Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.6.1:3.6.1 Determination of the aid beneficiary within a group

Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.6.1

3.6.1 Determination of the aid beneficiary within a group

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In order for a group entity to qualify as aid beneficiary, it is not necessary that the aid measure was granted to the entity. The measure can also be granted to one group entity, while another group entity benefits from this aid, and therefore (also) qualifies as aid beneficiary. This is especially important, if the first entity does not qualify as an ‘undertaking’, as only aid granted to an undertaking can qualify as State aid.

A holding company of a bank does not qualify as an ‘undertaking’, if it does nothing more than holding shares in companies, even controlling shareholdings, where its function gives rise only to the exercise of the rights attached to the status of shareholder or member, as well as, if appropriate, the receipt of dividends, which are merely the fruits of the ownership of an asset. This is different, if the holding company actually exercises control by involving itself directly or indirectly in the management of the bank.1

Which entity is the aid beneficiary is also important when the ‘one time, last time’ principle applies. Although this principle does not apply under the 2013 Banking Communication, it is included in the 2014 R&R Guidelines.

The 2014 R&R Guidelines set out that where a business group has received rescue aid or restructuring aid, the Commission will normally not allow further rescue or restructuring aid to the group itself or any of the entities belonging to the group unless 10 years have elapsed. This should be seen against the background that rescue and restructuring aid is considered among the most distortive types of State aid.2 If the aid was granted to a single entity belonging to a business group, the group as a whole as well as the other entities of the group remain eligible for rescue or restructuring aid, with the exception of the earlier beneficiary of the aid. In that case, Member States have to demonstrate that no aid will be passed on from the group or other group entities to the earlier beneficiary of the aid.3

There may be multiple aid beneficiaries in one banking group. If State aid is granted to a banking group, it may, for example, be that the aid awarded to the bank also benefits the shareholder of the bank (which may be a bank in its turn).

In the case of the Austrian bank HGAA, the Commission considered that the aid for HGAA also seemed to benefit its shareholder BayernLB. Without the aid, HGAA would have become insolvent and BayernLB would have lost not only its capital in that bank but also (part or all of) liquidity provided to HGAA. In addition, the rescue of HGAA might have prevented a possible negative reputational effect for BayernLB which could have followed, if it had let its main subsidiary go bankrupt. Therefore, the Commission considered that BayernLB benefited from the aid granted to its subsidiary HGAA.4

If State aid is granted to a shareholder of a bank, after which the shareholder uses part of the State aid to assist its bank subsidiary, this should not be double counted as State aid.

BayernLB was itself recapitalised by the Free State of Bavaria in 2008 and used part of the funds to recapitalise its subsidiary HGAA. The full amount of the recapitalisation granted by the Free State of Bavaria constituted aid to BayernLB. As the amount of aid in one measure cannot be double-counted, the Commission concluded that the recapitalisation of HGAA by BayernLB did not constitute State aid to the benefit of HGAA.5

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