6.4.4.2 Example 2: Sale following the application of the bridge bank tool

In the cases of BES, Banca Marche, Banca Etruria, Carichieti and Carife, the sale did not entail State aid to the buyer. It did however entail State aid to the economic activity to be sold (the bridge bank).

In the case of BES, the Portuguese authorities committed that the bridge bank (Novo Banco) would sell all the assets transferred to it, or the resolution fund would sell all of its shares in the bridge bank, no later than 24 months after the date of the first State aid decision by the Commission. That date was subsequently extended by one year. On 4 December 2014, the Portuguese resolution authority started the sale process of the bridge bank with a public announcement. It however suspended the process, since none of the terms and conditions of the offers received were deemed satisfactory. On 15 January 2016, it announced the launch of a new sale process. This resulted in the sale of the bridge bank to Lone Star. This sale was subject to a Contingent Capital Agreement (CCA) set up by Portugal and allowing Lone Star to reclaim funding costs, realised losses and provisions related to an ex ante agreed portfolio of existing loan stock, subject to a capital ratio trigger and some additional conditions. The amount that could be reclaimed under the CCA was capped at EUR 3.89 billion, reduced by the amount which the resolution fund – potentially – had to provide in the course of underwriting tier 2 instruments issued by the bridge bank. In addition, Portugal provided a capital backstop in case measures remained unsuccessful in addressing the shortfall of the bridge bank. The Commission considered all three measures (that is, the guarantee of the capital position of the bridge bank payable by the resolution fund, the underwriting of Tier 2 instruments by the resolution fund, and the capital commitment by Portugal) to constitute State aid.

In the cases of Banca Marche, Banca Etruria, Carichieti and Carife, Italy had committed to sell the respective bridge banks by 30 April 2016. The Commission approved the prolongation of the sale deadline for the four bridge banks until 31 December 2016. On 28 April 2017, Italy notified the sale of three of the four bridge banks (Banca Marche, Banca Etruria and Carichieti) to Unione di Banche Italiane S.p.A. (UBI). UBI offered EUR 1 for the equity of the three bridge banks and demanded a capital injection from the resolution fund, unlimited guarantees from the resolution fund for misrepresentation, fraud, and for liabilities resulting from the resolution actions, limited guarantees from the resolution fund with specific caps towards specific, identified risks and a positive ruling by the Italian tax authority regarding the availability of deferred tax assets in the bridge banks for the use of UBI at consolidated level. The Commission considered only the capital injection and the limited guarantees to constitute State aid for the benefit of the bridge banks.1 Carife was sold under the same conditions to BPER Banca S.p.A. Also in this case, the Commission considered only the capital injection and the limited guarantees to constitute State aid for the benefit of the bridge bank.2

In the case of BES, the Commission considered that it had to assess two key questions for the purpose of the viability assessment. Namely, that the bank returns to operational viability at the end of the restructuring period, i.e. that the bank will be in a position to remunerate its capital adequately, and secondly, that even in an adverse case, the bank does not deplete its capital base to a level that might raise concerns and would likely lead the bank to request further aid. The Commission came to the conclusion that this criterion was met on the basis of the commitments provided together with the restructuring plan submitted by Lone Star and the bridge bank, and the presence of the backstop.3

In the cases of Banca Marche, Banca Etruria and Carichieti, an integration plan for the integration of the three banks into UBI was shared by Italy with the Commission.4

In this respect, it is interesting that the Commission did not discuss in the case of BES that Portugal provided up to EUR 3.89 billion of a contingent recapitalisation without remuneration or other compensation, as the Restructuring Communication requires that banks receiving restructuring aid should pay an adequate remuneration. This requirement also applies to liquidation aid.5

Moreover, in the cases of Banca Marche, Banca Etruria and Carichieti, the Commission considered that the distortions of competition stemming from the market presence of the residual entities during their winding up in an orderly manner and of the bridge banks during their existence period were limited, despite the large amount of aid they had received and the absence of remuneration to the State for the aid it had already provided in the resolution, and for the aid notified in relation to the sale of the bridge banks.6

In the case of Carife, the Commission specifically noted the presence of three separate earn-out mechanisms which were likely to reduce the net cost to the State. These mechanisms provided for profit sharing in favour of the resolution authority.7 Although the share purchase agreement concluded with UBI in relation to the sale of Banca Marche, Banca Etruria, and Carichieti, provided for the same earn-out mechanism, this was not specifically mentioned by the Commission in its State aid assessment in relation to this sale.

In the case of BES, the Commission did, however, consider that it would have been fully in line with State aid rules to further reduce the net cost to the resolution fund by seeking a greater degree of loss participation from senior creditors. It subsequently considered that the degree to which senior bond holders were asked to participate beyond the minimum requirements under State aid rules and the magnitude of losses that correspondingly had to be carried by the resolution fund has been the sole decision and responsibility of the Portuguese authorities.9 In addition, the Commission considered that the burden-sharing was not undone through any subsequent measures and that the bridge bank had not issued any hybrid or subordinated debt instruments since its inception. It therefore concluded that no further burden-sharing was required.10

In the case of BES, the Commission took positive note of the commitments provided with respect to re-focussing Novo Banco on its core market in commercial banking. Moreover, Portugal had committed that Novo Banco would not grow its core loan book during the first years of the restructuring plan. In addition, Portugal gave certain commitments in relation to the pricing policy for loans and certain standard behavioural commitments, namely an acquisition ban, a ban on paying dividends, an advertisement ban, and a cap on remuneration lasting at least until 30 June 2020.11