Winding-up institution generates result from ordinary activities of EUR 391 million
Remaining portfolio reduced to EUR 88.9 billion; total assets increase to EUR 177.1 billion
Progress made with unwinding of DEPFA banking group; total assets below EUR 28 billion
FMS Wertmanagement (FMS-WM), the German federal government’s winding-up institution, concluded fiscal year 2016 with a result from ordinary activities of EUR 391 million (previous year: EUR 413 million). "Amid increasingly difficult conditions, we were able to push forward with the unwinding of the portfolio in 2016 while at the same time progressing well with the second task we took on at the end of 2014 to unwind the Irish DEPFA banking group," said Stephan Winkelmeier, Spokesman of the Executive Board.
The nominal value of the portfolio transferred from the HRE Group in 2010 was reduced by EUR 11.1 billion in 2016. Since taking over the portfolio, FMS-WM has reduced its original nominal value of EUR 175.7 billion by EUR 92.1 billion in total, or 52.4 percent. As additional DEPFA Group assets totalling EUR 5.2 billion were transferred into the FMS-WM portfolio in November 2016, the nominal value of the portfolio under management, taking into account this transaction, fell by 6.1 percent to EUR 88.9 billion at the end of 2016 from EUR 94.7 billion a year earlier.
Total assets increased slightly by 3.5 percent in 2016, rising from EUR 171.1 billion at the end of 2015 to EUR 177.2 billion. This increase is primarily due to the aforementioned transfer of DEPFA Group assets as well as higher collateral required to be provided for derivatives.
Despite the progressive unwinding of the portfolio, net interest income increased significantly compared to the previous year, rising to EUR 667 million from EUR 540 million a year earlier. This is primarily due to one-off effects totalingtotalling EUR 271 million mainly associated with compensation payments received for contractual adjustments of credit support annexes for derivatives.
In fiscal year 2016, the net increase of risk provisions (including net income from investments) was EUR 140 million (previous year: net reversal of risk provisions EUR 35 million). This is the result of a continued conservative assessment of the default risks in the portfolio and mostly was not driven by specific cases.
Net commission income was EUR 30 million, significantly down on the previous year’s figure of EUR 64 million.
General and administrative expenses fell by 16.7 percent to EUR 175 million in 2016 (previous year: EUR 210 million). This reflects the efforts undertaken by FMS-WM to adjust the allocation of resources in line with the declining transaction volume.
In 2016, FMS-WM also took advantage of the low interest rates on the money and capital markets to obtain money market funds of EUR 15.8 billion (previous year: EUR 12.3 billion). By shortening the maturities of these borrowings FMS-WM is already preparing for the fact that its longer-term euro funding in future will be handled through Bundesrepublik Deutschland Finanzagentur GmbH.
FMS-WM made significant progress with the accelerated wind-up of the DEPFA Group in Dublin in 2016. FMS-WM acquired DEPFA liabilities totalling EUR 6.0 billion from investors during the fiscal year. The subsequent sale of large parts of these DEPFA liabilities to DEPFA and the simultaneous purchase of DEPFA assets by FMS-WM made a major contribution to reducing the total assets of the DEPFA Group by around a quarter to EUR 27.6 billion within a year. This transaction has significantly improved the key performance figures of the DEPFA Group relevant for regulatory purposes. DEPFA was also able to materially reduce its cover pool for different covered bonds.
"A large number of investors in DEPFA securities regarded and accepted FMS-WM's purchase offer as fair," said Winkelmeier. "We will make further purchases of DEPFA covered bonds and debt instruments in 2017 to significantly reduce the liquidity in these securities originally issued by DEPFA. With all these measures, our aim remains to wind up the DEPFA Group quickly and in a way that maximises its value."
The Executive Board expects FMS-WM at least to break even again in 2017, provided no exceptional charges materialise.
FMS-WM was founded in 2010 with the aim of winding up the risk positions and operations that were transferred to the company from the Hypo Real Estate Group (HRE Group) effective 1 October 2010. As a financially independent entity under public law, FMS-WM defines the best possible wind-up strategies in each case and implements them based on the following maxim: seize opportunities for generating income and minimise losses. FMS-WM is supervised by the Federal Agency for Financial Market Stabilisation (FMSA). 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.