Brussels, 25 July 2012
State aid: Commission approves restructuring aid to BayernLB subject to repayment of €5 billion of aid
The European Commission has approved under EU state aid rules restructuring aid for the German bank BayernLB in the form of a capital injection of €10 billion, a risk shield of € 4.8 billion and liquidity guarantees based on commitments presented by Germany to fundamentally restructure the bank and on condition that BayernLB repays €5 billion of state aid in the next seven years. The Commission concluded that the restructuring plan would enable the bank to become viable without continued state support and provided for a sufficient contribution by the bank's owners to the cost of restructuring, while minimising distortions of competition.
Commission Vice President in charge of competition policy Joaquín Almunia said: "Due to the large aid amounts and the high number of measures involved it has been a long and complex process. However, BayernLB's final restructuring plan shows in an unambiguous manner that the company has learnt lessons from the past. The repayment schedule which we impose ensures that the bank does not keep more public funds than it needs."
Under the restructuring plan the balance sheet will be reduced by around 50% as compared to BayernLB's situation in 2008. Moreover, the bank will reduce its risky activities abroad in the areas of international project finance and in international real estate. BayernLB also committed to behavioural measures like an acquisition and dividend ban.
The Commission's investigation found that these measures are likely to make the bank viable in the long term without continued state support. At the end of this restructuring process, BayernLB will be a healthier company with an increased focus on lending to the real economy in its regional market. Moreover, the regional savings banks, BayernLB's historical owners, provide a sufficient own contribution to the costs of restructuring through the conversion of silent participations.
In respect of a risk shield provided by the Bavarian regional authorities, BayernLB will pay a claw back of around €2 billion, in order to correct an over-generous valuation of toxic assets covered by a state guarantee from Bavaria. Moreover, the Commission's approval of the restructuring plan is conditional upon BayernLB repaying part of the state aid it has received. The Commission concluded that BayernLB should not keep the state capital for longer than strictly necessary. As the bank's financial projections showed that it had the capacity to repay, the Commission worked out a detailed repayment schedule based on these projections, subject to approval by the German banking regulator. As a result, BayernLB will return €5 billion to the Bavarian tax payer in the coming years. This includes €3 billion received from the Land as recapitalisation and €2 billion from the risk shield claw back.
In 2008/2009, the Free State of Bavaria injected €10 billion into BayernLB and provided a risk shield on its asset backed security portfolio which implied extra aid of €4.8 billion. The Austrian authorities guaranteed the intra-group liquidity exposure of Hypo Group Alpe Adria (HGAA) towards BayernLB with €2.638 billion. BayernLB used €5 billion of liquidity guarantees from the German bank support scheme SOFFIN. Finally, a transfer of €1 billion of reserves from LABO, a development institution active under the wings of BayernLB, to BayernLB without any remuneration also contained state aid. The total aid amounted to 8% of risk weighted assets (RWA).
BayernLB's restructuring plan envisages substantial changes to its business model, including risk reduction, a stronger focus on regional business and sustainability of funding and lending strategies. It is based on the following commitments and conditions:
The bank commits to reduce its balance sheet by 51%. The reductions include the sale of HGAA (Austria); MKB (its Hungarian subsidiary); SaarLB; LB (Switzerland); LBLux; LBS (Bauspar mortgages) and GBW Bayerische Wohnung AG.
BayernLB will also reduce the number of its international branches and representation offices by seven, mainly in Asia and Canada. It will keep international offices only in Paris, New York, London and Milan which have, however, been substantially downsized.
BayernLB will no longer be active in asset-backed securities, secured lending and acquisition finance without a link to Germany, ship and aircraft financing or bank business with public authorities outside Bavaria. It will also restrict its activities in project finance, international real estate and corporate banking.
In order to ensure that silent participations are repaid in 2017, it committed to free up additional capital by way of risk weighted asset reductions. BayernLB also committed to a number of behavioural measures, including a dividend and acquisition ban, a hybrid ban and an executives salary cap, until repayment of the €3 billion silent participations.
Finally, the decision to approve the restructuring aid is conditional upon BayernLB paying a clawback of €2 billion on the risk shield by 2019 at the latest and repaying €3 billion of state aid by 2017 according to a mandatory detailed repayment schedule.
The non-confidential version of the decision will be made available under the case number SA.28487 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