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European Commission - Press release
State aid: Commission approves split-up of WestLB
Brussels, 20 December 2011 - The European Commission has approved under EU state aid rules the split-up of Westdeutsche Landesbank (WestLB), which will lead to sale and eventual winding down of its banking activities. According to the restructuring plan, submitted by the German government with the agreement of the shareholders, the so-called Verbundbank activities will be carved out in order to accommodate the Verbundbank. On 30 June 2012, all assets and liabilities not carved out to the Verbundbank or sold will be transferred to the EAA. After 30 June 2012, WestLB will not engage in new banking business and will be transformed into a servicing platform including a run-down vehicle that holds legacy positions transferred to or hedged by EAA. A reduced number of employees will continue in the asset management and servicing company.
"I commend the German government, the regional authorities of NRW and the banks' shareholders, the savings banks, for coming up with a solution that closes this chapter once and for all in the interest of a healthy and undistorted competition between banks and of the taxpayers themselves who have already paid a high price," Commission Vice President in charge of competition policy Joaquín Almunia said.
In May 2009, the Commission conditionally approved a restructuring plan for WestLB involving significant state aid after the bank got into serious financial difficulties due to excessive risk taking prior to the 2008 financial crisis. Subsequently, WestLB transferred a portfolio of impaired and non-strategic assets, around 30% of its total assets, to a wind-down agency, for which it required an additional capital injection of €3 billion. The Commission temporarily approved the new asset relief, but raised doubts whether the operation complied with its Impaired Asset Communication (see IP/09/322) and opened an in-depth investigation in 2009 that was extended in 2010 (see IP/09/1996 and IP/10/1472).
The Commission's investigation showed that the impaired asset transfer involved state aid of €11 billion, out of which €3.4 billion were found to be incompatible with the Commission's guidelines on restructuring aid for banks (see IP/09/1180), because transfer prices exceeded the real economic value of the assets. In order to ensure a level playing field the Commissions rules require that this amount was paid back or compensated through additional restructuring measures. As this proved impossible for WestLB, its shareholders decided to develop a new restructuring plan envisaging the orderly wind down and split up of the bank which was submitted to the Commission in June 2011.
The Commission found that the plan is in line with EU state aid rules as it limits the aid to the minimum necessary, the shareholders have borne their share of the burden and the distortions of competition brought about by the aid given to the bank since 2008 are offset by its consequent and sustainable transformation into a servicing platform and the orderly wind-down down and eventual exit of the banking activities from the market.
WestLB is Germany's third-largest Landesbank. It's move from a regional bank servicing the savings banks to an investment bank with excessive risk taking is what caused its downfall.
WestLB had to be rescued even before the fall of Lehman Brothers in the autumn 2008. It has received a risk shield of €5 billion, a capital injection of €3 billion, and transferred toxic, impaired and non-strategic assets to a wind-down agency at €11 billion above their market value (see IP/09/741). An additional aid is necessary for the transformation into a servicing platform, which will be borne by the NRW authorities, Germany's federal agency SoFFin and German savings banks.
The board of owners of Landesbank Hessen-Thüringen (Helaba) gave its green light on 12 December 2011 to take over assets and liabilities related to the savings banks business, put together in so called "Verbundbank". Under the plan submitted to the Commission, all WestLB's remaining assets and liabilities, which have not been sold, will be transferred to Erste Abwicklungsanstalt (EAA), WestLB's wind-down agency, by 30 June 2012.
The non-confidential version of the decision will be made available under the case number C40/2009 (SA.29590) 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.