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Brussels, 31 st July 2009

State aid: Commission approves German asset relief scheme

The European Commission has approved, under EC Treaty state aid rules, a German scheme designed to further stabilise the financial markets by providing financial institutions with the possibility of asset relief, as an addition to the German rescue package authorised by the Commission in October 2008 (see IP/08/1589 ). The mechanism is in line with the Commission's Guidance Communication on the treatment of impaired assets (see IP/09/85 ). In particular, the mechanism provides ex-ante transparency and disclosure of impairments, valuation of the assets based on their real economic value, a burden sharing of the costs related to the operation and adequate remuneration. Moreover, the enrolment period for asset relief is limited to six months.

Competition Commissioner Neelie Kroes said: "Thanks to an extensive and fruitful cooperation between the German authorities and the Commission, the German asset relief scheme now provides an efficient tool for addressing the uncertainty regarding the quality of banks' assets. This will contribute to maintaining market confidence. Yet, restructuring is likely to be necessary in a significant number of cases."

On 25 May 2009, the German authorities notified an amendment, introducing asset relief, to its package of rescue measures which was originally approved by the Commission in October 2008 (see IP/08/1589 ). The Commission assessed the proposed amendment with regard to its Impaired Assets Communication (see IP/09/85 ).

Asset relief

Asset relief is achieved through the possibility to transfer structured securities to special purpose vehicles in exchange for guaranteed bonds. In general, the beneficiary will have to make an initial write-down of 10% of the book value. The securities are valued to determine their real economic value. To the real economic value a further haircut is applied for unexpected losses, leading to the so-called fundamental value, a theoretical fair price. The difference between the transfer value and the fundamental value will be paid from distributable profits over 20 years and even further if required due to losses incurred on the transferred assets.

Ex-ante transparency and disclosure of impairments

The real economic value of the assets to be transferred is established by the financial institution prior to the asset relief measure. It is then assessed by independent experts and confirmed by the competent supervisory authority. Furthermore, the real economic value has to be published in the annual report of the beneficiary.

Valuation and validation

The real economic value is established using a cash flow approach which follows the criteria set out in the Commission's Impaired Assets Communication. The real economic value is then validated by the competent German authorities when assessing an application.

Burden sharing and remuneration

Burden-sharing is ensured ex-post through the beneficiary's obligation to pay the difference between the transfer value and the fundamental value. This payment is made in annual instalments. The effect is similar to that of a capital injection theoretically enabling a write-down and subsequent sale. For this advantage, beneficiaries need to pay an annual fee, which is in line with the EU requirements for the remuneration of recapitalisations.

Public policy incentives

The rationale for the introduction of asset relief to the German rescue package is to reduce the uncertainty regarding banks' assets and to enable them to continue lending to the real economy. Enrolment is possible within a six months time window. A potentially higher burden as a result of further downgrades of these assets provides an incentive for early application. As asset relief is part of the German rescue package, specific behavioural restrictions apply, for example expansion limits or caps on payments to shareholders and on bonuses.


Germany committed to notify either a viability review or a restructuring plan which will be assessed in line with the applicable guidelines (see IP/09/1180 ), both supplemented by the valuation within three months from the implementation of any asset relief. Furthermore, should Germany intend to prolong the measure beyond the initial six months validity, it would again be subject to a Commission investigation. Moreover, Germany has to report every six months to the Commission on the implementation of the measure.

The non-confidential version of the decision will be made available under the case number N 314/200 9 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 .

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