Brussels, 22/06/2010 (Agence Europe) - On Tuesday 22 June, the European Commission decided to prolong the temporary approval of state aid to WestLB of Germany and to Austria's Hypo Alpe Adria Group (HGAA). The extensions will remain valid until conclusion of the in-depth state aid investigations into both banks.
In the case of WestLB (Rhineland North Westphalia), the Commission extends temporary authorisation of a “wind down vehicle” created earlier this year to take over the impaired assets of the bank (EUROPE 10047). A large portfolio of toxic and non-strategic assets, representing some 30% of the bank's total assets, has now been hived off to this bad bank and will be liquidated over time. The Commission's investigation seeks to determine whether the transfers to this structure and the relevant payments are in line with general Community rules concerning the treatment of impaired assets (Commission communication of 25 February 2009) and whether, on this basis, the restructuring of WestLB is apt to restore the long-term viability of the bank. While the Commission has now made significant progress on the evaluation of the portfolio's value, the actual aid amount is still in question. The Commission therefore needs more time to assess whether the asset relief measure complies with state aid rules.
The Austrian bank, HGAA, a former subsidiary of BayernLB taken over by the Republic of Austria, was also under temporary approval of a state recapitalisation and state guarantees (EUROPE 9900).
As for WestLB, the Commission had opened an in-depth investigation concerning the effectiveness of the restructuring plan to restore long-term viability of the bank. In the case of HGAA, the investigation opened in May 2009 was extended on 23 December to include more recent aid provided in the form of state guarantees for the sum of €100 million, and recapitalisation of €550 million. This emergency aid had been granted to allow the bank to overcome problems caused by the sudden depreciation of assets acquired as part of its expansion strategy on the markets of South East Europe, which were enjoying strong growth before the crisis. At this stage, the Commission above all expresses doubt as to whether the bank has sufficiently refocused its business activities and whether HGAA will be able to tackle the challenges from the weak asset quality in its portfolio. Authorisation of state aid has been prolonged until the conclusion of the formal in-depth investigation into the recapitalisation plan. (F.G./transl.jl)