On Thursday, AP Moller Maersk — the world’s top container shipping company — spooked shipping industry watchers when it reported deeper than expected losses of $706m for the nine months to September, and said it would still be in line for a yearly loss of $1bn.
But we thought another, even larger shipping-related number published in the New York Times was also worth highlighting.
As the newspaper reported, with reference to Eastwind Maritime, a medium-sized carrier company that went bankrupt this summer:
…in Europe, where banks hold over $350 billion of increasingly dubious shipping industry loans, the inability of Eastwind, which is based in New York, to handle its debt of more than $300 million set off an anxiety attack on lending desks across the Continent.
That’s right – European banks are exposed to the shipping industry to the tune of $350bn. And according to the NY Times, the largest shipping industry portfolios in Europe are owned by Royal Bank of Scotland, Lloyds, HSH Nordbank and Commerzbank.
And the real problem, the newspaper reported, is that many of the European banks have so far stubbornly resisted taking write-downs on their shipping industry debts.
As Icap noted, this is most likely because banks have been lumbering shipowners with ever increasing margin-calls instead. These payment demands are, by the way, only adding pressure to those companies already struggling on the revenue side.
The NY Times, for its part, cited Lambros Varnavides, who oversees shipping loans for RBS on the matter of impairments as follows:
“Our book is of very high quality, and to date we have not had to make a single provision this year for possible loss,” said Lambros Varnavides, who oversees shipping loans for R.B.S. “If the market remains low or becomes weaker,” he said, “it is likely that some provisions may be required even for us.” He adds, however, that he would expect to recover those provisions once the markets rebound.
One interpretation of that might be: RBS is basing its marks on an impairment strategy that’s very much based on a global trade recovery taking shape very soon. So hardly reassuring.
That said, the Baltic Dry Index — a measure of the cost of shipping dry bulk commodities – rose 5.5 per cent on Thursday to its highest since June 22 “on strong Chinese demand for iron and coal”, according a Reuters report.
In which case, perhaps the shipping financiers might be right to delay impairments after all.
But before they do, we urge them to check out the following report from Brent Cook at Kitco on the type of stockpiling that might just be behind Chinese demand – par exemple, pig farmers making room for copper speculation:
Related links:
An AP Moller-Maersk ouch for global trade – FT Alphaville
Annals of bank exposures, autos and shipping edition - FT Alphaville
Add shipping exposure to European banks’ woes - FT Alphaville