FMS Wertmanagement Cut Ex-Hypo Real Estate Assets by 6.1%

FMS Wertmanagement, the bad bank formed by Germany to wind down failed lender Hypo Real Estate Holding AG, shrank its assets by 6.1 percent in the first half of the year.

FMS reduced its stock of loans, bonds and other financial products to 128.5 billion euros ($174 billion) at the end of June, bringing the total reduction to 27 percent since its formation in October 2010, the Munich-based company said in an e-mailed statement today.

“We are significantly ahead of our initial plan to wind down the portfolio,” Chief Executive Officer Christian Bluhm told reporters late yesterday. Reductions in the first six months of the year were led by real estate loans and FMS is seeking to use “favorable conditions in some markets” to speed up disposals across the board, he said.

FMS, which had 176 billion euros of Hypo Real Estate assets in 2010, may be able to reduce the amount to 70 billion euros to 80 billion euros by 2020. Most of the remaining infrastructure financing and sovereign bonds will then be held to maturity, Bluhm said.

Loss Reversed

FMS had a profit from ordinary activities of 75 million euros in the first half of the year compared with a loss of 50 million euros a year earlier. Unrealized losses were 11.8 billion euros, with financial instruments related to Italy representing the biggest share with 6.1 billion euros, Bluhm told journalists in Munich yesterday.

FMS is owned by the government through the German Financial Markets Stabilization Agency, a unit of the Federal Ministry of Finance that was established in October 2008 to help banks troubled by the financial crisis. Losses at FMS are fully covered by the German state through the Soffin bank-rescue fund.

Hypo Real Estate, once Germany’s second-largest commercial property lender, transferred assets to FMS as part of a government bailout. The company needed the rescue after its Dublin-based unit Depfa Bank Plc couldn’t raise financing as the bankruptcy of Lehman Brothers Holdings Inc. froze credit markets.

FMS expects to be profitable this year, Bluhm said. Staffing levels peaked at 139 people at the end of June and administrative expenses were 174 million euros in the first half, of which 104 million euros were servicing fees paid to Hypo Real Estate.

The servicing agreement with Hypo Real Estate was terminated by the end of September with FMS now operating the servicing company, a step ordered by the European Commission.

“We have set up the servicing company so that we could theoretically sell it by the end of 2014,” Bluhm said. Several potential buyers have expressed interest, he said.

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