Brussels, 12th December 2008
State aid: Commission approves modifications
to German financial rescue scheme
The European Commission has approved, under EC
Treaty state aid rules, modifications to the German rescue package for financial
institutions, initially approved by the Commission on 27 October 2008 (see IP/08/1589).
The amendments concern mainly the remuneration of recapitalisation measures, in
line with the Commission's Communication on recapitalisation (see IP/08/1901).
Although basic remuneration rates may, in certain cases, be below the rates
foreseen in the initial package, the price for the state participation increases
in proportion to its duration, so as to incite beneficiaries to pay back the
state support as soon as market conditions permit it. This will ensure the
proportionality of the amended measures and contribute to the adequacy of the
whole scheme to remedy a serious disturbance in the German economy. The
Commission therefore concluded that the German rescue package, as amended, was
compatible with Article 87.3.b of the EC Treaty.
Competition Commissioner Neelie Kroes said: "The present decision
demonstrates again, how quickly and effectively the Commission can adapt to
changing conditions in the financial markets with good cooperation from Member
States. On this basis we have now finally found an acceptable solution in order
to allow confidence building and credit stimulating measures in Germany
including the recapitalisation of Commerzbank".
On 11 December 2008, Germany informed the Commission about a set of
modifications, it intended to make to the German support package for financial
institutions (see IP/08/1589).
These amendments are aimed at adapting the package to the Commission's
Communication on recapitalisation (see IP/08/1901)
and to changes in the fast evolving financial markets.
The main amendments concern the following basic features of the
- Entry level - remuneration for fundamentally sound banks - in
line with the Communication on recapitalisation, the remuneration for such
measures would depend on the risk profile of the beneficiary and on the capital
instrument. For fundamentally sound financial institutions the basic
remuneration would vary according to the risk profile and instrument chosen from
7% (for subordinated debt) to 9.3% (for instruments with features like ordinary
shares), whereas institutions in distress would have to pay a minimum of 10%.
These minima would not apply if private investors participate under the same
conditions and to a significant extent in the capital injection. In particular,
for hybrid capital which is considered as core tier 1 capital, there will be an
entry remuneration of 9 % for fundamentally sound banks.
- Step up - in order to ensure that strong incentives exist to
encourage beneficiaries to pay back the state support as soon as market
conditions permit Germany proposed a combination of two measures:
either the banks accept a dividend ban or they increase the remuneration by 0.5
% per annum over the next 5 years. The increase can be smaller if a dividend ban
is maintained at least for some years or a dividend restriction is accepted.
- Restructuring plan - The Commission accepted in principle that fundamentally
sound banks do not need to provide a restructuring plan. They have however to
provide a report that illustrates that they remain fundamentally sound and how
they plan to repay the state capital.
- Other banks still need to pay a remuneration of in principle 10 % and need
to provide a restructuring plan after six months in order to enable the
Commission to assess the need for structural interventions.
amendments concern the possibility of extending the duration of debt guarantees
of up to five years under certain circumstances and for limited amounts.
Moreover, in case a guarantee is given for collateralised claims the
remuneration can be reduced.
The Commission is satisfied that as a result of its dialogue with the German
authorities, the banking rescue package has been adjusted to changing market
conditions, including a reduction of interest rates by the European Central
Bank. The adjusted package takes into account the latest guidance of the
Commission and may as a result also attract fundamentally sound banks. The
Commission understands that the recapitalisation conditions for Commerzbank are
being amended so as to comply with the new scheme.
The non-confidential version of the decision will be made available under the
case number N625/2008 in the State Aid Register
on the DG 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