Principles of the EAA

Operating activities of the EAA

The EAA operates as an asset manager pursuing a clear, public mandate that is enshrined in its charter: it is winding up the risk exposures and non-strategic business units (transferred assets) transferred from the former WestLB AG (now Portigon AG) and its domestic and for-eign subsidiaries in a value-preserving and risk-minimising manner. This serves to stabilise the financial market. The risk exposures and non-strategic business units of the former WestLB were transferred to the EAA in the years 2009 and 2010 (first fill) as well as in 2012 (refill).

The EAA manages its business according to commercial and economic principles, in consid-eration of its winding-up objectives and the principle of minimising loss. It is not a credit or financial services institution within the meaning of the German Banking Act, investment ser-vices firm as defined by the German Securities Trading Act or insurance company pursuant to the German Insurance Supervision Act. In accordance with its charter, it does not conduct any transactions that require approval pursuant to Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 or Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004, amending Directives 85/611/EEC and 93/6/EEC of the Council and Directive 2000/12/EC of the European Parliament and of the Council and repealing Directive 93/22/EEC of the Council, as amended.

The EAA is subject to regulation by the Federal Ministry of Finance (Bundesministerium der Finanzen). The EAA is supervised by BaFin with regard to those provisions of banking law that are applicable to the EAA.

The EAA’s work is principally carried out based on section 8a StFG, its charter, the rules of procedure for the Supervisory Board and the Managing Board and their respective commit-tee(s), as well as its risk strategy and winding-up plan.

The winding-up plan describes the intended winding-up activities of the EAA by classifying its assets into sub-portfolios (clusters) and contains a schedule for the complete winding-up of assets within an appropriate winding-up timeframe. The EAA reviews the winding-up plan at least once a quarter and makes adjustments, when necessary, mainly in order to take ac-count of changes in circumstances, for example current market developments. Changes or adjustments to the winding-up plan are made on the basis of prior resolution of the Supervisory Board upon the EAA’s request and must be approved by the Finanzagentur. The EAA regularly submits wind-up reports to inform the Finanzagentur, its Supervisory Board and the EAA stakeholders about the progress of the winding-up and the implementation of the winding-up plan. The annual wind-up report must be adopted by a resolution of the Supervisory Board before being submitted to the Finanzagentur.

Equity base and liability

The EAA’s share capital amounted to EUR 500,000. The first fill created equity totalling around EUR 3.1 billion.

As part of the refill the EAA received equity drawing rights in the amount of EUR 480 million. If necessary, the liable stakeholders of the EAA and the FMS will provide these funds in specified instalments in the event that the EAA’s balance sheet equity should fall below EUR 50 million.

In addition to the EAA’s equity base, a factor that is particularly important for the EAA’s credit standing is the duty to offset the EAA’s losses that the EAA’s liable stakeholders and the FMS have assumed. They are individually liable to the EAA to offset all losses in accordance with section 7 of the EAA’s charter. To that end, they must provide the EAA with such funds at such times as are necessary in order to ensure that it has sufficient cash and cash equivalents at all times to meet its liabilities as they become due, even after its equity has been used up. The EAA is obligated to assert this loss-offset claim against the liable stakeholders and the FMS in the appropriate volume and before any pending insolvency takes effect, in order
to ensure it remains solvent at all times.

Funding

The EAA was initially funded in the first fill through the nearly complete transfer of all issues and deposits of the former WestLB with guarantor liability. The EAA raised its own funds in the period thereafter. In the future, the EAA will continue to obtain funding primarily by issuing bearer bonds and by short-term borrowing. The EAA’s ratings correspond to those of the State of NRW. The risk weighting can therefore be set according to the weighting for the State of NRW. The EBA includes the EAA on the list of public-sector entities which, pursuant to Article 116 (4) CRR, may be treated for exposure purposes as exposure to the relevant regional government (in this case: the State of NRW). The good ratings received from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, as well as the duty to offset losses on the part of the liable stakeholders and the FMS, form the foundation for the EAA’s successful presence on the capital market.

Organisation

Since it began its operating activities, the EAA has repeatedly adjusted its organisational structure to manage changes and challenges in the corporate environment. The gradual takeover of multi-billion portfolios presented it with challenges in developing an adequate organisation and recruiting the required experts. The progressive reduction of the portfolio requires capacity and costs to be reduced for some time now, without compromising the expertise required to successfully complete the wind-up.

For this purpose, the EAA had largely outsourced the provision of portfolio, IT and operations services to third parties within the scope of its long-term service strategy, with the objective of maintaining continuity and stability on the one hand and enabling flexibility on the other.

Adjustment of organisational and cost structures is a fundamental part of the EAA’s mission in view of the ongoing portfolio wind-up. In order to rely on a flexible servicer landscape, the EAA has concluded long-term service agreements with a maximum duration of up to 2036 (including extension options).