Transcript State Aid in the financial sector

EC State aid
framework and case
law in response to
the financial and
economic crisis
Geert van der Klis
7 October 2009
Vereniging voor
Mededingingsrecht
Outline
•
•
•
•
•
•
Introduction
Overview of measures taken by EU Member States
Measures taken by Dutch Government
EC framework
EC case law
Key issues
EC State aid framework and case law in response to the financial and economic crisis
7 October 2009
2
Introduction
• Mid-2007, U.S. sub-prime mortgage lending crisis
• September 2008, bankruptcy of Lehman Brothers
• Wholesale markets showed decreased willingness to lend and
restricted access to liquidity
• In October 2008, various EU Member States announced series of
measures aimed at:
– Providing sufficient liquidity in the short and medium term
– Making new capital available to financial institutions to strengthen resources
– Allowing financial institutions to restructure their finances, while maintaining
their support for the real economy
• EC is reviewing the measures taken by the EU Member States
under the EC State aid rules
EC State aid framework and case law in response to the financial and economic crisis
7 October 2009
3
Overview of measures taken by EU Member
States
• From October 2008 to date: 66 EC decisions regarding State aid
measures to financial institutions:
– Credit guarantee schemes
– Capital injections
– Impaired asset relief
• A large number of cases still subject to review:
–
–
–
–
–
–
–
–
–
–
–
Bayern LB
Dexia
Fortis ABN
Hypo Real Estate
ING
JSC Parex Banka
KBC
Landesbank Baden-Württemberg
Lloyds
Northern Rock
RBS
EC State aid framework and case law in response to the financial and economic crisis
7 October 2009
4
Measures taken by Dutch Government
• Credit Guarantee Scheme
- Individual guarantee measures
–
–
–
–
–
Fortis: EUR 19 billion
ING: EUR 11.4 billion
Leaseplan: EUR 6.6 billion
NIBC: EUR 4.8 billion
SNS: EUR 5.5 billion
• Recapitalisation Scheme
– Aegon: EUR 3 billion
– ING: EUR 10 billion
– SNS: EUR 750 mln
EC State aid framework and case law in response to the financial and economic crisis
7 October 2009
5
Measures taken by Dutch Government
• Asset relief
– ING: EUR 19 billion illiquid assets back-up facility (US 28
billion)
• Nationalisation ABN Fortis
– Measures in favour of Fortis Bank Nederland (FBN) and the
activities of ABN Amro
– EUR 45 billion facility
– EUR 16 million long term loans Fortis
– EUR 6.5 billion purchase price
EC State aid framework and case law in response to the financial and economic crisis
7 October 2009
6
EC framework
• Banking Communication
–
–
–
–
–
–
Initial guidelines for state aid in the banking sector in the financial crisis
Focuses on guarantee schemes
Non-discriminatory access
Limited in time and scope (6 months review)
Appropriate private sector contribution
Appropriate follow-up (viability plan/restructuring plan)
EC State aid framework and case law in response to the financial and economic crisis
7 October 2009
7
EC framework
• Recapitalization Communication
–
–
–
–
–
To restore financial stability
Ensure lending to real economy
Limit the risks of banks becoming insolvent
Remuneration close to market prices
Incentives for State capital redemption
EC State aid framework and case law in response to the financial and economic crisis
7 October 2009
8
EC framework
• Impaired Assets Communication
-
Guidelines for the treatment of impaired assets: asset relief measures such as
asset purchase, swap, guarantee or hybrid models
Transparency and disclosure of impairments
Valuation of impaired assets
Burden sharing between the State, shareholders and creditors
Incentives to participate in asset relief programmes
EC State aid framework and case law in response to the financial and economic crisis
7 October 2009
9
EC framework
• Restructuring Communication
-
Guidelines for the restructuring of banks
Transparency and disclosure of impairments
Restoration of long-term viability
Adequate burden sharing (limitation of restructuring costs, significant own
contribution)
Measures to minimize distortion of competition
Structural and behavioural remedies
Monitoring on regular basis
EC State aid framework and case law in response to the financial and economic crisis
7 October 2009
10
EC caselaw
• Recapitalization measures
Hypo Steiermark
- Recapitalization of Landes-Hypothekenbank Steiermark was not state aid
- Conditions of the capital increase are acceptable to a private investor operating
under normal market conditions (‘market economy investor principle’)
Commerzbank
- Approval of 18 billion recapitalization under German recapitalization scheme
- Large-scale divestment (45% of balance sheet total)
- Ban on acquisitions
- Price leadership prohibition
EC State aid framework and case law in response to the financial and economic crisis
7 October 2009
11
EC caselaw
KBC
-
Recapitalization and impaired asset relief temporarily approved
Valuation of portfolio
Burden sharing, remuneration
Management of assets
Bayern LB
-
Risk shield, guarantee and capital injection
Valuation portfolio
New stress scenario for the return to viability
Detailed timetable for the implementation of different measures
EC State aid framework and case law in response to the financial and economic crisis
7 October 2009
12
EC caselaw
• In depth-investigation restructuring measures
Northern Rock
- Rescue aid and guarantee under assessment
- Restructuring plan proposing split-up in “good” and “bad” bank
Dexia
- Capital injection, guarantee and impaired asset relief under
assessment
- Restructuring plan to ensure long-term viability
- Adequate own contribution
EC State aid framework and case law in response to the financial and economic crisis
7 October 2009
13
EC decisions regarding The Netherlands
• ING illiquid assets back-up facility
– Valuation
– Burden sharing
– Restructuring
• Fortis ABN Amro
– Amount and duration of loan facility
– Interest rate
– Price ABN activities
EC State aid framework and case law in response to the financial and economic crisis
7 October 2009
14
Key issues
• Legal basis
– 87 (3)(b) EC: aid […] to remedy a serious disturbance in the economy of a Member
State:
Aid to financial institutions that were fundamentally sound before the crisis
– 87 (3) (c) EC: aid to facilitate the development of certain economic activities or of
certain economic areas:
Rescue and restructuring aid to institutions that would have failed under normal market
conditions
• Viability review
– Where a fundamentally sound bank has received a limited amount of aid
• Restructuring plan
-
In-depth restructuring required when
- Distressed bank is recapitalized by the State; or
– The bank has already received state aid in whatever form, that either contributes to
coverage or avoidance of losses, or altogether exceeds 2% of the total bank’s risk
weighted assets
• State aid procedure
EC State aid framework and case law in response to the financial and economic crisis
7 October 2009
15