State aid: Commission concludes that recapitalisation of German NordLB is market conform

euros_

(Maryna Yazbeck, Unsplash)

This article is brought to you in association with the European Commission.


The European Commission has found Germany’s plans to strengthen the capital position of state-owned Norddeutsche Landesbank – Girozentrale (NordLB) to be free of any State aid. The measures involve a direct investment of €2.8 billion as well as investments to carry out the necessary structural changes and downsizing of the bank to ensure that NordLB continues to operate profitably on the market. The Commission found that the planned measures are carried out on market terms, meaning that the State receives a remuneration in line with what a private operator would also accept in the same circumstances. Therefore, the measures involve no State aid within the meaning of EU rules. The European Central Bank, as responsible supervisor, has given its approval to the plan on 29 November 2019.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “Germany’s plan aims at keeping NordLB as a stable and profitable bank in public ownership, while keeping the door open for future consolidation of the wider German Landesbank sector. We have found that the State is investing under the same conditions as a private owner would have accepted, in line with EU State aid rules. In reaching this conclusion, we have worked closely with the responsible authorities, including the European Central Bank.”

NordLB is owned by two German Federal States (the Land of Lower Saxony and the Land of Saxony-Anhalt) and several publicly-owned regional savings banks. At the beginning of 2019, following the sale of a portfolio of non-performing loans to the market, the bank recorded losses in one of its business lines, namely ship financing.

Germany notified the Commission of its intention to recapitalise NordLB on market terms. The objective of the recapitalisation is to: (i) keep the bank under public ownership; (ii) strengthen the bank’s capital position, (iii) provide it with an adequate capital buffer; and (iv) implement adequate structural measures to ensure that the bank continues operating profitably.

To this purpose, the two German Länder Lower Saxony and Saxony Anhalt and the Institutional Protection Scheme of the publicly-owned German savings bank sector (DSGV) are planning to implement certain measures for NordLB. In particular, they plan to invest a total amount of approximately €2.8 billion in the bank at the end of 2019. In addition, the Land of Lower Saxony plans to provide asset guarantees that are expected to result in €0.8 billion capital relief for the bank, in return for corresponding remuneration.

The Commission’s assessment

The EU Treaty is neutral when it comes to public versus private ownership. Under EU State aid rules, if a Member State intervenes as a private investor would do, and is remunerated for the risk assumed in a way a private investor would accept, such an intervention does not constitute State aid.

Capital injections

Germany submitted a detailed business plan to the Commission covering the period 2019-2024 and showing the bank’s long-term profitability. This plan has been the outcome of complex negotiations between the different stakeholders in Germany. Notably, the business plan ensures a significant transformation and downsizing of the bank. The bank has already embarked on implementing deep cost-cutting measures, including a reduction in staff by about half (from 5670 in 2018 to 2800-3000 full-time staff by 2024), and on upgrading its operational infrastructure. It will reduce its balance sheet by about one third and exit the loss-making maritime business segment.

The Commission’s assessment of the business plan showed that this transformation will enable the bank to return to profitability, ensuring that the public shareholders and the Institutional Protection Scheme receive a return to their investment into shares of the bank in line with market conditions.

Guarantee measures

With respect to the guarantees provided by Lower Saxony, the Commission’s assessment showed that the guarantee fees paid by the bank are in line with market rates for such protection and, hence, with what a private market investor would accept.

On this basis, the Commission was able to conclude that the measures proposed by Germany would be carried out at conditions that a private investor would accept and that the measures do not involve any State aid in favour of NordLB within the meaning of EU rules.

Background

NordLB is a state-owned bank, with a majority ownership by the Land of Lower Saxony and minority stakes by the Land of Saxony-Anhalt, as well as publicly-owned regional savings banks. The balance sheet of the bank amounts to about €150 billion. Its non-performing loans amount to 2.7% of total assets and are concentrated in one business line, shipping, which the bank now intends to exit.

Under EU State aid rules, if a Member State chooses to intervene on terms that a private operator would have accepted under market conditions (the market economy operator principle – MEOP), then such an intervention does not constitute State aid and falls outside of EU State aid control.

In the banking sector, the Commission has found that measures carried out by Member States were market conform and, hence, did not constitute State aid in several cases including:

The non-confidential version of this decision will be made available under the case number SA.49094 in the State Aid Register on the competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

This is how trees could help solve the climate crisis

Humanitarian Aid: EU announces €18.5 million additional package for Latin America and the Caribbean

This is how COVID-19 has impacted workers’ lives around the world

Why financial services can kickstart Africa’s digital economy

New UN report launched to help ratchet up action to combat climate crisis

Measles in Europe: infection rates highest in a decade, says UN health agency

Governments, businesses ‘walk the talk’ for investment in sustainable development: UN forum

Women must be at ‘centre of peacekeeping decision-making’, UN chief tells Security Council

IMF’s Lagarde indirectly cautioned Eurozone on deflation

General Assembly officially adopts roadmap for migrants to improve safety, ease suffering

Financial stability: Commission addresses risks of Libor cessation

European Defence Fund on track with €525 million for Eurodrone and other joint research and industrial projects

How to promote Primary Healthcare to the Young Healthcare Workforce?

Human Resources Information Systems Specialist Trainee – 2013

This member of the banana tree family could help us cut COVID-19 plastic waste

This is what has led to the George Floyd protests in the United States

Scores killed in ‘barbaric’ attack on Mali village, UN chief urges restraint, calls for ‘dialogue’ to resolve tensions

Finnish Prime Minister calls for a more united EU of concrete actions

COP24 negotiations: Why reaching agreement on climate action is so complex

Technology and public healthcare: the basis to fight COVID-19

Connectivity and collaboration in the ICT industry: the key to socio-economic development

Four in 10 indigenous languages at risk of disappearing, warn UN human rights experts

Myanmar: Conflict resolution at ‘total standstill’, military commanders must answer for crimes against humanity

Clean air is good for business

Rule of Law: Commission launches infringement procedure to protect the independence of the Polish Supreme Court

Why ‘video call fatigue’ might be making you tired during lockdown – and how to beat it

Paris, Washington, IMF against Berlin and ECB on money and interest

Antitrust: Commission sends Statement of Objections to O2 CZ, CETIN and T-Mobile CZ for their network sharing agreement

COVID-19 put 1.6 billion children out of school. Here’s how to upgrade education post-pandemic

These 5 start-ups are shaping the future of Africa’s cities

Syria: UN-backed watchdog says chemical weapon ‘likely used’ in February attack

UN rights expert calls for end to ‘purgatory’ of ‘international inaction’ facing Myanmar’s remaining Rohingya

Coronavirus: Commission proposes to ease restrictions on non-essential travel to the EU while addressing variants through new ‘emergency brake’ mechanism

Monday’s Daily Brief: biodiversity and forests, labour and road safety, women’s rights, and fallen UN staff remembered

EU Parliament approves CETA: the EU-Canada free trade deal sees the light in Trump’s gloomy era

What technology changes will 2021 bring? Here’s what business leaders say

Brexit: when the hubris of one man can set the UK, the EU and the entire world on fire

Less than half of EU travellers are aware of EU Passenger Rights

Electronic cigarettes: is it really a safe alternative to smoking?

UN will do ‘utmost to prevent and mitigate any risk of violence’ in DR Congo, pledges Mission chief

IMF – World Bank meetings: US – Germany clash instituted, anti-globalization prospects visualized

‘The clock is ticking’ on meeting the Sustainable Development Goals, says UN deputy chief

EU shapes its ambitious strategy on India

This is why attractive cities do better economically

Why South Africa is on a path of economic renewal

UN rights office calls for action to end ‘repression and retaliation’ in crisis-torn Nicaragua

Vegans in France are using extreme tactics to stop people eating meat

COVID-19 and nature are linked. So should be the recovery.

A Sting Exclusive: “Entrepreneurship in the Coronavirus (COVID-19) era” written by the Vice-President of Junior Enterprises Europe

Myanmar military committed ‘routine, systematic’ sexual violence against ethnic minorities, UN experts find

UK economy in dire straits: leading banks now officially plan to Brexit too

Marking international day, UN experts call for urgent action to end racial discrimination, in wake of New Zealand anti-Muslim attack

Vaccination challenges for middle and low-income countries

EU: Protecting victims’ rights from cartels and market abuses

ACP-EU : Agreement on climate change, migration and post-Cotonou

Student-to-Tutor Ratio: a thought about the ideal model

State aid: Commission approves €73 million of Italian support to compensate Alitalia for further damages suffered due to coronavirus outbreak

UN chief praises impact of Palestine refugee agency as ‘our common success’, at key pledging conference

China by numbers: 10 facts to help you understand the superpower today

The ephemerality of the public-private health boundary

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s