HSH Nordbank to be sold to US private equity consortium

By Luca Cassiano, Dima Pisaniuc


The target, HSH Nordbank, is a German bank established in 2003 as a result of the merger between the Landesbanks of Hamburg and Schleswig-Holstein.

The bank is based out of the German port cities of Hamburg and Kiel and it is an important financing provider for corporate clients involved in the shipping, infrastructure & logistics, trade & food and industrial sectors. Besides offering traditional loans, the bank also offers a huge spectrum of other services including structured finance, risk and investment management solutions.

As of 31st Dec 2016, the bank reported total assets of EUR 84 billion and net income before taxes of EUR 121 million.


J.C. Flowers & Co. is an American private equity investment firm founded in 1998 by former Goldman Sachs partner J. Christopher Flowers. The firm specializes in investments in the financial services industry, with 38% of its capital being channeled in the insurance and reinsurance sector, 20% into banks and the remaining part split between specialty finance, asset management, Fin-Tech and securities firms. JC Flowers has ~ USD 6 billion AUM and its portfolio of companies includes notable firms such as Pension Insurance Corporation (UK), Shinsei Bank (Japan), Fairstone Financial (Canada), AmeriLife (USA), and BTG Pactual (Brazil).

Cerberus Capital Management is an American alternative asset manager founded in 1992 and is well known as a specialist in distressed investing. It is also an important investor in private equity, real estate and operates a strong platform in middle market lending. Cerberus boasts approximately USD 30 billion AUM and through its private equity platform it has acquired stakes in Deutsche Bank (~5%) and Commerzbank (~3%), the two largest German banks.

The other acquirers involved in the transaction are:

  • GoldenTree Asset Management: USD 26 billion AUM investment firm specialized in the credit universe

  • Centaurus Capital: investment management firm with a deep-value strategy

  • Bawag: the 4th largest Austrian lender in which Cerberus and GoldenTree have a stake of 35.1%, and 25.7% respectively.


Since its establishment in 2003, HSH Nordbank expanded aggressively to become the world’s biggest shipping lender, attracting the interest of private equity firm JC Flowers which acquired a 27% stake for EUR 1.3 billion in 2006.

During the financial crisis, the bank was largely exposed to the US subprime mortgage market and has seen itself facing turbulent times as the shipping sector fell in a slump. HSH Nordbank was in an urgent need of a bail-out and the states of Hamburg and Schleswig-Holstein came to rescue with a commitment of EUR 3 billion euros in equity and a EUR 10 billion guarantee in 2009. As a consequence of the EUR 13 billion bail-out, the original stake of 27% of JC Flowers has been diluted to 5.1%.

In 2016, Stefan Ermisch became CEO and started a restructuring program aimed at cutting costs and reducing the lender’s portfolio of NPLs, by halving its exposure to toxic shipping loans and focusing on commercial real estate and corporate lending. The lender’s remaining NPLs, which stood at EUR 6 billion by the end of 2017, will be carved out and transferred into an acquisition vehicle. The split will result in a one-off valuation loss that will result in a net loss before taxes in 2017.

Excluding the removal of legacy assets, the core bank in 2017 more than doubled its pre-tax profit to EUR 290 million and stated that after the carve out, its CET1 capital ratio will be at about 15%.



It has been since February 2016 that major shareholders of HSH Nordbank are looking for potential bidders, as the EU set a deadline for the bank to be privatized by February 2018. Even though an outright sale was the preferred option, the other alternative saw the bank being potentially sold in 2 parts: the core business and the non-performing loans.

Potential interests initially came from different categories of potential buyers:

  • German banks such as Norddeutsche Landesbank Girozentrale;

  • Private equity firms such as Apollo, Cerberus, Lone Sta, JC Flowers and Socrates Capital;

  • Chinese conglomerates and financial services companies such as HNA Group, Industrial and Commercial Bank of China and Anbang Insurance Group.

After several non-binding bids by the companies above, in late 2017 a group of HSH Nordbank bondholders offered to acquire the company in a debt for equity transaction. An exact value for the transaction was not revealed but the group held Tier1 instruments with a principal value of over EUR 700 million and not all of the debt would be have been swapped for equity.

Finally, in January 2018 JC Flowers and Cerberus submitted a joint bid of over EUR 700 million, thus ruling out the potential debt for equity transaction and the lower bids proposed by Apollo and Socrates. Through JC Flowers funds, the consortium already owned a stake of approximately 5.1% in HSH, meaning this transaction would cover the remaining 94.9%.

As negotiations went through, three new acquirers were included in the winning bid: Austrian bank Bawag and two additional alternative asset managers (Goldentree and Centaurus).

At the end of February 2018, the consortium finally agreed a deal to acquire HSH Nordbank for approximately EUR 1 billion in cash. The new owners will take on a shipping portfolio of almost EUR 6 billion, EUR 12 billion in commercial real estate loans and EUR 14 billion of lending to corporate clients. Cerberus will become the largest shareholder with a 40.3% stake of the bank followed by JC Flowers, which increases its stake to 33.2%. GoldenTree and Centaurus will take stakes of respectively 11.9% and 7.1% while Bawag will acquire the remaining 2.4%.

As mentioned above, the acquisition will be completed via at least two separate vehicles, with one single vehicle to take all of the bank’s EUR 7 billion of “bad” loans. Upon completion, the bank’s legacy assets (including its bad loan portfolio) will be split off into a new company, which will also be purchased by the acquirers.

The transaction is subject to approval from the European Commission and European Central Bank and is expected to complete in the second half of 2018. The deal will be approved only if regulators are convinced that the bank will be able to maintain a sustainable business model under the new ownership.

HSH will become the first state-owned Landesbank to be privatized and therefore will leave the deposit insurance scheme of Germany’s publicly owned banks and join the private sector plan.


The consortium of acquirers was advised by German and Dutch boutique investment banks Noerr and NIBC while Citigroup advised HSH Nordbank on the sell-side.


It is no surprise that Cerberus is the largest acquirer in the consortium given that the investment manager has been active in the financial services industry and already owns relevant stakes in German lenders Commerzbank and Deutsche Bank. In particular, this transaction is motivated by Cerberus’s belief in the strength of the German economy and especially in the small and medium enterprises in German-speaking countries (the so-called Mittelstand). As it would be too costly and difficult-to-execute to invest in and exit a diversified portfolio of these companies, the alternative asset manager rightly believes that investing in banks that finance their growth is an equivalent strategy.

JC Flowers is not only a private equity firm specialized in the financial services industry but also the one that already recognized the potential of HSH Nordbank early in 2006, signaling to the other funds acquirers that the company is undervalued and can be turned around.

The addition of GoldenTree and Bawag signals the possibility of a future buy-and-build strategy in collaboration with the Austrian lender (which is controlled by Cerberus and GoldenTree) and/or other portfolio companies of the private equity shops involved.

Authors: Luca Cassiano, Dima Pisaniuc

Editors Responsible: Carmelo Spallino, Edoardo Cogliati


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