State aid to banks (IVOR nr. 109) 2018/11.11:11.11 Acquisition of other banks by a beneficiary bank

State aid to banks (IVOR nr. 109) 2018/11.11

11.11 Acquisition of other banks by a beneficiary bank

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The previous section focussed on the take-over of a beneficiary bank; the current section focusses on the acquisition by a beneficiary bank. This situation is quite rare: bank that received State aid are usually not allowed to take over other banks – as will be discussed in chapter 13 in the context of the acquisition ban. The situation of a beneficiary bank acquiring another bank only occurred in the Greek context. There are four large banks in Greece, and each of these four large banks acquired some smaller banks.1

The Commission assessed whether these acquisitions were compatible with the Restructuring Communication. This assessment concerned the effect of the acquisitions on: i) the viability of the bank, ii) the aid amount needed by the bank, and iii) competition. Any acquisition is thus assessed from three perspectives. The first perspective (i.e. effect on viability) is discussed in this section, whereas the other two perspectives will be covered in section 13.9.

With respect to the effect of the acquisition on the long-term viability of the bank, the relevant criterion is that the acquisition would enhance – or at least not endanger – the long-term viability of the acquiring bank. In the context of that assessment, the Commission took into account the following circumstances:

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Through the acquisition, the acquiring bank would enhance its deposit gathering franchise and capabilities.

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There were synergies (in terms of central functions, IT services and operating expenses) (or in the form of personnel reduction, branch closures and reduced overhead costs).

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The acquisition can have a positive effect on the liquidity position, if the bank acquires more deposits than net loans. This was the case with the acquisition of Emporiki Bank by Alpha Bank: the LTD-ratio of Emporiki Bank was around 115%, well below Alpha Bank’s very high LTD-ratio.2

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The acquisition can have a positive effect on the capital adequacy ratio of the acquiring bank.3

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The acquisition can give the acquiring bank the opportunity to enhance its revenues by broadening its client base in several geographic areas.4

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The acquiring bank acquired the other bank’s loans at fair value, and not at book value. That factor limits the risk of future impairments.5

It should be noted that some of the banks that were taken over by the beneficiary bank, had also benefited from State aid. In other words: the acquiring bank and the transferred bank were both beneficiaries from State aid. In this situation, the viability-assessment had to be performed twice. On the one hand, the viability of the transferred activities had to be assessed. This assessment was based on the characteristics that were outlined in the previous section. On the other hand, it had to be assessed whether the acquisition endangered the viability of the acquiring bank. This assessment was based on the characteristics discussed in the current section.

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