Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.8.1:3.8.1 Measures implemented in cooperation between the bank and its stakeholders

Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.8.1

3.8.1 Measures implemented in cooperation between the bank and its stakeholders

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Examples of measures that can be deducted from the Commission’s decisions1 and that were implemented or taken by shareholders and other creditors to contribute in the losses of a bank are: transfer of shares against a symbolic price, renouncement of shareholder’s rights, relief from the obligation to repay credit lines and subscription to capital instruments of which the nominal amount is subsequently reduced following loss allocation and conversion of Tier-2 capital into Tier-1 capital. In addition, shareholders and other creditors cooperated in the repurchase by banks of capital instruments significantly below par or even cancellation.

For the implementation of some measures the approval of the shareholders or creditors was necessary.

In the case of Kaupthing Bank Luxembourg the restructuring plan was approved by a double majority vote of the inter-bank creditors on 5 June 2009. That approval was a legal requirement for implementation of the restructuring plan. The other stakeholders, including the Luxembourg Deposit Guarantee Association (AGDL), also agreed to the plan.2

On 12 December 2008, the Brussels Court of Appeal suspended the sale of Fortis Banque to BNP Paribas and requested a consultation of the bank’s shareholders.3 Following the lodging of an interlocutory suspension order by Fortis Holding shareholders, the Brussels Court of Appeal ruled that the sale of Fortis Banque by Fortis Holding required the approval of the latter’s shareholders, and suspended the transfer by the Federal Participation and Investment Company (SFPI) of control of Fortis Banque to BNP Paribas. This created huge uncertainty as to the validity and future of the contract for the sale of 75% of Fortis Banque to BNP Paribas. At an extraordinary general meeting on 11 February 2009, Fortis Holding’s shareholders rejected the conditions of the transaction. Subsequently, Fortis Holding, BNP Paribas and Belgium renegotiated the initial agreement of 10 October 2008. The new operating terms were approved by the general meeting of Fortis Holding’s shareholders on 28 and 29 April 2009 with a majority of more than 70%.4

For the implementation of other measures, contracts were signed in order to ensure that parties committed themselves to the measures imposed.

In the case of restructuring of Fortis, Fortis Holding and BNP Paribas formally committed themselves to financing of an investment vehicle to buy impaired assets from Fortis Banque in contracts signed on 10 October 2008.5

Also where burden-sharing was introduced ex post, i.e. after State aid had been approved by the Commission, private law contractual arrangements were used.6

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