In reaction to the financial market crisis, in the autumn of 2008 the Parliament of the Federal Republic of Germany offered German credit institutions the option of transferring risk positions as well as non-strategic operations to an institution that would wind up the given portfolios and operate independently in both organisational and financial terms.
FMS Wertmanagement was established on 8 July 2010 as the Federal government’s winding-up institution for Hypo Real Estate Holding AG (HRE Group), which had been nationalised.
Effective 1 October 2010, it took over from both the HRE Group and its national and international subsidiaries and special purpose entities risk positions and non-strategic operations with a nominal value of EUR 175.7 billion as well as short-term funding sources in the corresponding amount and related derivatives for hedging purposes. FMS Wertmanagement is unwinding the transferred portfolio pursuant to sound business principles in ways that maximise its value. The wind-up plan originally prepared by the HRE Group was designed for a term of ten years. Any portion of the portfolio not wound up by the end of the ten-year period was to be sold at its book value. FMS Wertmanagement has revised the wind-up plan based on the insights it has gained in the first year of its activities and, in particular, has adjusted it to the long average maturities of the portfolio’s components. The given time horizon allows FMS Wertmanagement to unwind the portfolio whenever it is financially advantageous and thus to achieve the best possible outcome in the interest of the German taxpayer.
“The winding-up institution shall take over the risk positions and non-strategic operations ('Transferred Assets') of Hypo Real Estate Holding AG and its direct and indirect German and foreign subsidiaries and special purpose entities (collectively referred to as the 'HRE Group') and both realise and unwind them in a manner aimed at maximising the assets' value for the purpose of stabilising the HRE Group and the financial market.“
Article 2 (1) of the Charter of FMS Wertmanagement: “Functions, transactions, applicability of the German Banking Act”
FMS Wertmanagement refinances itself on both the money and the capital markets. On the money markets, it uses repos besides short-term, unsecured borrowings. FMS Wertmanagement also issues bonds and promissory notes with medium and long-term maturities.
FMS Wertmanagement is supervised by the Federal Agency for Financial Market Stabilisation (FMSA), which has extensive information, controlling, audit and instruction rights. Among others, FMSA determines the composition of FMS Wertmanagement's Supervisory Board, approves revisions of its wind-up plan and is integrated into decisions of strategic importance. Whilst FMSA serves as the legal regulator, the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin) plays the role of the financial regulator.
The Financial Market Stabilisation Fund SoFFin is obligated without limitation to provide additional funds under Section 8a of the German Law Establishing a Financial Market Stabilisation Fund (Gesetz zur Errichtung eines Finanzmarktstabilisierungsfonds - FMStFG) for losses incurred in winding up the portfolio. This is also reflected in Article 7 (1) of the Charter of FMS Wertmanagement: “SoFFin shall be obligated vis-à-vis the winding-up institution and FMSA […] to compensate all losses until the winding-up institution is discontinued.”
This ensures that FMS Wertmanagement will at all times be able to pay its liabilities in full and timely fashion.