FMS Wertmanagement is making progress in unwinding the portfolio
The winding-up institution FMS Wertmanagement made headway in the first half of 2011 in the fulfilment of its task despite the turbulence in the capital and financial markets. There was a pleasant decline in the nominal value of the portfolio to be unwound, which has decreased by about 8.7 percent to € 160.5 billion in the first nine months since the portfolio transfer effective 1 October 2010. FMS Wertmanagement has exceeded its targets for repaying the funds made available to it by the European Central Bank (ECB) for funding purposes. It lowered ECB funding to € 47 billion thanks to several successful issues of proprietary bonds, down from € 93 billion as at 31 December 2010.
Total assets as at 30 June 2011 amounted to € 301.8 billion, a decrease of 9.4 percent compared to the end of 2010. In the half-yearly financial statements as at 30 June 2011, cash collateral provided or received in connection with financial derivatives in particular is netted and shown in the respective balance sheet items on a per counterparty basis if contractually possible. The comparative figures as at 31 December 2010 were adjusted accordingly, which has resulted in a reduction of total assets to € 333.3 billion.
Not considering the writedowns on the Greece portfolio, FMS Wertmanagement would have generated positive income of € 118 million from ordinary business activities in the first half of 2011. “We are pleased with the positive development”, says Christian Bluhm, Chief Risk Officer of FMS Wertmanagement, “but we were unable to escape the effects of the international sovereign debt crisis, which intensified dramatically in the year’s first six months – especially the problems in Greece”.
A total of € 808 million in writedowns on the Greece portfolio particularly affected both risk provisions for the lending business and income from investments in financial assets. FMS Wertmanagement wrote down all securities and loans with maturities ending at the close of 2020 to 79 percent of their nominal value in accordance with the requirements of the Institut der Deutschen Wirtschaftsprüfer (Institute of Public Auditors in Germany (IDW). Global valuation allowances were recognised for Greek securities with longer maturities, allowing for potential default risks. As at 30 June 2011, FMS Wertmanagement held Greek government bonds with a nominal value of € 7.2 billion as well as loans and bonds of Greek issuers in the amount of € 1.6 billion. FMS Wertmanagement had agreed at the start of September to participate in the Greek government’s offer to exchange governments bonds with a nominal value of € 975 million.
The loss from ordinary business activities in the first half of the year thus is € 690 million. This loss is offset by FMS Wertmanagement’s claim to loss compensation against the German Financial Market Stabilisation Fund (SoFFin), which it recognised in income.
FMS Wertmanagement posted net interest income of € 157 million in the year's first half, and net commission income of € 24 million. Administrative expenses were € 165 million.
A net total of € 258 million were added to risk provisions for the lending business (including the securities classified as current assets). The loss from investments in financial assets was € 531 million. The results in both these items are largely due to the writedowns on the Greece portfolio.
None of the numbers can be compared to any prior-year figures because FMS Wertmanagement was not established until 8 July 2010 and did not launch its business activities until 1 October 2010 when the portfolio was transferred to it. FMS Wertmanagement is tasked with winding up the risk positions and non-strategic operations it took over from the Hypo Real Estate Group.
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