25 July 2012

State aid: Commission approves restructuring aid to BayernLB subject to repayment of €5 billion of aid

The European Commission has approved restructuring aid for the German bank BayernLB in the form of a capital injection of €10 billion, a risk shield of €4.8 billion and liquidity guarantees, on condition that BayernLB repays €5 billion of state aid in the next seven years.

The European Commission has approved under EU state aid rules restructuring aid for the German bank BayernLB in the form of a capital injection of €10 billion, a risk shield of € 4.8 billion and liquidity guarantees based on commitments presented by Germany to restructure the bank fundamentally, and on condition that BayernLB repays €5 billion of state aid in the next seven years. The Commission concluded that the restructuring plan would enable the bank to become viable without continued state support and provided for a sufficient contribution by the bank's owners to the cost of restructuring, while minimising distortions of competition.

Commission Vice President in charge of competition policy, Joaquín Almunia, said: "Due to the large aid amounts and the high number of measures involved it has been a long and complex process. However, BayernLB's final restructuring plan shows in an unambiguous manner that the company has learnt lessons from the past. The repayment schedule which we impose ensures that the bank does not keep more public funds than it needs."

Under the restructuring plan, the balance sheet will be reduced by around 50 per cent as compared to BayernLB's situation in 2008. Moreover, the bank will reduce its risky activities abroad in the areas of international project finance and in international real estate. BayernLB also committed to behavioural measures like an acquisition and dividend ban.

The Commission's investigation found that these measures are likely to make the bank viable in the long term without continued state support. At the end of this restructuring process, BayernLB will be a healthier company with an increased focus on lending to the real economy in its regional market. Moreover, the regional savings banks, BayernLB's historical owners, provide a sufficient own contribution to the costs of restructuring through the conversion of silent participations.

In respect of a risk shield provided by the Bavarian regional authorities, BayernLB will pay a claw back of around €2 billion, in order to correct an over-generous valuation of toxic assets covered by a state guarantee from Bavaria. Moreover, the Commission's approval of the restructuring plan is conditional upon BayernLB repaying part of the state aid it has received. The Commission concluded that BayernLB should not keep the state capital for longer than strictly necessary. As the bank's financial projections showed that it had the capacity to repay, the Commission worked out a detailed repayment schedule based on these projections, subject to approval by the German banking regulator. As a result, BayernLB will return €5 billion to the Bavarian taxpayer in the coming years. This includes €3 billion received from the Land as recapitalisation and €2 billion from the risk shield claw back.

See press release for background.

© European Commission