Bad Banks in Germany, Austria Beat Goals as Crisis Eases

Germany and Austria’s biggest so-called bad banks, formed to wind down the holdings of lenders rescued during the financial crisis, sold more assets than expected last year as financial markets rose.

FMS Wertmanagement, which is shedding the assets of Munich-based Hypo Real Estate AG, a failed commercial real estate bank, divested 23.8 billion euros ($31 billion) of its portfolio last year, 57 percent more than in 2011. KA Finanz AG, winding down securities, loans and swaps of nationalized Kommunalkredit Austria AG, reduced its assets by 4.9 billion euros in 2012 compared with 3 billion euros a year earlier.

“We have profited enormously in the past year from the improvement in the markets,” FMS Chief Executive Officer Christian Bluhm told reporters at a news conference in Munich today. “We were able to divest far more of our portfolio than originally planned.”

European banks seeking to borrow or sell assets profited from a market rally in the second half after the European Central Bank stepped in to stem the continent’s debt crisis. The ECB pledged to defend the euro and buy the bonds of distressed nations provided they signed up to bailouts.

FMS, owned by the German government, said it managed 136.9 billion euros of failed bank assets at the end of last year. That compared with the 176 billion euros of Hypo Real Estate assets that it was mandated to wind down in 2010.

Narrower Spreads

KA Finanz has more than halved its original portfolio of 30 billion euros, faster than a schedule agreed with the European Commission, CEO Alois Steinbichler told journalists in Vienna today. The firm profited from lower spreads on credit default swaps, which made them cheaper to divest, he said.

FMS took advantage of “good borrowing conditions” to sell 35 billion euros of long-term debt on capital markets last year, 10 billion euros more than initially planned, Bluhm said.

The assets of Hypo Real Estate, formerly Germany’s second-biggest commercial property lender, were transferred to FMS after its Dublin-based Depfa Bank Plc unit couldn’t raise financing when the bankruptcy of Lehman Brothers Holdings Inc. froze credit markets.

Losses at FMS are fully covered by the German state through the Soffin bank-rescue fund, which paid 7.3 billion euros to FMS in the first quarter. FMS posted a profit of 37 million euros last year after a 9.96 billion-euro loss in 2011, when it took losses on Greek bonds as part of the country’s rescue.

Both FMS’s Bluhm and KA Finanz’s Steinbichler said their companies’ performance remains tied to macroeconomic developments.

“If there is another debt conversion like the one in Greece, we will be hit,” Steinbichler said.

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