FRANKFURT/HAMBURG - German regional lender HSH Nordbank hopes to seal a deal with the European Commission in early October to offload 14-28 billion euros in troubled assets onto its government owners and avoid the risk of being shut down, sources said. The ship financier, majority owned by the regional states of Schleswig-Holstein and Hamburg, had to seek support from its owners after being hit by the slump in global trade in the wake of the financial crisis. The European Commission requires banks that receive state aid to undergo substantial restructuring and shrink their balance sheets. The European Central Bank has been directly involved in the restructuring negotiations, three sources close to the discussions said on Thursday. The ECB, HSH’s supervisor since 2014, wants any bank emerging from the restructuring process to have a strong capital base and a viable business model, the sources said. A spokeswoman for the ECB declined to comment. Negotiators in Brussels - from HSH, its owners and the European Commission - hope to restore HSH to health and meet the European Commission’s demands to avoid the need for state aid in future, the sources told Reuters on condition of anonymity. The majority of the troubled assets are loans to the shipping sector. Negotiators hope to agree on a haircut - or value reduction - on the assets to be offloaded and hope to shed a nominal volume of between 14 billion euros and 28 billion euros ($16-32 billion) from the bank’s balance sheet, which held 108 billion euros in assets in total as of the end of June. REFORMS HSH is still struggling to deal with its legacy ship portfolio and the burden of paying fees for the 10 billion euros ($11 bln) in guarantees provided by the two state governments in 2009. By moving the ailing assets to its owners at a discounted price, HSH would face a large, one-off loss that would be mostly covered by the guarantees. It would in turn impose a hefty one-off cost on the states of Schleswig-Holstein and Hamburg. For HSH, the remaining, reduced guarantee resulting from the deal would cost HSH less in annual fees, the source said, which would improve its profitability. While negotiators are confident that a deal can be reached, no final decisions have been made. Should talks collapse, HSH would face the threat of an EU order to close its doors, like former rival WestLB, which was wound down after posting billions of euros in losses in the financial crisis. In its talks with HSH, the EU has had to back down from an original profitability goal of 8 to 10 percent return on equity for the surviving bank due to pressure from the ECB, the sources said. The ECB was of the view that few German banks would meet this criterion and so it shouldn’t be applied to HSH, the sources said. Setting the bar too high may pressure HSH into undertaking riskier activities. A spokeswoman for the Hamburg finance ministry confirmed that the negotiations were ongoing but declined to offer details. “We are interested in reaching a solution soon,” she said. A spokesman for HSH declined to comment. A spokesman for the EU confirmed that discussions were taking place but declined to offer details. ($1 = 0.8832 euros)