NEWS Release - Commission clearance of Portuguese recapitalisation of Caixa Geral de Depósitos (CGD) - how the rules apply to bank recapitalisations
1. How can banks strengthen their capital position in line with the current EU rules?
A bank can strengthen its capital position in a number of ways:
a) A bank can raise capital on the market or from other private sources. This falls outside the scope of EU state aid control.
For example, in February 2017, shareholders of the Italian bank UniCredit approved a recapitalisation of €13 billion from private sources.
b) A Member State can intervene in a market-conform manner. This also falls outside the scope of EU state aid control. A state intervention is market-conform if a private economic investor would carry it out on the same terms.
An example of a market-conform intervention in favour of the banking sector is the Hungarian asset management company MARK to which solvent financial institutions in Hungary can, on a voluntary basis, sell non-performing loans at market price.
c) If a bank has capital needs, and it is not possible to fully meet these through private means, a Member State can intervene subject to EU rules, in particular the Bank Resolution and Recovery Directive and EU state aid rules.
For example, in 2015 the Commission approved Greece's recapitalisation of two Greek banks, Piraeus Bank and National Bank of Greece, under EU rules.
2. Why did the Commission consider that the support for CGD is not state aid?
An intervention by a Member State can be considered free of state aid when they are carried out at conditions that a private investor would have accepted (see option b) of Question 1).
In the case of CGD, the bank has always been fully owned by the Portuguese State (see also Question 3). In such circumstances, the Commission needs to assess if Portugal's investment is in line with what a private shareholder would have done in the same circumstances. The EU Treaties are neutral on the type of property ownership. The Commission is therefore bound by the law to give equal treatment to publicly and privately owned banks.
In particular, the Commission assessed three measures by Portugal, which will strengthen CGD's capital by a total of €3.9 billion:
First, the Commission looked at the internal reorganisation of Portugal's 49% shareholding in Parcaixa and found that it came at no new cost for Portugal. This shareholding in Parcaixa, which was transferred to CGD, increased CGD's core capital by its accounting value of around €0.5 billion.
Second, the Commission examined the conversion of existing hybrid debt held by Portugal into shares and found that a private debt holder would have accepted it as well, notably because of a sufficient return. This conversion is worth around €0.9 billion.
Third, the Commission analysed the injection of €2.5 billion of new equity into CGD by Portugal and found that it generates a sufficient return that a private investor would have accepted as well.
In its assessment of the measures, the Commission took into account the planned structural transformation of CGD. Portugal proposed an ambitious industrial plan, running until end-2020, to ensure the bank's long-term profitability and a suitable expected rate of return on Portugal's investment. This plan is accompanied by a strict monitoring mechanism and will be implemented by a credible management team. As part of its industrial plan, CGD will also take actions to further strengthen its capital position from private sources (see option a) of Question 1). In particular, it will raise internal capital and issue €930 million of additional Tier 1 or "core strength" capital to investors not related to the Portuguese State.
Overall, the Commission concluded that CGD could have raised the same capital under the same conditions on financial markets and that Portugal did not give CGD any new state aid.
page source http://europa.eu/
