The European Commission approved German Norddeutsche Landesbank Girozentrale’s restructuring plan under State aid rules

22-8-2013 — /EuropaWire/ — The European Commission has concluded that additional commitments provided by Germany in the context of the restructuring of NORD/LB ensure that the State aid granted to the bank remains compatible with the internal market. This remains the case after the amendments to the terms of the so-called Fürstenberg hybrids, a set of four tranches of tier-1 instruments held by sundry investors.

In July 2012, the Commission approved a restructuring plan for NORD/LB which includes a dividend ban for the years 2012 and 2013 and a coupon ban, stipulating that the bank would not pay coupons on hybrids, unless it is legally obliged to do so and is able to pay them out of the profit of a given year (see IP/12/838).

Shortly before the Commission’s 2012 decision, NORD/LB had amended the terms of the Fürstenberg hybrids; an act which was not brought to the Commission’s attention when the 2012 decision was taken.

As a result of the amendment, the payment of the coupon became independent of the dividend payment and the bank has to pay the coupon whenever it generates sufficiently high profits. This is projected to be the case throughout the whole restructuring period. If the coupon terms had been left unaltered, the hybrid investors would have been deprived of coupon payments for the years 2012-2013, while the dividend ban was in effect.

The change of the terms of the Fürstenberg hybrids is in contradiction with the principle of burden-sharing because the bank, at its own initiative, surrendered the possibility to retain a part of its future profits, which otherwise could have contributed to covering part of its restructuring costs. The bank thus reduced the total amount of own funds.

In order to remedy the effect of the changes of the hybrid contracts and to avoid a revocation of the Commission’s approval of the restructuring plan, Germany notified amended commitments. These provide, among other things, for additional divestments and a prolongation of the acquisition ban by a year and a half, until end 2016. In addition, Germany committed to reducing the balance sheet by an additional amount if the asset guarantee is activated by the bank.

The Commission found the amended commitments to be sufficient in nature and extent to off-set the coupon payment and so ensure the continued compatibility of the state aid received by Nord/LB. This is because the commitments contain measures aimed at strengthening the capital basis of the bank. The Commission considers in particular the combination of additional safeguards and additional structural measures will act as a disincentive to other financial institutions thinking of following the same approach.

Background

Norddeutsche Landesbank Girozentrale (NORD/LB) is a German Landesbank which serves as central institution to savings banks in the German Länder of Niedersachsen, Sachsen-Anhalt and Mecklenburg-Vorpommern.

In the context of a stress test and a subsequent capital exercise conducted by the European Banking Authority (EBA) in 2011 and 2012 respectively, NORD/LB received recapitalisation measures totalling to €2.6 billion in order to strengthen its core tier-1 capital (CT1) in accordance with the EBA definition (see EBA/REC/2011/1).

The non-confidential version of this decision will be made available under the case number SA.34381 in theState Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

Contacts :
Antoine Colombani (+32 2 297 45 13, Twitter: @ECspokesAntoine)Maria Madrid Pina (+32 22954530)