Irish unit of failed German lender hands back licence

Irish-based EAA Covered Bond Bank, which was part of the German lender WestLB that collapsed during the financial crisis, has handed back its banking licence after an attempt to sell the business fell through a year ago.

The company, which was renamed as Erste EAA Ireland last week, will be put into liquidation next year, having transferred its remaining portfolio in 2020 to its parent, a German bad bank called Erste Abwicklungsanstalt, or EAA.

EAA was set up in 2009 to take over and wind up a large part of the assets of WestLB after the Duesseldorf-based bank imploded.

The return of the EAA Covered Bond Bank licence to the European Central Bank and planned liquidation "will allow us to close the bank well ahead of the originally planned date of end-2027", said Christian Doppstadt, an EAA board member.

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He said that this would be “more economically advantageous” than expected in March, when a planned sale of the unit fell through.

EAA Covered Bond Bank, which was originally part of WestLB, was put on the market in 2016. However, a planned sale of the business to British investment firm Attestor Capital, which owns 17 per cent of Irish mortgage lender Dilosk, was abandoned 12 months’ ago due to conditions that regulators were insisting on to approve the deal.

Balance sheet

The Irish bank mainly held bonds issued by public sector borrowers in Europe before its portfolio was transferred to Germany. Its balance sheet had been cut from €10.9 billion in 2010 to €1.6 billion as at the end of 2019, including €525.44 million of capital reserves, well in excess of regulatory requirements, according to its most recent set of publicly-available accounts.

WestLB, which made a failed attempt to become a global investment bank, became one of the biggest German casualties of the 2008 financial crisis, and needed a bailout of as much as €18 billion by the state and rival lenders. Much of its assets were put into EAA in 2010.