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

Tuesday, 13 October 2009 |

European Affairs

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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

View the discussion thread.

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