State aid: Commission concludes that recapitalisation of German NordLB is market conform

The European Commission has found Germany’s plans to strengthen the capital position of state-owned Norddeutsche Landesbank – Girozentrale (NordLB) to be free of any State aid. The measures involve a direct investment of €2.8 billion as well as investments to carry out the necessary structural changes and downsizing of the bank to ensure that NordLB continues to operate profitably on the market. The Commission found that the planned measures are carried out on market terms, meaning that the State receives a remuneration in line with what a private operator would also accept in the same circumstances. Therefore, the measures involve no State aid within the meaning of EU rules. The European Central Bank, as responsible supervisor, has given its approval to the plan on 29 November 2019.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “Germany’s plan aims at keeping NordLB as a stable and profitable bank in public ownership, while keeping the door open for future consolidation of the wider German Landesbank sector. We have found that the State is investing under the same conditions as a private owner would have accepted, in line with EU State aid rules. In reaching this conclusion, we have worked closely with the responsible authorities, including the European Central Bank.”

NordLB is owned by two German Federal States (the Land of Lower Saxony and the Land of Saxony-Anhalt) and several publicly-owned regional savings banks. At the beginning of 2019, following the sale of a portfolio of non-performing loans to the market, the bank recorded losses in one of its business lines, namely ship financing.

Germany notified the Commission of its intention to recapitalise NordLB on market terms. The objective of the recapitalisation is to: (i) keep the bank under public ownership; (ii) strengthen the bank’s capital position, (iii) provide it with an adequate capital buffer; and (iv) implement adequate structural measures to ensure that the bank continues operating profitably.

To this purpose, the two German Länder Lower Saxony and Saxony Anhalt and the Institutional Protection Scheme of the publicly-owned German savings bank sector (DSGV) are planning to implement certain measures for NordLB. In particular, they plan to invest a total amount of approximately €2.8 billion in the bank at the end of 2019. In addition, the Land of Lower Saxony plans to provide asset guarantees that are expected to result in €0.8 billion capital relief for the bank, in return for corresponding remuneration.

The Commission’s assessment

The EU Treaty is neutral when it comes to public versus private ownership. Under EU State aid rules, if a Member State intervenes as a private investor would do, and is remunerated for the risk assumed in a way a private investor would accept, such an intervention does not constitute State aid.

Capital injections

Germany submitted a detailed business plan to the Commission covering the period 2019-2024 and showing the bank’s long-term profitability. This plan has been the outcome of complex negotiations between the different stakeholders in Germany. Notably, the business plan ensures a significant transformation and downsizing of the bank. The bank has already embarked on implementing deep cost-cutting measures, including a reduction in staff by about half (from 5670 in 2018 to 2800-3000 full-time staff by 2024), and on upgrading its operational infrastructure. It will reduce its balance sheet by about one third and exit the loss-making maritime business segment.

The Commission’s assessment of the business plan showed that this transformation will enable the bank to return to profitability, ensuring that the public shareholders and the Institutional Protection Scheme receive a return to their investment into shares of the bank in line with market conditions.

Guarantee measures

With respect to the guarantees provided by Lower Saxony, the Commission’s assessment showed that the guarantee fees paid by the bank are in line with market rates for such protection and, hence, with what a private market investor would accept.

On this basis, the Commission was able to conclude that the measures proposed by Germany would be carried out at conditions that a private investor would accept and that the measures do not involve any State aid in favour of NordLB within the meaning of EU rules.

Background

NordLB is a state-owned bank, with a majority ownership by the Land of Lower Saxony and minority stakes by the Land of Saxony-Anhalt, as well as publicly-owned regional savings banks. The balance sheet of the bank amounts to about €150 billion. Its non-performing loans amount to 2.7% of total assets and are concentrated in one business line, shipping, which the bank now intends to exit.

Under EU State aid rules, if a Member State chooses to intervene on terms that a private operator would have accepted under market conditions (the market economy operator principle – MEOP), then such an intervention does not constitute State aid and falls outside of EU State aid control.

In the banking sector, the Commission has found that measures carried out by Member States were market conform and, hence, did not constitute State aid in several cases including:

• The public recapitalisation of Romanian CEC Bank;
• An asset protection scheme for banks in Greece;
• The Portuguese recapitalisation of Caixa Geral de Depósitos;
• An Italian guarantee scheme to facilitate the securitisation of non-performing loans (Fondo di Garanzia sulla Cartolarizzazione delle Sofferenze – GACS);
• A public asset management vehicle in Hungary (MARK).

The non-confidential version of this decision will be made available under the case number SA.49094 in the State Aid Register on the competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.