12.5.3.1 Nationalisation

One of the most extreme types of burden-sharing by shareholders is the nationalisation of the bank. The nationalisation of an ailing bank excludes the shareholders from receiving the benefit of any State aid.1 As a result, moral hazard is minimised, because the shareholders bear the consequences of the bank’s failure. In one of its decisions, the Commission literately indicated that in the cases of Northern Rock and Hypo Real Estate, burden-sharing was achieved by nationalisation.2

How can a bank be nationalised? It can be achieved by a transfer of the shares to the State or by a write-down of the shares. An example of the former is the case of Hypo Group Alpe Adria (HGAA). In this case, the shareholders of HGAA sold their shares to the Austrian State for the symbolic price of one euro.3 This nationalisation was based on the Austrian law for remedying a serious disturbance in Austria’s economy (FinStaG) and it followed intense negotiations between HGAA’s shareholders and the Austrian State.4

In the case of Nova Kreditna Banka Maribor (NKBM), the State recapitalisation was combined with the requirement that NKBM would write-down in full its shareholders’ equity (and outstanding subordinated debt). To that end, the Bank of Slovenia adopted on 18 December 2013 a decision on extraordinary measures.5 Pursuant to this decision, NKBM was required to write down all of its qualified liabilities.6 NKBM’s shares (totalling EUR 143.225.000) were cancelled; this was reflected in an increase in the share premium by the same amount.7 As a result, NKBM’s share capital was reduced to zero. But on the same day as the write-off, the Slovenian State subscribed to 10.000.000 newly issued shares of NKBM, thereby increasing the Bank’s share capital by EUR 150.000.000.8 Thus, after this recapitalisation, the Slovenian State became the sole shareholder of NKBM.

Nationalisation can also be achieved by diluting the shareholders. This can be illustrated by the case of Hypo Real Estate (HRE) which was taken into public ownership in 2009. This nationalisation was the result of several capital injections (which diluted the shareholders)9 and a squeeze-out10 of minority shareholders. Dilution will be discussed further in subsection 12.5.3.2.

The fact that a bank is nationalised is highly relevant. However, this fact, in itself, does not convey sufficient information regarding burden-sharing by shareholders. An essential question in that regard is whether the shareholders have received a compensation. The amount of compensation determines how burdensome the nationalisation is to shareholders.

In some cases, there is a compensation for the shareholders of the nationalised bank. For instance, in the case of Northern Rock, the shareholders received a compensation. However, this compensation was based on a valuation of the shares on the assumption that no State aid would be granted. Consequently, the compensation was likely to be close to zero.11

In most12 decisions on nationalised banks, the Commission welcomed the fact that the beneficiary bank’s shareholders had lost control of the bank and all the financial stakes therein without any compensation.