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State aid: Commission approves Danish State support for the liquidation of Fionia Bank
Commission Européenne - IP/10/1374 25/10/2010
Brussels, 25 October 2010
The European Commission has approved under EU state aid rules a package of Danish measures to liquidate Fionia Bank, a small bank that became insolvent in the wake of the financial crisis. The bank was initially rescued by the Danish government, a rescue that was temporarily approved by the Commission in May 2009. But as the rescue failed, Denmark sold a significant portion of Fionia to Nordea after an open tender. The bank's high-risk assets have been put in a winding-up facility. The Commission found the liquidation to be in line with its Communication on the restructuring of the financial sector during the crisis (see IP/09/1180) as the measures are both appropriate and proportionate and address a serious disturbance of the market while keeping the potential distortions of competition to the minimum.
Commission Vice-President in charge of competition policy Joaquín Almunia said: “The Danish authorities have worked out a comprehensive concept for an orderly winding-up that ensures shareholders bear their share of the burden, limits the cost for taxpayers and enabled competitors to bid for the viable parts of the businesses thus limiting the distortions of competition."
Fionia Bank was a regional, full-service bank based on the island of Funen and neighbouring islands in central Denmark. At the end of 2008 it had 34 branches and around 550 employees. It had approximately €4.4 billion of assets and was the ninth largest bank in Denmark. At the beginning of 2009, Fionia Bank was ordered by the Danish Financial Supervisory Authority to increase its capital ratios. As the bank also had liquidity problems, it was put under State control and received a credit facility of €684 million and a capital injection of €134 million. The state intervention received temporary clearance by the Commission in May 2009 pending the submission of a restructuring or liquidation plan (see IP/09/819). As the problems of the bank worsened in line with negative market conditions primarily in the real estate sector, Denmark took the view that a controlled liquidation was the best option.
In August 2009 Denmark sold the main part of Fionia's business operations to Nordea, after an open tender for which the credit exposures were divided up into three categories depending on the risk profile. Three bids were presented, but Nordea's was the highest. The agreement involves the network of branches, including their staff. Fionia's high risk assets have been carved out and transferred to a newly established subsidiary of the Financial Stability Corporation (FSC), the State’s bail-out fund, which is serving as a winding-up vehicle. This includes approximately 2,200 customers with a loan portfolio of €1.4 billion that may be at least partly impaired. This subsidiary, called Nova Bank Fyn, whilst having a banking license will not take on any new business but rather seek to transfer customers and terminate business as quickly as possible in order to limit the costs for the State to a strict minimum.
In order to meet regulatory requirements and for the purpose of liquidation, the FSC has capitalised Nova Bank Fyn, which has also received the credit facility, since increased, in order to fill the funding deficit left by the transfer of certain parts of the bank to Nordea.
The Commission's approval of the State aid involved in the liquidation process also covers the requirement that the pricing policy of Nova Bank Fyn will be designed to encourage customers to find more attractive alternatives. Furthermore, Nova Bank Fyn will not pursue any new activities but merely phase out the ongoing operations. In this way the Commission considers that the distortions of competition are kept to a minimum.
The Commission also examined and concluded that Nordea had not received any State aid to buy Fiona, as the sale was carried out in an open, transparent and unconditional tender procedure and thus the price was in line with the market value.
Denmark has a framework scheme for handling distressed banks, including their orderly winding down. An updated version of the scheme was recently approved by the Commission (see IP/10/1266 of 30 September). It provides for an orderly winding up of a failing bank, transferring its assets and part of its liabilities to a bridge bank.
The non-confidential version of the decision will be made available under the case number N560/2009 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.