Munich Dealing with the financial market crisis can still make money around a decade later. Last year, FMS Wertmanagement generated an annual surplus of EUR 236 million, more than twice as much as in 2018. The sale of hybrid capital bonds by the Irish subsidiary Depfa and a high dividend payment from a British subsidiary led to the gratifying result.
The Federal Government founded FMS Wertmanagement in 2010 in order to solve its biggest problem from times of the financial crisis in 2008 and 2009. The real estate financier Hypo Real Estate (HRE), which had even made it among the top 30 German companies in the Dax at that time, had started to roll.
A business model based on long-term financing in the real estate sector was responsible, but was only refinanced in the short term. When If the HRE threatened to run out, the state stepped in and ensured the orderly liquidation of the huge stock of securities via the newly founded FMS.
Of the approximately 175 billion euros with which the Munich-based settlement agency started in 2010, 69.3 billion euros were still in the portfolio at the end of last year. The company, which still has a total of 500 employees, announced on Tuesday.
Unusual: The portfolio increased slightly in 2019 compared to 2018. This was due to assets acquired by companies of the Irish subsidiary Depfa. On the other hand, the appreciation of the pound and dollar led to an increase in the nominal value of the euro-based portfolio. This resulted in a currency gain for FMS.
However, inventories of around five billion euros were also reduced. “2019 was a very successful year,” said the new CEO, Christoph Müller. He had taken over the management position last year when his predecessor Stephan Winkelmeier changed to BayernLB’s chairmanship.
Further figures illustrate how complex the complete liquidation of the huge securities portfolio from the portfolio of the scandal bank HRE is. Of the once 66 countries worldwide where the resolution agency had papers, 42 are still left after ten years of work.
“These are often products that were launched before the financial crisis and that no longer exist in this form today,” explains the new board member Carola Falkner. Almost three quarters now come from Great Britain, Italy and the USA. Almost half of the papers have terms that end between 2030 and 2040. Some complex financing goes beyond 2060.
Project “Next” started
However, FMS ‘business model from a shrinking portfolio paired with a high level of specialty should inevitably lead to red numbers for the processor in the coming years.
General administrative expenses were reduced by around four percent in 2019, but the total was still € 138 million. Management believes that the high costs will remain in the coming years, even if the shrinking portfolio’s profits are likely to decline.
That is why they started the “Next” project last year. The goal is to restructure the portfolio by 2025 so that it can be continued elsewhere and FMS Wertmanagement can be dissolved.
A lot will depend on the further effects of the corona crisis. Possible failures or deferrals of interest payments on certain papers are already becoming apparent. The sale of the Irish subsidiary Depfa planned for this year, which was already well advanced with the help of the British Barclays Bank, is currently stalling.
CEO Müller left it open whether a model like FMS Wertmanagement would also fit the current crisis: “The bad bank concept worked very well after the financial crisis in Germany. Whether it is a model at European level has to be assessed in individual cases “.
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