Progress of the Bad Bank FMS: Shrinking Operations Amid Financial Crisis Aftermath

The Bad Bank FMS, tasked with managing the legacy assets of the defunct Hypo Real Estate (HRE), is embarking on a significant reduction in its workforce as part of its ongoing restructuring efforts. The Munich-based institution plans to cut approximately 40% of its staff, which currently stands at around 300 employees. This decision is aimed at streamlining operations to align with the anticipated decline in its asset portfolio and interest income.

In the previous year, FMS successfully reduced its portfolio by EUR3.6 billion, bringing the total to EUR40.8 billion. Without considering currency fluctuations, the reduction would have amounted to EUR4.8 billion. This progress marks the 13th consecutive year that FMS has reported a net profit, although the latest surplus of EUR17 million represents a significant drop of more than 50% compared to the previous year. The decrease in profit can be attributed to increased provisions for risk reserves, as explained by the company's management.

Despite the challenges posed by the ongoing portfolio reduction, the bank did observe a 5% growth in interest income last year, totaling EUR554 million, benefiting from the rising interest rates in the market. In 2010, FMS took over risk-bearing securities valued at nearly EUR176 billion from HRE. Since then, over three-quarters of these assets have been disposed of, either through sales or by reaching maturity.

The primary mandate of the FMS is to wind down its operations, a process that has been extended beyond initial projections due to the longevity of some securities in its holdings, which now extend as far as 2067. The institution's efforts to manage these assets efficiently will be crucial as it continues its journey towards dissolution.