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Brussels, 15 July 2010

State aid: Commission approves restructuring plan of Bank of Ireland

The European Commission has approved under EU state aid rules the restructuring plan of Bank of Ireland which was rendered necessary by the Irish State €3.5 billion recapitalisation of the bank in 2009 and other state aid assistance. The Commission is satisfied that the plan is in line with its communication on the restructuring of banks during the crisis. In particular, the restructuring plan foresees that BOI will pay a significant proportion of the restructuring costs, thereby limiting the distortions of competition. The plan furthermore ensures a sustainable future for the bank without continued state support.

Commission Vice President in charge of competition policy Joaquin Almunia said: "I am confident that this plan will ensure a stable future for Bank of Ireland and contribute to financial stability in Ireland without unduly distorting competition. The good collaboration with the Irish authorities and the bank allowed us to achieve measures that will further open the banking market and facilitate entry and growth of market challengers."

The Commission, through the decision adopted today, has granted definitive approval to the 2009 €3.5 billion recapitalisation of Bank of Ireland by the Irish State as well as other State aid measures. The recapitalisation of Bank of Ireland of March 2009 was temporary approved by the Commission as emergency aid (IP/09/483) pending the submission of a restructuring plan, which is also approved today.

As regards the restructuring plan, the Commission concluded that it fulfilled the criteria of the Restructuring Communication (IP/09/1180), as it will lead to a restoration of viability of Bank of Ireland, as there is sufficient own contribution and burden sharing by the bank and as there are sufficient measures limiting the distortion of competition.

In particular, in order to contribute to the costs of its own restructuring and to limit the distortions of competition created by the aid, Bank of Ireland will reduce its presence in certain market segments through the transfer or winding down of assets and through divestitures, according to the plan.

The bank will notably significantly reduce its presence in the UK corporate lending market after two of its current loan portfolios will be run down. In Ireland, it will sell its New Ireland Assurance Company plc, its mortgage brokering business ICS Building Society and the 17.-percent stake it owns in Irish Credit Bureau.

In order to enhance competition, the bank will also offer certain services to new entrants or to small banks already active in Ireland to reduce the cost for competitors to develop business in Ireland. This comprises a "Service Package", with back-up services and access to its ATM network, and a "Customer Package" to help reduce the costs of acquiring new customers that involves Bank of Ireland presenting customers with alternative services for their current account and credit card products.

Finally, the Irish authorities committed to a number of market opening measures in order to enhance competition in the Irish banking market by facilitating the entry and expansion of competitors and by increasing consumer protection in the financial sector. This will include for example measures enhancing customer mobility between banks, including by being able to compare costs, and furthering electronic banking.

The Commission considers that the proposed measures are appropriate to ensure the bank's viability, by exiting risky portfolios and by implementing more prudent risk management practices. The plan also ensures a fair burden sharing of past losses and that the bank and its capital providers significantly contribute to the financing of the restructuring costs. These elements are important to limit moral hazard (the risk that a company may take excessive risks because it considers it will not have to pay for the consequences) and distortions of competition.

Besides the €3.5 billion granted by the State in March 2009 (in return for preference shares), the bank participates in Ireland's National Asset Management Agency (NAMA), an impaired asset relief scheme for financial institutions, approved by the Commission in February 2010 (see IP/10/198). The transfer of loans with a book value of €12.2 billion is expected to include an aid element of about €1.0 billion. The Commission's approval also covers the bank's use of State guarantees under the Irish guarantee scheme for financial institutions' access to finance, approved by the Commission in October 2008 (IP/08/1497) and the eligible liabilities guarantee scheme, also approved by the Commission in January 2010 and subsequently prolonged by the Commission in May (MEX/10/0531) and June 2010.

Bank of Ireland is one of the two largest banks in Ireland, with operations mainly focused on its domestic market, but also with significant activity in the UK and some niche lending operations in the US, France and Germany. It operates mainly in retail and corporate banking, but is also active in areas such as investment banking, insurance and pension products.

The financial situation of the bank deteriorated significantly as a result of the impact of the global financial crisis combined with the specific situation of the Irish property market and the bank's strong reliance on wholesale funding. In March 2009 the State provided € 3.5 billion in preference shares to ensure that the bank is adequately capitalized

The non-confidential version of the decision will be made available under the case number N546/2009 in the State Aid Register on the DG Competition website once any confidentiality issues are resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

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