13.6.3.2 The percentage of the balance sheet reduction

In some decisions, the emphasis is on the way how the balance sheet reduction is achieved (i.e. which activities are divested), while in other decisions, the emphasis is on the percentage of the balance sheet reduction. This raises the question what is more important: the percentage or the divestments? Is the main goal of downsizing that a certain percentage is reached? Or that certain activities are divested? In other words: is reaching a certain percentage of the balance sheet reduction the main goal of the divestments or the consequence of the divestments?1

In many decisions, the percentage of the balance sheet reduction is mentioned explicitly. For instance, in the decision on ATE, a very specific percentage was mentioned: the balance sheet size had to be reduced by (at least) 25,7%. The restructuring plan provided that the balance sheet size amounts could be corrected (for instance, for foreign exchange movements).2 This illustrates that in the decision on ATE, the emphasis is really on the percentage of the balance sheet reduction.3

By contrast, in many decisions, the emphasis seems to be on the on the type of activities to be divested rather than the percentage of the balance sheet reduction. This conclusion is based on three observations.

The first observation is of a linguistic nature. In some decisions, the percentage of the balance sheet reduction seems to be the consequence of the restructuring measures. For instance, in the decision on NordLB, the Commission held as follows: “As a consequence of the implementation of the restructuring measures, NORD/LB will reduce its total balance sheet between 2011 and 2016 by around 15%”.4 Similarly, in its decision on Commerzbank, the Commission noted that “these measures will result in a lasting reduction in its balance sheet total by approximately 45%”.5

Secondly, in some decisions, there is a geographical focus. For instance, with respect to the Spanish banks that were split into a core unit and non-core unit, the downsizing of the core unit (and the subsequent reduction of the market presence of the core unit) was viewed positively by the Commission, because the Commission considered that the competition distortions would be most significant in the core region of the bank. This implies that the emphasis is on the type of activities to be divested rather than the percentage of the balance sheet reduction.

The decisions on the four large Greek banks do not mention a percentage of the balance sheet reduction. An important element of those cases is that the restructuring plans did not envisage any downsizing of the balance sheet in Greece. This was justified by the fact that the difficulties of these four Greek banks were mainly caused by external factors. The downsizing only concerned the international activities of the Greek banks.6 This implies that the emphasis is on the type of activities to be divested rather than the percentage of the balance sheet reduction.

Thirdly, some decisions contain the commitment that the bank will withdraw from certain activities. This constitutes downsizing in terms of the scope of activities. This commitment is often mentioned separately from the commitment to reduce the size of the balance sheet. However, abandoning certain activities will normally result in a reduction of the balance sheet size. Thus, in my opinion, the discontinuation of certain activities contributes to the balance sheet reduction. Furthermore, a reduction of the scope of activities implies that the emphasis is on the type of activities to be divested rather than the percentage of the balance sheet reduction.

The core unit of Catalunya Banc would focus exclusively on retail, SME, corporate and public sector banking and would exit the market in all other banking segments.7 The commitment to abandon certain activities is sometimes formulated as a commitment not to engage in certain activities. For instance, the restructuring plan of Catalunya Banc envisaged that the activities of the core unit of Catalunya Banc would be restricted: the core unit of Catalunya Banc would not engage in any new business during the restructuring period in the areas of real estate development, wholesale activities and loans outside its core region.8

To conclude, the percentage of the balance sheet reduction and the type of activities to be divested are both important. They do not have to exclude each other. It can be argued that in the first place, certain activities are chosen to be divested; and that in the second place, it is checked whether these divestments achieve a percentage that is sufficient (as compared to the relative aid amount).9