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Document Type

Case Study

Case Series

Ad hoc Capital Injection

Abstract

State-controlled HSH Nordbank AG (HSH) lost EUR 2.8 billion in 2008, mainly because of impairments to its holdings of US structured credit securities. On April 29, 2009, the German bank regulator informed HSH that it would close HSH if the owners did not recapitalize the bank to the 8% total capital ratio requirement. In June 2009, the state governments of Hamburg and Schleswig-Holstein injected EUR 3 billion (USD 3.8 billion) of capital in ordinary shares with voting rights and provided a EUR 10 billion asset guarantee, called a “risk shield,” for a 7.85% annual fee. Over the next few years, the bank underwent a restructuring and committed to reducing its balance sheet by 61%. Although the European Commission (EC) approved the interventions in 2009, it later decided that HSH should have paid the governments more for the asset guarantee. In 2011, the EC required additional remuneration for the aid to increase the dilution of the minority shareholders and improve burden sharing. On November 28, 2018, a group of private equity funds purchased HSH, including the shares held by the two state governments, for EUR 1 billion. The governments ultimately lost approximately EUR 12 billion on the capitalization and asset guarantee combined, before accounting for interest payments of EUR 4 billion for the asset guarantee and government capital contributions before 2009.

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