Bound by the public interest
Winding up risk
A rapid and value-preserving wind-up of the acquired portfolio relieves the EAA’s stakeholders of significant risks associated with the closure of the former WestLB. Due to their liability commitments, the bank’s former owners – the State of North Rhine-Westphalia and the local savings banks and regional associations – as well as the Financial Market Stabilisation Fund would have to assume responsibility for any potential losses at the end of the wind-up process. The success of the EAA’s wind-up activities therefore serves the financial interests of the public stakeholders.
The EAA bears all costs in connection with fulfilling its tasks, from refinancing of the portfolio, salaries of its employees, fees of external service providers to any costs incurred for controlling measures. Cost management is therefore an additional challenge in the wind-up process. In 2016, the EAA reduced expenses to almost EUR 213 million, thereby cutting its costs in half over three years.
Implementing the ambitious objectives in a balanced manner requires competent staff and a stable organisation. However: the more successful the EAA is, the more it will become dispensable. While a company’s success can guarantee jobs, for a wind-up agency it is associated with job cuts. Within this context, a main task of the Management Board is to secure the necessary expertise for winding up the rest of the portfolio. To do this, the EAA must continuously optimise its structures and processes. In 2016, it set the course for this by privatising its portfolio management subsidiary EPA at the end of the year. The closing of the sale is still subject of regulatory approval, which is expected in the first half of 2017.
No equity shortfall at the end of the wind-up process
Stable cushion against losses
Along with other own resources (equity capital drawing limit) and existing provisions for potential risks, the EAA has EUR 2.2 billion to absorb losses without having to make use of the stakeholders’ liability commitment. The objective of completing the wind-up process with no equity shortfall is within reach.
The next steps
- According to the current plans, the EAA will reduce the volume of its current portfolio by an additional 40 per cent by 2020. The portfolio of loans and securities should then be significantly below the EUR 20 billion mark, with the trading portfolio under EUR 160 billion.
- Administrative expenses should nearly be halfed by 2020.
- The EAA continues to focus on measures in the participations portfolio, which frees up capital and reduces costs as well as operating risks. Particular importance is given to the sale of Covered Bond Bank (EAA CBB) in Ireland, an operating participation with a banking licence. Also, after completing preparatory measures last year, the Japanese subsidiary, EAA Japan K.K., is set to be liquidated in 2017.
- Within the scope of a new project, the EAA will examine in 2017 which alternative strategies will be able to accelerate the wind-up of risks.