FMS Wertmanagement generates profit in 2013
Result from ordinary activities of EUR 146 million
Portfolio wound up 13% to EUR 119.1 billion
Total assets reduced by 23.8% to EUR 187.7 billion
FMS Wertmanagement today announced that it finished fiscal 2013 with a positive result from ordinary activities of EUR 146 million. The federal winding-up institution, which was established in 2010 to take over risk positions and operations of the Hypo Real Estate Group (HRE Group), has thus generated a profit for the second year in a row. Earnings before taxes in 2012 had amounted to EUR 37 million.
The net retained profit of EUR 117 million remaining after taxes of EUR 29 million was allocated to the equity of FMS Wertmanagement.
"Our portfolio managers laid the foundations for sales in 2013 with a number of successful restructurings. We were also able to use the favourable conditions in many market segments to speed up the unwinding of the transferred portfolio," said Executive Board Spokesman Dr. Christian Bluhm. "Due to stronger demand for corresponding investment opportunities, we saw prices in a number of areas that enabled us to carry out unplanned sales in connection with our mandate of unwinding the portfolio in a manner that maximises its value."
The portfolio was reduced by 13.0%, from EUR 136.9 billion at the beginning of the year to EUR 119.1 billion at year end. Since the portfolio-transfer, the federal winding-up institution has wound up a total of EUR 56.6 billion, or 32.2% of the original portfolio. Parts of the remaining portfolio could also be restructured in 2013, which further simplified the portfolio's complex structure, substantially reducing the inherent risks and improving the portfolio's earnings potential in some cases.
Total assets decreased year-on-year by EUR 58.7 billion or 23.8% to EUR 187.7 billion. In addition to the portfolio wind-up, the decline is mainly due to the reduction of repurchased own issues by EUR 29.6 billion to EUR 35.6 billion; which were held to hedge funding transactions.
Net interest income of EUR 626 million contributed substantially to the net income for the year. Net interest income was, as expected, lower than in the previous year (down 14.1%) due to the portfolio wind-up progress.
FMS Wertmanagement, which has an AAA-rating from the three largest rating agencies, succeeded in expanding its funding programme on the market and further improved its funding structure by focusing on US dollar issues in 2013. On the whole, an amount equivalent to around EUR 11 billion was raised on the capital markets through multiple issues as part of the bank's funding strategy. The volume of capital market issuance fell substantially compared with the previous year (EUR 34.9 billion) whereas 2012 had been an exceptional year given the amount of pre-funding done then. Furthermore, through the accelerated portfolio wind-up, FMS Wertmanagement was able to reduce its borrowings on the capital markets.
Risk provisions in fiscal 2013 amounted to EUR 263 million. This is primarily due to additions to individual and general loan loss provisions as well as to reversals of written-down securities.
The hidden losses of the debt instruments in the portfolio again declined substantially, due in particular to the continued easing of conditions in the euro zone in 2013. They fell by 21% to EUR 9.9 billion, of which EUR 5.4 billion are attributable to sovereign debt from Italy.
Net commission income, which largely comprises income and expenses from credit and derivatives transactions, was EUR 100 million, up 12.4% on the prior-year figure. This item was boosted by positive one-off effects of around EUR 23 million.
General and administrative expenses were lowered by 1.2% to EUR 334 million. In 2013, this figure includes expenses of EUR 159 million for services provided by the HRE Group to FMS Wertmanagement. Until 30 September 2013, HRE Group had provided an extensive range of services to FMS Wertmanagement under a cooperation agreement. This cooperation was terminated on schedule, thereby fulfilling a regulatory requirement set by the European Commission.
With effect from 1 October 2013, the services provided under the cooperation agreement with HRE Group thus far, are being performed by FMS Wertmanagement Service GmbH and third-party service providers. FMS Wertmanagement's Executive Board intends to privatise the service entity while ensuring its cost-effectiveness and, in particular, its quality and sustainability. On 17 April, FMS Wertmanagement submitted the required documents for publication in the Official Journal of the European Union, thus initiating the call for a competition to sell the service entity as part of a pan-European invitation to tender. FMS Wertmanagement is thus pursuing the aim of concentrating on its core competencies as a winding-up institution, while the service entity ensures stable and efficient portfolio management over the long term.
"We have efficiently positioned the service entity for the servicing of international portfolios," said Executive Board Spokesman Bluhm. "It is preparing to take on new business with other customers who are looking for expertise in connection with complex loan/securities and derivatives portfolios. We hope to complete the EU invitation to tender for the privatisation of the service entity by the end of the year."
The Executive Board of FMS Wertmanagement is expecting an equally positive result for 2014, provided no unexpected risks materialise.
FMS Wertmanagement 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 Wertmanagement 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 Wertmanagement 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.
If you have any questions, please do not hesitate to contact Andreas Henry, Head of Communications, at +49 89 9547627 250 or by email at