12.8.1.3 Exceptions to the coupon and dividend ban

Exceptionally, the Commission can authorise dividend payments provided the benefits of the dividend payment outweigh the disadvantages of such deviation.1 If no authorisation is given, the payment would constitute a breach of the dividend ban.

In the case of Caixa Geral de Depositos (CGD), there was a breach of a dividend ban. CGD had committed to a dividend ban. However, on 28 September 2012, Caixa Geral Finance Limited (an affiliate of CGD) had paid out dividends on perpetual non-cumulative preference shares in the amount of EUR 405.415. Portugal argued that these payments were not dividends, but coupon payments which may be paid if there is a legal obligation to do so. However, the Commission did not accept this argument and concluded that the breach of the dividend ban constituted misuse of State aid. Consequently, the Commission opened the formal investigation procedure for misuse of State aid pursuant to Article 16 of the Procedural Regulation. In its decision of 24 July 2013, the Commission held that the aid was not limited to the minimum necessary, because CGD had paid out dividends in the amount of EUR 405.415. Consequently, the aid amount exceeded the minimum necessary by an amount of EUR 405.415. However, CGD committed to pay back to Portugal an amount of EUR 405.415. Because of this commitment, the Commission concluded that the aid was limited to the minimum necessary.2

Also in the case of Banco BPI – another Portuguese bank – there was a breach of the dividend ban. In Jun 2012, BPI was recapitalised under the Portuguese recapitalisation scheme in the form of CoCo’s (contingent convertible subordinated bonds). In August 2012, dividends on preference shares issued by BPI Capital Finance were paid without prior Commission authorisation. The preference shares had some particular features: due to the terms and conditions of the preference shares – namely the guarantee on those shares which prevented any repurchase or redemption of parity obligations or junior obligations until the date on which a fourth consecutive preferred dividend would have been paid in full – BPI would not have been in the position to repurchase the CoCo’s (i.e. to pay back the Portuguese State). This was acknowledged by the Commission. Nevertheless, the Commission considered that this element did not alter its assessment that the dividend payment took place in contravention of the dividend ban.3 However – just like in the case of CGD – the Commission took note of the commitment by BPI to pay back to Portugal an amount equalling the dividend payment (and therefore the amount by which the aid granted exceeded the minimum necessary). Given that commitment, the aid was deemed to have been limited to the minimum necessary.4

In the Restructuring Decision on ABN AMRO, a different approach can be found. In this decision, the Commission acknowledged that dividends paid by ABN AMRO Group to the State could trigger hybrid coupons. The Commission considered that “a large dividend hints at restored viability and also helps to keep potential excess capital in check, which helps to limit undue distortions of competition”.5 Therefore, the Commission did not object to the payment of a sizeable dividend to the State even though that payment could trigger hybrid coupon payments.

A similar consideration can be found in the case of ING. ING had made discretionary coupon payments in 2009 without any proper justification although it was loss-making in 2008. The Commission considered that a coupon ban should no longer be required in the case of ING provided that ING repayed EUR 5 billion to the State before 31 January 2010. That exemption would include the coupon payments of 8 and 15 December 2009. The Commission clarified this as follows: “The early repayment of a significant part of the State aid granted to the Netherlands addresses existing concerns of the Commission that such coupon payments impede ING from achieving long-term viability without State aid. If a bank is able to raise such a significant amount of capital from the market and has a clear strategy in the medium-term, it should no longer be restricted in the use of its capital if and where this does not threaten the implementation of its restructuring plan”.6

The case of ING is also interesting in the sense that there was a breach of the call ban. In addition to making discretionary coupon payments, ING had also exercise a call option on a lower Tier 2 bond. 7With respect to the exercise of the call option, the Commission noted that ING had not informed the Commission of this and had thus not obtained Commission approval. The Commission concluded that ING had violated point 26 of the Restructuring Communication and that these “aggravating circumstances” had to be compensated by additional measures mitigating distortions of competition.8

Similarly, Caja Castilla-La Mancha (CCM) had not complied with the Commission’s policy on hybrid instruments as stipulated in point 26 of the Restructuring Communication. Firstly, CCM made discretionary coupon payments on hybrid capital in 2009 although it was loss-making in 2008.9 Secondly, there were two buybacks of preference shares called at par value in July and August 2009.10 The Commission noted that the coupon payment and the two buybacks did not respect the principle embodied in point 26 and should be compensated by a more in-depth restructuring.11

In the same vein, the Commission noted that the payment of coupons in the case of Banco Português de Negócios (BPN) did not respect point 26 of the Restructuring Communication and should be compensated for by a more in-depth restructuring.12

The conclusion reached in the cases of CCM and BPN is in line with the observation that was made in section 10.4: a lack of adequate own contribution has to be compensated by far-reaching restructuring.