Brussels, 7 May 2014
State aid: Commission approves restructuring aid in favour of Irish bank AIB
The European Commission has found that restructuring aid granted by Ireland to Allied Irish Banks plc (AIB) and its subsidiary EBS is in line with EU state aid rules. The restructuring plan sets out the right path for AIB to return to long-term viability without further state support, while ensuring that the bank and its owners contribute to the cost of restructuring and limiting the distortions of competition created by the aid.
Commission Vice President in charge of competition policy Joaquín Almunia said: "Today, the Commission closed an important chapter in the ongoing restructuring of the Irish banking sector. AIB is one of the two largest Irish banks. Its restructuring plan sets out the right measures for this bank to return to profitability without unduly distorting competition in the Single Market. In particular, AIB will implement market opening measures over the next three years to attract new entrants to the concentrated Irish banking market".
Starting in 2009, AIB and EBS received repeated State support in the form of guarantees, recapitalisations and asset relief. In 2011, when AIB and EBS were merged, the merged entity also received capital support. In September 2012, Ireland submitted a restructuring plan for AIB which was complemented by several additional submissions.
The restructuring plan provides for a credible strategy to make AIB profitable. In particular, AIB will operate as a smaller domestically focussed bank with an improved funding profile. AIB will increase its level of profitability notably by enhancing the net interest margin and further curbing its operating expenses. Finally, AIB will maintain a strong capital buffer during the restructuring period. AIB also has contingent capital instruments which can be converted into equity, if needed. These measures will enable AIB to return to long-term viability without further State support.
The restructuring plan ensures that AIB pays an appropriate remuneration to Ireland for the state support and sets out a repayment commitment. In addition, AIB has already implemented a series of restructuring measures, including divestitures, asset transfers and deleveraging, liability management exercises and cost reduction measures, which contribute to its return to viability and ensure that the aid is limited to the minimum necessary.
The restructuring plan includes a set of commitments which AIB will respect during the restructuring period, i.e. until the end of 2017. Those commitments comprise, among other things, targets on cost reduction and a ban on acquisitions. Moreover, AIB will operate "market opening measures" to facilitate the market entry of competitors, comprising a "services package" and a "customer mobility package". Under the "services package" AIB will provide to competitors access to certain services, such as cash supply and distribution services, and access to market intelligence. Under the "customer mobility package" AIB will distribute advertising material on behalf of a competitor to its clients to promote customer switching. The commitments will ensure that the competition distortions brought about by the aid are limited.
On this basis, the Commission has concluded that the aid measures are in line with the Commissions communications on state aid for banks during the crisis (see IP/09/1180).
The Commission will closely monitor the correct implementation of the plan.
Before the crisis, AIB expanded rapidly with a focus on lending to the booming Irish property market and a strong reliance on wholesale funding. In 2008, AIB had a balance sheet of €182 billion. When the global financial crisis broke out, which hit the Irish economy and notably the Irish property market particularly hard, the vulnerability of AIB's business model became evident and the need for state support unavoidable. AIB received on a standalone basis €7.2 billion of capital support; in addition, AIB transferred impaired assets worth €20.4 billion under the Irish asset relief scheme that the Commission approved in February 2010 (see IP/10/198) and received various state guarantees.
EBS was Ireland's largest building society and the eighth largest financial institution operating in Ireland prior to the crisis with total assets of €21.5 billion in 2009. EBS offered traditional retail banking products to its members, i.e. savings and mortgages products. From 2005, EBS expanded its activities in commercial property lending, building up a substantial loan book in that segment. EBS received on a standalone basis €875 million of state capital support; in addition, EBS transferred impaired assets worth €900 million under the Irish asset relief scheme and received various state guarantees.
In July 2011, AIB and EBS merged and received again capital support of €11.1 billion as well as contingent capital support amounting to €1.6 billion from Ireland. The total capital support for AIB – including aid to AIB and EBS on a standalone basis - i.e. before their merger – is therefore €20.775 billion. Since the merger, the bank is 99.8% State owned.
Today, AIB is positioned as a full-service bank, primarily focused on Ireland and offering a wide range of banking products and services through an extensive distribution network. Its balance sheet amounted to €118 billion at 31 December 2013.
Today's decision gives the final approval to all aid measures granted to AIB and EBS, before and after their merger, which had previously been approved on a temporary basis pending the submission of a restructuring plan (see IP/09/744, IP/10/658, IP/11/892 and IP/10/1765).
The non-confidential version of the decision will be made available under the case number SA.29786 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.