Nominal value of portfolio reduced by EUR 106.4 billion overall since 2010
Result from ordinary activities of EUR 253 million
DEPFA Group’s total assets reduced to EUR 8.9 billion as at year-end 2019
FMS Wertmanagement (FMS-WM), the German federal government’s winding-up institution, today announced that it generated a result from ordinary activities of EUR 253 million in fiscal year 2019, a significant improvement on the previous year’s figure of EUR 114 million. The result was driven mainly by the gain on the sale of two DEPFA hybrid capital bonds acquired in fiscal year 2015 to DEPFA Group companies and a dividend payment disbursed by a UK subsidiary.
Portfolio wind-up in fiscal year 2019 came to EUR 5.0 billion. Including the assets with a nominal value of EUR 4.0 billion acquired from the DEPFA Group in fiscal year 2019 and foreign currency effects of EUR 1.3 billion that increase the nominal value of the portfolio, FMS-WM’s remaining portfolio increased by EUR 0.3 billion to EUR 69.3 billion as at the end of 2019.
"We were able to generate a positive result for the year for the eighth time in a row and managed to wind up our highly complex and labour-intensive Commercial Real Estate segment almost completely," said Christoph Müller, Spokesman of the Executive Board.
Net interest income fell by 6.6 percent year on year to EUR 325 million in fiscal year 2019 (previous year: EUR 348 million). This decrease is primarily due to portfolio wind-up and smaller one-off effects associated with compensation payments received for contractual adjustments of credit support annexes for derivatives in the amount of EUR 19 million (previous year: EUR 32 million).
At EUR 23 million, the balance of risk provisions and net income from investments – both items influenced by valuation decisions and sales results – made a positive contribution to earnings in fiscal year 2019 (previous year: EUR -105 million), due in particular to active wind-up work.
General and administrative expenses declined by 4.2 percent year on year to EUR 138 million (previous year: EUR 144 million) and, as in previous years, therefore were well below the sum total of net interest and commission income. The reduction is the result of savings in portfolio management. “We implemented further measures to reduce the complexity of the acquired portfolio in fiscal year 2019," said Executive Board Spokesman Christoph Müller, adding, “These targeted measures are intended to ensure that FMS-WM is able to continue to strike an appropriate balance between necessary (risk) management, operational stability and cost-effective portfolio management going forward.”
As planned, long-term EUR-denominated funding was taken over by Bundesrepublik Deutschland Finanzagentur GmbH (German Finance Agency) via the Financial Market Stabilisation Fund (FMS) in January 2019. FMS-WM raised a total of EUR 25.0 billion of funding from the FMS in fiscal year 2019. “FMS-WM’s funding was further optimised by obtaining long-term funding in euros via the FMS and carrying out active funding management,” emphasized Carola Falkner, the Executive Board member in charge of Treasury and Asset Management.
The wind-up measures implemented in fiscal year 2019 enabled a further reduction in the DEPFA Group’s total assets and in the complexity and concentrations of risk in the DEPFA Group’s portfolio. The sale of hybrid capital bonds from FMS-WM’s portfolio resulted in a positive contribution to FMS-WM’s earnings in the amount of EUR 233 million. The DEPFA Group’s total assets fell by another EUR 6.5 billion to EUR 8.9 billion as at 31 December 2019, with the Tier 1 capital (CET1) ratio rising accordingly to 152.3 percent as at year-end 2019. “In particular, the measures implemented in 2019 enabled us to transfer equity portions to FMS-WM while bearing in mind regulatory minimums,” said Executive Board Spokesman Christoph Müller. “In addition to the accelerated wind-up, FMS-WM is also continuing to examine a sale of the DEPFA Group,” Müller added.
Due to the progressive unwinding of the portfolio, FMS-WM expects a further decline in net interest income in fiscal year 2020. As the effects of the current turbulence on the markets are as yet unforeseeable, an earnings forecast for 2020 is fraught with uncertainty – which is why a reliable forecast cannot be made at this time.
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. FMS-WM is supervised by the Federal Agency for Financial Market Stabilisation. The Financial Market Stabilisation Fund is obligated without limitation to provide additional funds under Section 8a of the German Law Establishing a Financial Market and Economy Stabilisation Fund (Gesetz zur Errichtung eines Finanzmarkt- und Wirtschaftsstabilisierungsfonds - Stabilisierungsfondsgesetz) for losses incurred in winding up the portfolio.