Transcript Merger Review - The Commission’s Green Paper

GCLC
February 2009
State Aid response to the European
banking crisis
Blanca Rodriguez Galindo
European Commission
Competition Directorate General
Summary
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Overview of the State Aid Control rules
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Short History of State Aid Control in the banking sector
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August 2007, the beginning of the Banking Crisis and the
Commission reaction
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September 2008, intensification of the Banking Crisis and the
need for appropriate responses
•
A new legal framework
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The Banking Communication
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Rescue banking plans, some figures (September- December
2008)
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The practice so far, benchmarks and safe harbors
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The near future
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Conclusion
Overview of
the State Aid Control rules
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General prohibition of State Aid : Article 87 of the EC
Treaty
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…subject to exceptions:
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Article 87 3 b for measures to remedy serious disturbance of the economy
Article 87 3 c for measures addressing companies in difficulties
Short history of State Aid
Control in the banking sector
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Banks in difficulty, unable to stem losses by
themselves
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Rescue aid to keep bank afloat for the time needed to
work out a restructuring/liquidation plan:
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–
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Restructuring aid which aim is to restore long-term
viability:
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temporary (6 months)
reversible
restructuring plan
compensatory measures to avoid undue distortions of competition
own contribution from beneficiary to limit aid to the minimum
Examples: Credit Lyonnais ( 1998 ) Bankgesellschaft
Berlin (2004) BAWAG (2007)
August 2007, the beginning of
the Banking Crisis and the
Commission reaction
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Individual cases in a few Member States
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Northern Rock (UK), Sachsen LB(G), IKB (G), WestLB
(G), Bayern LB (G), Roskilde (DK)
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Calls for a new legal basis : Article 87 3b)…
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…use of the classical legal framework, Article 87 3 c)
and Rescue/Restructuring assessment
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Rapid treatment
September 2008, intensification
of the Banking Crisis and the
need for appropriate responses
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Sound banks not technically in difficulties affected
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Confidence problem
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Interbank lending has dried up
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General rescue schemes rather than measures aimed
at individual banks
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Stability of the financial system at stake
A new legal framework
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Measures to remedy a serious disturbance of the
economy= Art 87 3 b
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–
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Exceptional application
Systemic crisis - beyond the crisis of a single firm
Need to allow different measures / derogations from
R&R guidelines:
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Measures for banks that are not technically in difficulties
Structural emergency interventions
Protection of rights of third parties such as creditors
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Rescue measures potentially going beyond 6 months
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The Banking Communication
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Measures covered:
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Guarantees
Recapitalisation
Winding-up
Liquidity assistance
General principles:
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Non-discrimination
Limitation in time
Aid limited to the minimum
Contribution from beneficiaries
Behavioral commitments
Structural adjustments
Rescue banking plans, some figures
(February 2009)
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Denmark (Guarantee) - 10 October 2008
Ireland (Guarantee) - 13 October 2008
United Kingdom (Combination)- 13 October 2008
Germany (Combination)- 27 October 2008
Portugal (Guarantee) - 29 October 2008
Sweden (Guarantee) - 29 October 2008
France (Refinancing) - 30 October 2008
Netherlands (Guarantee) - 30 October 2008
Spain (Purchase of assets) - 4 November
Italy (Guarantee) - 13 November
Finland (Guarantee) - 13 November
Greece (Combination)– 19 November
France (Recap)- 8 December
Austria (Combination) – 9 December
Slovenia (Guarantee) – 12 December
Spain (Guarantee) – 22 December
Latvia (Guarantee) – 22 December
Italy (Recap) – 23 December
…and more to come
–I
Rescue banking plans, some figures
– II
(February 2009)
A number of individual cases approved,
such as
• Recapitalisation (ING, KBC, PAREX, SNS
Reaal, Bayern LB, Anglo Irish Bank),
• Guarantees (FORTIS, DEXIA, NORD LB,
IKB), liquidity (Carnegie) and
• One insurance firm recapitalisation
(AEGON)
The practice so far, benchmarks
and safe harbors (I). Guarantees
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Temporal scope
Maximum 2 years or window of 6 months of debt lasting 3 to 5 Years
Existing debt or only new debt
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Material scope
Most types of liabilities including wholesale deposits and short term deposits
In principle not subordinated debt but senior debt
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Level of remuneration, ECB Recommendations of 20
October 2008
Maturities exceeding 1 year, 50 basis points+ median of CDS spreads over
last 20 months
Maturities of up to 1 year, flat fee of 50 basis points
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Behavioral constraints
Restrictions on commercial conduct
Prohibition of Conduct irreconcilable with purpose of the guarantee
Limitation to expansion in particular size of balance-sheet
The practice so far, benchmarks and
safe harbors (II) Purchase of assets
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Preference for Repo in case of Toxic assets
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Final Purchase in case of high quality assets
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Pricing as close as possible to market price,
auction
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In case of Repo and toxic assets payment of initial
sales prize plus premium
The practice so far, benchmarks
and safe harbors (III)
Liquidity assistance
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General measures open to all comparable market
players (eg lending to the whole market on equal
terms; standing facilities by Central Bank) are
not State aid
Individual emergency liquidity assistance is not
State aid if:
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Beneficiary is solvent and the assistance is not part of a larger
package
The facility is fully secured by collateral to which haircuts are applied
Penal interest rate
Measure is taken at the Central Bank´s own initiative and not
counterguaranteed by the State
Other cases State Aid but can be found compatible
The practice so far, benchmarks
and safe harbors (IV)
Recapitalisation
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After number of cases, need for general guidance:
Communication of 8 December.
Recap open for all banks in current environment, but
distinction is made between « sound » and « distressed »
banks, based on banks’ risk profile and size of capital
injection
Important elements are pricing & and exit incentives (such
as step-up clauses over time, higher capital repayment and
dividend restrictions)
A complete dividend ban and a restructuring plan has to be
approved for distressed banks (for sound banks, the
soundness has only to be demonstrated in a ex-post
report)
New measures:
treatment of impaired assets
ECOFIN 10 February:
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Correct & consistent approach of valuation for
level playing field
Banks to keep portion of risk to limit moral hazard
Some flexibility as regards asset choice but full
transparency
Close implementation monitoring
Commission to ensure compliance with state aid
rules & restructuring requirements
The Near future
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Review of the measures
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Assessment of the adequacy of the measures and
of their distortive effects
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Restructuring and return to viability process
Conclusion
“State aid rules are part of the solution
not of the problem”
“Flexibility doesn’t mean throwing out the rules”
Neelie Kroes
http://ec.europa.eu/competition/state_aid/overview/index_en.html