11.10.3.1 Financial position of the acquiring bank

In order for an acquiring bank to be considered viable, its financial position should be sound. The financial position of a bank has many aspects: the bank’s liquidity position, its solvency, the quality of its credit portfolio, its profitability and its efficiency ratio. Hence, all these aspects generally figure in the Commission decisions. For instance, in its decisional practice, the Commission took into account the quality of the acquiring bank’s credit portfolio. Regarding this relevant aspect, the Commission has noted positively that the level of non- performing loans (NPL’s) of the acquiring bank was “in line with the sector’s average”1, or “well below the sector’s average”.2 By the same token, the Commission noted positively that the level of provisioning on NPL’s was “well above the sector’s average”.3

A strong liquidity position is a relevant aspect, because a strong liquidity position means that the acquiring bank can absorb the taken over bank’s funding profile. It should be pointed out that this characteristic is used as an argument to support the conclusion that the acquiring bank is viable and capable of absorbing the ailing bank. There are cases in which this characteristic is not present. Notwithstanding the absence of this relevant characteristic, there may be other circumstances that justify the conclusion that the integrated entity will be viable in the long run. For instance, the Commission noted that the liquidity profile submitted by Banco Sabadell (which acquired Banco CAM) and by BBVA (which acquired UNNIM Banc) exhibited a significant reliance on ECB refinancing facilities. However, the Commission noted that most Spanish banking institutions exhibit such a reliance.4

In some decisions, the Commission referred to the bank’s rating. For instance, in its decision on Fortis, the Commission mentioned that BNP Paribas (which acquired part of Fortis) had been rated AA+ by S&P.5 The Commission noted positively that this rating reflected the acquiring bank’s financial soundness.

It should be pointed out that there are several ailing banks which were taken over by banks that were also in need of State aid. This occurred in Greece where all the large Greek domestic banks had received State aid and were subject to restructuring. Since subsidiaries of foreign groups did not have interest in acquiring the ailing banks in Greece, the Commission exceptionally accepted that beneficiary banks could take over the ailing banks.6 The impact of the acquisition on the Commission’s assessment of the beneficiary bank’s restructuring will be discussed in section 11.11.