Moody’s downgraded HSH Nordbank from Baa2 to Baa3 yesterday (Thursday) because of its expectations regarding external support and uncertainties arising from a pending final ruling from the EC on state aid compensation measures.

The rating agency said that it expects the bank to need ongoing financial support from its owners in the long terms, but said that it had kept HSH Nordbank’s rating at an investment grade level because it expects support to be forthcoming in case of need, given its ownership by the federal states of Hamburg and Schleswig-Holstein and its membership of Germany’s mutually supportive public sector banks.

On 21 June the European Commission approved renewed support from the owners, but final approval is still pending.

“The downgrade reflects Moody’s perception of the risks associated with the long-term viability of HSH Nordbank, which will continue to require support,” said the rating agency. “From Moody’s perspective, the bank remains under significant pressure from the low quality of its loan concentrations in shipping finance and international commercial real estate.

“The rating agency expects the crisis in the shipping market to extend beyond the time frame anticipated under the original restructuring plan that the EC approved in September 2011. From Moody’s perspective, these developments challenge the sustained recovery of the bank and related prospects for an exit from state aid.”

The rating was left on stable outlook.