Brussels, 21st October 2008
The European Commission has approved, under EC Treaty state aid rules, a €9 billion restructuring package, for German bank IKB. After financial difficulties arising from the US-subprime crisis in July 2007, IKB was granted two risk shields, capital injections and liquidity facilities. In the context of the restructuring, the bank was sold to the US investment fund Lone Star in August 2008. Following an in-depth investigation, launched in February 2008 (see IP/08/314 and MEMO/08/124), the Commission has concluded that the measures were compatible with EU rules on state aid to companies in difficulties (see MEMO/04/172). The package will allow for the restructuring of the bank, while the significant scaling back of IKB's activities will limit the distortion of competition created by the state support.
Competition Commissioner Neelie Kroes said: "Banks, like companies in other sectors, need to implement substantial changes to the way they do business when they receive restructuring aid – there are no free lunches. In all sectors, the conditions for the Commission to approve restructuring aid are the same - long term viability, aid limited to the minimum and limited distortions of competition. The sale of IKB, important structural changes and significant reduction of activities provide however a very comprehensive package and meet the requirements for a positive decision. This decision demonstrates once again that the EU's state aid rules provide an appropriate framework to allow state support for the viable restructuring of banks and other companies while minimising distortions of competition. "
IKB is a medium-sized private bank headquartered in Germany, with a business focus on midsize companies. Its main shareholder is the German public bank Kreditanstalt für Wiederaufbau (KfW). In July 2007, IKB ran into difficulties due to huge portfolio investments related to US-subprime mortgages and received state aid to be able to continue its business.
The measures in favour of IKB included capital injections and risk shields provided jointly by KfW and three German banking associations, as well as liquidity facilities provided by KfW. In line with the restructuring plan, IKB has been sold to the US investment fund Lone Star in an open, non-discriminatory and unconditional tender completed in August 2008.
The Commission found all restructuring measures to contain elements of state aid, as no market economy investor would have carried them out in the circumstances. Subsequently, the Commission assessed their compatibility under the EU rescue and restructuring guidelines (see MEMO/04/172).
According to the guidelines, restructuring measures must be capable of restoring the long-term viability of the company, the state support must be limited to the minimum necessary, the beneficiary has to make a substantial contribution to the restructuring and to accept compensatory measures to limit distortions of competition induced by the aid.
The Commission's investigation found that the restructuring plan was capable of restoring the bank's long-term viability by refocusing its activity on core business, abandoning loss making activities and improving cost and risk efficiency. In addition, the sale to Lone Star will allow for a positive economic development of IKB. Moreover, the Commission considered that Lone Star's capital injection and the funding provided by the banking associations constitute a significant own contribution to the restructuring. Finally, various measures, in particular a significant reduction of IKB's activities, limit the distortions on the market created by the economic advantage it received through the state support.