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The reality is that modern shipping is an industrial operation comprising a complex web of logistics, thousands upon thousands of transactions, multi-million dollar deals, and billions of dollars' worth of cargo.

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2014 July

Presentation The Anatomy of the Ship Mortgage Crisis and Regulative Instruments

 

 

 

 

The International Conference of Asian Shipping and Logistics (ICASL 2014) will be organized by Korean Association of Shipping and Logistics (KASL) in Seoul on October 30th-31st, 2014. Okan Duru is going to present a paper titled “The Anatomy of the Ship Mortgage Crisis and Regulative Instruments” which emphasizes the ship mortgage crisis ignited after the global economic crisis of 2008 due to the subprime home mortgage crisis. The role of subjectivity on ship valuations will be discussed as an instrument of common equity accounting (BASEL Accords).

 

Abstract

This paper investigates the ‘ignored’ ship mortgage crisis after the global financial meltdown (i.e. subprime mortgage crisis) and reveals misleading practices in ship valuation, ship financing and asset management. The role of ship covered bonds for securing shipping portfolio and illusory impact of liquidity trap (induced by US Federal Reserve) are discussed. The minimum value clause and ship valuation methods have critical importance in ship financing since asset value is thought to be recovery instrument against the credit default risk. However, using different methods may cause subjective justifications of shipping portfolio risk and actually that does not solve the underlying problem of lax assessments for credit services. The ship mortgage crisis is a typical example of how a combination of shipping bonds and arbitrary selection of valuation methods can deteriorate the reputation and credibility of a shipping bank even the biggest financier of the shipping industry.

 

Keywords: Ship finance, credit default risk, ship valuation, banking industry.

 

Presentation (PDF)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Copyright Okan Duru©2014