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