NordLB's shipping loans cost German taxpayers €3.6B

NordLB (Norddeutsche Landesbank) was a German Landesbank owned by the states of Lower Saxony and Saxony-Anhalt and the regional savings banks association. It was a dominant player in global shipping finance, holding the world's largest portfolio of shipping loans. When the global shipping industry entered a prolonged downturn starting in 2015, the bank's loan book collapsed.

In 2016, NordLB posted a record loss of €1.96 billion, driven by €2.94 billion in provisions for bad shipping loans. By late 2016, the bank still had about €8 billion in non-performing shipping loans on its books. In 2018, it posted another record loss of over €2 billion and scored worst among German lenders in the EU-wide stress tests.

A rescue plan finalized in early 2019 totalled €3.6 billion. Lower Saxony contributed €1.5 billion in cash plus loan guarantees worth €800 million in capital relief. The German Savings Banks Association provided €1.2 billion in fresh equity, and Saxony-Anhalt contributed €198 million. NordLB was forced to exit the ship financing business, take full control of its loss-making Bremer Landesbank unit, and sell its asset management arm.

The state owners paid €3.6B to bail out NordLB, which had concentrated its lending in one volatile industry, forcing it to exit shipping finance.

NordLB was a regional public bank that became the world's largest shipping lender — one industry, one concentrated bet amplified by public guarantees.

The bank did not diversify. When shipping rates collapsed, €2.9B in provisions and €8B in bad loans hit at once, with no other business line to absorb them.

The state owners paid €3.6B to cover losses from a sector they had no expertise in. The bank was too big to fail and too concentrated to survive.

A public bank that concentrates its lending in one volatile industry is a tax on the next downturn. The guarantee that makes it a safe borrower also makes it a dangerous lender.