State aid: Commission prolongs temporary approval of aid to German WestLB and to Austrian Hypo Alpe Adria Group
The European Commission has prolonged, under EU State aid rules, the temporary approval of state aid to WestLB of Germany and to Austria's Hypo Alpe Adria Group (HGAA). The extensions are valid until the conclusion of the in-depth state aid investigations into both banks.
The Commission today has prolonged its temporary approval of the "bad bank", a wind down vehicle created earlier this year to take over the impaired assets of WestLB. The extension of the approval, granted initially for six months (see IP/09/1996), is valid until the conclusion of the in-depth investigation opened at the end of 2009.
WestLB, based in North Rhine-Westphalia (NRW), operates as a central bank and a provider of services for Germany's biggest regional saving banks' network and as a commercial bank. On 12 May 2009 the Commission approved an earlier State aid measure, a €5 billion risk shield (see IP/09/741), on the basis of a restructuring plan that envisaged the set up of a bad bank. A large portfolio of "toxic" and non-strategic assets, representing approximately 30% of the bank's total assets, has now been hived off to this bad bank and will be liquidated over time. The Commission's current investigation explores whether this transfer and all related payments are in line with the general rules set out in the Commission's Impaired Asset Communication of 25 February 2009 (see IP/09/322), and whether on this basis the restructuring of the WestLB is apt to restore the long-term viability of the bank
The provision of data needed for the Commission's evaluation turned out to be more complex and more time-consuming than initially anticipated, delaying the evaluation process. While the Commission has now made significant progress on the evaluation of the portfolio's value, the actual aid amount is still in question. The Commission therefore needs some more time to assess whether the asset relief measure complies with State aid rules.
The Commission also prolonged its temporary approval of a state recapitalisation and state guarantees in favour of Hypo Alpe Adria Group until it has concluded the examination of the restructuring plan. At the same time, the Commission raised doubts whether on this basis the restructuring of HGAA is apt to restore the long-term viability of the bank. HGAA is the sixth largest Austrian bank. A former subsidiary of the German BayernLB, it was taken-over by the Republic of Austria, which granted emergency aid in December 2009 in the form of state guarantees amounting to €100 million and a €550 million recapitalisation operation.
On 23 December 2009, the Commission extended its formal in-depth investigation opened in May 2009 (see IP/09/742) on earlier recapitalisations of HGAA to include the latest support measures. It also requested a restructuring plan for HGAA, which was submitted in March 2010.
HGAA's problems derive in part from its aggressive growth strategy in the previously rapidly growing South-Eastern European markets. The submitted restructuring plan aims at refocusing its business to some core markets and business areas while reducing activities in businesses which are outside those domains. HGAA also plans to overhaul its risk management framework.
At this stage, the Commission has, in particular, doubts whether the bank has sufficiently refocused its business activities and whether HGAA will be able to tackle the challenges from the weak asset quality in its portfolio.
The non-confidential version of the decisions will be made available under the case number N 249/2010 and C 16/2009 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.