European Commissioner for Competition Policy
State aid decisions on Commerzbank, Hypo Real Estate and Northern Rock
Opening remarks at press conference
Brussels, 7th May 2009
Ladies and gentlemen,
Today the Commission has adopted three state aid decisions concerning individual banks – Commerzbank, Hypo Real Estate and Northern Rock.
These decisions demonstrate how we are dealing with each bank on a case-by-case basis, because each bank is in a different situation.
But we are also dealing with the situation systematically – applying the same principles to all on the basis of the EU's state aid rules, which are a tried and tested framework of good economic governance. The central aim of this policy is to ensure that European banks are viable and competitive in the medium to long term. Our state aid policy ensures that Europe's Single Market for financial services can continue to function effectively, which is essential for recovery from the current crisis and for sustainable growth in the future, and to enhance stability in the financial sector.
In other words, we are not applying rules for their own sake but we are treating each case with the sensitivity it deserves. Our first concern is to make sure that European banks will be viable in the long term without state support. This is the best guarantee for financial stability. We are also ensuring that aid is limited to what is essential so that government-supported banks, or those that took unreasonable risks, do not gain unfair advantages.
First, the Commission has endorsed capital injections worth 18 billion euros into Commerzbank by the German public authorities.
The German authorities had notified the case to the Commission to ensure legal certainty, as it was not clear whether the capital injection was automatically covered by the German rescue scheme. Germany already granted 8 billion euros of capital to the bank in December 2008 and will now grant a further 10 billion euros of capital.
After thorough analysis and extensive, constructive contacts with the German authorities, the Commission is satisfied that the plan will guarantee the fundamental soundness of Commerzbank, and that sufficient measures are taken to mitigate distortions of competition arising from the aid.
In particular, Commerzbank will focus on its core businesses, namely retail and corporate banking including in Central and Eastern Europe, which generated stable returns in the past. In contrast, volatile investment banking will be reduced over time and commercial real estate activities will be divested as regards Eurohypo.
Commerzbank has recently acquired Dresdner Bank. However, Commerzbank will not be in a position to use state aid to the detriment of competitors. The bank will be restricted from acquiring other financial institutions for a period of time and will be prevented from undercutting prices in some markets.
This case illustrates how the state aid framework is an important part of the solution to the current crisis, by asking the right questions and helping banks to have the right answers for their future. This will support a process of transformation for the banking sector, where financial stability and effective competition are reinforced.
Hypo Real Estate
A second banking state aid decision adopted today is to launch an in-depth investigation into an aid package for Hypo Real Estate. This inquiry covers the prolongation of 35 billion euros of guarantees, endorsed by the Commission in October 2008 as emergency aid, as well as the prolongation of guarantees from the German Financial Markets Stabilisation Fund of more than 50 billion euros and a smaller capital injection.
The inquiry is a first step towards finding, in close contact with the German authorities, a viable long-term solution for Hypo Real Estate. Changing a business model is not easy, but we believe that it is essential for Hypo.
Currently, the Commission needs to undertake a deeper assessment of the plan, which requires consulting third parties. It believes that more may need to be done to limit distortions of competition caused by the aid, especially given the large amount of aid received.
As you know, the launching of the in-depth investigation does not prejudge the final outcome – but it does ensure legal certainty and allows interested third parties to give their views.
The third Commission bank decision today extends the ongoing in-depth investigation into the UK restructuring aid package for Northern Rock.
The extension of the investigation is essential because the original restructuring plan has been amended very significantly and includes new support measures.
If we find significant distortions of competition under the new plans then the UK authorities will, of course, be required to present ways to offset these distortions.
The extension of the investigation will give third parties the possibility to comment on the proposed measures and the restructuring. It does not prejudge the outcome.
In essence, as I hope is clear from today's three announcements, we will be making tailored decisions that help each bank best adjust to new market conditions.
With each decision we aim to enhance financial stability.
With so much taxpayers' money at stake, aid cannot be unconditional - taxpayers and the financial system must be protected at all stages.