SPEECH/09/237
Neelie
Kroes
European Commissioner for Competition Policy
State aid
decisions on
Landesbanken
Opening remarks at press conference
Brussels, 12th May
2009
Ladies and gentlemen,
Since the beginning of the financial crisis, one of my usual lines has been to say that state aid is part of the solution, and not part of the problem. Today, I am happy to announce a series of decisions that show how the Commission's state aid rules are making a positive contribution for European banking.
First of all, I am pleased to announce that the Commission has today taken a positive conditional decision in the WestLB state aid case. This closes a procedure opened more than one year ago. But it is also a turning point in a longer journey (started in 1997), a journey where the Commission has done it's utmost to address the chronic disease of a Landesbank that seemed addicted to periodical state aid.
WestLB was one of the first banks to be affected by the sub-prime crisis, months before the collapse of Lehman brothers. In April 2008, it benefited from state aid in the form of a risk shield on a portfolio of roughly € 23 billion. It soon became clear that the bank was endangered by its Investment Management activities and had to re-think its business model. For more than one year, WestLB has been looking for a partner to secure its viability. Germany had committed to find one by the end of 2008. The Commission granted an extension of three months. Faced with a deadlock, the Commission worked closely with the German authorities, WestLB's top management and owners to look for an alternative route. As a result, a new restructuring plan was notified, which tries to take the issue of long-term viability seriously. The restructuring plan approved today is about ensuring that the viable parts of WestLB will be preserved, in the best interests of West LB's owners, personnel, and ultimately tax payers. First, the bank will focus on less risky activities. The rest will be divested, reducing the size of the bank by half. In particular, WestLB's Investment Management activities will be brought to an end.
Then, it is also expected that the bank's ownership structure is changed and its business model is amended. The new business model of WestLB will focus on three independent core business areas, deemed viable:
- so-called 'transaction banking' – which you may know as the 'treatment of payments'
- loans to medium-sized companies and its savings banks partnership ('Verbund Mittelstand') and
- corporate banking and structured finance – (loans to large companies and projects) and capital market activities (including financial instruments trading, but that only to a very limited amount for their own account)
The West LB case is important. I believe it shows the extent of the both the value-added of the European Union's state aid rules, and of the scale of changes that the banking system as a whole will need to be making in the coming months and years.
It is important to see today's announcement not as a band aid, or a bail out, but a set of very real changes to the West LB's activities so as to ensure that the viable parts of the bank can be preserved.
West LB's renewed focus, for example, on lending to SMEs will assist German economic recovery while also providing a more secure future.
While we close a chapter today in the West LB story, the Commission continues to deal with other Landesbanken cases, and I turn now to Bayern LB.
Today the Commission has also decided to open an in-depth investigation into an aid package for BayernLB, the second-largest Landesbank.
In order to continue operating, Bayern LB received a capital injection from the Free State of Bavaria of 10 billion euros and a risk shield of 4.8 billion euros for its asset-backed securities – or ABS - portfolio.
The restructuring plan notified to us is about refocussing the bank's activities to make it viable on a stand-alone basis. We have had good relationships with the Free State of Bavaria and I am hopeful that a final decision can be reached rapidly. Given the large aid amounts involved, we nevertheless decided to open a detailed investigation to make sure we get the best outcome possible, notably by benefiting from third party comments on the restructuring plan.
As with all our cases, the opening of an investigation does not pre-judge the outcome.
Today, the Commission has taken two decisions involving German Landesbanks. These particular cases - WestLB and BayernLB – illustrate the need for a profound restructuring in the German Landesbanks sector in order to ensure its long-term viability and they provide possible templates for dealing with these banks. Potentially this will contribute to a consolidation among the Landesbanks, but whatever the path forward you can be sure that our focus remains long-term viability.
I would like to conclude by mentioning two further decisions taken today by the Commission. First the approval of a recapitalisation of the Allied Irish Bank and last but not least the approval (for the second time) of the state aid to restructure Fortis bank and allow its acquisition by BNP Paribas. Fortis has been affected by many months of uncertainty and I am pleased that in this case too, the Commission is contributing to solutions for securing financial stability in a competitive banking market.
Thank you.
