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.