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First Bad Bank launches billion loss

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FRANKFURT. When Matthias Wargers in a small group discussed its business model, he takes you back to a graphic example of the aviation industry. "Our capital is like the jet fuel, mostly to be used at the start," said the Chairman of the First Settlement Agency (EAA). For the maiden flight, the "bad bank" of WestLB in Düsseldorf now in the short financial year ended 30 June already a lot of fuel burned.

In the first figures of a German bad bank is the bottom line is a loss of about one billion euros, so even a third of the capital consumed. Money has received the EAA by WestLB, which was for a capital contribution by the federal government provided the same amount. Overall, management expects the EAA in the "worst case" with losses from the worst part of their portfolio of around six billion euros.

For the first five billion euro, the savings banks and the state of North Rhine-Westphalia are straight, the main owner of the bank. The first two billion share the savings banks and the country for further failures the only country stuck with its three billion alone – and the taxpayers. It is therefore clear: the existing guarantees for loss-prone parts of the portfolio under the name "Phoenix" probably not enough.

The EAA, on 11 Founded in December 2009 from the bank rescue fund Soffin. It is to deliver the first German bad bank WestLB’s survival and to relieve the balance of the state bank. Therefore, securities, loans and non-core business components of the group scoring at WestLB in volume of 77.5 billion euros to the EAA – backdated to 1 January 2010 – transferred. By June-end, cash and eight percent to 71.3 billion euros will be reduced. As a buyer for these "stressed capital of" financial investors to connect but also insurers and investment banks that buy the wreckage of the financial crisis and rely on favorable write-ups.

WestLB tricked in the past, not in its balance sheet, but the bad bank, they could enhance their profit and loss account, at least cosmetically. The first swap of the toxic securities in the amount of time 23 billion € in the special purpose vehicle "Phoenix", a transmission gain of almost one billion euros in sales – because the market prices had been used, but the book value of subprime securities. After a billion dollar loss appeared so in the consolidated balance sheet 2008 – the height of the financial crisis – a small profit of 18 million €.

The EU Commission characterized the transaction as aid and imposed harsh penalties. By the end of 2011, the bank must be sold or merged, important sites have been closed in Germany and abroad, the total assets must be reduced. A key piece of the redevelopment is the sale of the West German Real Estate Bank (West Realty) which extends for months. The Commission loses patience here, slowly, until the end of December, the deal should be signed and sealed. The Supervisory Board of the Bank will now urge the federal government to strike out an extension.

The EAA, which will have until the end of 2010, approximately 50 employees, is here made good progress, according to the boards Wargers and Markus Bolder. It would not be a "repository for NRW Assets", the aim being to minimize losses for the guarantors. But this is easier said than done.

The biggest problem for the liquidators is part of the portfolio, "Phoenix" by even 27.7 billion euro, which includes highly-toxic Wertapiere, for which there is virtually no market anymore. The package includes structured U.S. housing finance, commercial real estate loans and other securitized loans – investment from the boom period of 2002, before the subprime crisis hit. For this special, the EAA has had to make their high risk insurance, here are the highest expected losses, which may stem from a high point in the opinion of observers in 2012 and 2013. The end of 2010 would have "a good feeling to get it, what about the entire portfolio," states the EAA.