With the crisis in the shipping market now in its fourth year, bankers are putting to sea and seizing ships to protect the value of their loans to struggling shipowners.
Lenders to the shipping trade, themselves lashed by the euro zone crisis, are recruiting management companies to take over and operate defaulting owners' ships rather than sell them at a heavy loss or take a writedown on their loan books.
Earlier this month, Credit Suisse and a group of Chinese banks seized seven tankers from Singapore's Dongfang Shipbuilding to pay outstanding debts of around $250 million after the Singapore Supreme Court ruled in favour of the creditors.
"The banks have so many problem loans today - at a time of extreme political, social and regulatory pressure - that they don't know which way to turn," said Nigel Prentis, head of research, consulting and advisory with HSBC Shipping Services Ltd.
UK-headquartered Bibby Ship Management is among companies aiming to capitalise on the slump by offering to run vessels for a fee, including chartering out a ship on behalf of a bank. The group said it was in talks with a number of European banks.
"What we do is come in and provide technical management of the vessel and provide a full crew to run the vessel and get it to a standard where it is fit for resale by the bank or whatever they want to do," said Bibby's business development manager Brian Williams.
Bibby has teamed up with asset recovery specialist Marine Risk Management (MRM), whose staff includes former special forces personnel, which can arrest a vessel from its owner on behalf of a bank and sail it to another jurisdiction with a letter of authority from an admiralty court.
"The biggest difference to the 1980s, which was the last major crisis, is the value of the assets could be up to 10 times higher (than then), which is why banks have been reluctant up to now to force anything in the hope that the market was going to recover. Clearly that's not going to happen, and banks are looking at taking other action now," MRM's chief executive John Dalby said.
"We are providing them with an option to technically and commercially manage a vessel and then sell it as a going concern subsequently. The alternative is writing off massive loans, which is not something anyone wants to do in this climate."
Surplus capacity due to brisk ordering during the boom years has pushed the nominal resale value of a supertanker, used to transport crude oil, has fallen to around the $90 million level from $162 million in 2008.
The value of a capesize ship, one of the largest carriers of dry bulk commodities such as iron and coal, has also slumped to $44 million from just under $100 million in 2008.
"Many banks are thought to have contingency plans to take over ships and run them through the cycle rather than further undermine values with an auction process," said HSBC's Prentis said.
"The correction in values has been enough to wipe out equity in many cases, meaning that many ships will be worth less than the outstanding loan: negative equity. Hence, this is a problem for many European banks. Faced with big writedowns, on top of haircuts on peripheral euro zone bonds, they have generally chosen forbearance."
European lenders in particular are under growing pressure to cut their exposure to risky and dollar-denominated assets such as ship and trade finance to meet tougher capital rules and shore up reserves.
Global syndicated lending to the shipping sector slumped to $245 million in the second quarter of this year, down from over $1.6 billion in the first quarter and over $3.9 billion in the second quarter of 2011, Thomson Reuters LPC data showed.
"There is still pain on the horizon because of the deliveries and because of the slowing economy," said Harris Antoniou, managing director, energy, commodities & transportation with ABN AMRO Bank.
German ship operator Oldendorff Carriers is another group in talks with banks over providing them with options.
"These days we are offering banks to 'park' the ships with us ... where we effectively take care of the technical and commercial management," said its chairman Henning Oldendorff.
"It is very straightforward and transparent. If the banks want to sell the ship, we can terminate the charter."
A number of European banks, including France's two biggest listed banks Societe Generale and BNP Paribas , are looking to wind down their shipping books.
Industry officials say short-term asset plays such as hiring managers buys more time for banks.
"Banks are not ship owners, and therefore do not want to own lots of ships," said Keith McRae with DVB Bank's restructuring and asset management unit. "You may have to warehouse a ship for a period of time, but that's not a business plan for a bank - it's an expedient measure."
One of Germany's biggest lenders Commerzbank has already acted, mandating shipping firms to run vessels for the bank.
"We have seen a few ships which have been transferred to special purpose vehicles with the purpose of getting them into service again so that they can earn money and pay down loans," a spokeswoman with its shipping arm Deutsche Schiffsbank said.
"Naturally, we would like to see external shipping companies in such a company as they have the best knowledge of how to run these ships."
SHIP ARRESTS TO RISE
While banks have aimed to avoid ship seizures, the worsening conditions and growing frustration will lead to more vessel arrests, industry sources say.
An arrest occurs when a ship is detained by a court order to secure a maritime claim. The arrest may ultimately result in a judicial sale of the ship to pay the claim.
"Arresting vessels is an action of last resort for banks," said Basil Karatzas, chief executive of Karatzas Marine Advisors & Co, which is active on the bank advisory side.
In another sign of worsening conditions, Newlead Holdings Ltd said in May four vessels in its fleet were seized by lenders to pay for debt as part of restructuring efforts by the struggling Greek shipping group.
"Banks are starting to realise that it's going to get worse and they must change their game plan," MRM's Dalby said.
'All hands on deck' is the lenders' new rallying cry.
(Additional reporting by Arno Schuetze in Frankfurt; Editing by Will Waterman)