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State aid: Commission temporarily approves rescue aid for Irish Life & Permanent Group Holdings

European Commission - IP/11/913   20/07/2011

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European Commission - Press release

State aid: Commission temporarily approves rescue aid for Irish Life & Permanent Group Holdings

Brussels, 20 July 2011 - The European Commission has granted temporary approval, under EU state aid rules, to a recapitalisation worth up to €3.8 billion for Irish Life & Permanent Group Holdings (IL&P) by the Irish authorities. The recapitalisation is necessary to increase the bank's solvency ratios, thereby enabling it to resist potential stress situations and preserving stability on the Irish financial markets. The Commission will take a final decision on the state measures in favour of IL&P on the basis of the new restructuring plan that Ireland committed to submit by the end of July to take account of this additional state support.

The restructuring plan will ensure (i) a return to long term viability of the bank, (ii) adequate participation in the restructuring costs by shareholders and subordinated debt holders and (iii) proper measures to limit the distortion of competition created by the state support.

The EU-IMF support programme for Ireland included a prudential capital assessment review of all banks subject to the programme. The review carried out by the Irish central bank identified capital needs of €4.0 billion for IL&P (broken down as € 3.6 billion in Core Tier 1 capital and €0.4 billion in contingent capital). In a first stage, to be implemented by 31 July 2011, the Irish State will purchase ordinary shares in IL&P for €2.3 billion and contingent capital notes for €0.4 billion. In a second stage, the Irish State will provide up to €1.1 billion of additional Core Tier 1 capital if the capital raising measures recently launched by IL&P fail to raise the remaining amount of capital needed to satisfy the requirements identified by the central bank review. €200 million of capital will be provided by the group itself.

The capital raising measures include liability management exercises, consisting of debt for cash offers and the sale of the group's life insurance business.

Irish Support Programme

The November 2010 Support Programme for Ireland requires Bank of Ireland, Allied Irish Bank, Educational Building Society and IL&P to increase their capital to meet new regulatory requirements during the period 2011 to 2013. The base case and the stress case capital targets used by the Irish Central Bank were respectively 10.5% and 6%, assuming further deleveraging of the banks in order to meet the 122.5% loan-to-deposit ratio by the end of 2013.

Earlier this month the Commission also granted temporarily approval to the recapitalisation of Bank of Ireland and the newly merged AIB/EBS (see IP/11/859 and IP/11/892). These recapitalisations also arise from the Support Programme stress test requirements. The Commission is also awaiting restructuring plans for the entities concerned. The €85 billion EU-IMF Support Programme comprises €35 billion to meet the recapitalisation needs of the financial sector and to act as a contingency fund. Half of this sum is provided by Ireland itself.

Background on Temporary State aid framework for banks

In December, the Commission prolonged until the end of 2011, albeit in a stricter form, the crisis-related state aid rules for banks and for other companies with problems accessing finance (see IP/10/1636).

The rules are outlined in a Communication on the recapitalisation of financial institutions (see IP/08/1901) enabling Member States to inject emergency support into banks in order to safeguard financial stability.

Under the Communication the Commission temporarily authorises emergency support and requests a restructuring plan that ensures the bank's viability and compensation for the distortion of competition.

The July 2009 Communication on restructuring aid to banks (see IP/09/1180) outlines the terms under which Member States can give aid to banks for periods exceeding six months provided that:

  • aided banks implement a restructuring plan that ensures that they are viable in the long term without further support from taxpayers;

  • aided banks and their owners must carry a fair burden of the restructuring costs and

  • measures must be taken to limit distortions of competition in the Single Market.

For an overview of state aid decisions related to the crisis as well as pending investigations see Memo/11/122.

The non-confidential version of the present decision will be made available under case number SA.33311 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.

Contacts:

Amelia Torres (+32 2 295 46 29)

Maria Madrid Pina (+32 2 295 45 30)


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