How the Financial Market Stabilisation Fund manages to make a loss of 1.5 billion euros

You don’t even know the word “financial market stabilisation fund” (FMS) anymore? It is a subsidiary of the federal government and is practically under the care of Finanzagentur Deutschland GmbH, which normally takes on new debts on the capital market for the Federal Minister of Finance. The Financial Market Stabilization Fund, for example, was responsible for supporting Commerzbank. The federal government still owns 15.6% of Commerzbank via this vehicle.

The Commerzbank share price fell further downwards last year. It even halved! And since every vehicle that reports on its balance sheet also has to realistically present valuables in its balance sheet, what happens? For the year 2018, the Financial Market Stabilization Fund now had to make a value adjustment (write-down) of 1.3 billion euros. Quote from the current report of Finance Agency Germany:

FMS’s financial assets had a carrying amount of EUR 1.3 billion as of December 31, 2018 (December 31, 2017: EUR 2.6 billion). The decline is due to the above-mentioned write-down of the investment in Commerzbank AG.

Here is a year-on-year comparison of the total assets of the Financial Market Stabilization Fund.

Overall, the FMS’s loss for 2018 is as high as 1.51 billion euros, after a profit of over 1.45 billion euros in 2017. Here more detailed information in the wording of the Finance Agency:

In total, the uncovered deficit accumulated since its foundation until 31 December 2018 amounts to 22.6 billion euros (31 December 2017: 21.0 billion euros). The amount of the budgetary burdens resulting from the FMS for the Federal Government and the federal states will not be known until the FMS is settled. As in the previous year FMS revenues amounted to EUR 13.2 million and resulted from the commission for the allocation of a loss compensation framework in the form of a structured loan to the EAA. FMS expenses in 2018 of EUR 1,527.0 million include write-downs on the shareholding in Commerzbank AG of EUR 1,312.9 million (2017: write-up of EUR 1,027.1 million) and interest expenses of EUR 214.1 million (2017: EUR 218.2 million).

Finally, the Finance Agency’s communication points out that the quote “since the end of 2015 it has no longer been possible to grant new actions from the FMS”. So no new federal funds for bank rescues. But let’s be honest. The next crisis will simply change this policy.

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