West LB’s cum-ex deals catch up with NRW

D.he cum-ex deals of Westdeutsche Landesbank (West LB), which went under in 2012, are tearing big holes in the balance sheet of the successor company Portigon, which is owned directly and indirectly by the state of North Rhine-Westphalia through the NRW Bank. Portigon’s board of directors now had to announce that it no longer expects 100 million euros for 2020, but even 600 million euros annual loss. In this case, more than 50 percent of the equity (share capital) will be consumed, Portigon announced. According to calculations by the F.A.Z. Portigons equity melts with a loss of 600 million euros by 71 percent to 237 million euros. Although the minimum capital requirements of the banking supervision could still be met, another year of losses, which is quite common for Portigon, would no longer be possible. Therefore, information from the F.A.Z. Bundesbank and Bafin insist that the state of North Rhine-Westphalia (NRW) and possibly also the federal bank rescue fund (“Soffin”) inject further capital into Portigon.

Portigon’s high annual loss in 2020 caused “various notices of amendment from the Düsseldorf tax office” – ironically, the tax administration of the state capital of North Rhine-Westphalia – “in connection with dividend arbitrage business of the former West LB”, as Portigon announced in a somewhat cryptic manner. Arbitrage transactions are a long chain of transactions involving shares around the dividend date (“cum-ex”), with which the parties involved can be credited multiple times with dividend tax paid only once. It was only this year that the processing of this “tax robbery”, with which banks and funds have allegedly damaged the state by more than ten billion euros, under the leadership of the Cologne public prosecutor’s office, which is also based in North Rhine-Westphalia, and with the first criminal trial in Bonn really got going . In addition, in the Annual Tax Act 2020 in cases of “particularly serious tax evasion”, the period for the statute of limitations was extended from ten years to 15 years.

The years 2005 to 2008 in focus

Upon request of the F.A.Z. the spokesman for Portigons explained that the now amended tax assessments are essentially tax assessments for the years 2005 to 2008. However, there is no direct connection to the extended statute of limitations. However, Portigon’s 2019 annual report mentions cum-ex risks of 2005, which Portigon considered barred at the time.

Overall, there is growing evidence that West LB, which until 2012 belonged to the municipal savings banks in North Rhine-Westphalia and the state of North Rhine-Westphalia, is one of the biggest cum-ex sinners. In 2019, legal successor Portigon, who is actually responsible for the pensions of former West LB employees, had to meet additional tax claims for WestLB cum-ex deals amounting to 750 million euros. It took until August 2020 for Portigon’s owners to agree on a burden sharing and to adopt the balance sheet for 2019. In Portigon’s 2019 annual financial statements, the silent participation of the federal bank rescue fund (“Soffin”) shrank from once two billion euros to around 420 million euros.

How is the 2020 annual loss covered?

Due to the high annual loss in 2020, the “liability cascade” agreed in 2012 to wind up West LB will get going again, so that Soffin’s silent participation in Portigon should continue to shrink. Before that, however, surpluses of the Erste Abwicklungsanstalt (EAA) will presumably be used. The EAA is majority owned by the savings banks of North Rhine-Westphalia, 48 percent is borne by NRW.

Lawsuits are already pending

The EAA is supposed to reduce West LB’s securities portfolios as carefully as possible. There have already been legal disputes between Portigon and EAA over who is liable for the cum-ex risks. Participation certificate holders are also suing the Düsseldorf Regional Court. Your lawyer Aljoscha Schmidberger from the law firm BRP Renaud & Partner announced on Tuesday to the F.A.Z. to “promptly file a lawsuit” for the bond creditors if Soffin and the state of North Rhine-Westphalia continued to remain inactive.

It is unlikely that the Soffin will have any more capital in Portigon. Rather, according to information from the F.A.Z. assumes that the state of North Rhine-Westphalia will pass resolutions at an extraordinary general meeting in order to inject equity capital directly or indirectly through the EAA or the NRW-Bank Portigon. According to the law, the general meeting must take place immediately if, as expected, more than 50 percent of Portigon’s equity is consumed. In any case, the bank supervisors are closely monitoring the process.

NRW is committed to its responsibility

Upon request of the F.A.Z. says the spokesman for the Ministry of Finance of North Rhine-Westphalia about Portigon’s difficulties: “It is currently unclear whether Portigon AG could require further financing.” At the same time, however, he acknowledged the responsibility of North Rhine-Westphalia on behalf of the Ministry of Finance: “The state will in any case As part of its ownership responsibility, carefully weighing all options and concerns, in particular the economic consequences for the state, to make an appropriate decision on any measures in the respective situation. ”The state parliament in Düsseldorf should also be interested in what this looks like – after all, there are multiple issues Respect to taxpayers money.


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