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Neelie Kroes

European Commissioner for Competition Policy

Commission outlines conditions for state aid to KBC, ING and Lloyds

Figures and graphics available in PDF and WORD PROCESSED

Opening remarks at press conference

Brussels, 18 th November 2009

Ladies and gentlemen,


When the financial system was close to meltdown more than a year ago, I outlined how state aid rules would be part of the solution to the financial crisis. At the time, I explained our game plan whereby:

  • first, we would act to approve rescue measures for banks very quickly, in order to protect short term financial stability and avoid spill-over effects on the rest of the economy

  • second, with regard to restructuring aid, our focus would be on finding appropriate solutions that would restore viability and ensure financial stability in the long term.

Since then, the Commission has published four sets of guidelines to coordinate Member States' actions in the banking field and adopted more than 100 state aid decisions on individual cases. We are slowly turning the corner, away from the rescue phase, and towards focusing on restructuring. We want to ensure that banks can be rebuilt so that they can play their role in helping Europe's economy to recover and will not be a long-term burden on Europe's taxpayers.

Today, I am announcing decisions regarding state aid for KBC, ING and Lloyds. These decisions all demonstrate that the Commission takes seriously its role as guardian of EU state aid rules and of the Single Market's level playing field. We are now delivering what we announced one year ago.

The restructuring plans of KBC, ING and Lloyds will secure their long term viability. They will also require each of these banks to contribute substantially to the financing of the restructuring. At the same time, the plans ensure that none of these banks will enjoy an unfair competitive advantage as a result of the very large-scale public support they have received. They also make sure that banks' customers will continue to enjoy a competitive choice of services.


With regard to KBC, the Commission has approved two recapitalisations, an asset relief measure and restructuring package submitted by the Belgian authorities.

On asset relief our main concern was to verify whether the valuation, or write-down, of KBC's Collateralised Debt Obligation portfolio was correct and whether the remuneration paid by KBC to the Belgian authorities was sufficient. This is indeed the case.

As regards divestments to compensate for the distortion of competition caused by the state aid:

  • Europe-wide: KBC will sell its entire European Private Banking business.

  • In Belgium, KBC's home market, KBC will divest Centea (bank) and Fidea (insurer) - this will create more competition on the Belgian market.

  • In Central and Eastern Europe, KBC will divest or run-down a significant number of businesses. It will continue to retain an important presence in the region, however.

KBC will also stop the activities of "KBC Financial Products" - the business that was responsible for marketing the Collateralised Debt Obligations that caused KBC's difficulties.

KBC furthermore has provided a repayment plan outlining how it will repay the recapitalisations it received from the Belgian authorities.

As a result of these measures, KBC has addressed the main source of its problems - the write-downs on the Collateralised Debt Obligation portfolio – and we expect it to return to viability relatively quickly.

I am satisfied that in this case the restructuring is:

  • substantial

  • that we now have a viable business model for KBC and

  • that financial stability in Central and Eastern Europe will not be at risk as a result of KBC's divestment commitments in this region.


I am also very pleased with the proposed restructuring plan presented by The Netherlands and ING and the adjustment of the impaired asset back-up facility for ING. The restructuring needs to be in-depth because of the 15 billion euros of aid received by ING.

The scale of the divestments of ING's insurance activities and of ING Direct US, plus the carve-out of a subsidiary active on the Dutch retail banking market, are indeed significant.

These divestments are part of a wider 'back to basics' plan by ING that has strong merits. I have also been reassured by the additional payments to the Dutch State announced by ING, aimed at bringing the impaired assets measure in line with the pricing principles outlined in the Commission's Impaired Assets Communication. This additional payment by ING, with a current value of about 1.3 billion euros, was a very crucial point for me in order to ensure that ING was not getting undue benefits from the impaired assets deal.

Lloyds HBOS

Moving now to Lloyds HBOS, the UK bank.

First, Lloyds will exit the riskier and more volatile lending activities in which HBOS had engaged in recent years. Their new focus will be core corporate and retail banking activities and applying Lloyds TSB's more prudent risk management methods. This will be a sound business model.

The capital raising exercise launched by Lloyds on 3 November points to wider support for this business model, will shore up the bank's capital and will contribute to the bank paying for a significant proportion of the costs of restructuring.

We support this capital raising exercise as a solid alternative to the UK Government's Asset Protection Scheme, as it minimises taxpayer burdens. We ran a number of stress tests and concluded that this capital would see Lloyds through any unforeseen problems.

Overall, the Commission found that the plan limits distortions of competition and moral hazard (meaning the danger that a company may take excessive risks if it considers that it will not have to pay for the consequences itself).

Finally, we strongly believe that proposed divestments on the UK retail market are substantial and will improve competition in the long-term. The proposed divestments will create an entity with a market share of around 5% in the retail banking market, and a solid footing in mortgage and SME markets. The new bank will have a good geographical spread and at least 600 branches. It's a great deal.

Comparisons and Conclusions

Some of you may be interested to compare the various banking cases. But let us be careful not to compare apples with pears.

Each case deserves and receives tailored treatment.

Having said that, there are of course a number of important common principles which underpin the Commission's approach to these cases, and which guide us in all our actions in this area.

  • we want viable long-term business models

  • we want to minimise taxpayer burdens and

  • we don't want problems exported across borders.

We also make sure that we apply proportionate treatment to all cases. The more distortive the aid, the greater the measures we require in terms of divestments or other commitments to reduce activities.

If it is not already clear, I want to spell out today that, as in banking as in all markets, excessively risky behaviour has consequences. There is no such thing as a free lunch and today's restructuring announcements reflect that.

Our policy is encourage vibrant but responsible competition in the banking sector. With today's Commission decisions, and others that will follow, we are now well on the way to putting the European banking sector back on a viable long-term footing.

With today's Commission decisions, one quarter of the job is done, but there are 28 cases to go. So the job is far from over. We must continue to put the European banking sector back on a viable long-term footing.

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