Financial News: Banks Face $90B Ship Write-Downs [Shipping]

Wall Street Journal ^ | SEPTEMBER 14, 2009, 3:35 A.M. ET | Mike Foster

[Vince Ferrer]

Banks are facing the prospect of being forced to write down loans to the shipping industry worth more than $90 billion (EUR62 billion) next year.

The write-downs would be a delayed response to a crash in ship values of more than 50%, which has fatally undermined loan cover.

[Vince Ferrer]

So cheap a pirate could just buy them.

[parsifal]

Banks are stupid. They should have put some money into a sinking fund in case they had to liquidate, so they wouldn’t have to be underwater on these loans.

parsy, who hopes this little joke doesn’t hit a berg

[Vince Ferrer]

Shipping is like houses, it always goes up. No need for contingency plans.

[volunbeer]

A pirate could buy them but it would be even better to go off the coast of Singapore and steal them. I hear there are a few hundred ships anchored there due to a lack of shipping needs.

Anyone that thinks the economy will recover soon is not paying attention.

[blam]

Global Cargo: A Ship Stuck At Sea

To understand how global economy is really doing, look at global shipping rates.

By Vadim Pokhlebkin
Mon, 21 Sep 2009 20:45:00 ET

If you keep up with international news, you may have seen this picture on Britain's dailymail.co.uk on September 16. The story said:

"The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination..."

[snip]

[dalereed]

“They should have put some money into a sinking fund in case they had to liquidate”

Like a giant bomb and send the bill to the insurance co.?

[parsifal]

No. It was an accounting joke. But I do wonder how many piracies were pre-planned.

parsy, who does not always trust businessmen

[Jimmy Valentine]

"Banks are stupid." (Yes they are, trust me I'm in the biz)

"They should have put some money into a sinking fund"(They do, it is called "Allowance for loan and lease losses".)

The issue is that ships, like buildings are valued in several ways. One way is the cash flow generated (potentially) by the vessel. Since the Baltic Dry Index has dropped so quickly, the cash flow generation capability of ships has dropped and therefore their value too.

Generally a loan loss reserve is about 1-2% of a portfolio. If you are lending 75% of the cost orappraised value of the ship and it isn't earning, but is laid up, well do the math.

[parsifal]

It was like a joke. You know “sinking” fund and “ships”. But yes you are right, nobody would be setting aside 25% or more for possible loan losses. If there was that degree of risk, the loan would not have gotten made.

parsy, who will refrain from plays on words for a while

[Jimmy Valentine]

Well looking this over, I must apologize to Parsy. When I replied, I had forgotten to put on my sense of humor and left my irony sensor off.

Good gag, Parsy. I promise to do better and be more receptive to the subtlty of your next gibe.

Jimmy feeling rather dull witted of late.