A contribution to the stability of the financial market
When the US real estate bubble burst in the summer of 2007, the value of complex securitisations and other financial products plunged. Banks around the world suffered dramatic losses and ran into difficulties. A chain reaction threatened to bring down the globally interconnected financial world, making it necessary for governments to intervene. Among other measures, Germany provided for a system of public guarantees in order to stabilise the economic cycle, safeguard the interests of companies and secure the private wealth of citizens. The EAA was founded at the end of 2009 as a recovery tool intended to wind up a portfolio worth many billions of euros that it had assumed from the former WestLB. In that way it was possible to remove from the market a major, internationally connected bank, without creating disruptions.
The EAA assumed several tranches of structured financial products, securities, loans, derivatives as well as project and company investments, all together worth more than EUR 200 billion. A wide variety of transactions had to be transferred in a brief period of time – without negatively impacting volatile markets.
A winding-up agency is not a traditional credit institution. It does not undertake new business and rigorously minimises risks. Instead of focusing on short-term profits, it targets long-term results. Based on this unique business model, the past several years have seen the EAA develop into a business and negotiation partner, a creditor and a debtor for numerous financial institutions. It had to build up trust among the customers of the former WestLB, investment bankers, private equity and hedge funds, insurance companies and international central banks. For its funding purposes the EAA needed to establish itself in a brief period of time as an issuer of attractive bonds.
The portfolio is very complex and requires expertise across a wide variety of economic sectors, not just in the traditional tasks of the banking industry. In order to control risks and safeguard assets, the EAA must be familiar with not only complex legal issues but also specific industrial markets around the world. Its relatively small, compact organisation had to develop these skills in just a few years. What was and is still needed is a recognised centre of excellence with a broad bandwidth and without an overbearing bureaucracy.