Brussels, 05/03/2012 (Agence Europe) - On Friday 2 March, the EU General Court partially overturned the European Commission decision of 18 November 2009 whereby the increase in capital of the Dutch bank ING, subscribed for by the Netherlands State in November 2008 under aid granted to the bank because of the financial crisis, was legal state aid comprising “additional aid of approximately €2 billion” following the amendment to the repayment terms for that aid. The Court found that the Commission had not established that the amendment to the repayment terms for a capital injection constituted an advantage which a private investor in the same situation would not have granted.
The €10 billion increase in the bank's capital was undertaken on 11 November 2008 by issuing hybrid securities without voting rights or dividend entitlement which were fully subscribed by the Netherlands state. On the basis of the repayment terms initially agreed, the securities were, on ING's initiative, either to be repurchased at €15 per security (representing a 50 % redemption premium compared with the issue price of €10) or, after three years, converted into ordinary shares on a one for one basis. If ING chose the conversion option, the Netherlands state would, however, still be able to obtain the repurchase by ING of the securities at the unit price of €10, plus accrued interest. A coupon on the securities would be paid to the state only if a dividend was paid by ING on the ordinary shares. Those initial terms were then amended with regard to part of the capital injection. The new terms enabled ING to buy back half of the securities at the issue price of €10 per security, plus the accrued interest in relation to the annual coupon of 8.5 % and an early redemption premium if ING's share price was higher than €10. That transaction ensured the Netherlands state a minimum internal rate of return of 15 %.
In its decision, the Commission ruled the aid was compatible with the common market, though it found that it contained additional aid of approximately €2 billion following the amendment to the repayment terms. ING, backed by the Dutch central bank, challenged that view.
In its ruling, the Court said the Commission could not limit itself to finding that the amendment to the capital injection repayment terms constituted, by its very nature, state aid without first examining whether the amendment conferred on ING an advantage to which a private investor in the same situation as the Netherlands state would not have agreed. In particular, the Commission did not examine how a return of between 15% and 22% in favour of the Netherlands state following the amendment to the repayment terms did not correspond to that which could reasonably be expected by a private investor confronted by a similar situation, that is to say, a holder of securities of the type issued at the time of the capital injection which can be repaid by the issuer. The Court found that the Commission could not adopt its decision without taking such information into consideration and examining its effect on its assessment of the aid. It thus annulled the Commission decision insofar as it is based on the finding that the amendment to the repayment terms for the capital injection constitutes additional aid of approximately €2 billion and assesses, consequently, the compatibility of the aid with the common market. (FG/transl.rt)