11.3.3.2 State involvement

One particular aspect of the corporate governance framework is State involvement. In many cases, the State acquired a significant ownership of the bank and some banks were completely nationalised. Many cases are thus characterised by State involvement.1

In several Commission decisions, the State involvement is viewed as a positive characteristic. For instance, Anglo-Irish Bank faced corporate governance difficulties.2 The Commission therefore noted positively that following the rescue recapitalisation, the Irish State had a representative in the board of Anglo- Irish Bank and that there were voting rights attached to the Irish State’s preferred shares.3 As is illustrated by the case of Anglo-Irish Bank, the Member State sometimes obtains voting rights as a result of the capital injection. However, this is not always the case. Sometimes, recapitalisations are set up in such a way that the Member State does not obtain voting rights. For instance, Austria subscribed to the participation certificates (“Partizipationsscheine”) of OVAG without obtaining voting rights.4 This aspect was not mentioned in the compatibility- assessment – however, this can be explained by the fact that OVAG did not experience corporate governance difficulties.

State involvement is not always welcomed by the Commission. This was already illustrated by the above-mentioned case of Sparkasse KölnBonn: as set out in subsection 11.3.3.1, Sparkasse KölnBonn’s investment decisions seemed politically-driven (instead of business-oriented). Similarly, the decision on the Slovenian bank Nova Ljubljanska banka (NLB) indicates that “weak corporate governance rules and the resulting influence of the State in the day-to-day business of the bank was also one of the reasons leading to the problems of the bank”.5

In the case of Alpha Bank (a Greek bank), there was a bridge recapitalisation to be replaced by a permanent recapitalisation. One of the possibilities was that Alpha Bank would come under State control. In that regard, the Commission stressed the importance of an adequate corporate governance framework. Otherwise, there would be a risk that – due to public interference in the day- to-day management of the bank – lending decisions would no longer be taken on the basis of commercial criteria, which would endanger the bank’s return to viability. In that respect, the Commission observed that some of the State-controlled banks in Greece had a poor track-record.6

To conclude, in some cases, State involvement is viewed as a positive characteristic, whereas in some other cases, State involvement is considered to be a negative characteristic. This reflects the fact that State involvement can be part of the solution, or part of the problem.7