Action against problem loans

Shipowners are facing tougher action against problem loans as banks are obliged to absorb write-downs in their shipping portfolios.

Shipowners are facing tougher action against problem loans as banks are obliged to absorb write-downs in their shipping portfolios, a leading investment banker warns.

Peter Stokes, a senior adviser at Lazard in London, also said that traditional shipping banks would undertake a partial retreat from the market during the next two years, selling chunks of their portfolio at hefty discounts, possibly to distressed debt funds.

?As we move into the second-half of this year, it will be increasingly difficult for banks to turn a blind eye to the impairment of security on shipping loans, and, once provisions are taken, any reluctance to take robust action to remove problem assets from banks" books will greatly diminish,? he said.

Mr Stokes said the time may not be far off when work-out departments in some banks insist on a ?sharp retrenchment? of shipping exposure through the disposal of segments of portfolios ?at whatever discount it takes?.

This would not be easy because ?very few? other banks would be in the market to increase their shipping exposure, he told a shipping and energy seminar organised by the London Shipping Law Centre and Norwegian-British Chamber of Commerce.

?This raise the prospect that the field may be left clear for the distressed debt funds, who will be looking to buy at deep discounts to the face value of the loans, possibly for as little as 30 cents on the dollar, and the trade their position,? Mr Stokes said.

?The potential therefore exists for significant amounts of secured shipping debt to end up in the ownership of traders with only the most mercenary interest in the underlying hard assets.?

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