Brussels, 11 May 2012
Memo: State aid: Commission appeals General Court ruling and takes two new decisions on the ING restructuring plan – frequently asked questions
What is the object of the new decisions taken today?
In 2008 and 2009 ING received several State aid measures. This included a capital injection of EUR 10 billion, an impaired asset measure for an illiquid asset portfolio and liquidity guarantees.
In order to make the aid compatible with EU State aid procedures, the Netherlands submitted a restructuring plan for ING Group to the Commission. On 18 November 2009, the Commission approved the measures. The Commission also approved in the same decision a change in terms of repayment of one half of the capital injection of EUR 10 billion. This change consisted of lowering the repayment by about EUR 2 billion if compared to the initial conditions in case of repurchase. In the statement of reasons for that decision, the Commission calculated that the change of terms for repaying the capital injection from the Netherlands included a further EUR 2 billion of aid.
In its judgment of 2 March 2012 in Joined Cases T-29/10 and T-33/10, the General Court questioned the finding that the change of terms for repaying the capital injection from the Netherlands included a further EUR 2 billion of aid and found a lack of motivation in the Commission decision. This led the Court to also annul the entire assessment of the restructuring plan.
However, the annulment had the effect that 90% of the state aid received by ING, which was not disputed before the court, was no longer covered by an approval decision of the Commission. This required the Commission to carry out its assessment again in order to decide once again on the compatibility of the crisis aid.
The second decision concerns issues that arose in the implementation of the decision of 18 November 2009 and for which two notifications are pending. The Commission is assessing these notifications now in an in-depth procedure.
Why exactly did the Commission restate its original decision?
In its ruling, the General Court has annulled a part of the Commission's decision of 18 November 2009, thereby obliging the Commission to re-assess the restructuring aid and more specifically the amendment to the repayment conditions.
When re-assessing ING's aid, the Commission had to place itself in the situation which existed on 18 November 2009 and had to base itself on the information which was at its disposal at the time.
The Treaty stipulates that an institution whose act has been declared void is required to take the measures necessary to comply with the judgment of the Court.
The procedure for replacing the annulled measure may be resumed at the very point at which the illegality occurred. Implementation of an annulment judgment does however not require the Commission to go through the whole procedure provided for in Article 108 TFEU. Therefore the Commission was required to put itself back in the context of the annulled decision and assess the plan notified in the light of the information that was available to it at that time.
The Commission was thus obliged to readopt a decision concerning restructuring aid granted to ING without taking any further steps and strictly based on the situation that prevailed at the time of the adoption of the Decision of 18 November 2009, as well as the information it had at the time. The assessment was based in particular on the restructuring plan and to the commitments submitted by the Netherlands in October 2009.
In the Decision confirming the compatibility of the restructuring aid, the Commission therefore only had regard to the situation prevailing immediately prior to the adoption of the Decision of 18 November 2009.
Why do you repeat a decision that is very similar to the original decision after the decision was annulled?
The General Court's judgement of 2 March 2012 revolved around a very specific and rather limited issue, namely the amendment of repayment conditions previously agreed and approved by the Commission. This amendment had led the Commission to "add" €2 billion to the €15 billion of aid which has not been contested by all parties, including the Dutch State and ING.
The Court essentially told the Commission that it should have assessed the amendment of the repayment conditions not in comparison with the initial terms but as a fully new transaction in the light of the market economy investor principle (MEIP). Given that the restructuring requirements, which were given by the Dutch state as commitments, were assessed in light of the total aid amount, the Court also decided that the assessment of these requirements should also be annulled.
Nevertheless the judgement had the effect that the entire decision on the compatibility of the aid was annulled, along with the approval of the restructuring plan submitted by ING in 2009. The aid thus had to be reapproved. In this new decision, the Commission came to the conclusion that the 2009 plan is still proportionate to the restructuring requirements. As a result, there was no change compared to the annulled decision beyond the relatively minor issue on which the court criticised the Commission's motivation.
Does the Commission intend to appeal the decision of the General Court and on what grounds?
The Commision has decided to appeal the 2 March 2012 Decision of the General Court.
First, the Commission does not agree with the Court's analysis that the Commission is obliged to perform the MEIP test when State-related transactions follow shortly after other State aid measures. The Commission considers it cannot analyse the amendment of a measure as an economically rational choice by an investor when the measure is not itself based on market conditions but constitutes aid. In other words a market investor would not have subscribed to the capital of ING under the conditions accepted by the State in the first place and any subsequent economic analysis on such a non-market compatible instrument can only be flawed.
Second, the Commission does not see why, based on this limited issue, the Court could annul the finding of the Commission that the entire measure constitutes aid and is compatible. This was not requested by the parties. It also goes beyond what can be expected from the Commission. In a no-objection decision where the Member State presents commitments on which a restructuring decision is based, the Commission is only under an obligation to check whether the commitments presented are sufficient to declare the aid compatible. The Court's approach seems to suggest that the Commission should also check that the commitments offered by a Member State are not excessive, which would impose new obligations on the Commission.
Did the Court not say that the Commission requested too much from ING?
The consequences of the ruling for the ING restructuring plan should not be exaggerated. In the end, it was a discussion on whether ING received aid of 15 or 17 billion EUR. In other words, the disputed aid amount was small in relative terms. 90% of the aid underpinning the Commission's decision was in any case unaffected by the judgement.
In today's restructuring Decision, the Commission has confirmed that the amendment of the repayment conditions also contained additional State aid. This new analysis takes the Court's criticism into account and substantiates – as requested by the Court – why a private investor would not agree to such amendments.
As a result, the Commission could only repeat that ING's aid largely exceeded the aid acceptable for a sound bank (more than 2% of risk weighted assets) and that therefore ING needed an in-depth restructuring.
The Commission confirmed in today's decision that the 2009 Restructuring Plan and the commitments that ING and the Dutch State presented at the time allowed the Commission to declare the aid compatible with the Internal Market.
Other issues notified by the Netherlands concerning the implementation of the original decision will be examined separately.
Do the ruling and this new decision have implications for other cases?
The ING case presents a very specific set of circumstances that are not replicated as such in other Commission cases. This issue of an amendment to repayment conditions was at stake in four cases where the same capital instruments were used by Member states to inject capital, namely AEGON, SNS and KBC. The Member States in these cases accepted intrinsically defective repayments conditions which did not give sufficient incentives to the beneficiaries to repay the aid received. These incentives were amended upon request by the Commission during the restructuring discussion. Indeed in the three other cases AEGON, SNS and KBC the Commission required to receive certainty as to the final repayment date of the State capital and all three companies committed to fixed repayment schedules. All cases are settled and were not appealed. In the case of AEGON the Commission also accepted an amendment to the conditions to allow for quick repayment. This change was also qualified as additional State aid and has never been contested by neither the Dutch State nor AEGON.
In sum, this issue is specific to these four cases where instruments designed in virtually the same way were used to recapitalise the companies. The securities associate a fixed periodic remuneration in the form of coupons. The payout of the coupon is however uncertain because it is subject to the decision by the company to pay dividends. To compensate for the uncertainty of the remuneration the periodic coupons are associated with a 'premium' to be paid in any case when the company redeems the capital provided by the State. This premium amounts to as much as 50% of the actual capital provided. However even this payment cannot be obtained by the State with full certainty because after a certain number of years the securities can be converted by the companies into shares. The reasoning of the court is based on the specificities of these particular capital instruments.
The Court's decision therefore affects neither our previous cases nor the Commission's basic approach to bank restructuring.
Why do you penalise the early repayment of capital to the State? Why do you request the penalty of 50%?
We do not penalise early repayment. The Dutch state provided €10 bn of capital to ING under certain terms, requested by the Dutch state, including the 50% premium to be paid at the moment of repayment. Subsequently, the Dutch State relaxed these terms for part of the capital without a convincing economic rationale. This provided ING with an additional advantage compared to the terms at which it received the original capital. The Commission considers that this additional advantage constitutes aid – but found it compatible in 2009 and reiterated this in the present decision.
How did the Commission evaluate – after the Court's ruling - the State aid implied in the amendment of the repayment conditions?
The Court asked the Commission to verify whether the Dutch State, when accepting the amended repayment conditions, acted like a market economy investor.
Although the Commission disputes that this test was necessary and will present this as a plea in its appeal against the ING decision, the Commission has performed this test in the new decision it adopted today to take into account the General Court's ruling.
It concludes that the Dutch State did not behave as a rational economic actor by accepting the amended repayment conditions and should have asked for a higher repayment penalty. The amended repayment conditions provided ING with an additional advantage compared to the terms of initial recapitalisation.
Why is the Commission now re-investigating the repayment characteristics of the capital instrument?
In 2008, at the time of the Rescue Decision of ING, the Dutch State committed to renotify the recapitalisation measure if ING would not pay coupons to the Dutch state for two consecutive years.
The terms of ING's recapitalisation instrument implied that ING would only pay coupons to the State if it also paid dividends to its ordinary shareholders. Since ING controls its dividend policy and had therefore a lot of manoeuvring room to steer the remuneration of the State, the Dutch State at the time presented to the Commission a commitment to renotify the aid, if ING would not pay coupons. Thereby, it provided the Commission with the comfort it needed to conclude that ING's recapitalisation instrument was in line with EU State aid rules.
In 2010 and 2011, ING did not pay coupons to the State, thereby triggering the renotification. This renotification commitment is not exceptional.
Why is the Commission re-investigating the adequacy of carving out the Westland Utrecht Bank?
The Dutch State and ING, in a recent notification, had indicated that the divestment of Westland Utrecht Bank is not feasible in the current market circumstances and asked the Commission to amend the decision. The Commission will now investigate possible alternatives. Such alternatives should achieve the objective of the initial commitment to create a new viable competitor on the Dutch banking market.
This has happened in other cases in the past (e.g. Commerzbank). Sometimes, companies found out that a certain measure can no longer be implemented and they can propose replacement measures. It is then up to the Commission to decide whether the replacement measures are equivalent to the original measures. As this depends very much on the effects on competition in the Dutch market, the Commission considered it appropriate to consult interested parties.
Why is the Commission looking at ING's pricing behaviour in Italy?
Other market participants complained about ING's pricing behaviour. The Commission will now have to examine whether ING indeed offered prices which it could only offer thanks to the State aid. Obviously, ING and the Dutch State will get the opportunity to defend their position on ING's pricing strategy.
Why did the Commission need to open an in-depth investigation? Is this not an unusual way of acting on the part of the Commission?
Not at all. The Commission is following normal procedures and established case practice in its new decision. Raising doubts on a restructuring plan has been done in numerous banking cases in the financial crisis.
Moreover, it should be noted that the changes in the restructuring plan that ING proposes are quite fundamental. The Westland Utrecht measure for instance was an important measure to limit distortions of competition, resulting from the State aid.