Brussels, 12/05/2009 (Agence Europe) - On Tuesday 12 May, the European Commission took a number of important decisions in the banking sector, which Competition Commissioner Neelie Kroes has described as “a vital artery of the economy”.
Firstly, the Commission approved a €5 billion risk shield for German bank WestLB and accompanying measures, following an in-depth investigation opened in October 2008. The prolongation of the risk shield, authorised as a temporary measure on 30 April 2008, is designed to restore the long-term viability of WestLB. The latest amendments to the viability plan submitted by Germany show a considerable reorientation of WestLB's business into less risky activities, thereby reducing its assets by 50%. The bank will focus more on core banking services, loans to medium-sized companies and its savings banks partnership and corporate banking.
The Commission also decided to open an in-depth investigation into state support measures for German Landesbank BayernLB. BayernLB obtained rescue aid in the form of a capital injection of €10 billion and a risk shield of €4.8 billion, approved by the Commission on 18 December 2008. It then injected €0.7 billion into its Austrian subsidiary Hypo Group Alpe Adria (HGAA). On 29 April 2009, Germany submitted a viability strategy for BayernLB and HGAA. The Commission will evaluate in detail whether the planned measures are capable of restoring the long-term viability of BayernLB and HGAA, whether the state support is limited to the minimum necessary, and whether measures should be put in place to minimise potential distortions of competition created by the aid. These two decisions, Kroes said, demonstrate the need for deep restructuring of the German banking sector.
The Commission also authorised additional aid measures from the Belgian and Luxembourg states to allow Fortis Banque to be ceded to BNP Parisbas. The Commission says that these measures seek to ensure financial stability and so are compatible with Article 87.3.b of the EC Treaty, that allows aid to remedy a serious disturbance in the economy of a member state.
Finally, the Commission approved emergency recapitalisation worth €3.5 billion that the Irish authorities intend to grant to Allied Irish Bank. Kroes said that “this capital injection will enable Allied Irish Bank to weather the financial crisis whilst avoiding disproportionate distortions of competition. The Commission has once again demonstrated that it can take effective decisions on measures aimed at stabilising the situation of banks affected by the crisis once it is in possession of full information and sufficient commitments”.
After noting the importance of preserving those parts of banks that were viable in the long term, the commissioner concluded that the decisions taken by the Commission were necessary to kick-start the economy. (H.D./transl.rt)