Dear Ladies and Gentlemen,
2020 was an unusual year for all of us – both economically and socially. We are therefore all the more pleased to be able to report to you that the EAA (Erste Abwicklungsanstalt) is on a foundation that has also proven to be solid during the Corona pandemic.
Like any business, we had to adapt to the new situation in the first half of 2020, rapidly switching to working from home, implementing digital work processes and introducing a hygiene concept for our site. Despite the pandemic, we continued to make good progress in winding up the former WestLB portfolio and can look back on a successful financial year. The accelerated winding-up of our Irish subsidiary EAA Covered Bond Bank Plc (EAA CBB), for which the European Central Bank approved the return of the full banking licence in March 2021, also contributed to this. EAA CBB was the last special bank majority participation from the portfolio of the former WestLB AG. EAA CBB mainly held bonds issued by public-sector borrowers in Europe. Given that the sale could not go ahead as planned due to changes in the general setting, we decided to wind up the Irish subsidiary in March 2020. The repurchase of the CBB bonds used for refinancing was completed at the beginning of the second half of 2020.
Christian Doppstadt
Member of the Managing Board
With the winding-up of EAA CBB, we have reached an important milestone from an organisational perspective. We will be able to close the bank well ahead of the originally planned end of 2027 with more economic advantages than expected.
As expected, the EAA ended the 2020 fiscal year with a loss. Notwithstanding this, we expect the development of reserves to remain stable in relation to portfolio volume and portfolio quality.
We continued to successfully wind up loans and securities, with the portfolio declining by a notional EUR 2.2 billion (14.7%) to EUR 12.7 billion. The reduction was balanced, thus maintaining the good quality of the portfolio with an investment grade rating share of 72%. The reduction of derivatives in the trading portfolio also continued. The notional volume fell by EUR 42.2 billion (30.9%) to EUR 94.6 billion during the same period. The EAA had assumed the volume would decline to below EUR 100 billion.
The EAA’s total assets declined from EUR 37.8 billion in the previous year to EUR 32.2 billion. This is mainly due to the portfolio reduction in both the trading portfolio and the banking book. In order to minimise the losses resulting from the decline in interest income and net fee and commission income, the EAA is focused on reducing its general administrative expenses. These amounted to EUR 125 million in the past fiscal year, compared with EUR 135.7 million in the previous year. Its equity as of 31 December 2020 amounted to over EUR 650 million. The buffer of equity, equity capital drawing limit and risk provisions has improved steadily relative to the remaining portfolio to 12.3% as of 31 December 2020.
Reliability and continuity have characterised our work for more than eleven years. This was once again confirmed by Fitch Ratings, awarding us a long-term triple A (AAA) rating with a stable outlook. At the same time, this rating acknowledges the work we have done and our future portfolio workout plan.
In the 2020 financial year, we successfully carried out our mandate to reduce the portfolio taken over from the former WestLB in a way that preserves value and minimises risks.
Horst Küpker
Member of the Managing Board
Given the success of our efforts to date and the need to reduce costs, it was necessary to streamline the EAA and its management structures and make organisational and personnel changes. As a result, we will also be moving to smaller premises in the near future.
In the current financial year, in addition to our day-to-day business, we will press ahead with optimising and increasing the flexibility of administrative expenses to ensure that we are in an efficient and cost-effective position for the remaining tasks. This also means that we want to rely on a flexible service landscape in the medium term.
For the current financial year, we expect a significant decline of more than 20% in the notional volume of the trading portfolio and 10% in the notional volume of the banking book. The aim is to wind up around 93% of the banking book transferred to the EAA as part of the initial and subsequent refill by the end of 2022. In doing so, we will continue to examine all options that allow a faster and more cost-effective wind up. We also expect a negative result in 2021 though. Due to the difficult, volatile market environment, it is not possible to make any further forecasts.
We would like to thank our employees, our Supervisory Board, our stakeholders and our business partners for their commitment, dedication and loyalty. We look forward to continuing our trusting cooperation with you.
Best wishes and stay healthy. Yours sincerely
Christian Doppstadt and Horst Küpker