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DG Competition: Rules concerning Tier 1 and Tier 2 capital transactions for banks subject to a restructuring

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Following questions from market operators regarding the possibility for banks which are the subject of pending European Commission investigations regarding the grant of restructuring aid to repay bonds before maturity, the Commission would like to recall that its Communication on restructuring aid to financial institutions of July 2009 sets out that "banks should not use state aid to remunerate own funds (equity and subordinated debt) when their activities do not generate sufficient profits”.

In a restructuring context, measures which reduce the total amount of own funds (payments on hybrid instruments, avoidance of loss absorption, buy-backs, exercise of call options) are in principle not compatible with the objective of "burden sharing" (i.e. banks must pay a significant share of the costs of restructuring) and the "minimum necessary" requirement (i.e. the amount of state aid must not exceed the minimum necessary to allow the bank to restructure). For that reason, banks subject to a state aid investigation should consult the Commission before making announcements to the market concerning Tier 1 and Tier 2 capital transactions.

Transactions such as coupon payments, buy-backs and the exercise of call-options of Tier 1 and Tier 2 capital instruments reduce the total regulatory capital of a financial institution and put into question whether granted state resources were limited to the minimum necessary. Moreover, such measures may infringe the principle of burden sharing in so far as they protect the Tier 1 and Tier 2 capital holders from their exposure to the inherent risk of the investment.

Such transactions by financial institutions subject to restructuring obligations may therefore have implications for the compatibility of the aid received. On the other hand, the Commission may accept these transactions on the basis of a case by case assessment, after balancing the above mentioned principles of burden sharing and limiting aid to the minimum against the contribution of the transaction to the refinancing capability and return to viability of the institution. For that reason, banks subject to a state aid investigation should consult the Commission before making announcements to the market concerning Tier 1 and Tier 2 capital transactions.

State aid: Commission approves temporary additional aid to German Landesbank WestLB

The European Commission has approved, under EC Treaty state aid rules, a temporary increase of the guarantee for a portfolio of securities of German Landesbank WestLB. The aid measure amounts to €6.4 billion and is provided by SoFFin, a fund administrating the German support scheme for financial institutions. WestLB is currently in the process of implementing a restructuring plan that was approved by the Commission in May 2009. The plan foresees, among other measures, the creation of a "bad bank", which will ensure that the bank can return to viability. The aid subject to today's decision is in line with the Commission's Communication on state aid to banks during the crisis, as it is necessary for the creation of the "bad bank".

Competition Commissioner Neelie Kroes said: “ The temporary additional aid is necessary to allow WestLB to set up a bad bank, which was anticipated in our decision of last May."

WestLB AG, based in North Rhine-Westphalia (NRW), with total assets of €288.1 billion as of 31 December 2008, operates as a central bank and a provider of services for Germany's biggest regional saving banks' network and as a commercial bank. At the request of the Commission, WestLB has initiated a fundamental restructuring process that will result in the sale of the bank.

On 12 May 2009 the Commission approved a restructuring plan for WestLB and the prolongation of a €5 billion risk shield protecting the bank's structured investment portfolio. Under the plan, WestLB will focus on three core businesses, terminate certain risky business activities and reduce its assets by 50%. Large parts of the bank will be transferred to a "bad bank" and subsequently wound up. Moreover, Germany committed to change the bank's ownership structure through a public tender procedure before the end of 2011.

The additional aid became necessary when a delay in the implementation of the bad bank solution and increasing capital requirements for a previously hedged portfolio of structured securities led to a breach of regulatory capital requirements.

Germany has committed to submit a revised restructuring plan which will duly take into account that substantial additional aid has become necessary since the Commission's May decision.

State aid: Overview of national measures adopted as a response to the financial/economic crisis

State aid cases - situation as of 13 October 2009

Decisions adopted by the Commission in 2008/2009

 

Member State

Type of measure / Beneficiary

Type of Decision

Date of adoption

1

Austria

Aid scheme for the Austrian financial sector (guarantees, recapitalisation & other)

Prolongation

Decision not to raise objections

IP/08/1933

MEX/09/0630

09 December 2008

30 June 2009

2

Austria

Recapitalisation of Hypo Tirol

Decision not to raise objections

IP/09/928

17 June 2009

3

Belgium/France/
Luxembourg

Guarantee on liabilities of Dexia

Decision not to raise objections

IP/08/1745

19 November 2008

4

Belgium/France/
Luxembourg

Guarantee in favour of Dexia on certain assets in FSA

Decision not to raise objections

IP/09/399

13 March 2009

5

Belgium/Luxembourg/Netherlands

Measures in favour of Fortis

Decision not to raise objections

IP/08/1746

19 November 2008

6

Belgium/Luxembourg/Netherlands

Restructuring aid to Fortis Bank and Fortis Bank Luxembourg

Decision not to raise objections

IP/08/1884

03 December 2008

7

Belgium/Luxembourg

Additional aid measures in favour of Fortis Bank and Fortis Bank Luxembourg

Decision not to raise objections

IP/09/743

12 May 2009

8

Belgium

Recapitalisation measure in favour of KBC

Decision not to raise objections

IP/08/2033

18 December 2008

9

Belgium

Capital Injection for Ethias Group

Decision not to raise objections

IP/09/254

12 February 2009

10

Belgium

Recapitalisation and asset relief for KBC Group

Decision not to raise objections

IP/09/1063

30 June 2009

11

Denmark

Rescue aid to

Roskilde Bank

Decision not to raise objections ( IP/08/1222 )

31 July 2008

12

Denmark

Liquidation aid

Roskilde bank

Decision not to raise objections IP/08/1633

5 November 2008

13

Denmark

Guarantee scheme for banks in Denmark

Decision not to raise objections IP/08/1483

10 October 2008

14

Denmark

Recapitalisation scheme and amendment of the guarantee scheme

Prolongation

Decision not to raise objectives

IP/09/ 206

MEX/09/0817

3 February 2009

17 August 2009

15

Denmark

Rescue aid for Fionia Bank

Decision not to raise objections

IP/09/819

20 May 2009

16

Finland

Finnish guarantee scheme

Prolongation and modification

Decision not to raise objections

IP/08/1705

Decision not to raise objections

IP/09/681

14 November 2008

30 April 2009

17

Finland

Guarantee for Kaupthing Bank Finland

Decision not to raise objections

IP/09/82

21 January 2009

18

Finland

Capital injection scheme

Decision not to raise objections

IP/09/1303

11 September 2009

19

France

Financial support measures to the banking industry in France

(Refinancing)

Extension of the scheme

Decision not to raise objections IP/08/1609

Decision not to raise objections

IP/09/750

30 October 2008

12 May 2009

20

France

Financial support measures to the banking industry in France

(Recapitalisation)

Amendment to the Decision

Amendment to the Decision

Decision not to raise objections

IP/08/1900

IP/09/158

IP/09/461

08 December 2008

28 January 2009

23 March 2009

21

France

Capital injection for Caisse d'Epargne and Banque Populaire

Decision not to raise objections

IP/09/722

8 May 2009

22

Germany

Restructuring aid

to Sachsen LB

Conditional decision (after formal investigation procedure

IP/08 /849

4 June 2008

23

Germany

Restructuring aid

to IKB

Conditional decision (after formal investigation procedure) IP/08/1557

21 October 2008

24

Germany

Rescue aid
to Hypo Real Estate Holding

Decision not to raise objections IP/08/1453

2 October 2008

25

Germany

Aid scheme

for financial institutions in Germany (guarantees, recapitalisations & other)

Prolongation

Decision not to raise objections IP/08/1589

MEX/09/0622

27 October 2008

22 June 2009

26

Germany

Guarantee and recapitalisation for Bayern LB

Decision not to raise objections

IP/08/2034

18 December 2008

27

Germany

Guarantee for NordLB

Prolongation

Decision not to raise objections

IP/08/2056

MEX/09/0910

22 December 2008

10 September 2009

28

Germany

Guarantee for IKB

Decision not to raise objections

IP/08/2055

22 December 2008

29

Germany

Guarantee for SdB – Sicherungseinrichtungsgesellschaft deutscher Banken mbH

Decision not to raise objections

IP/09/114

22 January 2009

30

Germany

Commerzbank capital injection

Decision not to raise objections

IP/09/711

7 May 2009

31

Germany

Aid for the restructuring of WestLB

Conditional decision (after formal investigation procedure)

IP/09/741

12 May 2009

32

Germany

Temporary additional aid to WestLB

Decision not to raise objections

IP/09/1434

7 October 2009

33

Germany

Recapitalisation of HSH Nordbank

Decision not to raise objections

IP/09/854

29 May 2009

34

Germany

Recapitalisation and asset relief for LBBW (Landesbank Baden Württemberg)

Decision not to raise objections

IP/09/1058

30 June 2009

35

Germany

German asset relief scheme

Decision not to raise objections

IP/09/1216

31 July 2009

36

Germany

Additional aid (guarantees) for IKB

Decision not to raise objections

IP/09/1235

17 August 2009

37

Germany

Export credit scheme

Decision not to raise objections

IP/09/1319

15 September 2009

38

Greece

Aid scheme to the banking industry in Greece (guarantees, recapitalisation & other)

Prolongation and modification

Decision not to raise objections

IP/081742

MEX/09/0918

19 November 2008

18 September 2009

39

Hungary

Financial support measures to Hungarian financial industry in form of recapitalisation and guarantee scheme

Prolongation and modification

Decision not to raise objections

IP/09/253

Decision not to raise objections

MEX/09/0903

12 February 2009

3 September 2009

40

Hungary

Hungarian Mortgage Support Scheme

Decision not to raise objections

IP/09/1123

13 July 2009

41

Ireland

Guarantee scheme
for banks in Ireland

Decision not to raise objections IP/08/1497

13 October 2008

42

Ireland

Recapitalisation of Anglo Irish Bank

Decision not to raise objections

IP/09/50

14 January 2009

43

Ireland

Recapitalisation of Anglo Irish Bank

Decision not to raise objections

IP/09/1045

26 June 2009

44

Ireland

Change of ownership of Anglo Irish Bank

Decision not to raise objections

IP/09/271

17 February 2009

45

Ireland

Recapitalisation of Bank of Ireland

Decision not to raise objections

IP/09/483

26 March 2009

46

Ireland

Recapitalisation of Allied Irish Bank

Decision not to raise objections

IP/09/744

12 May 2009

47

Italy

Guarantee scheme for Italian banks

Prolongation

Decision not to raise objections IP/08/1706

IP/09/929

14 November 2008

16 June 2009

48

Italy

Recapitalisation scheme

Prolongation

Decision not to raise objections

IP/08/2059

MEX/09/1006

23 December 2008

6 October 2009

49

Latvia

Public support measures to Parex Banka

Amendment to the Decision

Decision not to raise objections

IP/08/1766

IP/09/732

24 November 2008

11 May 2009

50

Latvia

Guarantee scheme for banks

Prolongation

Decision not to raise objections

IP/08/2054

MEX/09/0630

22 December 2008

30 June 2009

51

Luxembourg

Restructuring aid for Kaupthing Bank Luxembourg

Decision not to raise objections

IP/09/1107

9 July 2009

52

Netherlands

Guarantee scheme

for Dutch financial institutions

Prolongation

Decision not to raise objections IP/08/1610

MEX/09/0707

30 October 2008

7 July 2009

53

Netherlands

Measure in favour of ING

Decision not to raise objections IP/08/1699

13 November 2008

54

Netherlands

Measure in favour of Aegon

Decision not to raise objections

IP/08/1822

27 November 2008

55

Netherlands

SNS Reaal/New capital injection by Dutch authorities

Decision not to raise objections

IP/08/1951

10 December 2008

56

Netherlands

ING Illiquid asset facility

Decision not to raise objections

IP/09/514

31 March 2009

57

Poland

Polish support scheme for financial institutions (guarantee and liquidity support)

Decision not to raise objections

IP/09/1360

25 September 2009

58

Portugal

Guarantee scheme
for credit institutions in Portugal

Decision not to raise objections IP/08/1601

29 October 2008

59

Portugal

State guarantee for Banco Privado Português

Decision not to raise objections

IP/09/400

13 March 2009

60

Portugal

Bank recapitalisation scheme

Decision not to raise objections

IP/09/818

20 May 2009

61

Slovenia

Guarantee scheme
for credit institutions in Slovenia

Prolongation

Decision not to raise objections

IP/08/1964

MEX/09/0622

12 December 2008

22 June 2006

62

Slovenia

Liquidity scheme for financial sector

Decision not to raise objections

IP/09/452

20 March 2009

63

Spain

Fund for the Acquisition of Financial Assets in Spain

Prolongation

Decision not to raise objections IP/08/1630

Decision not to raise objections

MEX/09/0807

4 November 2008

7 August 2009

64

Spain

Spanish guarantee scheme for credit institutions

Prolongation

Decision not to raise objections

IP/08/2049

Decision not to raise objections

MEX/09/0625

22 December 2008

25 June 2009

65

Sweden

Support measures for the banking industry in Sweden

Amendment to the decision

Amendment and prolongation

Decision not to raise objections IP/08/1600

IP/09/186

IP/09/652

29 October 2008

28 January 2009

28 April 2009

66

Sweden

Emergency rescue measures regarding Carnegie Investment Bank

Decision not to raise objections

IP/08/1977

15 December 2008

67

Sweden

Recapitalisation scheme

Prolongation

Decision not to raise objections

IP/09/241

Decision not to raise objections

MEX/09/0805

11 February 2009

5 August 2009

68

United Kingdom

Rescue aid
to Bradford and Bingley

Decision not to raise objections IP/08/1437

1 st October 2008

69

United Kingdom

Aid scheme
to the banking industry in the UK (guarantees, recapitalisation & other)

Prolongation

Prolongation

Decision not to raise objections IP/08/1496

Decision not to raise objections

IP/09/586

MEX/09/1013

13 October 2008

15 April 2009

13 October 2009

70

United Kingdom

Working capital guarantee scheme

Decision not to raise objections

IP/09/471

24 March 2009

Remark : As a general rule, each of these schemes is reviewable after six months. This means that the first wave of reviews will start as from April 2009. Also some of the individual decisions are subject to a review and possible restructuring plan.

Cases currently under formal investigation procedure

(in-depth investigation under the EC Treaty’s rules on state aid)

 

Country

Type of measure / Beneficiary

Date of decision regarding the opening of formal investigation

 

1

Belgium/France/

Luxembourg

Restructuring of Dexia

13 March 2009

( IP/09/399 )

Case under assessment

2

Belgium

Asset relief measure in favour of KBC Group

30 June 2009

IP/09/1063

Case under assessment

3

Germany

Aid package for
Hypo Real Estate

7 May 2009

IP/09/712

Case under assessment

4

Germany, Austria

Aid package for Bayern LB and its Austrian subsidiary Hypo Group Alpe Adria

12 May 2009 IP/09/742

Case under assessment

5

Germany

Asset relief measure in favour of Landesbank Baden-Württemberg (LBBW)

30 June 2009

IP/09/1058

Case under assessment

6

Latvia

Aid package for JSC Parex Banka

29 July 2009

IP/09/1203

Case under assessment

7

Netherlands

ING Illiquid asset facility

Extension of the ongoing in-depth investigation

31 March 2009

IP/09/514

15 September 2009

IP/09/1318

Case under assessment

8

Netherlands

State measures in favour of Fortis Bank Nederland (FBN) and the activities of ABN Amro

8 April 2009

IP/09/565

Case under assessment

9

United Kingdom

Restructuring aid for

Northern Rock

Extension of the ongoing in-depth investigation

2 April 2008

( IP/08/489 )

7 May 2009

IP/09/713

Case under assessment

Real economy cases falling under the Temporary Framework - situation as of 13 October 2009

Decisions adopted by the Commission in 2008/2009

 

Member State

Type of measure / Beneficiary

Type of decision

Date of adoption

1

Austria

N 47/a/2009- Temporary scheme (aid up to € 500 000)

N 317/2009 - Amendment

Decision not to raise objections

IP/09/454

IP/09/972

20 March 2009

18 June 2009

2

Austria

N 47/d/2009- Temporary scheme (risk capital)

Decision not to raise objections

I P/09/484

25 March 2009

3

Belgium

N 117/2009- Temporary scheme (subsidised guarantees)

Decision not to raise objections

IP/09/447

20 March 2009

4

Czech Republic

N 237/2009 - Temporary scheme (subsidised interest rates)

Decision not to raise objections

IP/09/699

6 May 2009

5

Czech Republic

N 236/2009 - Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/719

7 May 2009

6

Denmark

N 198/2009 - Temporary scheme (export-credit insurance)

Decision not to raise objections

IP/09/706

6 May 2009

7

Estonia

N 387/2009 - Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/1121

13 July 2009

8

Finland

N 224/2009 - Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/869

3 June 2009

9

Finland

N 82b/2009 - Temporary scheme (guarantees)

Decision not to raise objections

IP/09/919

9 June 2009

10

Finland

N 258/2009 – Temporary scheme (export-credit insurance)

Decision not to raise objections

IP/09/979

22 June 2009

11

France

N 7/2009 – Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/72

19 January 2009

12

France

N 15/2009 - Temporary scheme (reduced interest rates)

Decision not to raise objections

IP/09/216

4 February 2009

13

France

N 11/2009 - Temporary scheme (reduced interest rates – to producers of green products)

Decision not to raise objections

IP/09/205

3 February 2009

14

France

N 23/2009 - Temporary scheme

(subsidised guarantees)

Decision not to raise objections

IP/09/332

27 February 2009

15

France

N 119/2009 - modification of French risk capital scheme

Decision not to raise objections

IP/09/406

16 March 2009

16

France

N 36/2009 - Temporary scheme (risk capital)

Decision not to raise objections

IP/09/1094

30 June 2009

17

France

N 449/2009 – Temporary scheme (export-credit insurance)

Decision not to raise objections

IP/09/1422

5 October 2009

18

Germany

N 661/2008 – KfW run special program 2009 (interest subsidies)

Decision not to raise objections

( IP/08/2063 )

30 December 2008

19

Germany

N 668/2008 – Temporary scheme (limited amount of compatible aid)

N 299/2009 - Amendment

N 411/2009 - Amendment

Decision not to raise objections

IP/08/2063

IP/09/877

IP/09/1163

30 December 2008

4 June 2009

17 July 2009

20

Germany

N 39/2009 – Temporary adaptation of risk-capital schemes

Decision not to raise objections

IP/09/214

3 February 2009

21

Germany

N 27/2009 - Temporary scheme (guarantees)

Decision not to raise objections

IP/09/331

27 February 2009

22

Germany

N 38/2009 - Temporary scheme (reduced interest rates)

Decision not to raise objections

IP/09/296

19 February 2009

23

Germany

N 426/2009 – Temporary Scheme (green products)

Decision not to raise objections

IP/09/1223

4 August 2009

24

Germany

N 384/2009 – Temporary Scheme (export credit insurance)

Decision not to raise objections

IP/09/1222

5 August 2009

25

Greece

N308/2009 - Temporary scheme (guarantees)

Decision not to raise objections

IP/09/867

3 June 2009

26

Greece

N309/2009 - Temporary scheme (subsidised interest rates)

Decision not to raise objections

IP/09/868

3 June 2009

27

Greece

N 304/2009 - Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/1143

15 July 2009

28

Hungary

N 114/2009- Temporary scheme (guarantees)

Decision not to raise objections

IP/09/387

10 March 2009

29

Hungary

N 77/2009 - Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/325

24 February 2009

30

Hungary

N 78/2009 – Temporary scheme (subsidised interest rates)

Decision not to raise objections

IP/09/325

24 February 2009

31

Hungary

N 203/2009 - Temporary scheme (guarantees)

Decision not to raise objections

IP/09/647

24 April 2009

32

Ireland

N 186/2009 – Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/585

15 April 2009

33

Italy

N 279/2009 - Temporary scheme (risk capital)

Decision not to raise objections

IP/09/825

20 May 2009

34

Italy

N 266/2009 - Temporary scheme (guarantees)

Decision not to raise objections

IP/09/852

28 May 2009

35

Italy

N 248/2009 – Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/852

28 May 2009

36

Italy

N 268/2009 – Temporary scheme (subsidised interest rates)

Decision not to raise objections

IP/09/857

29 May 2009

37

Latvia

N 124/2009 – Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/442

19 March 2009

38

Latvia

N 139/2009 - Temporary scheme (guarantees)

Decision not to raise objections

IP/09/626

22 April 2009

39

Lithuania

N 272/2009 – Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/890

8 June 2006

40

Luxembourg

N 99/2009 – Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/334

26 February 2009

41

Luxembourg

N 128/2009 – Temporary scheme (guarantees)

Decision not to raise objections

IP/09/392

11 March 2009

42

Luxembourg

N 50/2009 – Temporary scheme (export-credit insurance)

Decision not to raise objections

IP/09/603

20 April 2009

43

Malta

N 118/2009 - Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/820

18 May 2009

44

Netherlands

N 156/2009 – Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/527

1 April 2009

45

Netherlands

N 409/2009 – Temporary scheme (export-credit insurance)

Decision not to raise objections

IP/09/1405

2 October 2009

46

Poland

N 408/2009 - Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/1483

17 August 2009

47

Portugal

N 13/2009 – Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/71

19 January 2009

48

Romania

N 286/2009 – Temporary scheme (guarantees)

Decision not to raise objections

IP/09/882

5 June 2009

49

Slovak Republic

N 222/2009 – Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/680

30 April 2009

50

Slovenia

NN 34/2009 - Temporary scheme (guarantees)

Decision not to raise objections

IP/09/917

12 June 2009

51

Slovenia

N 228/2009 - Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/918

12 June 2009

52

Spain

N 140/2009 – Temporary scheme (aid for green cars)

Decision not to raise objections

IP/09/499

29 March 2009

53

Spain

N 307/2009 – Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/889

8 June 2009

54

Sweden

N 80/2009 - State guarantees in favour of Volvo cars

Decision not to raise objections

IP/09/879

5 June 2009

55

United Kingdom

N 43/2009 – Temporary scheme (aid up to € 500 000)

Decision not to raise objections

IP/09/215

4 February 2009

56

United Kingdom

N 71/2009 – Temporary scheme (guarantees)

Decision not to raise objections

IP/09/333

27 February 2009

57

United Kingdom

N 72/2009 – Temporary scheme (to businesses producing green products)

Decision not to raise objections

IP/09/333

27 February 2009

58

United Kingdom

N 257/2009 – Temporary scheme (subsidised interest rates)

Decision not to raise objections

IP/09/793

15 May 2009

 

 

 

 

 

 

 

  

 

 

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