Brussels, 31st March 2009
The European Commission has granted temporary clearance to the illiquid asset back-up facility provided by the Dutch State to the financial group ING, with final approval dependent on the result of an in-depth investigation. The Commission found that the measure in favour of ING constitutes state aid. Some of its provisions can be considered in line with the Commission's guidance on the treatment of asset relief measures (see IP/09/322), and so the measure has been given temporary clearance for six months. Other provisions (including such complex issues such as valuation of the portfolio) require a further in-depth analysis before approval can be given.
EU Competition Commissioner Neelie Kroes said: "The treatment of impaired assets can be of help in restoring trust in the financial markets. It is however important that the state aid involved is carefully designed so that the Dutch State receives a sufficient remuneration for its support. The Commission can therefore only temporarily approve the state aid to ING, and will verify in detail that all conditions are met. I also expect ING to submit a restructuring plan shortly." ING is a Dutch-based financial institution that offers banking, insurance and asset management to over 85 million private, corporate and institutional clients in more than 40 countries. With a global workforce of about 125,000 people and a total balance sheet of €1,332 billion at the end of 2008 it is one of the biggest financial institutions in the world by market value.
In January 2009, the Dutch State and ING agreed on a so-called illiquid assets back-up facility for a portfolio of US$ 39 billion par value worth of securitised US mortgage loans, mostly consisting of so-called Alt-A mortgages. Alt-A loans are the category of US loans between prime and sub-prime, often granted on the basis of a simple declaration by the borrower about his income with no other proof required.
Under the transaction, the Dutch State will buy the right to receive the cash flows on 80% of this US$ 39 billion portfolio by paying ING about US$ 28 billion. That amount will be paid by the Dutch State in accordance with a pre-agreed payment schedule. The Dutch State has asked an independent expert to evaluate the transaction and he concluded that the State was likely to obtain a positive cash flow. The Commission assessed the measure under its guidance Communication on the treatment of asset relief measures. Impaired assets correspond to categories of assets on which banks are likely to incur losses (e.g. US sub-prime mortgage backed securities, Alt-A loans). The Communication leaves the methods and design for impaired asset relief measures to the Member States, but defines impaired asset relief as all measures whereby a bank is dispensed from the need for severe downward value adjustments.
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 a commonly accepted valuation methodology. The aim of the valuation is to establish the real economic value of the illiquid assets, which may be significantly above the fair (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.
Following an initial assessment of the complex measure for ING, the Commission decided for reasons of financial stability, similar to those governing the assessment of rescue aid, not to raise objections for a period of six months. However, as some conditions required by the Impaired Asset Communication need further in-depth analysis, in particular regarding valuation, the Commission has decided to open an in-depth investigation on this and corresponding elements like burden sharing.
The non-confidential version of this decision will be made available under the case number N138/2009 in the state aid register on the DG Competition website 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 State aid Weekly e-News).