Finansudvalget 2016-17
Aktstk. 114
Offentligt
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EUROPEAN COMMISSION
Brussels, 25.04.2012
C(2012) 2872 final
Subject: State aid n° SA.34423 (2012/N) – Denmark
Rescue decision for the merger of Vestjysk Bank and Aarhus Lokalbank
Sir,
1.
(1)
P
ROCEDURE
On 28 February 2012 Denmark informed the Commission that two Danish banks,
Vestjysk Bank A/S and Aarhus Lokalbank A/S, are about to merge, as they both face
an increased risk of becoming a distressed bank on stand-alone basis.
The Danish authorities submitted further information and updates on 9, 17, 26 and 30
March and 12 April 2012. A meeting between the Commission services and the
Danish authorities was held on 27 March 2012.
Denmark notified the measures covered by this decision to the Commission on 13
April 2012.
Denmark has exceptionally agreed that the authentic language for this decision should
be English.
(2)
(3)
(4)
2.
(5)
D
ESCRIPTION OF THE BENEFICIARY
Vestjysk Bank was formed in 1874 and is currently one of Denmark's largest regional
banks with 20 branches in Jutland and on Funen. As at the end of 2011, Vestjysk Bank
Udenrigsminister Villy Søvndal
Asiatisk Plads 2
DK-1448 København K
Commission européenne, B-1049 Bruxelles – Belgique
Europese Commissie, B-1049 Brussel – België
Telefon: 00-32-(0)2-299.11.11.
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had a balance sheet of DKK 29.28 billion (EUR 3.94 billion
1
).
(6)
(7)
(8)
Aarhus Lokalbank started operating in 1908 and as at the end of 2011 had a balance
sheet of DKK 4.47 billion (EUR 600 million).
Both banks are [...]
*
as they both face an increased risk of [...].
The Danish State is a major shareholder in both banks (it has a stake of 53.1% in
Vestjysk Bank and 45.2% in Aarhus Lokalbank) following a recapitalisation under the
recapitalisation scheme in 2009 and a conversion of the capital injection into share
capital on 20 February 2012
2
.
Vestjysk Bank and Aarhus Lokalbank (hereafter, collectively, "the banks") are set to
merge. The
continuing bank,
after the merger, will be Vestjysk Bank. Aarhus
Lokalbank will cease to exist after the merger, as its assets and liabilities are
transferred to Vestjysk Bank in connection with the merger. Following the merger, the
Danish State will be a major shareholder in the continuing bank (52.1 %).
The merger is intended to counter the funding challenges of the continuing bank and
improve the basis for a future phase-out of the State-guaranteed loans by […].
Furthermore, the merger of the banks will create the basis for a capital plan whose
implementation will strengthen the continuing bank's long-term capital base. Denmark
has indicated that a more passive strategy of wait-and-see would [...], which would
increase the risk of renewed uncertainty in the financial sector.
The merger strengthens the position of Vestjysk Bank as a regional bank of central and
western Jutland. The continuing bank's main activities will be focused on corporate
and retail banking operations.
As at the end of 2011, the continuing bank had total loans for an amount of DKK 29.7
billion (EUR 4 billion), of which corporate customers accounted for 77.1%, private
customers 22.7% and public authorities 0.1%.
In terms of industry segments, lending provided to real estate represented the largest
exposure, accounting for 18.7% of loans. That exposure includes customers from
inside and outside the continuing bank's main geographical market. The exposure to
With the exchange rates of 10 April 2012 (EUR 1 = DKK 7.4395).
Business secret
Vestjysk Bank
raised State hybrid core capital with an original principal of DKK 1.44 billion (EUR 194
million), of which DKK 287.6 million (EUR 39 million) plus accrued interest of approximately DKK
8.7 million (EUR 1.2 million) was converted into shares in Vestjysk Bank. In the period 2009 - 2011
Vestjysk Bank has paid coupons amounting to a total of DKK 312.8 million (EUR 42 million) to the
Danish State. The coupon interest rates were set at 9.69 and 10.19 per cent p.a., depending on whether
they included the conversion option fee.
Aarhus Lokalbank
has raised State hybrid core capital with an original principal of DKK 177.8 million
(EUR 24 million), of which DKK 142.2 million (EUR 19 million) plus accrued interest totalling DKK
47.3 million (EUR 20 million) was subsequently converted into shares in Aarhus Lokalbank. In the
period 2009 - 2011 Aarhus Lokalbank paid coupons amounting to a total of DKK 25.9 million (EUR 3.5
million) to the Danish State. The coupon interest rates were set at 10.92 and 11.42 per cent p.a.,
depending on whether they included the conversion option fee.
2
(9)
(10)
(11)
(12)
(13)
1
*
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real estate is primarily made up of properties in Denmark and, to a certain extent, of
investments made by Danish customers in properties in Germany. In addition to the
loans provided by the continuing bank to customers in the property industry, the
continuing bank is also indirectly exposed to real estate, as customers of other industry
segments may also hold investments in real estate, either as part of their operations or
for investment purposes.
(14)
Loans for agriculture, hunting, forestry and fisheries represent 17.4% of total loans and
guarantees and are primarily related to customers in the continuing bank's main
geographical area.
The shares of both Vestjysk Bank and Aarhus Lokalbank are listed on the Copenhagen
stock exchange.
(15)
3.
(16)
D
ESCRIPTION OF THE MEASURES
On 17 February 2012 the Commission approved a Danish scheme which allows for the
provision of guarantees to banks that are merging ("SA.34227(2012/N) - Guarantees
for merging banks")
3
. The scheme allows guarantees to be provided to merged entities
with a balance sheet of up to EUR 3 billion. That merger scheme only allows State
guarantees on banks' liabilities.
As the merged entity is to have a balance sheet of around DKK 35.2 billion (EUR 4.7
billion), the Danish authorities pre-notified the measures covered by the present
Decision.
In connection with the merger, the continuing bank is to implement a "capital plan" to
improve its position. That capital plan consists of the following measures:
1. Completion of a capital raise by the continuing bank with
net proceeds
of between
DKK 250 and 300 million (EUR 34-40 million);
2. Raising of new subordinated loan capital with a principal of DKK 200 million
(EUR 27 million) financed entirely by the private sector;
3. Sale of a minority shareholding in the amount of DKK 175 million (EUR 24
million) that the continuing bank owns in a Danish mortgage credit institution to
the Danish Central Bank;
4. Individual State guarantees for new bonds for up to DKK 8.6 billion (EUR 1.2
billion).
(17)
(18)
(19)
Measures 2, 3 and 4 are conditional on the implementation of measure 1 with a
minimum of DKK 250 million of capital raised, and are also inter-dependent. In other
words, none of measures 2, 3 and 4 will be taken unless measure 1 is implemented and
the other two measures are implemented. The implementation of measure 1 is
Commission decision of 17 February 2012 (C(2012) 1081 final), not yet published.
3
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independent of the implementation of measures 2, 3 and 4.
(20)
In order to enable the Danish State to participate in the capital raise, a portion of the
convertible hybrid capital instruments obtained by the State as part of the 2009
recapitalisation have been converted into ordinary shares. The conversion was
implemented on 20 February 2012 at the initiative of the banks, in line with the rules
set in the Danish recapitalisation scheme approved by the Commission
4
. The
continuing bank shall assist the Danish State if it wishes to dispose of the shares
acquired.
5
The Danish FSA considers that the merger of the banks will lead to a more viable
bank.
(21)
Measure 1 – capital increase in the continuing bank
(22)
The capital increase will be carried out as a rights offering with preferential
subscription rights for existing shareholders. Accordingly, all shareholders will receive
subscription rights for each share they own.
The capital raise is not underwritten by the Danish State. The State participates
pro
rata
in the capital increase corresponding to the State’s direct ownership of 52.1% in
the merged entity and at the same conditions as the private investors.
The bank expects
gross proceeds
of DKK 270-320 million, and must realize
net
proceeds
of at least DKK 250 million to comply with the conditions for obtaining the
other elements of the capital plan.
6
The State, as a starting point, must be able to utilize all the allocated subscription
rights and subscribe for new shares of up to DKK 166.7 million (EUR 22.4 million).
The remaining amount is expected to be subscribed by current or new private
shareholders.
If the private participation is less than expected, the pro rata condition implies that the
State participation is reduced correspondingly.
(23)
(24)
(25)
(26)
4
5
6
Commission Decision in case N31a/2009,
Danish bank recapitalisation scheme and guarantee scheme
on new debt,
OJ C 50, 3.3.2009, p. 3 as prolonged and amended by the Commission Decision in case
N415/2009 and NN 46/2009,
Prolongation and amendment of the recapitalisation scheme and
prolongation of the guarantee scheme,
OJ C 277, 22.9.2009, p. 2 and Commission Decision in case
N628/2009,
Second prolongation of the recapitalisation scheme,
OJ C 33, 10.2.2010, p. 4.
The continuing bank shall notify the Danish State if the continuing bank becomes aware of an
impending breach or anticipatory breach of the agreement on State capital injection or that a payment
under the agreement cannot or will not be made. The continuing bank shall furthermore immediately
notify the Danish State in writing if, under the provisions on mandatory conversion, the continuing bank
is ordered to convert into shares any part of the State capital injection which is subject to provisions on
mandatory conversion. The continuing bank shall present a statement on its lending activities to the
Danish State twice a year.
Issuance expenses are estimated to be DKK 20 million.
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(27)
According to the information submitted by Denmark, the subscription rate will be set
at DKK [...], entailing a discount of [...] from a stock price in the beginning of 2012
and [...] of the theoretical ex-rights price ("TERP"). Since the current stock price is
around DKK [...] the bank is expected to offer a discount that exceeds both these levels
(discounts from the stock price in the beginning of 2012 and from the TERP) in order
to achieve a subscription from private investors of at least DKK [...] million.
Measure 2 – raising of a subordinated loan
(28)
The subordinated loan capital will be funded entirely by private investors.
Measure 3 – sale of a minority shareholding to the Danish Central Bank
(29)
Vestjysk Bank as the continuing bank has obtained a conditional commitment from the
Central Bank of Denmark for the purchase of Vestjysk Bank's shares in Dansk
Landbrugs Realkreditfond ("DLR"), a Danish mortgage credit institution. Vestjysk
Bank has a minority shareholding (>10%) in DLR. Pursuant to accounting rules on
minority shareholdings, Vestjysk Bank has to consolidate the risk-weighed assets
linked to that minority participation when calculating its capital needs. Accordingly,
the sum of non-significant holdings in other financial institutions in excess of 10% of
the financial institution's own funds have to be deducted from its own funds. The sale
of the minority shareholding would therefore improve Vestjysk Bank's capital position
and its regulatory capital by around 60 basis points.
DLR is owned jointly by a number of banks. DLR's shareholders' agreement lays down
that the price of DLR's shares is calculated based on 100% distributable and on
57.56% non-distributable reserves. That formula is intended to ensure that DLR's
shares are traded at a price below the book value of equity.
7
Owner banks apply the
same price mechanism for their accounting purposes.
Denmark submits that holdings of unlisted shares are included in the accounts of a
bank at fair prices. In that regard, Vestjysk Bank has included its DLR shares in its
account at the market price and will incur neither losses nor profits resulting from the
sale of those shares.
(30)
(31)
Measure 4 – issuance of new State-guaranteed debt
(32)
The two banks involved in the merger each hold individual State guarantees on
liabilities under the Danish guarantee scheme. Following the merger, they intend to
replace the existing State guarantees with new individual State guarantees. The
According to the information submitted by Denmark, the market price of the DLR shares on 11 April
2012 was DKK 14.03 (EUR 1.89), whereas the book value of equity of a DLR share was DKK 16.14
(EUR 2.17).
5
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continuing bank will after the completion of the merger have a total of DKK 9.4
billion (EUR 1.3 billion) of guaranteed liabilities. The outstanding guaranteed loans
will mature by 16 July 2013.
(33) As part of the capital plan the merged bank will in 2012 be obliged to reduce the total
guarantee to DKK 8.4 billion. That reduction of the amounts guaranteed by DKK 1
billion (EUR 134 million) has been stipulated by the Financial Stability Company
("FSC")
8
, as one of the conditions for the issue of the new State guarantees. The FSC
has given a conditional commitment on the new individual State guarantees for
liabilities totalling up to DKK 8.6 billion (EUR 1.2 billion). It is expected that the
continuing bank will start reducing the outstanding balance of the new guarantees as of
February 2014 with the final repayment being effected in June 2016.
(34)
Pursuant to the submissions from Denmark, the following general terms will apply to
the new individual State guarantees:
(i) A new individual State guarantee on new debt issued in connection with a merger
may have a term of up to five years, but shall not last longer than until 31
December 2016, and only one-third of the guarantee may have a term of more
than three years.
(ii) The guarantees on new debt are scheduled to be issued between May 2013 and
July 2013.
(iii) The continuing bank shall pay a risk-based guarantee commission for the State
guarantee. The basis for determining the guarantee commission is set at 1.35%, to
which should be added an incremental additional guarantee charge of 0.65% in the
first year, 0.75% in the second and 0.90% in the third year and onwards for the
duration of the guarantee. If the European Commission were to seek a higher
guarantee commission in the course of its monitoring of the guarantee schemes
implemented by the Member States, the guarantee fee will be increased to that
level.
9
(iv) Bonds issued with a new individual State guarantee must be pledged with
Danmarks Nationalbank and may not be sold to any third party.
(35)
Furthermore, the FSC has defined the following terms to be satisfied by the continuing
bank for as long as the individual State guarantees are outstanding:
(i) The continuing bank may only pay dividends if [...].
(ii) No capital reductions whereby the amount is disbursed to shareholders may be
implemented by the continuing bank, no new programmes to buy back treasury
8
9
FSC is the State-owned entity established to take care of the State aid measures that are being
introduced in the context of the financial crisis.
The minimum level for the guarantee fee will be determined according to method described in the
Annex of the 2012 Prolongation Communication – Commission Communication on the application,
from 1 January 2012, of State aid rules to support measures in favour of banks in the context of the
financial crisis, OJ C 356, 6.12.2011, p. 7.
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shares may be initiated, bonus shares may not be issued at a discount and no other
similar favourable programmes may be applied. However, that limitation shall not
apply, in whole or in part, to any buy-back of shares held by the Danish State as
part of a phase-out of the State capital injections.
(iii) New share option programmes or similar programmes for the executive board may
not be launched, and existing programmes and other similar programmes may not
be extended or renewed.
4.
(36)
D
ENMARK
'
S
P
OSITION
The Danish authorities argue that out of measures 1 to 4, the only measure entailing
the use of State aid is the new guarantees issued for the continuing bank's debt
(measure 4).
Measure 1 – capital increase. Denmark argues that, given that the State will participate
on a
pari passu
basis with private investors at the same terms and proportionally to its
current share in the merged entity
10
, the participation is done at market terms, ensuring
that the State acts as a private market investor.
Furthermore, Denmark submits that the intention of the State in the long run is not to
remain a shareholder in Danish financial institutions. In that context, the State may sell
shares as well as subscription rights in the merged bank during the subscription period
at market price.
On that basis, Denmark considers that there is no aid in relation to the capital increase.
Measure 2 – subordinated loan. Denmark submits that the subordinated loan capital is
raised entirely from a number of private investors. Therefore it does not entail any
usage of State resource and therefore does not qualify as State aid.
Measure 3 – sale of a minority shareholding to the Danish Central Bank. Denmark
submits that the Danish Central Bank owns shares in a number of entities that are
jointly owned by commercial banks and mortgage credit institutions. Denmark argues
that the Danish Central Bank has offered to buy Vestjysk Bank's minority shareholding
in DLR in relation to the merger, and as the Danish Central Bank saw the planned
strengthening of the capital base of the continuing bank as satisfactory, the Central
Bank decided to give a conditional commitment to buy those shares at the current
market price.
Denmark submits that the purchase of the DLR shares by the Danish Central Bank will
improve the capital position of the continuing bank.
The Danish Central Bank also submits that it assesses on a general basis requests by
Denmark argues that condition implies that the State will only call all of its subscription rights if the
current or new private shareholders call all of their subscription rights. Similarly, the State will only call
half of its subscription rights if the private shareholders only call half of their subscription rights.
7
(37)
(38)
(39)
(40)
(41)
(42)
(43)
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banks for the purchase at market value of shares in jointly-owned corporations to
improve the liquidity position of banks.
(44)
(45)
Finally, Denmark argues that measure 3 does not entail any usage of State resources.
Measure 4 – Issuance of new guaranteed debt. Denmark submits that the banks hold
individual State guarantees and as part of the merger the plan is to replace the existing
individual State guarantees with new individual State guarantees. In that context
Denmark submits that the new guarantees entail State aid.
Denmark argues that the merger plan was individually notified to the Commission
only because the continuing bank's balance sheet is to exceed the eligibility criteria set
up for the merger scheme. However, Denmark argues that the merger and the
replacement of State guarantees will respect the principles laid down in the merger
scheme, with the exception that the merged entity will continue to be [...].
11
(46)
5.
A
SSESSMENT
A. Existence of aid and potential beneficiaries
(47)
(48)
The present decision assesses whether the package of measures to Vestjysk Bank
following its merger with Aarhus Lokalbank contains State aid.
According to Article 107(1) TFEU, State aid is any aid granted by a Member State or
through State resources in any form whatsoever which distorts or threatens to distort
competition by favouring certain undertakings or the production of certain goods, in so
far as it affects trade between Member States.
1. State resources
(49)
Several measures in the package contain State resources as they are financed by the
State and its bodies. Specifically, State resources are present in the State participation
in the capital raise
12
, the purchase of Vestjysk's DLR stake by the Danish Central Bank
and the guarantees provided by FSC, a State-owned company responsible for
providing guarantees to Danish banks (measures 1, 3 and 4).
13
Regarding the subordinated loan capital (measure 2), it can be concluded that no State
resources are involved as the loans are provided by private market participants.
[…].
In that context it is observed that as regards the conversion of part of the convertible hybrid capital
instruments received by the State as part of the 2009 capital injection into Vestjysk, the State's
involvement does not bring new capital to the bank, but only changes the form of its shareholding. As a
result of the exercise, the State's convertible hybrid core capital instruments have been converted into
ordinary shares. The principal value of those shares has already been considered in full as State aid for
Vestjysk Bank and Aarhus Lokalbank by virtue of the Commission's decision approving the Danish
capital injection scheme.
The measures provided by the FSC were found imputable to the Danish State in the Commission
Decision NN51/2008 of 10 October 2008 ("Guarantee scheme for banks in Denmark") (OJ C 273,
28.10.2008, p. 2).
8
(50)
11
12
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(51)
Based on the foregoing, it is concluded that measure 2 does not contain any State
resources. Therefore the remainder of the State aid analysis should deal only with
measures 1, 3 and 4.
2. Existence of an advantage
(52)
Measures 1, 3 and 4 in favour of the continuing bank provide the continuing bank with
an advantage as they will enable the continuing bank to raise the capital required to
continue activities of the merged entity and provide it with sufficient liquidity.
The State participation in the capital raise will ensure that 52.1% of the amount of total
ordinary shares issued to investors is taken up by the State, thus providing a significant
part of the capital required. Although the State does not underwrite the transaction, it
[...] that it will participate to the right issue [...]. It can therefore not be excluded that
the knowledge that the State is participating will encourage private investors to take up
shares in Vestjysk Bank, which could increase take-up and thus make the capital raise
more successful.
In addition, the purchase of the DLR minority stake by the Central Bank will generate
a capital release effect which will allow Vestjysk Bank to derecognise the risk-
weighted assets on its balance sheet related to that stake. That measure thus enables
Vestjysk Bank to complete the capital plan. Without the sale of the DLR stake, the
capital raised through the capital plan would be incomplete, thus requiring Vestjysk
Bank to find other sources of capital which might not be available.
As regards the guarantees provided to the continuing bank, they will allow Vestjysk
Bank to access the necessary liquidity to finance its activities. Given that without the
guarantee, the continuing bank would have difficulty to obtain funding in the financial
markets, it provides an advantage.
(53)
(54)
(55)
3. Selectivity
(56)
The use of measures 1, 3 and 4 would concern only the continuing bank and are
therefore selective.
4. Distortion of competition and effect on trade between Member States
(57)
The advantage procured by the measures will strengthen the positions of the
continuing bank as regards capital and liquidity compared to those of its competitors
who will not benefit from similar measures. The measures will furthermore facilitate
the merger of Vestjysk Bank and Aarhus Lokalbank and therefore enable the merged
entity to improve its market position. The measures therefore can lead to a distortion of
competition.
Given the integration of the banking market at European level, the advantage provided
to the continuing bank is felt by competitors both in Denmark (where banks from other
Member States operate) and in other Member States. The measures must therefore be
regarded as potentially affecting trade between Member States.
9
(58)
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5. Applicability of the market investor principle
(59)
The Danish authorities have argued that measures 1 and 3 respect the market investor
principle as the Danish State participates in the capital raise on a pro rata basis at the
same terms as private investors and the Central Bank will purchase the DLR stake at
market price.
In its judgment in Case T-11/95
BP Chemicals
v
Commission
14
the Court of First
Instance held that in the case of several recapitalisations for an undertaking by the
same public investor over a period of several years which brought no return, the
Commission had to determine whether a further capital injection could reasonably be
severed from the previous injections and classed, for the purposes of the private
investor test, as an independent investment.
The Commission recalls that, the participation by the Danish State in the capital raise
is possible because of an earlier capital injections implemented in 2009 under the
Danish recapitalisation scheme. The Commission observes that measures 1 to 4 are all
part of a single package that has been created by the Danish authorities. In the light of
BP Chemicals,
it has to be noted that a series of consecutive measures do not
automatically have to be considered together. Relevant considerations in this case are
the chronology of events, the purpose of the measures and the situation of the
beneficiary at the time of the decision to make the investment by the State. In that
context it is noted that construction of the package does not allow the bundled
measures to be assessed separately from each other. Without measure 1 being
completed, the other measures will not be executed. There is therefore a clear
chronological link in place between the various measures in the package.
It is noted that the purpose of measures 1, 3 and 4 is the same, namely to strengthen
the viability of the continuing bank by facilitating the merger of two banks that are
experiencing some difficulties and [...]. The merger together with the package
furthermore are intended to improve the access of the continuing bank to funding and
its viability by ensuring it has sufficient capital and liquidity. It is noted that both
banks were experiencing problems in 2009, which lead to them being aided through
capital injections under the Danish capital injection scheme.
With regard to measure 1, it is furthermore doubtful that a private investor would have
announced in advance of the rights issue that it would participate to the capital increase
[...] where there was no obligation for it to do so.
Concerning measure 3, the Danish Central Bank will purchase DLR shares at market
price (in line with the shareholders' agreement setting the price of DLR shares).
However, the Danish Central Bank has indicated that the rationale behind that
investment is to sustain the viability and solvency of the continuing bank. Therefore
the investment is conducted in the context of obligations which the Danish Central
Bank bears as a public authority. As a result it is questionable whether the market
economy investor principle could apply to that particular measure. It is furthermore
questionable whether a private market investor would assist a recapitalisation of a bank
Case T-11/95
BP Chemicals
v
Commission
[1998] ECR II-3235, paragraphs 170 and 171.
10
(60)
(61)
(62)
(63)
(64)
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by purchasing a minority shareholding that bank holds in another institution at market
price without a discount, in particular in view of the low liquidity of the shares
purchased (DLR is not traded).
(65)
The guarantees provided by the FSC to the continuing bank (measure 4) to enable it to
access funding would not be provided by a private market guarantor as such an
operator would not be able to guarantee the considerable amount necessary for the
continuing bank to finance its operations (DKK 8.6 billion) given the current shortage
of liquidity on the financial markets.
For those reasons, it is found that the market economy investor principle does not
apply to the package proposed by the Danish authorities and more specifically
measures 1, 3 and 4, which cannot be viewed in isolation and are part of a package
designed by the Danish State. In any event, even if that principle was applicable, the
design of the measures does not appear to be in line with the conduct of a private
market operator with similar characteristics.
(66)
Conclusion
(67)
As a result, the Commission concludes that measures 1, 3 and 4 constitute State aid
within the meaning of Article 107(1) TFEU.
B. Compatibility of the aid
1. Legal basis for the compatibility assessment
(68)
Article 107(3)(b) TFEU provides that State aid may be considered to be compatible
with the internal market where it is intended to "remedy a serious disturbance in the
economy of a Member State".
Given the present circumstances in the financial markets, the Commission considers
that measures 1, 3 and 4 may be examined under that provision.
The Commission accepts that the financial crisis has created exceptional circumstances
in which the bankruptcy of one bank may undermine trust in the financial system at
large, both at national and international level. That may be the case even for a bank of
small size which is not in immediate difficulty but [...] by the Financial Regulator,
such as Vestjysk Bank and Aarhus Lokalbank. In those cases, early intervention to
avoid the institutions concerned becoming unstable can be necessary to avoid threats
to financial stability. It is particularly so in the case of a small economy such as
Denmark where counterparts may tend not to distinguish between individual banks,
thus extending the lack of confidence generated by the failure of one bank to the whole
sector.
(69)
(70)
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(71)
Given the great uncertainty due to the financial crisis and the necessity of external
funding for the Danish banking sector, a lack of confidence in the Danish financial
system could severely affect the whole Danish economy.
15
The general principles applicable for State aid granted to financial institutions are set
out in point 15 of the Banking Communication
16
. Those principles have been further
elaborated in the Recapitalisation Communication
17
. Both Communications were
subsequently amended by the 2010 Prolongation Communication
18
and the 2011
Prolongation Communication
19
.
Furthermore, certain principles of the Restructuring Communication
20
have to be
respected in the present case. According to the Restructuring Communication, in order
to be compatible with Article 107(3)(b) TFEU, the restructuring of a financial
institution in the context of the current financial crisis, in particular, has to lead to a
restoration of the viability of the bank or a demonstration of how it can be wound-up
in an orderly fashion. Whilst viability considerations play a role in the assessment of
the measures, due to the specificities of the case, this decision does not prejudge the
full assessment which will be undertaken in a future restructuring decision.
(72)
(73)
2. Compatibility assessment
(74)
In order to determine the compatibility of measures 1, 3 and 4 with the internal market,
they will be analysed under the different guidelines provided by the Commission in the
context of the financial crisis. Accordingly, they will be analysed on the basis of the
Banking Communication and the Communications that have further elaborated on or
amended the Banking Communication. These include the 2011 Prolongation
Communication for measures 1, 3 and 4 and the 2010 Prolongation Communication
for measure 4.
According to the Banking Communication, the aid has to be:
Denmark has introduced several schemes introducing measures for tackling that risk. Those schemes
have ranged from resolution frameworks of failing banks to a merger scheme aiming at keeping banks
on the market by means of a market-based solution. See Decision N 407/2010 of 30.09.2010 (OJ C 312,
17.11.2010, p. 7); Decision SA.31938 (N 537/2010) of 7 December 2010 (OJ C 117, 15.2.2011, p. 2);
Decision SA.33001 (2011/N) – Part A of 28.06.2011 (OJ C 237, 13.8.2011, p. 2); Decision SA.33001
(2011/N) – Part B of 01.08.2011 (OJ C 271, 14.9.2011, p. 4); Decision SA.33757 (2011/N) of
9.12.2011 (OJ C 22, 27.1.2012, p. 5); and Decision SA.34227(2012/N) of 17 February 2012 (C(2012)
1081 final), not yet published; as well as Decision "SA.33639 (2011/N) – Rescue Aid for Max Bank" of
7 October 2011(OJ C 343, 23.11.2011, p. 13).
Communication on the application of State aid rules to measures taken in relation to financial
institutions in the context of the current global financial crisis, OJ C 270, 25.10.2008, p. 8.
Commission Communication on the Recapitalisation of financial institutions in the current financial
crisis: limitation of the aid to the minimum necessary and safeguards against undue distortions of
competition, OJ C 10, 15.1.2009, p. 2.
Commission Communication on the application, from 1 January 2011, of State aid rules to support
measures in favour of banks in the context of the financial crisis, OJ C 329, 7.12.2010, p. 7.
Commission Communication on the application, from 1 January 2012, of State aid rules to support
measures in favour of banks in the context of the financial crisis, OJ C 356, 6.12.2011, p. 7.
Commission Communication on the return to viability and the assessment of restructuring measures in
the financial sector in the current crisis under the State aid rules, OJ C 195, 19.08.2009, p. 9.
12
(75)
15
16
17
18
19
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– well-targeted in order to be able to achieve effectively the objective of
remedying a serious disturbance in the economy;
– proportionate to the challenge faced, not going beyond what is required to
attain that effect, and
– designed in such a way as to minimize negative spill-over effects on
competitors, other sectors and other Member States.
2.1 The aid is well-targeted
(76)
The financial crisis has created exceptional circumstances in which the bankruptcy of
one bank may undermine trust in the financial system at large, both at national and
international level. That may be the case even for banks of small sizes, such as
Vestjysk Bank and Aarhus Lokalbank.
Given the great uncertainty due to the financial crisis and the necessity of external
funding for the Danish banking sector, in the case of a small economy such as
Denmark, the lack of confidence generated by the failure of one bank may extend to
cover the entire financial sector, which could severely affect the whole Danish
economy.
In fact, the Danish FSA considers that both of the banks are [...], as a result of not
being able to obtain funding from the open markets. The merger is intended to counter
challenges to both the funding and the solvency of the continuing bank. In particular,
measures 1, 3 and 4 are to improve the basis for a future phase-out of the State-
guaranteed loans for the purpose of ensuring that the continuing bank will not require
any State guarantees after […], as well as to improve the capital ratio of the continuing
bank to meet new capital requirements.
The Commission throughout the financial crisis has consistently held that guarantees
on newly issued debt are appropriate to ensure sufficient funding to allow banks to
operate in an environment where wholesale funding from the financial markets is
increasingly difficult to access. The same applies to the provision of capital by the
State in order to ensure that the continuing bank is sufficiently solvent after the
merger.
In that respect, measures 1, 3 and 4 are a well-targeted and efficient means of
remedying a serious disturbance in the Danish economy, as they are appropriate
instruments and will eliminate the threat to the stability of the Danish economy that the
failure of Vestjysk Bank and Aarhus Lokalbank could have entailed.
2.2 The aid is proportionate and limited to the minimum
(81)
As set out in the Banking Communication, the aid should be proportionate and
restricted to the minimum necessary. It implies that the amount of aid is appropriate to
address the difficulties of the bank and that it is adequately remunerated.
Measure 1
13
(77)
(78)
(79)
(80)
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(82)
It is observed that in measure 1, the Danish State will participate in the capital raise on
the basis of its stake in both banks. As a result the State will provide 52.1% of any
capital that will be injected in the continuing bank provided private parties will also
invest. By definition, that feature of the measure limits the amount of aid the State will
provide.
As regards remuneration to the State for its participation in the capital raise, it is noted
that the 2011 Prolongation Communication provides guidance on the conditions for
State recapitalisations in the form of ordinary shares. According to that
Communication, the remuneration for such recapitalisations should be assessed on the
basis of the discount to the share price adjusted for the dilution effect or the TERP
immediately prior to the announcement of the capital injection.
It is noted that the subscription rate of the rights issue in which State participates will
be set at DKK [...]. That subscription rate entails a discount of [...] from a stock price
of DKK [...] in the beginning of 2012, representing a TERP of [...]. The discount is
expected to increase prior to the launch of the capital raise as the current stock price is
around DKK [...], meaning the bank is expected to offer a discount in excess of that
level in order to achieve the envisaged subscription from private investors of at least
DKK [...] million.
The Commission notes that the discount to the TERP
21
would be around 25%, which is
lower than is currently being carried out in the open markets. However, the
Commission observes that the Danish State is not underwriting the issuance but is
acting on
pari passu
basis with private investors and is only subscribing in proportion
to its current ownership to the rights offering.
The discount foreseen in measure 1 ensures that the State will receive an adequate
remuneration for its participation in the capital raise. The measure therefore fulfils the
requirements of the 2011 Prolongation Communication.
For those reasons, the Commission considers that the aid in relation to measure 1 is to
be proportionate and limited to the minimum necessary.
Measure 3
(83)
(84)
(85)
(86)
(87)
(88)
The purchase of the DLR stake of Vestjysk Bank by the Danish Central Bank will
result in a capital release in favour of that bank. The measure in question does not
appear to relate to monetary policy operations of the Danish Central Bank.
Together with the capital raise in which the State will participate, measure 3 will
ensure that Vestjysk Bank will generate sufficient capital to maintain its solvency after
the merger. Without the purchase of the DLR shares, Vestjysk Bank would have had to
find other sources of capital in order to achieve the target amount of capital that need
to be raised. As the transaction releases capital and helps to ensure the necessary
capital target is met, it can be considered as proportionate to the challenge faced.
(89)
21
See footnote 9 of the 2011 Prolongation Communication.
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(90)
It is observed that the DLR stake is being purchased at a market price that is
determined by the shareholders' agreement. There is no discount foreseen in the price
that will be paid to Vestjysk Bank for the DLR shares.
In that context it should be recalled that the capital release which is caused by the sale
of the DLR stake by Vestjysk Bank reduces the amount of capital Vestjysk Bank has
to hold against the risk-weighted assets in its balance-sheet. That capital release effect
is comparable to a recapitalisation and should therefore be remunerated as such. As the
DLR stake is made up of instruments equivalent to ordinary shares, it is appropriate
that the principles of the 2011 Prolongation Communication are applied.
Since a market price is paid for the DLR stake to Vestjysk Bank and no discount has
been envisaged, the remuneration for the capital release resulting from the sale of that
stake is insufficient.
According to the 2010 Prolongation Communication, banks that receive a
recapitalisation from 1 January 2011 onwards have to submit a restructuring plan to
the Commission that fulfils the criteria of the Restructuring Communication. As both
measures 1 and 3 are recapitalisations that have been qualified as aid, that obligation
also applies in the present case. Furthermore, the Recapitalisation Communication
stipulates that insufficient remuneration should increase the extent of restructuring
required.
The Commission will therefore take into account the lack of remuneration for measure
3 when determining the depth of the restructuring of Vestjysk Bank. Nevertheless, the
Commission will also take into account the following mitigating factors: the nature of
the measure, the fact that the remuneration received for the guarantee exceeds
Commission requirements for compatibility of guarantees with the internal market and
the limited distortion of competition caused by the aid.
Measure 4
(91)
(92)
(93)
(94)
(95)
(96)
It is considered that the guarantee on new liabilities is both proportionate and limited
to the minimum.
The Commission considers the fee paid for the guarantee by the continuing bank to be
sufficient, as the fees for the guarantee exceed the minimum levels set by the
Commission in its 2011 Prolongation Communication, and, in any case, Denmark has
committed to apply that minimum level for the fees if the method used by Denmark
were to give rise to a lower fee.
The Commission welcomes the fact that the FSC has capped the new individual State
guarantees for loans and that the FSC has stipulated as one of the conditions for the
issue of the new State guarantees a prepayment of DKK 1 billion (EUR 134 million) of
the existing guarantees. Those elements will limit the amount of aid required.
It follows from the conditions laid down by the FSC that the aggregate amount of
senior loans outstanding benefitting from the existing and the new guarantees may not
at any point in time exceed an amount of DKK 8.6 billion, thus further limiting the aid.
15
(97)
(98)
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(99)
In that context the Commission notes that the State guarantees would exceed 5% of the
total liabilities of the continuing bank. In line with the 2010 Prolongation
Communication, that relative amount of aid would in principle trigger the requirement
to provide a viability review of the continuing bank. However, the Commission will
not request a viability review since the continuing bank will have to submit a
restructuring plan, which by definition requires a set of measures that go further than a
viability review.
2.3 Measures limiting distortion of competition
(100) The Commission notes that as a contribution to limiting distortions of competition the
continuing bank's balance sheet is to be reduced by [10-20] % in the context of the
merger.
(101) Denmark has further committed to introduce an acquisition ban.
(102) In addition, it is observed that the aid provided by way of recapitalisation is relatively
small, estimated at a maximum of EUR 64 million compared to a total balance sheet of
the continuing bank of around EUR 4.7 billion. Furthermore, the fees paid by the
continuing bank for the guarantee on its liabilities exceed the minimum required by the
2011 Prolongation Communication and are sufficiently expensive to encourage the
bank to exit from the State aid regime as soon as possible.
(103) The balance sheet reduction to be implemented by the continuing bank after the
merger will limit its activities, while the acquisition ban ensures that it cannot engage
in any aggressive commercial behaviour.
(104) The Commission notes that the notified guarantees are a part of a merger plan that is to
be considered as a proactive initiative to find solutions to the challenges for the two
banks. A more passive strategy of wait-and-see would [...] for the two banks, which
could have the effect of creating renewed uncertainty in the financial sector.
(105) In that regard, it also has to be taken into consideration that Denmark has introduced
several schemes entailing contribution of shareholders to the burden-sharing of failing
banks.
22
Whilst those schemes therefore pursue the goal of resolving failing banks, the
merger scheme aims at keeping banks on the market by means of a market-based
solution.
(106) Accordingly, the Commission considers that the State aid measures provided to the
continuing bank are designed in such a way as to minimize negative spill-over effects
on competitors, as without them both banks would face problems with their
refinancing needs and would be in danger of becoming distressed, which could create
renewed uncertainty in the financial sector.
22
See Decision N 407/2010 of 30.09.2010 (OJ C 312, 17.11.2010, p. 7); Decision SA.31938 (N 537/2010)
of 7 December 2010 (OJ C 117, 15.2.2011, p. 2); Decision SA.33001 (2011/N) – Part A of 28.06.2011
(OJ C 237, 13.8.2011, p. 2); Decision SA.33001 (2011/N) – Part B of 01.08.2011 (OJ C 271, 14.9.2011,
p. 4); Decision SA.33757 (2011/N) of 9.12.2011 (OJ C 22, 27.1.2012, p. 5); and Decision
SA.34227(2012/N) of 17 February 2012 (C(2012) 1081 final), not yet published.
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Conclusion
(107) The Commission concludes that the rescue aid measures provided for Vestjysk Bank
and Aarhus Lokalbank are in line with the conditions of the Banking Communication,
the 2010 and 2011 Prolongation Communications, and the Restructuring
Communication because: (i) the aid is appropriate and well-targeted; (ii) the aid is
limited to the minimum necessary; and (iii) there are sufficient measures limiting the
negative spill-over effects for other competitors.
6.
DECISION
The Commission finds that measures 1, 3 and 4 in favour of Vestjysk Bank and Aarhus
Lokalbank constitute State aid within the meaning of Article 107(1) TFEU. However, on the
basis of the foregoing assessment, those measures are found to be temporarily compatible
with the internal market for reasons of financial stability. The measures are accordingly
approved for six months or, if Denmark submits an in-depth restructuring plan within six
months from the date of this Decision, until the Commission has adopted a final decision on
that restructuring plan.
Denmark accepts exceptionally that the adoption of the decision be in the English language.
If this letter contains confidential information which should not be disclosed to third parties,
please inform the Commission within fifteen working days of the date of receipt. If the
Commission does not receive a reasoned request by that deadline, you will be deemed to
agree to the disclosure to third parties and to the publication of the full text of the letter in the
authentic language on the Internet site:
http://ec.europa.eu/eu_law/state_aids/state_aids_texts_da.htm.
Your request should be sent by registered letter or fax to:
European Commission
Directorate-General for Competition
State Aid Greffe
Rue de la Loi/Wetstraat, 200
B-1049 Brussels
Fax No: +32-2-296 12 42
Yours faithfully
For the Commission
Joaquín ALMUNIA
Vice-President
17