“Optimising the wind-up result”
An interview with the EAA Managing Board on successes and prospects
The EAA incurred a loss in 2019 for the first time since 2011. What is the reason for this and what does it mean for the ongoing winding up of the assets transferred from the former WestLB?
Losses are part of our winding up plan in this stage of our operating activity. The EAA has made very good progress in implementing its mandate to reduce the portfolios of the former WestLB. We have already wound up around 90 percent of the acquired financial products. In this phase of the winding up process, income will inevitably fall faster than costs. This scenario was determined from the outset and it does not put the wind-up targets in jeopardy.
It is important for the continued success of our work that the EAA has been able to build up more reserves to date than expected. We have also benefited from the positive development on the financial markets, which boosted risk appetite among investors and made them more willing to buy. At the same time, restructuring measures have, among other things, enabled us to leverage value while continuously reducing costs, which are two third lower than in 2012.
How stable is the EAA, especially in view of the coronavirus crisis? Will you achieve your wind-up targets?
The EAA operates on solid foundations. The accelerated winding up of the portfolio has massively reduced the risks associated with the legacy assets of the former WestLB. This has been a good performance for the public guarantor. Thanks to the reserves that we have built up in recent years and the mainly good quality of the remaining portfolio, the EAA is also much better prepared than before to weather developing crises. It is as yet unclear how the coronavirus crisis will affect the remaining portfolio. But every step we have taken so far to ensure a quicker winding-up is helping in this exceptional situation. And against this background, we will also do everything in our power to achieve our wind-up targets.
What did your previous planning entail? Can you maintain the high wind-up pace?
We made great progress in reducing the portfolio in 2019 too and expect to make at least equally good progress in 2020. We have developed different strategies for the advanced reduction of assets. One focal point is the winding up of the trading portfolio and a range of winding-up activities is also planned for the loan portfolio. But we can already predict that implementation will be delayed at least partially due to the coronavirus crisis, especially in the case of project financing for toll roads and airports, for example.
Are your strategies especially aimed at selling large portfolios?
The EAA is pursuing a flexible strategy. We are concentrating on optimising the overall wind-up result. It is therefore not about quickly selling off large portfolios. Instead, selling decisions are based on the price we can achieve on the market. We also very carefully weigh up how much we can reduce risks and costs at the same time. We will also continue to hold positions to maturity in order to achieve the best possible result.
The sale of the Irish subsidiary, EAA Covered Bond Bank (CBB), will not go ahead. Will this be detrimental to your wind-up planning?
The supervisory authorities have told the investor that a transfer will only be approved subject to conditions. Against this background, the EAA and the investor have agreed to cancel the purchase agreement. We will wind up the EAA CBB. Although this means higher operating expenses and more time required, I would not say it will be detrimental to the planning. We expect to be able to limit or even completely avoid negative consequences on our wind-up result.
But we regret this development for the remaining employees of the Bank. We would like to have offered them the future prospects that we have succeeded in achieving in the past with other participation sales. After all, without the strong dedication of the employees of the EAA and its subsidiaries we would not have been able to carry out the winding-up in such a successful way.
The EAA has been operational now for a decade and you yourselves have both been involved for years. What personal conclusions have you drawn?
The decision to appoint a public-law winding-up agency to deal with the portfolios of the former WestLB was the right one. It has succeeded in winding up its multi-billion portfolio while minimising losses. Thereby we were able to avert risks running into billions. The liability shield provided by the public owners has not been used so far. This is the first conclusion to be drawn even if a residual portfolio has yet to be wound up.
The EAA started from scratch with no blueprint and was expanded within a very short time to the point where it was able to manage a triple-digit multi-billion portfolio at its peak. Subsequently, the organisation has been scaled down continuously in line with the progress made in winding up the portfolio. And all of this has taken place within the space of a decade. Being part of this process has been a unique experience. Everyone at the EAA can be proud that it has been an operationally stable organisation throughout the entire period. This also shows me there is much that we have done right when it comes to personnel management. The employees had and have the expertise, commitment and the necessary professionalism to flexibly adapt to the constant changes and challenges.
The employees have decisively contributed to removing the former WestLB from the market without causing any upheaval in 2012 and to winding up the majority of the assumed multi-billion portfolios almost noiselessly. It was and is still clear to every employee in a wind-up agency that they are working every day to make their own workplace redundant.