Another positive result from operating activities of EUR 200 million for the first half-year
After nearly six years, the portfolio is reduced to less than half of its initial value for the first time
Successful buy-back of DEPFA bonds of a nominal EUR 5.6 billion
FMS Wertmanagement (FMS-WM), the German federal government’s winding-up institution, generated a positive result from operating activities of EUR 200 million in the first half of 2016 (H1 2015: EUR 331 million). After tax, the profit for the first half-year was EUR 165 million (previous year: EUR 262 million).
In the first six months of 2016, earnings were reduced by the balance of the items dominated by valuations and sales (risk provisions and net income from investments) amounting to EUR -32 million. These items had contributed EUR 182 million to earnings in the prior-year period. This decrease was primarily attributable to reversals of valuation allowances that were no longer reported in the same amount in the first six months of 2016.
The nominal volume of the portfolio was reduced by 8.1 percent since the beginning of the year to EUR 87 billion, which brings it to less than 50 percent of the transferred value for the first time. Since the portfolio was transferred from the HRE Group effective 1 October 2010, an aggregate amount of EUR 88.7 billion (50.5 percent) of the portfolio has been wound up.
Total assets of FMS-WM amounted to EUR 183 billion at the end of the first half-year, up from EUR 171 billion at the close of 2015. This increase is mainly due to the buy-back of DEPFA Pfandbrief securities by FMS-WM as well as to the higher cash collateral for derivatives resulting from the low interest rates.
At EUR 294 million, net interest income in the first half of 2016 was up 11.7 percent on the first half of 2015, mainly on account of one-off effects in connection with adjustments to derivatives as well as interest income for the DEPFA bonds bought back. Excluding these one-off effects, net interest income in the first six months of 2016 decreased year-on-year as expected, due in particular to the reduction in the portfolio volume. Net commission income amounted to EUR 24 million (H1 2015: EUR 38 million).
General and administrative expenses fell by 13.5 percent to EUR 89 million in the first half of 2016 (H1 2015: EUR 103 million). “By trimming our administrative expenses further, we are now in a better position than projected. Calculated over the year, administrative expenses will account for around 0.2 percent of the portfolio volume. This figure is low compared with similar financial institutions,” said Stephan Winkelmeier, Spokesman of the Executive Board. “Still, we will again step up our efforts to continue to manage the portfolio as cost-effectively as possible and wind it up while maximising its value.” This will include initiatives designed to leverage possible synergies between FMS-WM and the two subsidiaries FMS-WM Servicegesellschaft GmbH and DEPFA Bank plc, such as in relation to the licences required throughout the Group and the procurement of market data. “At the same time, we must ensure that we retain our highly qualified staff because only with their help can we unwind the portfolio in a manner that maximises its value. Poorly negotiated restructurings or suboptimal unwinding decisions could have a considerable direct financial impact on the individual exposures which could then quickly and radically erode all savings on the cost side,” said Winkelmeier.
On FMS-WM’s funding side, the total new issuance volume across all capital market instruments in the first half of 2016 amounted to EUR 10.5 billion (H1 2015: EUR 8.3 billion). One priority was the funding in pounds sterling aimed at minimising the possible risks that may arise from the United Kingdom leaving the European Union. Almost one-fifth of FMS-WM’s overall portfolio is invested in pounds sterling.
The loss before taxes at the DEPFA Group, which was transferred from the HRE Group to FMS-WM in December 2014 and is not consolidated in FMS-WM’s financial statements, was reduced year-on-year from EUR 61 million to EUR 54 million in the first half of 2016. “Particularly the further drop in interest rates prevented us from reducing the loss to a greater extent,” Executive Board Spokesman Winkelmeier commented. “Yet we were especially successful with the buying-up of DEPFA Pfandbrief securities on the market, which continued to shift the funding of DEPFA further to FMS-WM. This will also enable us to lay the foundations for liquidating the DEPFA portfolio in a way that maximises its value.” By the end of August, FMS-WM had acquired DEPFA bonds with a nominal volume of EUR 5.6 billion.
Based on the successful first half of 2016, the Executive Board again expects FMS-WM to post a positive result from ordinary activities for the year as a whole.
FMS-WM was established in July 2010 as the Federal government’s winding-up institution for the purpose of taking over and unwinding the HRE Group’s risk positions and non-strategic operations in ways aimed at minimising losses. Favourable funding conditions in the capital markets are key to this endeavour. The Federal Republic of Germany is the sole owner of FMS-WM via the Financial Market Stabilisation Fund – FMS (SoFFin).