It’s always important to be reminded that a global, economic rebound in itself doesn’t guarantee big or rising profits in the shipping industry.
If a pick-up in world trade is accompanies by a big increase in supply of ships, your revenue (which may be crudely estimated by the oft-cited baltic dry index) may still go nowhere.
And so it is that banks with massive shipping exposure are not yet out of the woods, even as other banks stabilise.
NYT: “Peak of defaults is generally one year after the trough of the economy,” said Scott Bugie, a European bank analyst at Standard & Poor’s. “In the U.S., the debt workouts have been faster and the economy also bottomed out before Europe.”
HSH Nordbank, a leading lender to the shipping industry, set aside close to $800 million in provisions for its shipping-related loans this spring, and it has already received 13 billion euros ($19.4 billion) in support from its owners, the regional German states of Hamburg and Schleswig-Holstein.
And while global trade appears to be gradually on the mend, a glut of previously ordered ships due in the coming years is expected to limit the extent of a meaningful price recovery.
The story is familiar. By and large, shipping–heavy banks like RBS, Commerzbank, and Lloyds have resisted writing down their loans, because for the most part, payments are still being made.
The problem is that a bank’s investors have an unclear picture of its health. If the bank’s borrowers are making payments, but only barely, then obviously those loans are worth less than if the borrowers are comfortably making payments. But that’s the bank’s call, and none are in any mood to penalise themselves.