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State aid: Commission approves rescue aid for WestLB
Commission Européenne - IP/08/665 30/04/2008
Brussels, 30 April 2008
The European Commission has authorised, under the EC Treaty’s rules on state aid, a risk shield granted by the State of North Rhine-Westphalia to protect WestLB against the volatility of its € 23 billion structured investment portfolio, following difficulties because of the subprime crisis in the financial markets. The Commission's investigation found that the risk shield constitutes state aid, but that the aid is in line with EU rules on rescue aid because strict conditions ensure that the aid is limited in time and reversible. The approval of the rescue aid does not prejudice the Commission's assessment of the restructuring plan Germany has committed to submit by 8th August 2008.
Competition Commissioner Neelie Kroes said: "The Commission has demonstrated again that it can move very fast in order to provide legal certainty and financial stability to banks in difficulty. I look forward to continuing the good cooperation with the German authorities on the forthcoming restructuring of WestLB."
WestLB AG is a European commercial bank based in North Rhine-Westphalia, Germany's largest federal state. With total assets of €285.3 billion as at 31 December 2006, it is a major German financial services provider. As one of the seven independent German Landesbanken, it is the institution acting as a central bank for savings banks in NRW and Brandenburg, and as an internationally operating commercial bank it acts as their link to global financial markets.
Following intensive contacts between the German authorities and the Commission, Germany submitted a notification of the risk shield on 27th March 2008 and further information on 11th April 2008.
The Commission concluded that the measure was in line with the EU Guidelines on state aid for rescuing and restructuring firms in difficulty. Under these rules, rescue aid must in principle take the form of loans or guarantees lasting no more than six months, with certain exceptions for the banking sector, in order for banks to meet special prudential requirements. To avoid undue distortions of competition, WestLB will either present a restructuring plan or reverse the economic effects of the risk shield after six months, including the repayment of any amounts drawn under the guarantee. The reversibility of effects distinguishes the aid to WestLB from other state-guaranteed risk shields which the Commission is currently investigating.
Since the end of 2007 the ongoing turmoil in the financial markets affected WestLB's structured portfolio investments of about €23 billion, which include exposures to US subprime real estate loans. WestLB was unable to refinance the structured portfolio by selling notes on the market and the mark-to-market loss that had to be accounted for in the balance sheet was so significant that it would have pushed WestLB's capital ratios towards the required minimum level. The public owners (the State of North Rhine-Westphalia, NRW Bank, two regional savings banks associations and two municipal associations) therefore announced on 8 February 2008 the transfer of the crisis-ridden assets from WestLB to a special purpose vehicle and to provide a risk shield of €5 billion. The bank announced to step-up restructuring plans and to seek to promote consolidation in the German public banking sector.
The non-confidential version of the decision will be made available under the case number NN 25/2008 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 the State Aid Weekly e-News.