What is a Consolidated Fund

24.Unconsolidated structured companies

Erste Group uses structured companies in the course of its business activities. The definition of structured companies and shares in structured companies is given in Chapter “B. Significant accounting principles ”.

Investment funds

Investment fund shares held in internally managed and third-party managed investment funds as well as the management fees received for the management of investment funds by Erste Group subsidiaries are classified as shares in non-consolidated structured companies if these are not consolidated.

Shares in mutual funds. Erste Group holds shares in several mutual funds as well as in private investment funds that are registered in Austria, Central and Eastern Europe and other countries. The majority of these funds are managed by Erste Group subsidiaries, with the remainder being managed by independent third parties. The investment fund shares held by Erste Group do not represent significant shares (generally less than 20%) and are usually designed as redeemable investment fund shares. In the consolidated balance sheet, the investment fund shares are accounted for at fair value and reported as equity-related securities under the items “Financial assets - available for sale” or “Financial assets - held for trading”.

Management fees. In addition, in its function as fund manager (through Erste Group subsidiaries), Erste Group generates income from management fees for the management of investment funds; that is, for making investment decisions for the funds available to the respective investment fund.

In addition to management fees for working as a fund manager, Erste Group generates dividend income from shares it holds in investment funds. This is offset by expenses for the administration of investment funds and fees for processing the business activities of investment funds, in particular custody fees and fees for processing securities trading. In the normal course of business, Erste Group enters into derivatives trading relationships with self-managed, non-consolidated funds. In addition, self-managed, non-consolidated funds are also invested in bonds or bank deposits issued by Erste Group - over different periods of time. In limited cases, Erste Group Bank AG offers capital guarantees for unconsolidated, self-managed funds.

The level of Group holdings in unconsolidated mutual funds could fluctuate in the future depending on the performance of the underlying assets, relevant market conditions and opportunities, or government regulations.

Securitization companies

In addition, Erste Group holds shares in unconsolidated securitization companies that are managed and financed by independent third parties outside Austria. These units are asset-backed bonds with the purpose of securitizing certain assets, usually credit claims, in interest-bearing, negotiable securities. The companies are financed by issuing various tranches of these asset-backed securities. Investors in these securities are subject to the default risk of the underlying asset. Erste Group invests in investment grade security tranches that are exclusively classified as “available for sale” and are recognized in the balance sheet at fair value. All shares in unconsolidated securitization vehicles are debt securities with a maturity of more than one year. At the end of the year, the remaining weighted average maturity of these bonds until the contractual maturity was slightly more than 11.8 years. The shares in securitization companies are collateralized mortgage obligations (CMO) and US student loan securitisations, which are to be sold in the next few years.

Others

To a small extent, as a lender, Erste Group also finances non-consolidated structured companies that are active in other business areas (mainly real estate project companies).

Maximum default risk of unconsolidated structured companies

The maximum default risk in connection with shares in non-consolidated structured companies results from the assets recognized and from loan commitments and liabilities. The assets recognized include fund units measured at fair value, bonds and derivatives as well as loans given. The maximum default risk corresponds to the book values ​​of these items after risk provisions on the respective balance sheet date. In the case of off-balance sheet loan commitments and liabilities, the maximum risk of default corresponds to the amount of the respective nominal value.

The following table shows the relationships to non-consolidated structured companies according to balance sheet category, business activity and company location. In addition, the impaired assets and the corresponding value adjustments for the respective financial year are presented. The stated book values ​​mainly relate to assets that are already recorded at fair value in the consolidated balance sheet. The book values ​​of the other obligations (especially “loans and receivables”) essentially correspond to their fair value.

Dec 17Investment fundsSecuritization companies  
in EUR millionUnder self-administrationOf
Third party managed
totalUnder self-administrationOf
Third party managed
totalMiscellaneous)total
assets        
Equity instruments, of which:660737320000732
Available for sale522615830000583
At fair value through profit or loss137121490000149
Debt instruments, of which:00001191190119
Available for sale00001191190119
At fair value through profit or loss00000000
Held to Maturity00000000
Loans and Receivables505000115121
Trading derivatives70700018
Total assets672737450119119116980
of which impaired27027000027
Net impairment losses / gains for the year00000000
         
Balance sheet assets
according to geographic aspects
by nationality
        
Austria62815643000116759
Central and Eastern Europe45145000045
Other states0575701191190176
 672737450119119116980
liabilities        
Equity instruments11501150007122
Securitized Liabilities26902690003272
insoles1.62501.625000321.657
Trading derivatives56056000056
Total liabilities2.06502.065000422.107
         
Off-balance sheet commitments11101110005116

 

Dec 16Investment fundsSecuritization companies  
in EUR millionUnder self-administrationOf
Third party managed
totalUnder self-administrationOf
Third party managed
totalMiscellaneous)total
assets        
Equity instruments, of which:6981148120000812
Available for sale5491036520000652
At fair value through profit or loss149111600000160
Debt instruments, of which:00003403400340
Available for sale00003403400340
At fair value through profit or loss00000000
Held to Maturity00000000
Loans and Receivables2602600081108
Trading derivatives69069000272
Total assets7931149070340340841.331
of which impaired9514000014
Net impairment losses / gains for the year00000000
         
Balance sheet assets
according to geographical aspects,
by nationality
        
Austria7392476300084847
Central and Eastern Europe531669000069
Other states0747403403400414
 7931149070340340841.331
liabilities        
Equity instruments14501450000145
Securitized Liabilities29902990003302
insoles1.01501.015000151.030
Trading derivatives14014000014
Total liabilities1.47201.472000191.491
         
Off-balance sheet commitments00000055