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Brussels, 4 June 2008

State aid: Commission approves restructuring of Sachsen LB

The European Commission has concluded that a liquidity facility and a state guarantee for German bank Sachsen LB, in the context of the sale of Sachsen LB to Landesbank Baden Württemberg (LBBW), are compatible with EC Treaty state aid rules. The Commission opened an in-depth investigation in February 2008 (see IP/08/314) and has now concluded that the measures do constitute state aid but are compatible with the EC rules on rescue and restructuring aid. The measures will allow the restructuring of Sachsen LB and include compensatory measures to limit distortions of competition created by the aid.

Competition Commissioner Neelie Kroes said “The Commission is satisfied that these aid measures will restore the viability of Sachsen LB without unduly distorting competition. By reaching a decision within three months, the Commission has again shown that it can move very quickly to assess aid to banks in difficulty."

Because of investments in US sub-prime markets, Sachsen LB, like other European banks, ran into financial difficulties. Sachsen LB received state aid so as to be able to continue its business. In January 2008 Germany notified two measures in favour of Sachsen LB to the Commission: a liquidity facility granted by other Landesbanken and a guarantee by the Land of Saxony in the context of the sale of Sachsen LB to LBBW. The German authorities claimed that the measures complied with the market economy investor principle and therefore did not constitute state aid.

As to the liquidity facility, the Commission concluded that given the lack of commercial interest for this type of investment, a market economy investor would not have granted such a facility to Sachsen LB and it is therefore aid. However, the measure meets all of the conditions for compatible rescue aid (liquidity support and limited to 6 months).

As to the state guarantee in the context of the sale, the Commission concluded that it had the effect that the sales price was negative for the Land of Saxony as the potential losses stemming form the coverage under the guarantee are higher than the proceeds from the sale. Therefore a private vendor in the position of the owners of Sachsen LB would have not sold the bank but opted for its liquidation. Consequently the sale was found to contain elements of state aid.

However, the Commission assessed also the measures under the rescue and restructuring guidelines which require for restructuring measures (see MEMO/04/172) that:

  1. the aid must restore the long-term viability of the company in difficulty,
  2. the state support must be limited to the minimum necessary and the recipient must make a significant contribution of its own and
  3. potential distortions of competition created by the aid must be minimised with compensatory measures.

In this way the Commission wants to ensure that the restructuring is sustainable without giving the beneficiary any undue competitive advantage through its survival.

The Commission's investigation confirmed that the restructuring will restore the long-term viability of the beneficiary. The sale of Sachsen LB to LBBW will allow for a positive economic development of the bank within the LBBW group.

Moreover, the Commission concluded that the aid has been limited to the minimum necessary and is accompanied by a significant own contribution in line with the targets indicated in the Guidelines, i.e. above 50% of the restructuring costs.

Finally, compensatory measures have been put in place and are proportionate to the distortive effects of the aid stemming mainly from the survival of Sachsen LB, even if only as part of LBBW. A clear reduction of Sachsen LB’s financial market activities will take place.


Sachsen LB was the central institution for savings banks in Saxony, based in Leipzig, with a group balance-sheet total of €67.8 billion.

In August 2007, Sachsen LB was no longer able to provide liquidity of €17.1 billion through the issuing of commercial papers to one of its sub-prime related structural investment vehicles. Therefore, on 17 August 2007 a group of German Landesbanken agreed with Sachsen LB to purchase the commercial papers.

One week later Sachsen LB was sold to LBBW. The price was to be determined by an evaluation by the end of 2007. Towards the end of 2007, further risks involved in Sachsen LB's structured investment portfolio appeared. In December 2007 a final agreement was signed, identifying the structural investments of Sachsen LB as two portfolios. One portfolio with a nominal value of €11.8 billion was sold with it to LBBW. A second portfolio with a nominal value of €17.5 billion remained in a special investment vehicle. To this end, the Free State of Saxony granted a guarantee for the amount of €2.75 billion which covers potential losses of the portfolio in the vehicle. The net sales price of Sachsen LB was finally fixed at €328 million.

The non-confidential version of the decisions will be made available under the case number C 9/2008 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.

See also MEMO/08/363.

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