German bad bank moves asset admin to Dublin

German state-owned bad bank FMS Wertmanagement is shifting the administration of tens of billions of assets from London to Dublin as it closes its UK servicing office by the end of the year.

The move is said to be linked to reducing costs rather than the outcome of the Brexit referendum. It will see about 17 of the remaining 25 UK-based employees at the FMS-WM servicing unit transfer to Dublin.

A spokesman for the company declined to comment on the matter.

FMS-WM was set up in 2010 to take over some 40 per cent of the €400 billion-plus assets of Munich-based lender Hypo Real Estate, which ran into trouble in September 2008 as its Irish unit, Depfa Bank, almost collapsed as it struggled to raise funds in the markets. The nominal value of FMS-WM's assets have contracted by 90 per cent to about €95 billion at the end of last year as the bad bank ran down and sold off portfolios.

Some €20.3 billion of the assets are based in the UK, mainly in infrastructure and public sector loans, according to the group’s 2015 annual report. It is believed that the UK servicing unit also services billions of euro of additional loans located elsewhere.

Authorities

Separately, the German government ordered FMS-WM to take over and wind down the loans of Depfa in 2014 after authorities in Berlin decided against selling the business.

In doing so it rejected Hypo Real Estate’s selection of a preferred €320 million bid from New York investment bank Leucadia and Massachusetts Mutual Life Insurance for the business, concluding the German state would generate more by winding it down itself.

It is understood that FMS-WM employees are set to move into Depfa’s building in the International Financial Services Centre (IFSC) in Dublin as part of the cost-cutting drive. However, the FMS-WM and Depfa portfolios are being run down separately.

Depfa, which employs almost 130 in Dublin, remains a regulated bank, supervised by the Central Bank of Ireland.

Shortfall

FMS-WM said last month that losses at the Depfa unit narrowed to €54 million for the first half of the year from €61 million for the same period last year as low interest rates prevented it from reducing the shortfall to a greater extent.

Yet it accelerated the wind-up of Depfa by buying back billions of euro of bonds during the course of the first six months of the year.

The unit had about €39 billion of assets at the end of June.