EU guarantee deal paves way for potential HSH Nordbank sale

BRUSSELS/FRANKFURT (Reuters) - The European Commission on Monday approved a guarantee by two German states for HSH Nordbank [HSH.UL] that will ultimately facilitate a sale of the state-owned bank which had to be rescued during the financial crisis. The Commission found that a 3 billion euro (2.34 billion pound) increase in a guarantee ceiling provided by the regional states of Hamburg and Schleswig-Holstein was in line with EU state aid rules. In 2013, the Commission had temporarily approved the increase in the guarantee to 10 billion euros from 7 billion euros but began an investigation to assess whether the public-sector bank could restore its viability. The Commision said its finding was based on new commitments by Germany to split the bank into two parts and to sell the operational business without state aid. "The split and sale solution, as I already outlined in agreement with the German authorities in October, created an opportunity to sell an important part of the bank," EU Competition Commissioner Margrethe Vestager said in a statement. "It paves the way for a privatised, viable business to emerge from the sale process," she continued. HSH Nordbank, majority-owned by Schleswig-Holstein and Hamburg, turned to its owners after risky assets turned sour in 2008 and the shipping lender got hit by the slump in global trade in the wake of the financial crisis. The bank said on Monday the Commission's approval would allow it to transfer non-performing loans worth 8.2 billion euros to a wind-down vehicle run by its owners. HSH will contribute 260 million euros to setting up this external 'bad bank'. The Commission has set HSH's owners a February 2018 deadline to privatise the bank, which can be extended by six months provided the EU agrees. If Hamburg and Schleswig-Holstein fail to find a private investor, then Germany's public-sector banks may seek a solution for HSH, sources familiar with the matter said. DSGV, the umbrella organisation of Germany's seven landesbanks and roughly 400 savings banks, said on Monday that it would continue to cooperate with HSH Nordbank. ($1 = 0.8712 euros) (Reporting By Philip Blenkinsop, Arno Schuetze and Andreas Kröner. Editing by Jane Merriman)