Brussels, 8 December 2008
Competition Commissioner Neelie Kroes said: "The French recapitalisation scheme provides France with effective means of strengthening confidence on the markets and, above all, of financing the real economy, while at the same time establishing safeguards to limit distortions of competition. It therefore complements the refinancing measure approved by the Commission on 30 October."
Following discussions with the Commission, the French authorities officially notified the Commission of the scheme to inject capital into certain banks on 3 December.
The scheme introduced by the French authorities is intended for "fundamentally sound" banks which are under severe pressure to increase their capital owing to the financial crisis. This pressure could lead the banks to cut lending to the detriment of the entire French economy.
The French authorities will intervene via the Société de prise de participation de l'État (SPPE), a state-owned investment company, which will invest in securities issued by the beneficiary banks. These securities will take the form of hybrid capital instruments (subordinated debt securities classified as non-core Tier 1 capital) and be remunerated at a fixed rate for the first five years and at a variable rate thereafter. The remuneration, which will average about 8%, will reflect the degree of solvency of each beneficiary bank via a credit default swap (CDS) component, whereby remuneration is modulated according to the risk of default.
Under the scheme notified, the intervention of the French authorities is capped at EUR 21 billion. The French authorities have announced that their intervention will initially be limited to EUR 10.5 billion.
The Commission concludes that the capital-injection scheme is an appropriate, necessary and proportionate means of stabilising financial markets, restoring confidence and enabling French banks to increase lending to the real economy.
The scheme includes obligations for the beneficiary banks with regard to financing the real economy. These obligations will be monitored both locally and nationally. A mediation system is also planned to ensure compliance with the obligations.
The beneficiary banks must also undertake to adopt measures concerning the remuneration of senior management and market operators (including traders) and to observe ethical rules consistent with the general interest, including restrictions on the remuneration of senior executives. The rules also limit severance payments to senior executives and ban all severance payments where a senior executive or enterprise has failed or where a senior executive leaves voluntarily.
Furthermore, both the level of remuneration on the securities and a mechanism for the payment of a premium on the capital being reimbursed serve to ensure that the state's involvement in the banks' capital will be as brief as possible. In view of these considerations, the Commission considers the scheme compatible with the EC rules on state aid, since it offers sufficient guarantees that the sums injected by the state are actually used to finance the real economy and do not unduly distort competition.
The non-confidential version of the decision will be made available under case number N 618/2008 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. The latest publications of state aid decisions on the Internet and in the Official Journal are listed in the State Aid Weekly e-News.