9.3.1.1 Asset relief measures which are similar to recapitalisation measures

Some asset relief measures are very similar to recapitalisation measures. This raises the question whether these measures should be considered as recapitalisation measures or as asset relief measures. The cases of OVAG, HGAA, ABN AMRO and KBC illustrate how the Commission has addressed this question. These cases will be discussed below.

The Austrian banks Hypo Group Alpe Adria (HGAA) and Österreichische Volksbanken AG (OVAG) both benefited from an asset guarantee. This asset guarantee differed from standard impaired asset measures, because it was structured in such a way that it did not influence the banks’ RWA. Rather, it was aimed at reducing the loan-loss provisions that the banks had already made for expected losses on the covered assets. OVAG and HGAA would be able to draw the guarantee and request the recourse from the State (the guarantor) if they provided evidence that the debt was irrecoverable and only if and as far as the recourse was necessary to avoid that the Common Equity Tier 1 ratio would fall below a certain threshold. The asset guarantee also differed in other aspects from a standard impaired asset measure, since the asset guarantee covered the first-loss position. In addition, any amount drawn needed to be repaid to the State. The Commission concluded that the asset guarantee, as it was constructed, protected the capital base of OVAG and HGAA. It was therefore similar to a capital injection (and should thus be assessed as such).1

One of the aid measures in the case of ABN AMRO was a capital relief instrument (CRI). The CRI had a very particular background: it was related to the consequences of the acquisition of ABN AMRO Holding by the Consortium (Fortis, RBS and Santander) in 2007. The consortium members intended to separate ABN AMRO Holding into three parts and created so-called ‘tracking shares’ representing the economic ownership of the businesses attributed to each consortium member. Fortis became the economic owner of ABN AMRO N. Items that were not allocated to the individual consortium members were brought together in the so-called ABN AMRO Z-share (“ABN AMRO Z”). Each consortium member held a pro-rata stake in ABN AMRO Z. In October 2008, the Dutch State acquired Fortis Bank Nederland (FBN) and the ABN AMRO Holding assets owned by FBN.

The CRI covered the Dutch mortgage portfolio of ABN AMRO N.2 With respect to the CRI-measure, the Commission noted that the guaranteed portfolio was not made of impaired assets. By contrast, it was a traditional Dutch mortgage portfolio of which neither ABN AMRO N nor external experts expected the performance to deteriorate to a significant extent.3 The Commission considered that the CRI was de facto a proxy for a recapitalisation measure: the CRI-measure reduced the RWA of ABN AMRO N. Accordingly, it provided a capital relief and therefore covered the capital shortage (at the level of ABN AMRO Z) without implementing a standard capital increase.4 The Commission noted that the choice of the Dutch State to grant a credit protection instrument instead of a standard recapitalisation had been only dictated by the fact that prior to the separation of ABN AMRO N from the ABN AMRO Holding, the Dutch State could not ring-fence capital contributions in ABN AMRO Bank. In other words, since ABN AMRO N was not a separate legal entity, a capital injection in ABN AMRO Bank could also have benefited the other two consortium members.5

Even though the Commission concluded that the CRI was de facto a proxy for a recapitalisation measure, it considered that the CRI-measure should be assessed by analogy on the basis of the principles laid down in the IAC, in order to ensure that the CRI-measure was consistent with other capital relief schemes.6 In particular, in order to maintain a level playing field, the Commission assessed whether the CRI was not used to shift expected losses on the portfolio to the Dutch State.

It should be noted that – in contrast to the asset guarantee in the case of OVAG and HGAA – the CRI was designed as a typical asset relief measure: ABN AMRO N kept a first-loss of 20% and a vertical slice of 5% of the remaining risk.7

The State Protection measure in the case of KBC was structured in three tranches. Losses within the first tranche had to be borne by KBC. For losses within the second tranche (the “Equity Range”), the Belgian State would provide fresh capital to KBC. For losses within the third tranche (the “Cash Range”), the Belgian State would provide KBC with cash. The Commission considered that a distinction should be made between the Equity Range and the Cash Range of the measure. The Commission considered that the Cash Range, where the Belgian State is committed to compensate KBC for losses in cash, should be considered as an asset relief measure. Therefore its compatibility was assessed under the IAC. By contrast, the Commission considered that the commitment to inject capital, subject to the trigger event of specific realised losses, associated with the Equity Range should be considered as equivalent to a capital injection. Therefore, the compatibility of the Equity Range was assessed under the Recapitalisation Communication.8