Brussels, 15 th September 2009
State aid: Commission prolongs temporary clearance for ING's illiquid back-up facility; extends in-depth investigation
The European Commission has extended, under EC Treaty state aid rules, its investigation of the illiquid asset back-up facility provided by the Dutch State to the financial group ING. The Commission has also extended its temporary clearance of the measure until the assessment of the measure is finalised. The Commission initially authorised the measure for six months for reasons of financial stability on 31 March (see ), while opening an in-depth investigation to analyse the complex measure in light of the Commission's Impaired Assets Communication (see ). On the basis of the information provided so far, the Commission has doubts as to the compatibility of the measure with the Impaired Assets Communication, in particular as regards valuation and burden sharing. This decision is without prejudice to the final outcome of the investigation.
Competition Commissioner Neelie Kroes said: " The Commission supports Member States' efforts to stabilise financial markets by dealing with banks' impaired assets. However, state aid in the form of impaired asset relief has to be properly remunerated and should not give undue advantages to banks. It is therefore extending its investigation to explore further with the Dutch authorities whether this is compatible with the Commission's state aid rules on impaired asset relief. We look forward to continuing our constructive dialogue with the Dutch authorities and I am confident that we will arrive at a satisfactory outcome."
ING is a Dutch-based financial institution offer ing banking, insurance and asset management services to over 85 million clients in more than 40 countries. With a workforce of about 125,000 people and a balance sheet of €1,332 billion at the end of 2008 it is one of the biggest financial institutions in the world.
In January 2009, the Dutch State and ING implemented a so-called illiquid assets back-up facility for a portfolio of US$ 39 billion (€ 30 billion) par value worth of US residential mortgage-backed securities , mostly backed by so-called Alt-A mortgage loans.
Under the transaction, the Dutch State buys the right to receive future cash flows on 80% of the above-mentioned portfolio, .
The Commission has assessed the measure under its guidance Communication on the treatment of asset relief measures (see ). Taking account of input from external experts, the Commission considers that the valuation seems at this stage not conservative enough. In addition, the Commission found that a significant proportion of securities were valued above purchase price.Therefore, the Commission continues to have doubts that the price paid by the Dutch Government, equivalent to a transfer price of 90% of the face value, is justified. Should the Dutch authorities not be in a position to address the Commission's concerns in a convincing manner, the Commission's final decision on the compatibility of the facility with EU state aid rules would have to require increasing the remuneration of the Dutch State.
The Impaired Asset Communication leaves the methods and design for impaired asset relief measures to Member States, but defines impaired asset relief as all measures whereby a bank is dispensed from the need for severe downward value adjustments and/or from increasing capital requirements triggered by severe rating downgrades.
The guidance document was designed to ensure that foreseeable losses were disclosed and that impaired assets were valued properly with the help of an independent expert using an acceptable valuation methodology. The aim of the valuation is to establish the real economic value of the illiquid assets, which may be significantly above the market value. The guidance Communication requires that measures designed to protect banks against illiquidity arising from impaired assets are accompanied by adequate burden sharing and remuneration.
In March 2009, f ollowing an initial assessment of the complex measure for ING, the Commission decided for reasons of financial stability not to raise objections for a period of six months. However, as some conditions required by the Impaired Assets Communication needed further in-depth analysis, in particular regarding valuation, the Commission decided to open an in-depth investigation.
The non-confidential version of this decision will be made available under the case number C10/2009 in the on the once all the confidentiality problems have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the online newsletter ).