Brussels, 31/07/2009 (Agence Europe) - On Friday 31 July, the European Commission authorised a German aid regime designed to save the assets of financial companies in order to stabilise the markets. The same day, the Commission issued a press release in which it welcomes the fact that the proposed mechanism is in line with Community rules.
"In particular, the mechanism provides ex-ante transparency and disclosure of impairments, valuation of the assets based on their real economic value, a burden sharing of the costs related to the operation and adequate remuneration", states the press release. Furthermore, the banks will only have a period of six months to declare the assets they wish to relieve. Limitations in time constitute an important criterion for State aid to financial companies to be approved. The Competition Commissioner Neelie Kroes said: "[the German regime] will contribute to maintaining market confidence. Yet, restructuring is likely to be necessary in a significant number of cases". The measure was notified by the German authorities on 5 May.
Asset relief is basically a system whereby assets are exchanged for guaranteed bonds. In return, the beneficiary must agree to a strict calculation of their value, which will take account, amongst other things, of any unforeseen future losses. This valuation will determine the so-called "fundamental" value, which is necessarily below the real economic value at the time of the transfer. Independent experts will make this calculation, which is then confirmed by a supervisory authority, and the results of this published in the annual report of the beneficiary.
By this mechanism, the State undertakes to reimburse the difference between the transfer value and the "fundamental" value. The payments will be made in annual instalments; as the effect is similar to a capital injection, the beneficiaries will pay an annual fee in line with EU requirements. For any asset release to be carried out under this mechanism, Germany must provide the Commission with either a viability assessment or a restructuring plan. (C.D./trans.fl)