11.2.1 Why is this a relevant characteristic?

In several bank State aid cases, the senior management of the bank was replaced when the bank was rescued by the State. For instance, when the Dutch State nationalised SNS REAAL in February 2013, it appointed a new CEO and a new CFO.1

Another example is Banco Portugues de Negocios (BPN), which was nationalised in November 2008 by the Portuguese government. As part of the nationalization, the members of the board of BPN were replaced by executives appointed by Caixa Geral de Depósitos (CGD). CGD was a State-owned bank and it was given the task to manage BPN.2 There was a specific reason for the replacement of BPN’s senior management: the senior management of BPN had engaged in fraudulent behaviour.3 In its decision on BPN, the Commission welcomed the fact that BPN’s board had been changed.4

The fact that the senior management of the beneficiary bank has been replaced is a relevant characteristic. It is relevant for two reasons. In the first place, many restructuring plans envisage a return to a more traditional business model. This is usually accompanied by a change in management style. The replacement of the senior management can contribute to a change in management style.5

In the second place, the fact that the senior management of the bank is no longer involved in the bank’s activities provides a valuable signal against moral hazard.6 This is especially the case when the bank’s management took the decisions leading to the bank’s difficulties. If the management was responsible for the bank’s failure, then they should bear the consequences.7

The current relevant characteristic is mentioned in the Crisis Communications. The Recapitalisation Communication holds that State aid for banks which are not fundamentally sound, can only be accepted “on the condition of either a bank’s winding-up or a thorough and far-reaching restructuring, including a change in management and corporate governance where appropriate”.8 “Necessary management changes” were also mentioned in the Restructuring Communication.9 The 2013 Banking Communication is even more clear about the importance of management changes. Point 37 of this Communication provides that “there should be incentives for banks” managements to undertake far- reaching restructuring in good times and, thereby, minimise the need to recourse to State support. Accordingly, if recourse to State aid could have reasonably been averted through appropriate and timely management action, any entity relying on State aid for its restructuring or orderly winding down should normally replace the Chief Executive Officer of the bank, as well as other board members if appropriate”.10

Thus, the Crisis Communications underline that the fact that the bank’s senior management has been replaced11 is a relevant characteristic.