Brussels, 21 December 2010
State aid: Commission temporarily clears support for Anglo Irish Bank, Irish Nationwide Building Society and Allied Irish Bank
The European Commission has authorised under EU state aid rules emergency measures for three Irish banks. For Anglo Irish Bank, the Commission has approved a recapitalisation of up to €4.946 billion and a guarantee covering certain off-balance sheet transactions. The Commission has also approved a recapitalisation of €2.7 billion of Irish Nationwide Building Society (INBS). Finally, the Commission has endorsed a recapitalisation of Allied Irish Bank covering its capital requirements to the end of 2010 and the capital requirements following from the Programme for Support agreed between the Irish authorities, the IMF and the EU. The Commission's approval of these emergency measures to help to preserve financial stability in Ireland does not prejudge future decisions on restructuring (for Allied Irish Bank) or on orderly resolution (for Anglo Irish and INBS). With regard to Allied Irish Bank, the final decision will depend on the Commission being satisfied that the bank will be commercially viable in the long term without further injections of taxpayers' money, that there is a significant contribution by the bank's shareholders and subordinated debt holders to the restructuring costs and that the bank will reduce its activities to offset the distortion of competition caused by the aid.
Commission Vice-President for Competition Joaquín Almunia said: "There is no doubt that the Irish banking sector is experiencing profound difficulties at the moment. I welcome the Programme for Support that has been put in place for Ireland by the EU and the IMF as it will ensure that action will be taken to deal with the problems of the Irish banking sector. However, I would like to stress that the Commission will continue to apply the EU State aid rules to the aid provided to the Irish banks. The measures approved by the Commission today for Anglo Irish Bank, INBS and Allied Irish Bank are necessary to ensure that these institutions meet their respective obligations and will help to preserve financial stability in Ireland. Both Anglo Irish Bank and INBS will have to submit a plan dealing with their resolution in early 2011, while Allied Irish Bank will have to submit a revised restructuring plan."
On 30 September 2010, the Irish Minister for Finance announced the further capital required by Anglo Irish Bank, INBS and Allied Irish Bank to meet their obligations until the end of 2010. On 22 November 2010, the Irish Government applied for assistance under the financial stability facilities set up by the IMF and the EU. A Programme for Support was agreed between the Irish Government, the IMF and the EU on 28 November 2010.
Anglo Irish Bank
Following the statement of the Irish Minister for Finance on 30 September 2010, Anglo Irish Bank will receive a recapitalisation of € 4.946 billion which will cover the capital needs of the bank until 31 December 2010. This is the fourth capital injection for Anglo Irish Bank since the beginning of the financial crisis. It has become necessary because impairments and losses on Anglo Irish Bank's entire commercial loan book have continued to increase due to the poor quality of the book caused by the risky lending practices in the past and the drop in prices on the commercial property market combined with the ongoing crisis on financial markets.
Anglo Irish Bank will furthermore receive a guarantee covering certain off-balance sheet liabilities (derivatives, clearing transactions and transactional arrangements) that will ensure that Anglo Irish Bank can continue its daily activities as a going concern.
To date, the Commission has already approved three emergency capital injections for Anglo Irish Bank (€4 billion in 2009 - see IP/09/1045; €10.44 billion in March 2010, of which €10.3 billion were effectively granted – see IP/10/400 and up to €10.054 in August 2010, of which €8.851 billion have effectively been granted, while the balance will be injected by the end of the year – see IP/10/1046). Therefore, Anglo Irish Bank is expected to be recapitalised for an amount of €29.3 billion. Anglo Irish Bank furthermore benefits from a guarantee on its liabilities (Eligible Liabilities Guarantee scheme - see IP/09/1787) as prolonged by the Commission on 28 June 2010 (IP/10/854) and an impaired asset measure through the transfer of its commercial property loans to the National Asset Management Agency (NAMA), an impaired asset relief scheme (see IP/10/198).
Irish Nationwide Building Society
Irish Nationwide Building Society (INBS) will receive a recapitalisation of €2.7 billion, which follows from the 30 September 2010 announcement and will cover the capital needs of the building society until 31 December 2010. As for Anglo Irish Bank, the recapitalisation is necessary in order to deal with losses on the commercial loan book.
INBS has already received a recapitalisation of € 2.7 billion in March 2010 (IP/10/400). INBS furthermore benefits from the Eligible Liabilities Guarantee scheme and the transfer of its commercial property loans to NAMA.
Allied Irish Bank
Allied Irish Bank will receive a net recapitalisation of up to €9.8 billion which consists of two measures. Firstly, Allied Irish Bank will receive €3.7 billion of new capital, which will ensure that the bank will meet its minimum capital requirements. This will be funded by the Irish authorities through the National Pension Reserve Fund and independently of the Programme for Support. Furthermore, the Irish authorities will convert the government's preference shares received in the context of Allied Irish Bank's recapitalisation in May 2009 (IP/09/744). Secondly, Allied Irish Bank will receive a recapitalisation up to €6.1 billion to deal with the 12% Core Tier 1 capital requirement that is part of the Programme for Support.
Apart from the recapitalisation, Allied Irish Bank benefits from the Eligible Liabilities Guarantee scheme and transferred commercial property loans to NAMA.
The Commission found that the aid measures in favour of Anglo Irish Bank, INBS and Allied Irish Bank are indispensable to remedy the banks' financial difficulties and maintain confidence in the Irish financial markets. Therefore, the Commission temporarily authorises the measure as emergency aid subject to the submission of a revised restructuring plan for Allied Irish Bank and plans for the resolution of Anglo Irish Bank and INBS. The final approval of the measures as restructuring aid is conditional on the plans ensuring (i) a return to long term viability (or an orderly resolution) of the banks concerned, (ii) adequate burden sharing by shareholders and subordinated debt holders and (iii) proper measures to limit the distortion of competition.
Programme for Support
On 28 November 2010 the Programme for Support for Ireland was agreed between the Irish Government, the IMF and the EU. As part of the Programme for Support, Allied Irish Bank, Bank of Ireland, EBS and Irish Life and Permanent will be capitalised to 12% Core Tier 1 early 2011. The Commission is ready to assess the necessary recapitalisations following from this requirement for BOI, EBS and IL&P once it has received the respective notifications.
The Programme for Support furthermore foresees in an exercise to determine the further capital requirements for Allied Irish Bank, Bank of Ireland, EBS and Irish Life and Permanent and the necessary further deleveraging for these banks. The Commission is ready to assess the restructuring plans to be submitted to it following this exercise by the banks which are already under restructuring or which will come to fall under the restructuring obligation in case they receive a government capital injection with a view to reaching decisions on these plans as quickly as possible
At the height of the financial crisis, the Commission adopted on 5 December 2008 a Communication on the application of EU state aid rules to the recapitalisation of financial institutions (see IP/08/1901) outlining the terms under which Member States could inject emergency support into banks in order to safeguard financial stability.
Under the terms of the Communication, the Commission can temporarily authorise emergency support, for up to six months.
The Commission then adopted in July 2009 a Communication on restructuring aid to banks (see IP/09/1180), which outlines the terms under which Member States can give aid to banks for periods exceeding six months on condition that:
For an overview of the decisions adopted by the Commission in the framework of the financial crisis as well pending decisions (for which the Commission has already opened an in-depth analysis) see MEMO/10/656.
The non-confidential versions of the three decisions will be made available under case numbers SA.32057, SA.31714 (NN50/2010) and SA.31891 (N553/2010) 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.