade Network

The Institute of Chartered Shipbrokers

The Shipping Professional Network

The results will be posted on the Groups when it closes on Friday 11th January.

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