Government leaders from Schleswig-Holstein and the city state of Hamburg met in Kiel to thrash out a rescue package which was comprised of a €3bn capital injection and €10bn in guarantees to cover future losses.
The deal was put together after Germany’s financial regulator had threatened to shut the bank down unless it raised capital, but must still be approved by both state parliaments.
Schleswig-Holstein and Hamburg together own around 60 per cent of HSH, while a further 26 per cent is controlled by JC Flowers, the US investor.
HSH said the injection will raise the bank’s Tier 1 capital from around 7 per cent to almost 9 per cent. The bank also said it planned to reduce the size of its balance sheet by half to around €100bn in the coming years.
“This is good news for the region, the bank, our staff and our clients,” said Dirk Jens Nonnenmacher, HSH chief executive of HSH.
Rasmus Vöge, the regional deputy head of chancellor Angela Merkel’s Christian Democratic Union party, told a newspaper on Tuesday that Schleswig-Holstein was “quasi-bankrupt” as a result of HSH’s losses.
The sentiment was echoed by Wolfgang Kubicki, state head of the Free Democratic party, who warned that without federal assistance Schleswig-Holstein faced “political bankruptcy like Iceland”.
Mr Kubicki told Reuters that HSH would require around up to €9bn in capital over the next four to five years.
Although it is constitutionally impossible for a federal state to declare bankruptcy, the comments underscore the depth of the financial calamity that has befallen the region.
HSH posted a €2.8bn loss last year and was forced to secure €30bn in lending guarantees from Soffin, the federal government’s stabilisation fund. Soffin declined to provide further assistance until the bank met certain conditions.
Around one-quarter of HSH’s 4,000 employees are set to lose their jobs as a result of a restructuring plan that will see the bank cut non-core operations and focus more on its clients in northern Germany.
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