EC State aid framework and case law in response to the financial and economic crisis

1. 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

2. 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

3. 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

4. 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

5. 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

6. 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. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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