Nominal value of portfolio reduced by EUR 7.7 billion in fiscal year 2020
Positive result from ordinary activities despite the challenging market environment
Agreement successfully reached in February 2021 to sell the shares in DEPFA BANK plc
FMS Wertmanagement (FMS-WM), the German federal government’s winding-up institution, today announced that it ended fiscal year 2020 with a positive result from ordinary activities of EUR 25 million despite a challenging market environment dominated by the COVID-19 pandemic. The result for the year was well below the previous year’s figure (EUR 253 million) and continues to be strongly impacted by one-off effects.
Portfolio wind-up in fiscal year 2020 came to EUR 7.7 billion. EUR 2.5 billion of this is attributable to currency effects, in particular the US dollar and British pound being weaker year-on-year.
“We were able to achieve our wind-up targets for fiscal year 2020 and, in particular, further reduce complexity within the portfolio despite the difficult market environment,” said Spokesman of the Executive Board Christoph Müller. After adjusting for the assets with a total nominal value of EUR 11.8 billion originally acquired from DEPFA Group companies in fiscal years 2016 to 2020, we have been able to reduce the portfolio by approximately 70 percent since 1 October 2010.”
At EUR -255 million, the balance of risk provisions and net income from investments had a considerably negative impact on the result in fiscal year 2020 compared with the previous year (EUR 23 million) and was depressed mainly by a one-off effect in the amount of EUR 201 million which relates to the restructuring of an exposure to reduce complexity and which will generate countervailing effects in future periods.
General and administrative expenses declined by around 3 percent year-on-year to EUR 134 million (previous year: EUR 138 million) and, as in previous years, therefore were well below the sum total of net interest and commission income.
Since January 2019, longer-term EUR-denominated funding of FMS-WM has been carried out by borrowing via the Financial Market Stabilisation Fund (FMS). In fiscal year 2020, FMS-WM drew the funding of EUR 30 billion available through the FMS. “The funding facility available via the FMS was increased from EUR 30 billion to EUR 60 billion at the end of 2020. FMS-WM already obtained a further EUR 8.7 billion in funding via the FMS in the first quarter of 2021,” explained Carola Falkner, the Executive Board member in charge of Treasury and Asset Management.
By the end of 2020, FMS-WM was able to use all of the value levers identified for winding up the DEPFA Group acquired in 2014 in a way that maximises value. Good progress was also made in unwinding the derivatives portfolio in a way that preserves its value in fiscal year 2020, with the total assets of DEPFA BANK plc significantly reduced by around 94 percent overall from EUR 49 billion at the time of the acquisition to less than EUR 3 billion as of 31 December 2020. The positive effects of the market purchase of hybrid capital bonds issued by DEPFA Group companies and the dividend payment of EUR 150 million disbursed in December 2020 underscore the success of the wind-up strategy. The EUR 377 million contribution to earnings from hybrid capital bonds alone was enough to more than offset the initial investments by the end of 2020.
“In February 2021, FMS-WM reached another significant milestone in its successful wind-up activities when it signed the agreement for the sale of the shares in DEPFA BANK plc,” said Spokesman of the Executive Board Müller. Completion of the transaction is subject to regulatory approval. FMS-WM, the DEPFA Group and the buyer will prepare for closing over the next few months. All available funding lines for the DEPFA Group will be terminated by FMS-WM by the closing date.
Given the continuing uncertainty over the economic situation amid the COVID-19 pandemic and its impact, FMS-WM remains cautious in its outlook for 2021. As a result of the progressive unwinding of the portfolio, it expects a further decline in current income from the portfolio. FMS-WM anticipates at least a breakeven result from ordinary activities for fiscal year 2021.
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 Witschaftsstabilisierungsfonds - Stabilisierungsfondsgesetz) for losses incurred in winding up the portfolio.