Commerzbank to shed $5B in toxic ship loans

frankfurt — Commerzbank AG announced significant steps in its effort to shed its €4.5 billion ($5.05 billion) portfolio of distressed shipping loans.

The German bank said it had returned its regulatory licence to issue ship Pfandbriefe or covered bonds, which are securities backed by shipping mortgages.

Commerzbank also said it would be able swap out the shipping loans underlying these covered bonds with other publicly issued bonds more swiftly than would normally be allowed.

Under usual circumstances, the German regulator BaFin requires a phasing out of the underlying securities. But Commerzbank has negotiated an exception to the rule, which it said would give it “additional flexibility for the onward downsizing of its discontinued ship financing business.”

Commerzbank, which was hit hard by the financial crisis and bailed out by the German government, is restructuring itself to get back on a firmer footing.

It and other German banks were greatly exposed to the shipping industry, which has been suffering from a glut of vessels and sluggish global trade.

Commerzbank has already made significant progress in exiting shipping. As of the end of March, Commerzbank had €4.5 billion in shipping loans on its books. That is down from 20 billion euros in September 2012.