The German Financial Market Stabilisation Fund Act (Finanzmarktstabilisierungsfondsgesetz) and the German Act to Accelerate Financial Market Stabilisation (Finanzmarktstabilisierungsbeschleunigungsgesetz) allow financial sector enterprises to transfer risk exposures and non-strategic operations to a structurally and financially independent winding-up institution established for the respective enterprise*. The HRE Group took up this offer and applied to have FMS Wertmanagement established. The winding-up agency assumes responsibility for the winding-up of the exposures transferred with the portfolio. The direct owner of the winding-up agency and the portfolio then has a duty to compensate losses. In the case of FMS Wertmanagement, this applies to 100% to SoFFin, which is managed by the Federal Agency for Financial Market Stabilisation (FMSA).
FMS Wertmanagement is not a bank, nor a financial or an investment services provider nor an insurance company as defined in the German Banking Act or EU Directive 2006/48/EC. For this reason, it may not enter into a new business unless such new business concerns transactions directly and solely related to the portfolio’s unwinding.
Furthermore, FMS Wertmanagement has been exempted from material regulatory requirements of the German Banking Act. Given SoFFin's loss compensation obligation, FMS Wertmanagement is not subject to regulatory capital adequacy requirements. But FMS Wertmanagement is obligated to direct all its capital market funding activities solely to institutional investors.
Under agreements dated 29 and 30 September 2010, risk positions and non-strategic operations of the HRE Group with a nominal value of around EUR 175.7 billion – excluding derivatives – were transferred to FMS Wertmanagement effective 1 October 2010. To this end both FMSA – acting as necessary for SoFFin, HRE, Deutsche Pfandbriefbank AG (pbb or portfolio servicer), Depfa Bank plc. and other HRE Group companies – and FMS Wertmanagement entered into a number of agreements pursuant to which certain risk positions and non-strategic operations of the HRE Group were transferred to FMS Wertmanagement in accordance with Section 8a FMStFG.
The transferors, pbb and HRE, transferred risk positions and non-strategic operations to FMS Wertmanagement, partly by way of a spin-off into an existing company, in accordance with Section 8a (1) and (8) FMStFG in conjunction with Section 123 (2) No. 1 and Section 131 of the German Reorganisation and Transformation Act (Umwandlungsgesetz – UmwG). The risk positions and non-strategic operations that were not transferred by way of the spin-off were transferred to FMS Wertmanagement by way of a subparticipation, assignment, novation or guarantee. Which approach was chosen depended on the different legal, regulatory and tax requirements of the respective countries governing the respective transaction. What is common to all means of transfer however, is that FMS Wertmanagement assumed the financial risk of the risk positions and non-strategic operations. The spin-offs from HRE and pbb were recorded in the respective German Commercial Register on 2 December 2010 for HRE and pbb as well as for FMS Wertmanagement.
Loss Compensation Obligation
Article 7 (1) of the Charter of FMS Wertmanagement states: “Pursuant to Section 16, SoFFin shall be obligated vis-à-vis the winding-up institution and FMSA […] to compensate all losses until the winding-up institution is discontinued.”
*Source: Financial Market Stabilisation Fund Act (FMStFG) of 17 October 2008 (Federal Law Gazette I p. 1982) and German Act to Accelerate Financial Market Stabilisation of 17 October 2008 (Federal Law Gazette I p. 1982, 1986), most recently amended by Articles 1 and 3 of the Act of 24 February 2012 (Federal Law Gazette I p. 206); explanatory statement on the draft bill of the FMStFG.