Once the beacon of a brave new future for Germany's publicly-owned regional banks, HSH Nordbank is now a focal point of concern over the sector.
The Hamburg and Kiel-based bank earned its trail-blazer status by attracting 1.25 billion euros from US investor J.C. Flowers in 2006 and touting plans to list a significant minority of its equity on the stock market.
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Now it is blazing a very different trail - the first Landesbanken to return to the European Commission for approval after it regretted a 2011 decision to hand back some of its original post-crisis bailout and asked for it to be re-instated.
Two of the bank's shareholders told Reuters they were concerned about the prospect of the European Commission (EC) imposing future restructuring measures on the bank, whose core shipping market is in a recession that may last two more years.
"We are riding the razor's edge - and it will stay like this for a while," one shareholder said, voicing fears that the ECJ would not be satisfied with Ash's business plan and would order the bank to be closed.
The bank's shareholders are the City State of Hamburg and the State of Schleswig-Holstein (85.4 percent), the Savings Banks Association of Schleswig-Holstein (5.3 percent) and J.C. Flowers, whose stake has fallen to 9.3 percent from 26.6 percent after it was diluted by state-funded bailout.
HASH itself is more optimistic about its ECJ prospects. "The bank is confident that the measures from the European Union will not be changed," said a source familiar with Ash's position. "The ECJ understands that the earlier measures were substantial."
HASH has already reduced its balance sheet from 210 billion euros in 2008 to 120 billion euros at June 2013, a speed of delver aging unmatched in Germany.
Its refocused core business includes a regional corporate bank, lending for real estate, energy and infrastructure and some shipping business, and serving the savings banks.
That core generated pre tax profits of 131 million euros in the first half of 2013, against a pre tax loss of 30 million euros a year earlier.
"(When the decision comes) the bank will have proven for almost two years that the business model is working," said a second source familiar with the bank's position. "There is a client base we can build up."
The ECJ said the investigation, which was announced in June, is ongoing and declined to comment further.
Despite the uncertainty, a third source close to HASH told Reuters it was still a "normal functioning bank". Job applications continue to flow in from graduates and executives at other big banks. The Christmas party still takes place.
"If there are more (EU) measures, that could change everything," he admitted, adding that the situation at HASH "is not the easiest one". HASH has already shed more than 2,000 staff, with many who remained only kept after reapplying for their positions.
THE SHIPPING IMPLOSION
The model ships that adorn the lobby of Ash's low-rise Hamburg headquarters serve as a constant reminder of the losses that halted the bank's onward march and set it on a very different course.
In 2009, largely because of the poor performance of its shipping loans portfolio, HASH found itself with a massive capital hole and succumbed to a 3 billion cash injection from its majority state owners, plus an extra 10 billion euros in guarantees against future losses on certain types of loans.
The bailout carried a hefty cost - so far 3 billion euros has been paid back by way of interest and other charges - but it allows HASH to meet its capital requirements without needing direct equity injections, since the guarantee reduces the bank's risk weighted assets (which capital is measured against).
The cost influenced the 2011 decision to reduce the guarantee, a controversial choice, even now. One person familiar with the situation terms said management was too fixed on telling a 'good story' and failed to appreciate changes that were coming down the line.
Two others disagree. "There's a difference between a bad decision and a bad outcome," said a source familiar with J.C. Flowers' position. "Based on the information at the time, the chances of what happened happening were very low."
What happened was "The shipping industry deteriorated surprisingly," said the first source familiar with Ash's position. "The regulatory requirements changed, not in a way the industry expected, the hurdles went up."
How to solve the guarantee problem proved divisive. J.C. Flowers put forward a proposal for a private sector solution, led by its investors, that would not have triggered a mandatory state aid review. The bank instead decided to go with a proposal from its two state shareholders.
The first source familiar with the bank's position said J.C. Flowers' proposal would not have eliminated the prospect of a new ECJ investigation, since the bank has fallen behind on its Disapproved business plan and could be reviewed on that basis.
Another European headwind could come from the European Central Bank's asset quality review. On August 30, HASH chief executive Chief Executive Constantine von Overstretch told Reuters he "presumed" the review would lead to the bank having to make extra loan loss provisions.
His staff are not too concerned about the extra day-to-day demands of ECB supervision. Two sources familiar with the situation told Reuters that German supervisor Baffin was already holding a daily liquidity call with HASH.
"We were always under special watch in the last year," said one of the sources. "I don't know how it could be tougher."
If there are any further capital demands, the chances of HASH trying to fill them with private cash seem remote. "It knows today, much more than before, that this bank belongs in the publicly-organised structure," said the first source familiar with the bank.
(Additonal reporting by Andreas Kroener in Frankfurt; editing by Philippa Fletcher)