State aid: Commission approves restructuring aid for Greek bank Eurobank
European Commission - IP/14/495 29/04/2014
Brussels, 29 April 2014
State aid: Commission approves restructuring aid for Greek bank Eurobank
The European Commission has found the restructuring plan of Eurobank Group to be in line with EU state aid rules. The plan will enable the bank to become viable in the long term without unduly distorting competition. Greece has committed to a comprehensive set of measures covering both the restructuring of Eurobank's activities and the credit policy of the group. On the basis of the plan, the Commission has approved under EU state aid rules the restructuring aid granted by Greece to Eurobank Ergasias S.A., including recapitalisations by the Hellenic Financial Stability Fund (HFSF) in 2012 and 2013, as well as the HFSF's backstopping of the ongoing recapitalisation. The Commission has also approved Eurobank's acquisition of Nea Proton Bank and New Hellenic Postbank, whose integration within Eurobank will reinforce the viability of the group without unduly distorting competition.
Commission Vice President in charge of competition policy Joaquín Almunia said: “The restructuring of Eurobank is an important step forward for the Greek banking sector. The restructuring plan approved today reinforces the viability of the bank and ensures that it will be strong enough to support recovery in Greece by providing credit to the real economy."
Eurobank's restructuring plan
Since 2008, Greece and the HFSF have granted repeated capital and liquidity support to Eurobank Ergasias S.A. The Commission opened an in-depth investigation in July 2012 to assess whether the measure was in line with EU rules on state aid for banks during the crisis (see IP/12/860).
Eurobank's restructuring plan runs until 2018. It mainly aims at a deeper refocusing on core banking activities in Greece and a return of these operations to strong profitability:
These commitments will be monitored by a trustee.
The Commission also notes positively that for Eurobank's current capital increase, which HFSF is backstopping, the subscription price for the new shares has been determined on the basis of two independent appraisals of the fair value of the bank. This will avoid an excessive dilution of the HFSF which owns more than 90% of Eurobank since its 2013 recapitalisation. Moreover, if the HFSF has to inject a sizeable amount of capital in the context of the ongoing recapitalisation, Greece has committed to further deleverage the international activities of the bank. This enabled the Commission to adopt a decision before the capital increase was closed.
In its assessment, the Commission has taken into account the fact that the difficulties of Eurobank do not come mainly from excessive risk-taking but from the sovereign crisis and the related exceptionally protracted and deep recession which started in 2008. The Commission therefore agreed to a smaller downsizing than for other restructuring cases already approved by the Commission, especially in the domestic market where the Commission accepted that the bank does not deleverage its balance sheet over the restructuring period.
However, the far-reaching restructuring and governance measures to be implemented, such as the downsizing of international operations and non-core activities in Greece, the contribution of shareholders and subordinated creditors or the restructuring of commercial operations in Greece, provide adequate safeguards to limit the distortions of competition created by the state aid and ensure that the bank and its owners sufficiently contribute to the cost of restructuring and recapitalising the bank.
The Commission has therefore approved all capital and liquidity support measures.
Acquisitions of Nea Proton Bank and New Hellenic Postbank by Eurobank
In July 2012 (see IP/12/854) and May 2013, the Commission had opened in-depth investigations into the significant state aid granted to Nea Proton Bank and new Hellenic Postbank, the bridge banks which harboured the activities of Proton Bank and Hellenic Postbank respectively. In July 2013, the two banks were offered for sale. Eurobank was selected as the preferred bidder for both.
Under the EU state aid rules, and in particular under the Restructuring Communication (see IP/09/1180), banks that received state aid are normally not allowed to buy assets during the restructuring period, so as to avoid crowding out investors that operate without state aid and to ensure that the aid is strictly limited to the cost of restructuring.
However, in this case, no non-aided investors submitted valid offers for the two bridge banks during the open, transparent and non-discriminatory sale processes. Eurobank also benefits from synergies with the two banks and from their large deposit base, which in turn reinforces Eurobank's viability and reduces the restructuring costs of both Eurobank and the acquired entities. In addition, the transactions will not trigger any additional state aid for Eurobank in the future since the acquired entities were adequately capitalised. Finally, none of the two bridge banks was viable on a standalone basis, so that their sale to a viable group was necessary to restore financial stability. Both banks will therefore exit the market as autonomous competitors. In these exceptional circumstances the Commission considered the acquisitions to be no obstacle to the restructuring of Eurobank. The Commission has also approved the aid received by Nea Proton Bank and new Hellenic Postbank on the basis of Eurobank's restructuring plan.
Eurobank provides universal banking services mainly in Eastern and South Eastern Europe, with a focus on Greece, where it is the fourth largest bank in terms of net loans and deposits. It has benefited from significant state aid, including state guarantees and capital support granted by the State in 2009 and the HFSF in 2012 and 2013. In particular, Greece subscribed in 2009 EUR 950 million of preference shares and the HFSF has injected since 2012 close to € 6 billion of capital into Eurobank.
To cover capital needs identified by the Bank of Greece in the framework of stress tests, Eurobank needs additional capital of € 2 864 million. The HFSF is backstopping the capital increase, as, according to Greek law, it has to subscribe any remaining shares of Eurobank in case of insufficient demand from private investors. The Commission welcomes that HFSF's intervention is now only triggered if the prior conversion of existing subordinated capital instruments into shares does not provide sufficient capital, in line with state aid rules adopted in July 2013 (see IP/13/672).
The Commission assessed the measures granted to Eurobank under the state aid rules for the restructuring of banks during the crisis (see IP/13/672 and MEMO/13/886). These rules are aimed at restoring the long-term viability of banks, ensuring that the aid is limited to the minimum necessary to achieve this result without a waste of taxpayers' money and limiting the distortions of competition brought about by the subsidies, which give aided banks an advantage over their competitors who received no such state aid.
The non-confidential version of this decision will be made available under the case number SA.34825 in the State Aid Register on the 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.