9.10.2 How is this principle applied in the Commission decisions?

Point 50 of the IAC has been applied by the Commission in several cases. Indeed, the current chapter has discussed several cases that did not comply with all the IAC-criteria. As outlined in sections 9.7 and 9.8, the asset relief measures in the cases of Dunfermline and Quinn Insurance did not satisfy all the criteria of section 5 of the IAC. In particular, the measures did not meet the valuation requirement and the remuneration criterion. Notwithstanding the fact that the valuation and remuneration criteria were not met, the Commission concluded that these cases complied with the IAC, because they were subject to far-reaching restructuring.1 In the case of Dunfermline, the Commission noted that “the bank was split up, with a good part containing 50% of the assets of Dunfermline sold to a new owner. Considering the size of the bank and its very limited market shares, together with the fact that the Dunfermline business transferred to Nationwide was sold in a process that closely resembled an open, transparent and unconditional tender by the UK, that level of restructuring can be considered as sufficient in this context”.2

While point 50 of the IAC was applied in the cases of Dunfermline and Quinn Insurance, in several other cases, the need for far-reaching restructuring was based on point 41 of the IAC. As was discussed in section 9.8, point 41 of the IAC stipulates that the transfer value should not be higher than the REV. Nevertheless, there are several cases in which the transfer value exceeded the REV. The most remarkable case in this respect is the case of Hypo Real Estate (HRE). In this case, the difference between the transfer value and the REV was EUR 16.2 billion. This enormous difference called for a particularly thorough restructuring and downsizing of the bank.3 The Commission noted that the restructuring plan included a “dramatic downsizing of the ‘good’ core bank, to approximately 15% of HRE’s size at the end of 2008”.4

Similarly, in the case of Banco Português de Negócios (BPN), the impaired assets were transferred at book value, thus well above the real economic value. Although the Commission acknowledged that the transfer was intended to protect BPN’s viability and to allow for its sale, it considered that the transfer at book value entailed aid that was not in line with the main requirements of the IAC. “The IAC recognises that in-depth restructuring can compensate for potential misalignments with the main criteria of that Communication, including those on pricing. The existence of in-depth restructuring of BPN is an element that could allow the Commission to find that measure compatible with the Impaired Assets Communication. Thus, the transfer of assets to the SPVs could be assessed together with the rest of the measures in favour of BPN and as a part of the far-reaching restructuring”.5

Likewise, in the decisions on UNNIM Banc, Banco de Valencia and Banco CAM (i.e. the Spanish banks that benefited from the Asset Protection Scheme (APS)), the Commission concluded that far-reaching restructuring was required, because the APS measure was not fully in line with the IAC. This conclusion was based on two reasons. Firstly, the APS did not cover only unexpected losses of the portfolio but also part of the expected losses. The Commission recalled that expected losses should be borne by the bank and not by the State. Therefore, covering expected losses can be considered compatible only if it is accompanied by an in-depth and far reaching restructuring of the entity. Secondly, the APS measure had not been remunerated adequately. However, the Commission noted that it is possible to accept that a bank pays remuneration lower than is normally necessary, provided that such lower remuneration is compensated for by a thorough and far-reaching restructuring. The Commission noted that Spain had submitted far-reaching restructuring plans for UNNIM Banc, Banco de Valencia and Banco CAM, including the change of ownership, the dissolution of the bank and its disappearance as a stand-alone entity.6