04. Juli 2012 
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FMS Wertmanagement with a net loss of 9.97 billion Euros
FMS Wertmanagement announced that the financial result for its first full fiscal year 2011 is dominated by write-downs taken on the Greek portfolio, which had become unavoidable after the bond and debt swap programme conducted by the government of Greece. Total valuation allowances and risk provisions amounted to 10.25 billion Euros Euros at the federal winding-up institution, which took over risk positions and non-strategic operations of the HRE Group in 2010, resulting in a net loss before loss compensation of 9.97 billion Euros.
“The large risk provisions caused by the Greek exposure and totalling 8.9 billion Euros could not have been foreseen in the original planning for the winding-up institution,” states Executive Board spokesman Dr. Christian Bluhm. “With risk provisions of these dimensions the successes we´ve had winding up the portfolio unfortunately took a back seat.“ From the time the portfolio was transferred to the end of 2011, the original nominal value of 175.7 billion Euros was reduced to 160.7 billion Euros, a decrease of 8.5%. Excluding currency effects, the value of the portfolio would have declined by 19.6 billion Euros, or 11.2%, thanks to sales as well as principal and other repayments.
Moreover, initial highly complex portfolios were restructured with the aim of significantly improving the results of liquidation of individual portfolio components. Despite the reduced portfolio, total assets increased by 2.6% to 341.8 billion Euros in fiscal 2011. Among other factors, this is attributable to the need to provide increased collateral to counterparties due to contractual obligations relating to financial derivatives as a result of the strained market situation.
Net interest and commission income totalling 611 million Euros considerably exceeded general and administrative expenses amounting to 348 million Euros. The volume-related decrease in interest income was largely balanced out by more favourable funding opportunities. For instance, commission expenses were down sharply as a result of full repayment of SoFFinguaranteed issues by way of FMS Wertmanagement’s own issues in the course of 2011. FMS Wertmanagement quickly established as a reliable issuer on international money and capital markets. The institution raised medium- to long-term financing of around 20.8 billion Euros via several bond issues in 2011. Awarded the highest ratings from leading rating agencies, FMS Wertmanagement also easily covered short-term funding requirements on the money market and therefore reduced ECB funding by nearly two-thirds as at 31 December 2011. “This confirms that the fundamental principle of a government winding-up institution implemented by the German Financial Market Stabilisation Act works and is financially successful, too," says Dr. Bluhm. “With affordable funding, we are gaining the time we need to unwind the portfolio while maximising value.”
The 348 million Euros in administrative expenses incurred by FMS Wertmanagement mainly comprise expenses for services performed by the HRE Group in accordance with a cooperation agreement. In fiscal 2011, FMS Wertmanagement spent a total of 267 million Euros for this servicing of the portfolio by the HRE Group. Because the EU requires the cooperation agreement to be terminated in September 2013, FMS Wertmanagement undertook extensive preparatory work over the past year to establish its own service company to provide the required services from this point onward. The service company was formed in April 2012. At the same time, invitations to tender have been issued for other services, such as IT, that FMS Wertmanagement aims to outsource to external providers.
“Severing the final ties to HRE is an ambitious project, and one we are working on at full throttle along with our colleagues at HRE,” according to Executive Board spokesman Dr. Bluhm. The loss from ordinary activities reported for fiscal 2011 is offset in the annual financial statements of FMS Wertmanagement by a loss compensation claim in respect of the German Financial Market Stabilisation Fund SoFFin. At the end of 2011, the current loss compensation amount was 9.9 billion Euros. For 2012, FMS Wertmanagement expects a greatly improved result. “However, appreciation of our portfolio’s value depends highly on macroeconomic factors,” says Bluhm. “Regardless, we will, of course, take advantage of any opportunity that arises to unwind additional positions while maximising value and further reduce complexity in the portfolio.
“The large risk provisions caused by the Greek exposure and totalling 8.9 billion Euros could not have been foreseen in the original planning for the winding-up institution,” states Executive Board spokesman Dr. Christian Bluhm. “With risk provisions of these dimensions the successes we´ve had winding up the portfolio unfortunately took a back seat.“ From the time the portfolio was transferred to the end of 2011, the original nominal value of 175.7 billion Euros was reduced to 160.7 billion Euros, a decrease of 8.5%. Excluding currency effects, the value of the portfolio would have declined by 19.6 billion Euros, or 11.2%, thanks to sales as well as principal and other repayments.
Moreover, initial highly complex portfolios were restructured with the aim of significantly improving the results of liquidation of individual portfolio components. Despite the reduced portfolio, total assets increased by 2.6% to 341.8 billion Euros in fiscal 2011. Among other factors, this is attributable to the need to provide increased collateral to counterparties due to contractual obligations relating to financial derivatives as a result of the strained market situation.
Net interest and commission income totalling 611 million Euros considerably exceeded general and administrative expenses amounting to 348 million Euros. The volume-related decrease in interest income was largely balanced out by more favourable funding opportunities. For instance, commission expenses were down sharply as a result of full repayment of SoFFinguaranteed issues by way of FMS Wertmanagement’s own issues in the course of 2011. FMS Wertmanagement quickly established as a reliable issuer on international money and capital markets. The institution raised medium- to long-term financing of around 20.8 billion Euros via several bond issues in 2011. Awarded the highest ratings from leading rating agencies, FMS Wertmanagement also easily covered short-term funding requirements on the money market and therefore reduced ECB funding by nearly two-thirds as at 31 December 2011. “This confirms that the fundamental principle of a government winding-up institution implemented by the German Financial Market Stabilisation Act works and is financially successful, too," says Dr. Bluhm. “With affordable funding, we are gaining the time we need to unwind the portfolio while maximising value.”
The 348 million Euros in administrative expenses incurred by FMS Wertmanagement mainly comprise expenses for services performed by the HRE Group in accordance with a cooperation agreement. In fiscal 2011, FMS Wertmanagement spent a total of 267 million Euros for this servicing of the portfolio by the HRE Group. Because the EU requires the cooperation agreement to be terminated in September 2013, FMS Wertmanagement undertook extensive preparatory work over the past year to establish its own service company to provide the required services from this point onward. The service company was formed in April 2012. At the same time, invitations to tender have been issued for other services, such as IT, that FMS Wertmanagement aims to outsource to external providers.
“Severing the final ties to HRE is an ambitious project, and one we are working on at full throttle along with our colleagues at HRE,” according to Executive Board spokesman Dr. Bluhm. The loss from ordinary activities reported for fiscal 2011 is offset in the annual financial statements of FMS Wertmanagement by a loss compensation claim in respect of the German Financial Market Stabilisation Fund SoFFin. At the end of 2011, the current loss compensation amount was 9.9 billion Euros. For 2012, FMS Wertmanagement expects a greatly improved result. “However, appreciation of our portfolio’s value depends highly on macroeconomic factors,” says Bluhm. “Regardless, we will, of course, take advantage of any opportunity that arises to unwind additional positions while maximising value and further reduce complexity in the portfolio.
