HSH Nordbank: Same old Story...

This was bound to happen:

According to the FTD, the shareholders of HSH Nordbank are fighting about the terms of the upcoming capital increase.

Flowers and the Sparkassen think the price is too low. Sure, because they don't want to participate. Apparently, the last injection in 2008 was priced at 55€/share, valuing HSH at nearly 5 bn €. Now, PWC is valuing the shares at 11-20€, i.e. 1-2 bn € for 100 %.

I'm in no position to value HSH. But considering that the bank has a book equity of 2.1 bn €, has lost lots of money in 2008, business prospects and further loss exposure are (at best) uncertain, worldwide bank sharse (with the exception of China) trade far below book value, and HSH is anyway only alive at this point due to massive state guarantees, this already sounds like a rather generous valuation to me.

And anyway: Capital increases are usually priced at a discount to entice shareholders to participate. All the more so if a company is in trouble. If Flowers thinks it is too cheap, he should participate. Or find somebody else who is happy about getting the chance of participating at such an irresistible, rock-bottom price. But no, he doesn't want to do that.

Instead, he gets a second opinion from Deloitte arguing that HSH has a higher fundamental value. And he argues that a low valuation will cause a ratings downgrade, because rating agencies will take it as proof that the owners have no faith in the business model. This will increase financing costs, and therefore isn't in the shareholders best interest. Wow! So let's all pretend that the bank is worth more than it is, because ratings agencies and the customers will of course believe us, and this will lower financing costs. Great idea! And what a coincidence that it benefits Flowers and hurts the taxpayer...