In fiscal year 2017, the Public Sector portfolio was reduced from EUR 40.6 billion at the beginning of the year to EUR 35.0 billion at yearend. While scheduled repayments contributed EUR 1.3 billion of the reduction, portfolio managers continued to take advantage of favourable market conditions to sell securities with a nominal volume of EUR 4.2 billion prior to maturity. The sales centred on exposures in Italy, Poland and Portugal, while the largest scheduled repayments related to Icelandic, Spanish and Italian exposures. The Public Sector segment now accounts for almost 51% of the overall portfolio’s nominal volume. When the portfolio was transferred from the HRE Group to FMS-WM on 1 October 2010, the Public Sector segment was the largest in the portfolio, making up around 49% with a nominal value of EUR 86.6 billion.
The borrowers and issuers of securities are state and regional governments, municipalities, public law entities and semi-public companies. Receivables from European Union member states account for the majority of the portfolio, with a large percentage of this comprising exposures with very long remaining maturities. Approximately 71% of the entire Public Sector portfolio will not mature until after 2030.
The options for an even swifter unwinding of this segment’s exposures are limited, as the loans and securities were all extended or issued in asset swap packages before the financial crisis broke out, at a time when the market accepted much lower margins. Therefore, in the current market environment, with potential buyers expecting higher returns, they could only be sold at a heavy loss. In addition, many of the exposures held are very illiquid, which would lead to further price discounts in the case of an early sale. Nevertheless, in 2018, FMS-WM took advantage of the favourable market environment to either unwind some of these holdings of securities and loans incl. swaps through sales or reduce their complexity by liquidating the asset / derivative structures.