Eurofin: Black Cloud Signals Cold Christmas for Shipping
WORRIES about FFA clearance are obscuring a far greater threat to shipping, according to Janos Koenig, managing director of Eurofin, the shipping investment advisory group. “If the FFA market implodes, then some speculators will get hurt,” says Koenig. “But that is not really the issue. If the banking derivatives market implodes, everyone will hurt. That’s the difference.”
“According to BIS (Bank for International Settlements) figures,” explains Koenig, “at the end of June there was a US$680 trillion nominal value of derivatives hanging over the global banking system. In June, margins in relation to these derivative contracts stood at about $20 trillion. Marked to market at that time, the banks’ exposure could have been as much as $4 trillion, much larger than the aggregate bank recapitalisation that has already occurred. If that level of exposure, or even a fraction thereof, comes home to roost in the final quarter, then everyone in shipping and trade will have a very cold Christmas. Today we have a situation where ship finance banks, even the ones with a long tradition in the sector, are effectively frozen while they look for support from their shareholders and where this is not available from governments. If the capital base is further eroded, because of derivatives, then there will certainly be nothing to nurture any new opportunities which may show up in shipping next year. I hate to be gloomy, but I do like to be prepared.”
The banking crisis is looking like developing into a shipping crisis, with freight rates, at least in the dry sector, plummeting and LTV (Loan to Value) ratios under threat. Koenig remarks that, as a result, problems are likely to develop. “We’ve been here before, and we’ll be here again,” he says. “When times are good, advisers like us are busy finding opportunities for financial institutions, and financial institutions for opportunities. But when times are hard, both financiers and owners come to us to help them sort out their debt problems. We are seeing that again; we are being asked to establish how we can salvage the best for both financial institutions and owners in different cases. Of course, we’d rather be doing the good times business and, truth be told, we are still putting together new transactions for clients and financing new projects, but there is also satisfaction in helping owners or financiers make the best of a bad situation, often not of their own making. It takes experience, skill, contacts, human resources and nimble feet to be useful to both parties and to try and introduce sound commercial solutions into the legal process.”
• About Eurofin
Working for major financial institutions and shipowners, Eurofin provides quick reaction to impaired loan situations including planning and strategy and co-ordination of all operational, legal and financing strands to establish and implement the optimum recovery strategy.
Eurofin is an independent financial adviser which has been active since the mid-80s. It is known for its specialist shipping expertise, and has offices in London, Athens, Istanbul and Singapore. Its activities are focused mainly on the structuring of shipping finance, vessel and fleet valuation/analysis, advice and assistance on problem loans, advisory services on capital markets such as shipping sector IPOs, support to banks and managing the activities of Merlin Tankers, an investment vehicle specialising in the transportation of vegetable oils with IMO II tankers.
www.eurofingroup.com