goed nieuws! nwe redding dus in feite.
J.P. Morgan
Europe Credit Research
HSH Nordbank: EU Agreement In Line With Expected
· The agreement in principle announced today by the EC on HSH Nordbank goes a long way to meeting the objectives which the institution has been pursuing and looks to be in line with what we outlined in our recent note, Getting closer to the finish line,published October 1, 2015. As such HSH Nordbank will see the risk shelter reinstated back to €10bn which was the initial objective of the EC investigation. As part of the agreement in principle, HSH will be split into an OpCo and a HoldCo, with the purpose that the OpCo can then be privatized within a 24-month time horizon from the binding decision from the EC, which is expected to be in the first half of 2016. This implies effectively that the sale process of the OpCo has to happen up until the first half of 2018, which would be effectively beyond the maturity of the Tier II instruments. We reiterate our Overweight recommendation on the Tier II instruments.
· Crucially, the OpCo will hold all the “assets and liabilities of the HSH Nordbank”, which implies that the OpCo will hold all the subordinated debt (including Tier 1 instruments), as well as the 2nd loss guarantee. We note that the risk shelter will have a lower fee structure, with it being reduced to 2.2% of the undrawn part (in our previous note we have estimated a positive P&L impact of €280mn but we now think this could be larger) . We would expect in line with our recent publication, that the risk shelter will be partially crystalized with sale of NPL portfolios of up to €8.2bn. This implies that HSH Nordbank ends up with a much better asset quality profile, and in addition the revenue stream will also benefit from a lower fee structure. To the extent that the Tier I debt stays with the OpCo, it should however benefit from the improved revenue earnings stream implied by a reduction of the risk shelter fees. This is the key assumption we are making and which still has to be subject to official confirmation for the Tier I instruments. Hence, from the current situation, we see the provisional outcome as being quite positive for the subordinated debt in HSH Nordbank relative to the current position, to the extent that the viability of the institution is being supported. Ultimately, and on the assumption that the subordinated debt remains with the OpCo, which is then subject to a sale process, we would think that there is substantial re-rating potential for the Tier Is. However, the while the sale process is under way, the Tier I instruments will not immediately benefit from the improved revenue stream, given that there will be a ban on the hybrid capital payouts on existing instruments, which means that the Tier I's benefit from coupon payment when they are privatized, similar to what we saw with Deutsche Pfandbriefbank, recently privatized. Based on the above assumptions and successful sale, the Tier Is stand to benefit from the improved conditions provisionally approved.