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            COMMISSION DECISION         

of 20 October 2004         

on aid granted by Germany Landesbank Hessen-Thüringen — Girozentrale

(notified under document number C(2004) 3931)

(Only the German text is authentic)

(Text with EEA relevance)

(2006/742/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular the first subparagraph of Article 88(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to the provisions cited above (1) and having regard to their comments,

Whereas:

I.   PROCEDURE

II.   DETAILED DESCRIPTION OF THE MEASURES

1.   HELABA

2.   THE TRANSFER OF THE SPECIAL ‘HOUSING AND FUTURE INVESTMENT’ FUND AS A SILENT PARTNERSHIP CONTRIBUTION TO HELABA

3.   CAPITAL REQUIREMENTS UNDER THE OWN FUNDS AND SOLVENCY DIRECTIVES

4.   EFFECTS OF THE TRANSFER ON HELABA'S EQUITY CAPITAL ENDOWMENT

5.   REMUNERATION OF THE OWN FUNDS TRANSFERRED

6.   GROUNDS FOR INITIATING THE PROCEEDINGS

III.   COMMENTS FROM GERMANY

IV.   COMMENTS FROM INTERESTED PARTIES

1.   COMMENTS FROM THE COMPLAINANT BDB

1.1.   COMPARISON WITH OTHER EQUITY INSTRUMENTS

1.2.   TAX DEDUCTIBILITY

1.3.   MINIMUM REMUNERATION FOR A SHARE-CAPITAL INVESTMENT IN A LANDESBANK

1.4.   PREMIUMS AND DISCOUNTS ON ACCOUNT OF THE PARTICULARITIES OF THE TRANSACTIONS

1.5.   CAPITAL BASE AND ELEMENTS OF REMUNERATION

2.   COMMENTS FROM THE LAND OF NORTH RHINE-WESTPHALIA AND WESTLB

V.   GERMANY'S RESPONSE TO THE BDB'S COMMENTS

VI.   ASSESSMENT OF THE MEASURE

1.   STATE AID WITHIN THE MEANING OF ARTICLE 87(1) OF THE EC TREATY

1.1.   STATE RESOURCES

1.2.   FAVOURING OF A PARTICULAR UNDERTAKING

a)   Market-economy investor principle

b)   Legal and economic classification of the capital contributed

c)   Determination of the capital base to be used in determining the remuneration

Capital base standard

Capital base that was available to underpin Helaba's competitive business

Capital base entered in the balance sheet, but not available to Helaba for competitive business

d)   Appropriate remuneration for the capital contributed and comparison with remuneration actually paid

(1)   Assessment of whether the remuneration that was agreed for the capital to be used to underpin competitive business was the normal market remuneration

(aa)   Preliminary remark

(bb)   Customary market nature of the agreed initial remuneration of 1,2 % a year (rate of 1,43 % a year for the purposes of the market comparison taking account of the trade tax)

(cc)   Market nature of the agreed perpetuity premium of 0,2 % a year (market comparison rate of 0,23 % a year taking account of trade tax)

(dd)   Taking appropriate account of liquidity costs

(2)   Determination of a minimum remuneration for the capital required to underpin the promotion-related business and for the capital not initially used, on the basis of the phased arrangement, to underpin competitive business

e)   Aid element

f)   Preliminary result

1.3.   DISTORTION OF COMPETITION AND EFFECT ON TRADE BETWEEN MEMBER STATES

1.4.   RESULT

2.   COMPATIBILITY WITH THE COMMON MARKET

3.   NOT EXISTING AID

VII.   CONCLUSION

HAS ADOPTED THIS DECISION:

Article 1

1.   The waiver of an appropriate remuneration amounting to 0,3 % a year (before corporation tax) for the part of the capital transferred by the Land of Hessen to the Landesbank Hessen-Thüringen — Girozentrale which the latter has been able to use as a guarantee as from 31 December 1998 is aid which is incompatible with the common market.

2.   The aid referred to in paragraph 1 amounts to EUR 6,09 million for the period from 31 December 1998 to 31 December 2003.

Article 2

1.   Germany shall discontinue the aid referred to in Article 1(1) by 31 December 2004.

2.   Germany shall take all necessary measures to recover the aid referred to in Article 1(1) which was unlawfully made available to the beneficiary. The amount to be recovered shall include the following:

Article 3

Recovery shall be effected without delay and in accordance with the procedures of national law provided that they allow the immediate and effective execution of this Decision.

The amount to be recovered shall include interest from the date on which the unlawful aid was at the disposal of the beneficiary until the date of its recovery.

Interest shall be calculated in accordance with the provisions of Chapter V of Commission Regulation (EC) No 794/2004 (41)

Article 4

Germany shall, using the form set out in the Annex, inform the Commission, within two months of notification of this Decision, of the measures which it has taken in order to comply with it.

Article 5

This Decision is addressed to Germany.

Done at Brussels, 20 October 2004.

For the Commission

Neelie KROES            

Member of the Commission

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(1)OJ C 72, 26.3.2003, p. 3.

(2)OJ C 140, 5.5.1998, p. 9 (Decision to initiate proceedings).

(3)OJ L 150, 23.6.2000, p. 1; actions challenging that decision were brought by Germany (before the Court of Justice, Case-C 376/99), by North Rhine-Westphalia (before the Court of First Instance, Case T-233/99) and by WestLB (before the Court of First Instance, Case T-228/99); the Commission brought proceedings for an infringement of the Treaty (before the Court of Justice, C-209/00).

(4)  Joined Cases T-228/99 and T-233/99 Westdeutsche Landesbank Girozentraleand Land Nordrhein-Westfalen v Commission [2003] ECR II-435.

(5)  NordLB: OJ C 81, 4.4.2003, p. 2; BayernLB: OJ C 81, 4.4.2003, p. 13; HLB: OJ C 81, 4.4.2003, p. 24; Helaba: OJ C 73, 26.3.2003, p. 3; LBKiel: OJ C 76, 28.3.2003, p. 2.

(*1)  Confidential information, also indicated below by [...].

(6)OJ L 386, 30.12.1989, repealed and replaced by Directive 2000/12/EC, OJ L 126, 26.5.2000.

(7)OJ L 124, 5.5.1989, repealed and replaced by Directive 2000/12/EC.

(8)  Letter from Germany of 23 June 2004, p. 2-7.

(9)  See Germany's letter of 9 April 2003, p. 25: variable-interest-rate tranche of the silent partnership contribution of USD 700 million with a term of ten years taken up by Deutsche Bank in January 1998.

(10)  See Germany's letter of 9 April 2003, p. 25: tranche of the silent partnership contribution of USD 1 000 million with a term of 32 years taken up by Dresdner Bank in May 1999.

(11)  See chart in annex 15 of Germany's letter of 9 April 2003.

(12)  To offset the effects of inflation, the rate of return on a long-term government bond should be determined for each transfer period, initially disregarding the inflation expectations. Then, to estimate the long-term risk-free base rate, the estimated figure for average long-term inflation expectations (3,60 %) is added to the ‘real base rate’ at the time in question.

(13)  For the purposes of comparison, the BdB also gives the theoretical beta values calculated using the Capital Asset Pricing Model (CAPM), which, as it indicates, differ very little from the empirically determined values.

(14)  [...] states: ‘[...]’         

(15)  See Börsenzeitung of 7 November 2003 and International Financial Review of 22 November 2003.

(1)

(*2)  On the basis of full appropriation to core capital.

(*3)  Including cumulative preference shares after deconsolidation of trust companies.

(16)  Judgment in Joined Cases T-228/99 and T-233/99.

(17)  Commission communication to the Member States on the application of Articles 92 and 93 of the EEC Treaty and of Article 5 of Commission Directive 80/723/EEC to public undertakings in the manufacturing sector (OJ C 307, 13.11.1993, p. 3, point 11). While this communication deals explicitly with the manufacturing sector, the principle can undoubtedly be applied in the same way to all other sectors. As regards financial services, this has been confirmed by a number of Commission decisions, e.g. Crédit Lyonnais (OJ L 221, 8.8.1998, p. 28) and GAN (OJ L 78, 16.3.1998, p. 1).

(18)  WestLB judgment paragraph 206 et seq.

(1)  Confidential information, designated here as bank I.

(2)  Confidential information, designated here as bank II.

(3)  Confidential information, designated here as bank III.

(4)  Confidential information, designated here as bank IV.

(5)  Confidential information, designated here as bank V.

(19)  Communication from the Federal Government of 1 October 2004, p. 16.

(20)  Germany's reply of 23 June 2004, p. 12.

(21)  Germany's reply of 23 June 2004, p. 12, Annex 29/2004, Fitch Ratings: Bank Rating Methodology: May 2004, p. 12: ‘            Principal considerations are profitability, balance sheet integrity (including capitalisation), franchise, management, operating environment, consistency, as well as size (in terms of a bank's equity capital)            ’            .

(22)  Germany states that the reason for this, as already mentioned, was the fact that the minimum supervisory standards for capital ratios (core capital ratio of 4,0 %, overall ratio or equity ratio of 8,0 %) were more than met during the relevant period, which was a significant difference compared to the situation with WestLB. In 1997, for example, i.e. before the contribution, in accordance with Principle I to Section 10a of the German Banking Act, the core capital ratio was 4,8 % for the Helaba group and 5,0 % for the Helaba institution on its own. In accordance with the principles of the Bank for International Settlements, the core capital ratio (tier 1) was 5,4 % in 1997. The overall ratio and equity ratio in 1997 were 8,9 % and 9,6 % for the group and 9,2 % for the institution on its own. Even against the background of the business growth planned by Helaba for the following financial years, there was no direct need for the taking-up of core capital amounting to EUR 1 264.4 million.

(23)  See Germany's reply of 9 April 2003, Annex 15-16. The figures relate to the refinancing premium for euro banks as opposed to federal loans and the refinancing premium on bank bonds (10-year mortgage bonds) as opposed to federal loans. In the absence of figures for the corresponding refinancing premium as compared with US treasuries and on the basis of their fundamental economic comparability, the Commission is using the above-mentioned corridor for refinancing premiums for US treasuries as well, since it is not precise figures, but the order of magnitude that matters in determining the corridor for the relevant liability remuneration..

(24)  See in particular Germany's reply of 9 April 2003, Annexes 2-4, 8-12, 17-18.

(25)  Downward adjustment carried out by the Commission on the basis of the data provided by Germany.

(26)  Refinancing premium as compared with US treasuries having the same term, see letter from Germany of 9 April 2003, p. 27.

(27)  Second tranche fixed-interest, but equivalent terms.

(28)  Refinancing premium as compared with US treasuries having the same term, see letter from Germany of 9 April 2003, p. 27.

(29)  Germany's reply of 23 August 2004, Annex 6.

(30)  Germany's reply of 23 August 2004, pp. 11-12. In the case of the [...] private banks in Germany listed there, [...], [...] and [...], the relevant proportion rose from some 5 % in 1998 to around 20-30 % in 2003. According to the information provided by Germany, the relevant proportion in the case of Helaba lies within the 33 % to 72 % range typical of Landesbanks.

(31)  This does not automatically mean that the Land has committed itself to Helaba ‘forever’ or can never again have at its disposal the funds comprised in the silent partnership. The Land can assign its rights from the silent partnership (at least with Helaba's agreement) to a third party against payment. The fungibility of the silent partnership is not thus necessarily reduced to zero.

(32)  See in particular Germany's reply of 9 April 2003, Annexes 2-4, 8-12, 17-18.

(33)  Downward adjustment carried out by the Commission on the basis of the data provided by Germany.

(34)  Refinancing premium as compared with US treasuries having the same term, see letter from Germany of 9 April 2003, p. 27.

(35)  Letter from Germany of 9 April 2004, p. 28.

(36)  The remuneration premium of the Deutsche Bank perpetual (agreed fixed-interest remuneration of 6,60 %) is put here at 1,94 % a year in relation to 10-year federal loans in order to make it more comparable with the 12-year silent partnership contribution to Dresdner Bank (1,65 % above 10-year federal loans) and thus to get some idea of the level of the perpetuity premium. In the above table, the remuneration premium for the same perpetual is put at 1,15 % a year in relation to 30-year federal loans, since these are equivalent to the relevant period (30 years are regarded on the market as being ‘quasi-permanent’). The remuneration premium in relation to 30-year federal loans is lower, since with a normal interest rate curve, as is the case here, longer-term (30-year) loans yield a higher return than shorter-term (10-year) loans and thus represent a higher deduction item from the agreed fixed-interest remuneration of 6,60 % a year.

(37)  Of course, in reality the situation is much more complex because of off-balance-sheet items, different risk weightings of assets or zero-risk items, etc. However, the principal reasoning holds.

(38)  The situation does not change if one takes into account the possibility of raising additional own funds up to the same amount of original own funds (a factor of 25 instead of 12,5 for original own funds).

(*4)  Remark on item (6) Safety margin deduction because of lower preliminary determination in the balance sheet as at 31 December 1998: according to information provided by Germany, (39) the process of banking supervisory recognition had not yet been completed on 31.12.1998, so that initially a figure of EUR 1 023 million (DEM 2 000 million) had been entered in the balance sheet. The figure of EUR 1 264 million produced by the assessment process had been entered directly after the assessment and had accordingly featured in the annual accounts for 1999. In view of this process, the Commission considers it appropriate to make a safety margin deduction on behalf of Helaba from the capital base to be remunerated for 1999. Helaba's creditors based their assessment of its financial strength during 1999 on the figures in the 1998 annual accounts, which contained the preliminary lower amount of EUR 1 023 million for the silent partnership contribution. Consequently, in 1999 only the difference between this amount and the core capital usable, under the phased arrangement, to underpin competitive business is to be remunerated with the guarantee commission of 0,3 % a year (before tax), i.e. EUR [...] million. For the following years, the figure in the previous year's balance sheet corresponds to the figure for the silent partnership contribution specified in the annual balance sheet.

(39)  See Germany's reply of 23. August 2004, p. 6-7.

(40)  This report was presented to the Ecofin Council on 23 November 1998 but has not been published. It can be obtained from the Competition Directorate-General of the Commission and can also be found on the Commission's website.

(41)OJ L 140, 30.4.2004, p. 1.

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