11.7.3 How is this relevant characteristic elaborated in the decisions?

Usually, the decisions provide some basic information on the different modalities of the cost-cutting measures.

Firstly, it is usually indicated how the cost-cutting will be achieved. For instance, in the decision on Caixa Geral de Depósitos (CGD), the Commission noted that “a reduction of the bank’s headcount and the renegotiation of contracted services are the main levers to achieve additional savings”.1 In its decision on Nova Kreditna Banka Maribor (NKBM), it was indicated that the cost-reduction was achieved “through a significant consolidation of its business premises and branch network, a reduction in personnel, improved operational efficiency, the acquisition of clients on a risk-adjusted profitability-driven basis, optimisation of liquidity costs by pooling treasury positions and optimisation of other costs”.2

Secondly, the timeframe of the cost-reduction programme is mentioned. To give an example, the decision on Nova Ljubljanska banka (NLB) indicated that NLB would reduce its operating costs to EUR [300-350] million by 31 December 2014, EUR [300-350] million by 31 December 2015, EUR [250-300] million by 31 December 2016 and to EUR [200-250] million by 31 December 2017.3

Thirdly, the extent of cost-cutting is indicated. This can be in absolute terms and in relative terms. For example, the decision on Banco Mare Nostrum (BMN) indicates that the cost-cutting measures would result in a reduction of annual operational costs by approximately EUR [200 – 300] million, which would correspond to a decrease of approximately [30 – 40]% when compared to 2012 levels.4

Related to the extent of cost-cutting is the cost/income ratio that would be achieved by the cost-cutting measures. In some decisions, it is mentioned that the bank is aiming at a certain cost/income ratio. In that regard, the decision on BMN indicates the following:

Although the decision on BMN mentions the cost/income ratio that BMN was aiming at, the decision does not mention whether this cost/income ratio was sufficient.6 This observation applies to most decisions. Indeed, there are only a few decisions in which the Commission explicitly considered the cost/income ratio to be satisfactory. One of these decisions is the decision on BayernLB, in which the Commission noted the following:

The Commission thus explicitly assessed the cost/income ratio in the case of BayernLB. By contrast, in most other decisions, the Commission did not explicitly consider whether the cost-cutting measures were sufficient. It only welcomed the cost-cutting measures (without evaluating the exact modalities of the cost-cutting measures).8

To conclude, even though information is given on the modalities of the cost- cutting measures, the Commission does not seem to draw any conclusions from it. While it is safe to assume that the extent of cost-cutting should be higher for a greatly inefficient bank than for a reasonably efficient bank, the extent of cost- cutting was never used as a reason to dismiss a cost-cutting measure as inadequate. In fact, cost-cutting measures were never dismissed as insufficient.