10.2.2 Ad hoc recapitalisation measures and ad hoc asset relief measures

The question whether a restructuring plan was required when a bank benefited from a recapitalisation measure or asset relief measure, hinged on the question whether the beneficiary bank was fundamentally sound or distressed. Member States did not have to submit a restructuring plan for banks that were fundamentally sound. Conversely, Member States had to submit a restructuring plan (within six months of the recapitalisation) for banks that were considered not to be fundamentally sound by the Commission.1 For fundamentally sound banks, a viability review – sometimes referred to as a viability plan2 – sufficed.

The aid intensity3 was used as an indicator to distinguish between fundamentally sound and distressed banks. In the Recapitalisation Communication, the Commission introduced a threshold of 2% to differentiate between fundamentally sound and distressed banks. If the aid received was more than 2% of the bank’s risk weighted assets (RWA), then the bank was deemed as distressed and had to submit a restructuring plan. The fact that the bank is fundamentally sound was therefore a very relevant characteristic.4

The distinction between fundamentally sound banks and distressed banks was introduced in the 2008 Banking Communication. In the 2008 Banking Communication, the link between this distinction and the requirement to submit a restructuring plan was formulated quite tentatively.5 The Recapitalisation Communication was much more clear on the question whether a restructuring plan was required. Section 2.1 of the Recapitalisation Communication dealt solely with fundamentally sound banks, while section 2.2 concerned banks which are not fundamentally sound. Only the latter were required to submit a restructuring plan. When a fundamentally sound bank fell into difficulties after recapitalisation has taken place, a restructuring plan had to be notified.6

With respect to insurance companies, there was a complicating factor: unlike the regulatory capital of banks, regulatory capital of insurance companies is not defined in terms of RWA.7 Consequently, the aid amount cannot be expressed as a percentage of the RWA. The Commission came up with the following solution: since 2% of RWA represented a quarter of the minimum capital requirements for banks, the Commission would take 25% of the minimum solvency margin requirements as a relevant proxy for the 2% RWA benchmark.8

In its decisional practice, the Commission consistently assessed whether the beneficiary bank could be considered fundamentally sound.9 There is an interesting case that is worth mentioning: the case of Natixis.

Natixis was the main subsidiary of the BPCE group, i.e. the banking group that resulted from the merger of Banque Populaire (BP) and Caisse d’Epargne (CE) in July 2009. In 2008/2009, BPCE received a capital injection from the French State. The Commission observed that most of the State aid to BPCE was used to recapitalise Natixis. The Commission therefore concluded that Natixis was the indirect recipient of most of the State aid.

The amount of aid received by Natixis exceeded 2% of its RWA. However, as compared to the RWA of the entire BPCE group, the aid amounted to 1,6% of BPCE’s RWA, thus below the indicative limit of 2%. An important aspect of this case was that Natixis was not a wholly-owned subsidiary: before the merger, BP and CE each held 35% of the shares in Natixis, while the other 30% of Natixis’ share capital was floated on the stock market. The Commission therefore analysed whether Natixis constituted a separate banking group or whether it should be considered as an integral part of the newly created BPCE group. In that regard, the Commission considered that the newly created BPCE group would own 70% of Natixis and that Natixis would be totally consolidated in the new group’s accounts. The Commission concluded that the aid must be treated as aid allocated to the BPCE group, rather than as aid granted to Natixis taken in isolation from its parent companies.10

The Commission then analysed whether BPCE was fundamentally sound. In line with Annex 1 of the Recapitalisation Communication, the Commission took into account BPCE’s capital adequacy, its CDS spread and its rating. In addition, the Commission took into account the fact that the aid amount was only 1,6% of BPCE’s RWA.11 Based on these elements, the Commission concluded that the beneficiary bank was fundamentally sound. The case of Natixis is thus illustrative of the importance that the Commission attached to the 2%- threshold as an indicator to distinguish between fundamentally sound and distressed banks.

In December 2010, the Commission adopted the First Prolongation Communication.12 The First Prolongation Communication removed the distinction between fundamentally sound banks and distressed banks. As a result, for every recapitalisation measure or impaired asset measure taken after 1 January 2011, a restructuring plan had to be submitted, irrespective of whether the beneficiary bank was fundamentally sound or distressed. This means that the 2%-threshold has lost its relevance after 1 January 2011. For instance, when Nova Ljubljanska banka (NLB) was recapitalised in March 2011, the capital injection amounted to 1,6% of NLB’s RWA and the Slovenian State had to submit a restructuring plan. In its decision, the Commission noted that prior to 1 January 2011, this capital injection would most likely not have triggered the requirement to submit a restructuring plan.13