EN Official Journal of the European Union L 80/49

COMMISSION DECISION (EU) 2015/455

of 23 July 2014

on the State aid SA.34826 (2012/C), SA.36005 (2013/NN) implemented by Greece for Piraeus Bank Group relating to the recapitalisation and restructuring of Piraeus Bank SA

(notified under document C(2014) 5217)

(Only the English text is authentic)

(Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 108(2) thereof,

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

Having called on Member States and other interested parties to submit their comments pursuant to those provisions (1),

Whereas:

1. PROCEDURE

1.1. PROCEDURE RELATED TO PIRAEUS BANK

(1) By decision of 19 November 2008 the Commission approved a scheme entitled ‘Support Measures for the Credit Institutions in Greece’ (the ‘Greek Banks Support Scheme’) designed to ensure the stability of the Greek financial system. The Greek Banks Support Scheme allows for aid to be granted under its three constituent measures, a recapitalisation measure, a guarantee measure and a government bond loan measure (2). In May 2009, Piraeus Bank (‘the Bank’ (3)) was recapitalised by Greece under the recapitalisation measure.

(2) Recital 14 of the Decision of 19 November 2008 recorded that a restructuring plan would be notified to the Commission in respect of the beneficiaries of the recapitalisation measure.

(3) On 23 July 2010, the Greek authorities submitted a restructuring plan to the Commission. The Commission registered that plan and its subsequent updates as well as additional information submitted by the Greek authorities as Case SA.30342 (PN 26/2010) and then Case SA.32787 (2011/PN).

(4) The Bank has repeatedly benefited from State guarantees and government bond loans under the Greek Banks Support Scheme (4). It also benefited from State-guaranteed emergency liquidity assistance (‘State-guaranteed ELA’).

(5) On 20 April 2012, the Hellenic Financial Stability Fund (‘HFSF’) provided the Bank with a letter committing to participate in a planned share capital increase of the Bank. On 28 May 2012, the HFSF granted a bridge recapitalisation of EUR 4 700 million to the Bank (‘the first bridge recapitalisation’).

(6) On 10 May 2012, the Greek authorities formally notified to the Commission the commitment letter that had been provided by the HFSF to the Bank. The Commission registered it as a non-notified aid (Case SA.34826 (2012/NN)) as the measure had already been implemented.

(7) By decision of 27 July 2012, the Commission opened a formal investigation procedure on the first bridge recapitalisation (‘the Piraeus Opening Decision’) (5).

(8) In December 2012, the HFSF granted a second bridge recapitalisation of EUR 1 553 million to the Bank (‘the second bridge recapitalisation’). On 21 December 2012, the HFSF also provided the Bank with a commitment letter for its participation in a share capital increase of the Bank and in convertible capital instruments to be issued, for a total amount of up to EUR 1 082 million (6). The Greek authorities notified those measures to the Commission on 20 December 2012 (7).

(9) In September 2012, the Bank announced its intention to acquire Geniki from Société Générale S.A. (‘Société Générale’). During September and October, the Commission had numerous teleconferences and electronic mail exchanges with representatives of the Greek authorities and the Bank with respect to the acquisition of Geniki.

(10) On 19 October 2012, the Bank signed a share purchase agreement with Société Générale regarding the acquisition of Société Générale’s total stake (99.08 %) in Geniki.

(11) On 12 December 2012, the Commission services sent a letter to Greece including their preliminary assessment of the acquisition of Geniki.

(12) On 26 February 2013, the Bank informed the Commission of its intentions to acquire Millennium Bank Greece S.A. (‘MBG’). The Commission had several teleconferences and electronic mail exchanges with the Greek authorities and the Bank with respect to the acquisition of MBG.

(13) On 25 March 2013, the Commission services sent a letter to Greece including their preliminary assessment of the acquisition of MBG.

(14) On 22 April 2013, the Bank announced that it had entered into an agreement with Millennium Banco Comercial Portugues (‘BCP’) regarding the acquisition of the entire share capital of MBG and the participation of BCP in the forthcoming capital increase of Piraeus.

(15) On 3 June 2013, the HFSF partially converted the first and second bridge recapitalisations into equity for a total of EUR 5 891 million. The HFSF also injected an additional amount of EUR 1 094 million into the Bank, as committed at the time of the acquisitions by the Bank of the good part of Agricultural Bank of Greece (‘ATE’) and of the Greek branches of three Cypriot Banks (see section 1.2). In addition private investors injected EUR 1 444 million. The total recapitalisation amounted to EUR 8 429 million and is referred to as ‘the Spring 2013 recapitalisation’.

(16) On 19 December 2013, the Greek authorities submitted information to the Commission regarding the terms of the Spring 2013 recapitalisation.

(17) The Greek authorities submitted a final restructuring plan for the Bank (‘the restructuring plan’) to the Commission on 25 June 2014. On the same date they provided information on the State-guaranteed ELA. They indicated that they intend to continue providing the Bank with such liquidity support, as well as State guarantees on debt instruments and government bond loans under the Greek Banks Support Scheme.

(18) During the administrative process, the Commission has had numerous meetings, teleconferences and electronic mail exchanges with representatives of the Greek authorities and the Bank.

(19) Greece accepts that exceptionally the present decision is adopted in the English language only.

1.2. PROCEDURE RELATED TO THE ACQUIRED BUSINESSES

1.2.1. Procedure related to ATE

(20) In April 2011 Greece injected EUR 1 445 million into ATE (an amount which included the EUR 675 million originally granted under the Greek Recapitalisation scheme). Furthermore ATE received liquidity support amounting to EUR 6 103 million. By decision of 23 May 2011, the Commission approved those measures based on the basis of a restructuring plan for ATE (‘the ATE Restructuring Decision’) (8).

(21) On 29 December 2011, Greece participated in a capital rights issue of ATE for an amount of EUR 290 million.

(22) On 22 March 2012, Greece submitted a report by the Bank of Greece that proposed a resolution of ATE through a Purchase & Assumption procedure (9) of selected assets and liabilities of ATE (‘ATE Transferred Activities’), while the remaining assets and liabilities would be resolved via a bad bank.

(23) In July 2012, the Bank announced the acquisition by absorption of the good part of ATE which had been placed under liquidation.

(24) At that time, the HFSF committed to cover the capital needs of the Bank stemming from the acquired assets. On 27 January 2013, the Bank of Greece concluded that the capital needed for regulatory purposes as a result of the acquisition of the ATE Transferred Activities amounted to EUR 570 million, which would be covered by the HFSF.

(25) By decision of 3 May 2013 (10) (‘the ATE Liquidation Decision’), the Commission concluded that the support measures granted at the time of transfer of the ATE Transferred Activities do not constitute State aid to the Bank but to the ATE Transferred Activities. Moreover, the Commission concluded that that aid would be compatible with the internal market if the restructuring plan of the Bank, which now includes the ATE Transferred Activities, enables its long-term viability to be restored.

(26) In June 2013, the HFSF injected EUR 570 million in the Bank in the framework of the Spring 2013 recapitalisation (11).

1.2.2. Procedure related to the Greek operations of the Bank of Cyprus, Cyprus Popular Bank and Hellenic Bank (‘the three Cypriot Banks’)

(27) Following the extraordinary Eurogroup meeting (12) on 15 March 2013, the Cypriot authorities and the European Union, the International Monetary Fund (‘IMF’) and the European Central Bank (‘ECB’) reached a political agreement on the policy underlying a future macroeconomic adjustment programme. In particular, it was agreed, among other things, that the operations of the three Cypriot Banks in Greece would be transferred to a Greek bank.

(28) The Bank and other Greek banks expressed interest in acquiring the operations of the three Cypriot Banks in Greece.

(29) On 22 March 2013, the HFSF consented to the Bank making an offer for the acquisition of the Greek branches, deposits and loans of the three Cypriot Banks. The Bank’s offer was conditional on the HFSF providing equity to the Bank in an amount equal to the price paid for the equity of the acquired business.

(30) The Greek authorities and the HFSF kept the Commission services closely informed about the evolution of the process and the terms of the acquisition as well.

(31) On 26 March 2013, the Bank signed a sale and transfer agreement with each of the three Cypriot Banks concerning their Greek activities (deposits, loans and branch network).

(32) As agreed in March 2013, the HFSF injected EUR 524 million of capital in the Bank (13) to meet the capital needs that arose from the acquisition of those assets.

2. DESCRIPTION

2.1. THE BANK AND ITS DIFFICULTIES

2.1.1. General context of the Greek banking sector

(33) Greece’s real gross domestic product (‘GDP’) fell by 20 % from 2008 to 2012, as shown in Table 1. As a result, Greek banks faced a rapidly increasing default rate on loans to Greek households and companies (14). Those developments have adversely affected the performance of the assets of Greek banks and given rise to capital needs. Table 1 Real GDP Growth in Greece, 2008-2013 Greece 2008 2009 2010 2011 2012 2013 Real GDP growth, % –0,2 –3,1 –4,9 –7,1 –7,0 –3,9 Source: Eurostat, available online at http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tec00115

(34) In addition, in February 2012, Greece implemented a private sector bond exchange known as Private Sector Involvement (‘the PSI programme’). Greek banks were involved in the PSI programme, in the course of which the Greek government offered existing private bondholders new securities (including new Greek Government Bonds (‘GGBs’), GDP-linked securities and PSI payment notes issued by the European Financial Stability Fund (‘EFSF’)) in exchange for existing GGBs, with a nominal discount of 53,5 % and longer maturities (15). The Greek authorities announced the results of that exchange of bonds on 9 March 2012 (16). The exchange resulted in significant losses for the bondholders (estimated by the Bank of Greece at 78 % of the face amount of old GGBs on average for the Greek banks) and capital needs which were retroactively booked in the Greek banks’ 2011 financial statements. Total losses due to the PSI for the main Greek banks are summarised in Table 2. Table 2 Total PSI losses of the main Greek banks (EUR million) Banks Face amount of GGBs Face amount of state related loans Total face amount PSI loss of GGBs PSI loss of state-related loans Total gross PSI loss Total gross PSI loss/Core Tier 1 (%) Total gross PSI loss/Total assets (%) NBG 13 748 1 001 14 749 10 985 751 11 735 161,0 11,0 Eurobank 7 001 335 7 336 5 517 264 5 781 164,5 7,5 Alpha 3 898 2 145 6 043 3 087 1 699 4 786 105,7 8,1 Piraeus 7 063 280 7 343 5 686 225 5 911 226,0 12,0 ATEbank 5 164 608 5 772 3 873 456 4 329 1 144 17,1 Geniki 384 7 391 287 5 292 78,1 8,9 MBG 185 0 185 137 0 137 29 2,2 Source: Bank of Greece, Report on the Recapitalisation and the Restructuring of the Greek Banking Sector, December 2012, p. 14

(35) Since the Greek banks faced substantial capital shortfalls as a result of the PSI programme and the continuing recession, the Memorandum of Economic and Financial Policies (‘MEFP’) of the Second Adjustment Programme for Greece between the Greek government, the European Union, the IMF and the ECB dated 11 March 2012 made funds available for the recapitalisation of those banks. The Greek authorities estimated the total bank recapitalisation needs and resolution costs to be financed under that programme at EUR 50 billion (17). That amount was calculated on the basis of a stress test performed by the Bank of Greece for the period starting December 2011 and ending December 2014 (‘the stress test of 2012’), which relied on the loan losses forecast performed by Blackrock (18). The funds for the recapitalisation of the Greek banks are available through the HFSF. Table 3 summarises the calculation of capital needs for the main Greek banks as they result from the stress test of 2012. Table 3 Stress test of 2012: Capital needs of the main Greek banks (EUR million) Banks Reference Core Tier 1 (Dec 2011) Total gross PSI loss (Dec 2011) Provisions related to PSI (June 2011) Gross Cumulative Loss Projections for credit risk Loan loss reserves (Dec 2011) Internal capital generation Target Core Tier 1 (Dec 2014) Capital needs NBG 7 287 –11 735 1 646 –8 366 5 390 4 681 8 657 9 756 Eurobank 3 515 –5 781 830 –8 226 3 514 2 904 2 595 5 839 Alpha 4 526 –4 786 673 –8 493 3 115 2 428 2 033 4 571 Piraeus 2 615 –5 911 1 005 –6 281 2 565 1 080 2 408 7 335 ATEbank 378 –4 329 836 –3 383 2 344 468 1 234 4 920 Geniki 374 – 292 70 –1 552 1 309 –40 150 281 MBG 473 – 137 0 – 638 213 –79 230 399 Source: Bank of Greece, Report on the Recapitalisation and the Restructuring of the Greek Banking Sector, December 2012, p. 8

(36) In line with the MEFP of March 2012, ‘banks submitting viable capital raising plans will be given the opportunity to apply for and receive public support in a manner that preserves private sector incentives to inject capital and thus minimises the burden for taxpayers’ (19). The Bank of Greece found that only the four largest banks (Eurobank, National Bank of Greece, the Bank and Alpha Bank) submitted viable capital raising plans (20). They received a first recapitalisation from the HFSF in May 2012.

(37) Domestic deposits in the banks in Greece decreased by 37 % in total between the end of 2009 and June 2012 due to the recession and political uncertainty. Those banks had to pay higher interest rates to try to retain deposits. The costs of deposits increased, reducing the net interest margin of the banks. As Greek banks were shut down from wholesale funding markets, they became entirely dependent on Eurosystem financing (21), a growing portion of which was in the form of State-guaranteed ELA granted by the Bank of Greece.

(38) On 3 December 2012, Greece launched a buy-back programme on the new GGBs received by the investors in the framework of the PSI programme, at prices ranging from 30,2 % to 40,1 % of their nominal value (22). The Greek banks participated in that buy-back programme which crystallised further losses on their balance sheets, since most of the accounting loss (that is, the difference between market value and nominal value) booked on those new GGBs at the time of the PSI programme became definitive and irreversible (23).

(39) In December 2012, the four largest Greek banks received a second bridge recapitalisation from the HFSF.

(40) In spring 2013 the bridge recapitalisation of the four banks was converted into permanent recapitalisation in ordinary shares, with the HFSF holding more than 80 % of the shareholding of each of the four banks. For the banks which managed to attract a pre-determined amount of private capital (the Bank, Alpha Bank and National Bank of Greece), the HFSF received non-voting shares and private investors were granted warrants on the shares of the HFSF.

(41) In July 2013, the Bank of Greece commissioned an advisor to carry out a diagnostic study on the loan portfolios of all Greek banks. That advisor carried out credit loss projections (‘CLPs’) on all domestic loan books of the Greek banks as well as on loans carrying Greek risk in foreign branches and subsidiaries over a three-and-a-half-year and a loan-lifetime horizon. The analysis provided CLPs under two macroeconomic scenarios, a baseline scenario and an adverse scenario. The CLPs for foreign loan portfolios were estimated by the Bank of Greece using some input from the advisor.

(42) Based on the advisor’s assessment of the CLPs, in autumn 2013 the Bank of Greece launched a new stress test exercise (‘the stress test of 2013’) to assess the robustness of the Greek banks’ capital position under both a baseline and an adverse scenario. The Bank of Greece conducted the capital needs assessment with the technical support of a second advisor.

(43) The key components of the capital needs assessment under the stress test of 2013 were (i) the CLPs (24) on banks’ loan portfolios on a consolidated basis for Greek risk and foreign risk, net of existing loan reserves, and (ii) the estimated operating profitability of banks for the period from June 2013 to December 2016, based on a conservative adjustment of the restructuring plans which had been submitted to the Bank of Greece during the fourth quarter of 2013. Table 4 summarises the calculation of capital needs for the main Greek banks on a consolidated basis under the baseline scenario for that stress test of 2013. Table 4 Stress test of 2013: Capital needs of the Greek banks on a consolidated basis in the baseline scenario (EUR million) Banks Reference Core Tier 1 (June 2013) (1) Loan Loss reserves (June 2013) (2) CLPs for Greek risk (3) CLPs for foreign risk (25) (4) Internal Capital Generation (5) Stress test Core Tier 1 ratio (December 2016) (6) Capital needs (7)=(6)-(1)-(2)-(3)-(4)-(5) NBG (26) 4 821 8 134 –8 745 –3 100 1 451 4 743 2 183 Eurobank (27) 2 228 7 000 –9 519 –1 628 2 106 3 133 2 945 Alpha 7 380 10 416 –14 720 –2 936 4 047 4 450 262 Piraeus 8 294 12 362 –16 132 –2 342 2 658 5 265 425

(44) On 6 March 2014, the Bank of Greece announced the results of the stress test of 2013 and requested the banks to submit, by mid-April 2014, their capital raising plans to cover the capital needs under the baseline scenario.

(45) Between late March 2014 and early May 2014, the banks proceeded with capital increases.

2.1.2. The beneficiary

(46) The Bank provides universal banking services mainly in Greece and in Central, Eastern and South-Eastern Europe (Romania, Bulgaria, Serbia, Albania, Ukraine and Cyprus) as well as in Egypt. It offers a full range of banking and financial products and services to households and businesses. It is active in retail, corporate and private banking, asset management, treasury and investment banking. The Bank is incorporated in Greece and its shares are listed on the Athens Stock Exchange. On 30 December 2012, the Bank employed a total of 18 597 people (28).

(47) The Bank participated in the PSI programme, exchanging GGBs and State-related loans with a face value of EUR 7,7 billion. Its total PSI-related charge amounted to around EUR 5 911 million before tax and was entirely booked in its 2011 accounts (29). During the buy-back programme of December 2012, the Bank sold the new GGBs it had received in the framework of the PSI at a deep discount to nominal value. That sale crystallised its losses on the new GGBs.

(48) The key figures of the Bank in December 2010, December 2011, December 2012 and December 2013 (consolidated data) are presented in Table 5. Table 5 Piraeus Bank key figures, 2010, 2011, 2012 and 2013 Profit and loss (EUR million) 2010 2011 2012 (30) 2013 (31) Net Interest Income 1 207 1 194 1 047 1 664 Total Operating Income 1 510 1 245 1 921 2 205 Total Operating Expenses (884) (840) (931) (1 680) Pre Provision Income 625 405 989 525 Impairment Losses to cover credit risk (611) (1 973) (2 519) (2 536) Impairment losses on GGBs and loans eligible to PSI (5 911) Negative goodwill 351 3 810 Net Profit/Loss (21) (6 618) (507) 2 546 Selective Volume figure (EUR million) 31 December 2010 31 December 2011 31 December 2012 (31) 31 December 2013 (32) Total net Loans and Advances to Customers (Net) 40 150 35 634 44 613 62 366 Deposits 29 475 21 796 36 971 54 279 Total Assets 57 561 49 352 70 408 92 010 Total equity (30) 3 273 (1 940) (2 316) 8 543

(49) Table 5 illustrates that, apart from the huge losses it booked in 2011 due to the PSI programme (EUR 5 911 million (33)), the Bank suffered from declining income (due, among other reasons, to the higher costs of deposits) and from high and rising impairment losses on its loan portfolios in Greece and abroad until mid-2012. The liquidity position of the Bank was badly hit by deposit outflows. That situation somewhat improved after the Bank started to make acquisitions in July 2012.

(50) Under the stress test of 2013, the Bank of Greece estimated the capital needs of the Bank at EUR 465 million for the baseline scenario.

(51) In March 2014, the Bank proceeded with a capital increase of EUR 1 752 million to cover the capital needs mentioned in recital 50 and to repay the EUR 940 million in preference shares held by Greece (34). In contrast to Eurobank’s capital increase of April 2014, the HFSF did not give the Bank a commitment to inject capital in the framework of the capital increase in the event of insufficient private demand. The Bank’s capital increase was achieved through a non-pre-emptive equity offering (that is to say a capital increase with cancellation of shareholders’ pre-emption rights) to international investors and through a public offering in Greece. The subscription price was set at EUR 1,70 per share.

(52) Following the capital increase, the Bank announced on 22 May 2014 that it had redeemed the preference shares to Greece, for a total amount of EUR 750 million (35).

2.2. THE BANK’S ACQUISITIONS OF GREEK BANKING ACTIVITIES

2.2.1. Acquisition of ATE

(53) ATE was founded in 1929 as a non-profit organisation by Greece. Until the early 1990s, ATE was a specialised financial institution which supported the development of the agricultural sector on behalf of the Greek State. In December 2000, the company was listed on the Athens Stock Exchange. On 14 November 2011, Greece was ATE’s main shareholder with a stake of 89,9 %.

(54) ATE operated in all banking activities, both retail and corporate, provided financial services such as insurance activities and leasing activities and acquired major participations in companies operating in non-financial sectors, including sugar production industry and dairy production industry.

(55) In July 2012, ATE offered its services through its network of 468 branches and employed 5 024 people. In July 2012, its total deposits amounted to EUR 14,9 billion for total assets of EUR 21,8 billion (36).

(56) Since 2006, ATE has also offered its services outside Greece with a 74 % stake in ATE Bank Romania and a stake of 20,3 % of the common share capital and 25 % of the preference shares in AIKBanka Serbia.

(57) The difficulties of ATE arose before the Greek sovereign crisis mainly as a result of poor asset quality and of traditionally low pre-impairment profitability. Furthermore, the Greece sovereign crisis affected all Greek banks, including ATE, in two ways: (i) the loss of access of Greece to international debt markets severely affected the liquidity position of Greek banks and (ii) asset quality deteriorated and increased impairments.

(58) In April 2011 Greece injected EUR 1 445 million into ATE (including EUR 675 million originally granted under the Greek recapitalisation measure). Furthermore ATE received liquidity support amounting to EUR 6 103 million. The Commission approved those measures in the ATE Restructuring Decision.

(59) Nevertheless, in the second half of 2011, the capital situation of ATE deteriorated mainly due to its participation in the PSI programme. As illustrated in Table 2, its total PSI-related charge amounted to around EUR 4 329 million before tax and was entirely booked in its 2011 accounts. As illustrated in Table 3, the capital needs of ATE Transferred Activities were estimated at EUR 4 920 million.

(60) On 22 March 2012, Greece submitted a report by the Bank of Greece proposing the resolution of ATE via a Purchase & Assumption procedure in respect of the ATE Transferred Activities, while the remaining assets and liabilities would be resolved via a bad bank. The Bank and another large Greek submitted non-binding offers to the HFSF. On 26 July 2012, the Board of Directors of the HFSF approved the Bank’s bid.

(61) On 27 July 2012, the Bank of Greece proceeded with the transfer of the ATE Transferred Activities to the Bank (37).

(62) As the ATE Transferred Activities contained fewer assets at fair value than liabilities, the HFSF, in line with the decision of the Bank of Greece of 28 January 2013, had to make up for the difference between transferred assets and transferred liabilities, that is to say, the funding gap. The Bank of Greece concluded, based on audited figures, that the funding gap would be EUR 7 471 million and the HFSF granted the Bank European Financial Stability Facility bonds (‘EFSF bonds’) worth EUR 7 471 million.

(63) Furthermore, the HFSF committed to provide capital to the Bank, in order for the ATE Transferred Activities to be capitalised up to 9 %. That amount was initially estimated at EUR 500 million, but the final amount was determined at EUR 570 million. The HFSF injected the final amount into the Bank against ordinary shares in the framework of the Spring 2013 recapitalisation.

(64) The Bank acquired the ATE Transferred Activities for a purchase price of EUR 95 million.

2.2.2. Acquisition of Geniki

(65) Geniki was established in 1937. Geniki provided financial services in the sectors of retail banking, corporate banking and capital market services. In 2004 Société Générale acquired the majority of Geniki’s shares. Geniki operated 104 branches and employed 1 391 employees as at 31 December 2012 (38). Total assets amounted to EUR 2,6 billion, total net loans to EUR 1,9 billion and deposits to around EUR 2 billion (39).

(66) The Greek sovereign crisis had a very negative impact on the banking sector performance. Furthermore, the participation of the Greek banks in the PSI programme led to a rapid deterioration of their capital situation. As illustrated in Table 2, Geniki’s total PSI-related charge amounted to around EUR 292 million before tax and was entirely booked in its 2011 accounts. As illustrated in Table 3, the amount of the capital needs of Geniki were estimated at EUR 281 million and were calculated on the basis of a stress test performed by the Bank of Greece.

(67) In June 2012, Société Générale approached all four of the large Greek banks, in an attempt to sell Geniki. The Bank was the only one interested in acquiring Geniki.

(68) The negotiations between Société Générale and the Bank for the sale of Geniki led to an official agreement on 19 October 2012 that: (i) Société Générale would sell and the Bank would purchase the 99,08 % stake that Société Générale holds in Geniki, and that (ii) Société Générale would assign and transfer and the Bank would acquire 100 % of Geniki’s share capital advances that Société Générale has concluded and will conclude in the future. Société Générale ultimately agreed to make an advance payment of approximately EUR 290 million to Geniki and to subscribe a bond issued by the Bank for an amount of approximately EUR 170 million. The Bank then acquired Geniki for EUR 1 million.

(69) On 14 December 2012, the Bank announced that the acquisition of Société Générale’s stake in Geniki was completed.

2.2.3. Acquisition of the Greek operations of the three Cypriot Banks

(70) The Bank of Cyprus, the Cyprus Popular Bank and the Hellenic Bank were founded in 1899, 1901 and 1976 respectively.

(71) Following the extraordinary Eurogroup meeting on 15 March 2013, an agreement was reached on the main parameters of a bailout plan for Cyprus by the European Union, the IMF and the ECB. The Hellenic Systemic Stability Board (‘HSSB’) unanimously proposed the transfer of the Greek assets and liabilities of the branches of the three Cypriot Banks in Greece to an existing Greek bank. In particular, the HSSB stated that ‘the […] (40) agreement fully secures the depositors of the Greek branches [of the three Cypriot Banks], safeguards the Greek public interest and the financial stability and does not burden the Greek public debt’.

(72) The Bank of Greece was assigned to explore potential interest from Greek banks and, in this context, called for an expression of interest. Furthermore, the HFSF agreed to cover the capital needs (of the acquirer) that would result from the acquisition of the Greek branches of the three Cypriot Banks.

(73) Table 6 summarises the assets and liabilities of the three Cypriot Banks which were ultimately transferred to the Bank (‘Cypriot Transferred Activities’). Table 6 Transferred Activities of the three Cypriot Banks Transferred Activities Assets All Greek loans, including leasing and factoring Shipping loans and other loans originated from and managed in Greece and booked in the Cypriot loan book Fixed assets (excluding deferred tax assets) Liabilities All the deposits of the three Cypriot Banks collected in Greece Source: Term Sheet, Carve out and sale of the Greek assets of Cypriot banks, 10 April 2013

(74) The assets transferred to the Bank amounted to approximately EUR 18,9 billion and the liabilities amounted to approximately EUR 15 billion. However, the parties to the transaction agreed to take into account the amount of losses that was forecast in the PIMCO report for the banks in Cyprus, under an adverse scenario (41). According to the PIMCO report, the value of the assets that would be transferred to the Bank amounted to approximately EUR 16,5 billion. The liabilities transferred amounted to approximately EUR 14,5 billion.

(75) On 21 and 22 March 2013, only three banks, including the Bank, submitted non-binding offers.

(76) On 22 March 2013, the HFSF granted its consent to the acquisition of the three Cypriot Banks’ operations in Greece by the Bank. The total consideration paid by the Bank for the acquisition of the Cypriot Transferred Activities was EUR 524 million. In particular, it was agreed that the Bank would pay EUR 237 million for the acquisition of the transferred activities of the Bank of Cyprus, EUR 258 million for the acquisition of the transferred activities of the Cyprus Popular Bank and EUR 29 million for the acquisition of the transferred activities of the Hellenic Bank.

(77) In June 2013, in the framework of the Spring 2013 recapitalisation (42) the HFSF injected EUR 524 million of capital into the Bank to cover the purchase price paid by the Bank.

2.2.4. Acquisition of MBG

(78) MBG was established in 2000. MBG operated 119 branches and employed 1 174 employees as at 31 December 2012 (43).

(79) On 22 April 2013, the Bank signed a definitive agreement with BCP regarding the acquisition of the entire share capital of MBG and the participation of BCP in a forthcoming capital increase of the Bank.

(80) According to that agreement, BCP would contribute EUR 400 million to the regulatory recapitalisation of MBG (of which EUR 139 million had already been contributed by BCP in December 2012) through the conversion of subordinated and senior credits from BCP to MBG into equity. Furthermore, all the funding provided by BCP to MBG in the past would be reimbursed by the latter in two tranches: EUR 650 million would be paid on the date of closing of the transaction and the amount of approximately EUR 250 million would be paid within six months from closing. Last, BCP would contribute EUR 400 million to the recapitalisation of the Bank through a private placement with the exclusion of pre-emptive rights. The Bank would then acquire the fully recapitalised MBG for EUR 1 million.

(81) On 19 June 2013, the Bank announced the completion of the acquisition of MBG.

2.2.5. Overview of the combined effect of the acquisitions

(82) Table 7 provides an overview of the effect of the successive acquisitions on the size and shape of the Bank in Greece (none of the acquired entities included foreign assets, except ATE Transferred Activities that contain small Romanian assets). As a result of those acquisitions, the Bank now holds the largest market share on the Greek deposit and loan market. Table 7 Effect of the successive acquisitions on Piraeus’ size in Greece 31.12.2012 Greece only Piraeus stand alone ATE Geniki Cypriot Banks MBG ΝΕW GROUP Gross loans 27 727 12 200 3 308 24 194 4 710 72 138 part of new group 38 % 17 % 5 % 34 % 7 % 100 % Net loans 24 811 11 527 1 909 19 481 4 236 61 964 part of new group 40 % 19 % 3 % 31 % 7 % 100 % Deposits 15 412 14 986 2 014 14 427 2 912 49 752 part of new group 31 % 30 % 4 % 29 % 6 % 100 % Employees 5 926 5 019 1 420 5 268 1 186 18 819 part of new group 31 % 27 % 8 % 28 % 6 % 100 % Branches 325 460 104 307 120 1 316 part of new group 25 % 35 % 8 % 23 % 9 % 100 % Source: data submitted on 10 June 2014 by Piraeus Bank

2.3. AID MEASURES

2.3.1. Aid measures granted to the Bank under the Greek Banks Support Scheme (measures L1 & A)

(83) The Bank obtained several forms of aid under the Greek Banks Support Scheme, under the recapitalisation measure, the guarantee measure and the government bond loan measure.

2.3.1.1. State liquidity support granted under the guarantee measure and the government bond loan measure (measure L1)

(84) The Bank has benefited and continues to benefit from aid under the guarantee measure and the government bond loan measure. That aid will be described in this Decision as ‘measure L1’. In 2010, the Bank issued bonds guaranteed by the State amounting to a total of EUR 9,9 billion. Greece also lent the Bank EUR 1 289 million of government bonds. At the end of March 2014, the outstanding amount of government bonds was EUR 1 024 million (44).

(85) In the restructuring plan for the Bank submitted by the Greek authorities to the Commission on 25 June 2014 the Greek authorities requested authorisation to continue granting guarantees and lending government bonds to the Bank under the Greek Banks Support Scheme during the restructuring period, should the need for such liquidity support arise, although that is not expected to happen.

2.3.1.2. State recapitalisation granted under the recapitalisation measure (measure A)

(86) In May 2009 and December 2011, the Bank received from Greece under the recapitalisation measure of the Greek Bank Support Scheme capital injections of EUR 370 million and EUR 380 million respectively, totalling EUR 750 million (measure A), equivalent to around 2,1 % of the risk weighted assets (‘RWA’) (45) of the Bank at that time.

(87) The recapitalisation took the form of preference shares subscribed by Greece which had a coupon of 10 % and a maturity of five years.

(88) The Bank redeemed the preference shares on 22 May 2014, as described in recital 52.

2.3.2. State-guaranteed ELA (measure L2)

(89) ELA is an exceptional measure enabling a solvent financial institution, facing temporary liquidity problems, to receive Eurosystem funding without such an operation being part of the single monetary policy. The interest rate paid by a financial institution for ELA is […] basis points (‘bps’) higher than the interest it pays for regular Central Bank refinancing.

(90) The Bank of Greece is responsible for the ELA programme, which means that any cost of, and the risks arising from, the provision of ELA are incurred by the Bank of Greece (46). Greece granted the Bank of Greece a State guarantee which applies to the total amount of ELA granted by the Bank of Greece. The adoption of Article 50(7) of law 3943/2011, which amended Article 65(1) of law 2362/1995, allowed the Minister of Finance to grant guarantees on behalf of the State to the Bank of Greece in order to safeguard the Bank of Greece’s claims against the credit institutions. The banks benefiting from ELA have to pay a guarantee fee to the State amounting to […] bps.

(91) At 31 December 2011, the Bank had benefited from EUR 11,64 billion of State-guaranteed ELA, while at 31 December 2012 the Bank had benefited from EUR 31,4 billion of State-guaranteed ELA (47). After a sharp decrease in 2013, the Bank benefited at the end of that year from only EUR 750 million of State-guaranteed ELA.

2.3.3. Aid measures granted to the Bank through the HFSF (measures B1, B2, B3 & B4)

(92) Since 2012, the Bank has benefited from several capital support measures granted by the HFSF. Table 8 provides an overview of those aid measures. Table 8 Aid measures granted to the Bank through the HFSF 1st bridge recapitalisation — May 2012 (EUR million) 2nd bridge recapitalisation — Dec 2012 (EUR million) Commitment letter — Dec 2012 (EUR million) Participation in the May 2013 recapitalisation (EUR million) (48) Measure B1 B2 B3 B4 Amount (EUR million) 4 700 1 553 1 082 5 891

2.3.3.1. The first bridge recapitalisation (measure B1)

(93) Recitals 14 to 33 of the Piraeus Opening Decision give a detailed description of the first bridge recapitalisation of May 2012 (measure B1). The background and main features of that measure are set out in this section.

(94) On 20 April 2012, the HFSF provided a letter to the Bank committing to participate in a planned share capital increase of the Bank for an amount of up to EUR 5 billion.

(95) Under measure B1, the HFSF transferred EUR 4,7 billion of EFSF bonds to the Bank in May 2012, in line with the provisions for bridge recapitalisations laid down in the law 3864/2010 establishing the HFSF (‘HFSF law’). The Commission established in recital 53 of the Piraeus Opening Decision that ‘The bridge recapitalisation finalised on 28 May 2012 is the implementation of the obligation undertaken in the commitment letter and thus a continuation of the same aid’. Both the amounts provided in the commitment letter and in the first bridge recapitalisation were calculated by the Bank of Greece to ensure the Bank reached a total capital ratio of 8 % as of 31 December 2011, the date of retroactive booking of the bridge recapitalisation in the Bank’s records. As can be seen from Table 3, measure B1 only covered a part of the total capital needs identified by the stress test of 2012. The Bank was supposed to raise capital through a future capital increase and the bridge recapitalisation was intended only to preserve the Bank’s eligibility for ECB financing until that capital increase had taken place.

(96) For the period between the date of the first bridge recapitalisation and the date of the conversion of the first bridge recapitalisation into ordinary shares and other convertible financial instruments, the pre-subscription agreement between the Bank and the HFSF stipulated that the Bank had to pay the HFSH a 1 % annual fee on the nominal value of the EFSF notes and that any coupon payments and accrued interest to the EFSF notes for that period would count as an additional capital contribution by the HFSF to the Bank (49).

2.3.3.2. The second bridge recapitalisation (measure B2)

(97) The Bank booked further losses in the autumn of 2012. Its capital therefore fell again below the minimum capital requirements for it to remain eligible for ECB refinancing.

(98) A second bridge recapitalisation became necessary as a result. On 20 December 2012, the HFSF implemented a second bridge recapitalisation of EUR 1 553 million (measure B2), which was again paid by transferring EFSF bonds to the Bank.

2.3.3.3. The commitment letter of 20 December 2012 (measure B3)

(99) In addition to the second bridge recapitalisation, on 20 December 2012 the HFSF provided the Bank with a commitment letter for its participation in the share capital increase of the Bank and in the convertible instruments to be issued, for a total amount up to EUR 1 082 million (measure B3).

(100) The total of the two bridge recapitalisations (measures B1 and B2) and of the additional amount committed in December 2012 (measure B3) meant that the HFSF had committed to cover the total capital needs identified under the stress test of 2012 (EUR 7 335 million (50)).

2.3.3.4. HFSF’s participation in the Spring 2013 recapitalisation (measure B4) and partial repayment of measures B1 and B2

(101) On 23 April 2013 the general meeting of shareholders of the Bank approved a share capital increase of EUR 8 429 million (51). That amount was calculated as the sum of: (i) EUR 7 335 million to cover the capital needs identified by the stress test of 2012; out of that amount, the HFSF subscribed EUR 5 891 million (measure B4) and private investors subscribed EUR 1 444 million; (ii) EUR 570 million injected by the HFSF to meet the regulatory capital requirements that arose from the acquired business of ATE Bank, as committed in July 2012; that measure was assessed by the Commission in the ATE Liquidation Decision, which found that it did not constitute aid to the Bank; (iii) EUR 524 million injected by the HFSF to meet the capital needs that arose from the payment of the purchase price for the Greek operations of the three Cypriot Banks; that part of the capital increase constitutes measure C (52).

(102) The price of the new shares was set at EUR 1,70 per share, which corresponds to 50 % of the volume-weighted average stock price over the 50 trading days preceding its determination.

(103) On 3 June 2013 the Board of Directors of the Bank announced the issuance of 3 888 268 914 new shares with a nominal value of EUR 0,30 at a price of EUR 1,70 per share (53). The Bank announced on 28 June 2013 (54) that the Board of Directors certified full payment of the total capital increase in share for a total amount of EUR 8 429 million, including premium amounts.

(104) The total private participation in the Bank’s share capital increase amounted to EUR 1 444 million (55). That amount includes the participation of BCP as described in recital 80.

(105) Therefore the participation of the HFSF in the share capital increase of the Bank amounted to EUR million 6 985.

(106) Immediately after the Spring 2013 recapitalisation, the HFSF became the major shareholder of the Bank with a stake of 81 % (56). The HFSF issued warrants and granted private investors one warrant for each share subscribed, for no consideration (57). Each warrant incorporates the right to buy 4,48 shares of the HFSF, at specified intervals and strike prices. The first exercise date was 2 January 2014, and then the warrants are exercisable every six months until 2 January 2018. The exercise price is equal to the subscription price of EUR 1,70 increased by an annual interest rate (4 % for year one, 5 % for year two, 6 % for year three, 7 % for year four and then 8 % annualised for the last six months) (58).

(107) The HFSF law as amended in 2014 provides that only the strike prices of the warrants may be adjusted in the event of a rights issue. In addition, any such adjustment will take place ex post and only up to the amount of the realised proceeds from the sale of pre-emption rights of the HFSF. No adjustment is provided for in the event of a non-pre-emptive share capital increase.

2.3.4. Aid measures to the acquired businesses (measure C)

2.3.4.1. Aid measures to ATE

(108) As mentioned in recital 58, at the time of the ATE Restructuring Decision ATE had already benefited from aid measures.

(109) In December 2011, the Greek State injected EUR 290 million into ATE.

(110) The resolution of 27 July 2012, as described in recitals 62 and 63, also involved additional support from the State. The HFSF granted the Bank EFSF bonds worth EUR 7 471 million to cover the funding gap. The HFSF also gave a commitment to recapitalise the Bank for an amount of EUR 570 million.

(111) Overall, the aid related to the Purchase & Assumption procedure amounts to EUR 8 041 million.

2.3.4.2. Aid measures to the Greek operations of the three Cypriot Banks (measure C)

(112) As already mentioned in recitals 77 and 101, at the time of the acquisition of the Greek operations of the three Cypriot Banks the HFSF gave a commitment to provide EUR 524 million of capital to the Bank (measure C). That commitment was implemented in June 2013 (59).

2.4. THE RESTRUCTURING PLAN

2.4.1. Domestic operations

(113) Through the restructuring plan, the Bank will focus on its core banking activities in Greece.

(114) The key focus is to bring its Greek banking operations back to profitability and viability. To that end, the restructuring plan includes a number of measures aimed at improving the Bank’s operational efficiency and net interest margin, as well as measures enhancing its capital position and balance sheet structure.

(115) As regards operational efficiency, the Bank has already started a vast programme of rationalisation.

(116) From 31 December 2011 to 31 December 2013, the Bank reduced its physical presence in Greece by a total of 322 branches taking into account the restructuring of the acquired entities after the acquisition date. The Bank has maintained a sustained rhythm in 2014, with […] closures already completed in the first semester. Table 9 Restructuring of the Greek branch network 2010-H1 2014 Period 2011 2012 2013 H1 2014 Total number of branches at the opening of the period or at the date of the acquisition 360 918 1 316 1 037 Of which Piraeus […] […] […] […] ATE […] […] Geniki […] […] Cypriot branches […] […] […] MBG […] […] […] Total end of period 346 889 1 037 899 Total branch closures during the period 14 29 279 138 Source: restructuring plan submitted on 25 June 2014, pp. 40 and 125, 2011 and 2012 Annual reports

(117) The Bank also reduced the total headcount of its banking and non-banking activities in Greece during the period 2011-2013 by 2 519 employees. In particular 2 114 departures were attributable to the voluntary exit scheme implemented by the Bank. Table 10 Greek headcount reduction 2010-2013 Period 2011 2012 2013 Total headcount at the opening of the period or at the date of the acquisition 6 370 12 616 18 628 Of which Piraeus […] […] […] ATE […] […] Geniki […] […] Cypriot branches […] […] […] MBG […] […] […] Total end of period 6 172 12 365 16 558 Headcount reduction 198 251 2 070 Source: restructuring plan submitted on 25 June 2014, pp. 40 and 125, 2011 and 2012 Annual reports

(118) From December 2013 until the end of 2017, the Bank plans to further decrease, in Greece, its headcount (from 16 558 to […] employees) and the size of its network (from 1 037 to […] branches). (60)[…]

(119) The increased efficiency in terms of branches and personnel will help to bring down the total cost of the Bank’s Greek activities by […]% from EUR 1 394 million on a pro forma basis in 2013 to EUR […] million (61) in 2017 (62). As a result, the expected cost-to-income ratio of its Greek activities should fall below […]% at the end of the restructuring period.

(120) The restructuring plan also describes how the Bank will reduce its funding costs, which is key to the restoration of viability. The Bank expects to be able to pay lower interest rates on its deposits on the back of the more stable environment and in particular the anticipated stabilisation and recovery of the Greek economy, which is expected to grow again from 2014 onwards. Spreads paid on deposits are expected to decrease in Greece (63). That decrease in spreads would be mainly achieved by paying much lower rates on time deposits. Similarly, the Bank’s reliance on ELA and wider Eurosystem funding will decrease from more than 45 % of its total assets in 2012 to less than […]% in 2017 (64).

(121) The restructuring plan anticipates that the Bank will also strengthen its balance sheet. Its net loan-to-deposit ratio in Greece will decrease to […]% in 2017 (down from 114 % in 2013 (65)), while its capital adequacy will further improve.

(122) Another priority of the Bank is the management of non-performing loans (‘NPL’). The Bank will enhance its credit processes regarding both the origination of loans (better collateral coverage and reduced limits) and the management of NPL. The rate of NPL will reach close to […]% in […] and then start to decrease, with an expected rate of around […]% at the end of the restructuring period (66). The cost of risk (loan loss impairments) will decrease from close to EUR 2 billion in 2013 to less than EUR […] million in 2018 (67).

(123) The improvement of operational efficiency, the increase of the net interest margin and the decreasing cost of risk will enable the Bank to be profitable in Greece from […] onwards. The Bank anticipates its profits will exceed EUR […] billion in 2018 for the domestic activities.

2.4.2. International banking activities

(124) To improve the profitability of its foreign activities, the Bank has already begun to implement a significant cost reduction programme in the international network. Between the end of 2011 and March 2014 the number of employees declined by 10 % from 6 634 to 5 948 and the number of branches by 18 % from 499 to 410 (68). The structure of its international portfolio has also been simplified to reduce the cost base (69).

(125) The restructuring plan highlights the need to reduce the reliance of the foreign subsidiaries on their Greek mother company as regards their funding needs and to continue safeguarding the capital position of the Bank.

(126) The Bank sold its American subsidiary, which accounted for around EUR 0,7 billion of assets (13 branches and 158 employees), in September 2012.

(127) The Bank will reduce its foreign assets exposure to EUR […] billion at the end of June 2018. That figure represents a reduction of […]% (70) compared to the end of 2012 (71).

(128) The reduction of the foreign assets will be slightly smaller — to EUR […] billion — in the event […] (72). In that case the total reduction of foreign assets will amount to […]% compared to the end of 2012.

(129) However, instead of complying with the above-mentioned cap of total assets at the end of June 2018, the Bank may decide to divest […] (73). In that case, the activities retained will not represent more than […]% of the total foreign activities of the Bank at the end of 2012.

(130) The Bank will reduce its total funding to the foreign subsidiaries.

2.4.3. Private capital raising and contribution by existing shareholders and subordinated creditors

(131) The Bank raised significant amounts of capital on the market and thereby reduced the State aid which was needed by the Bank.

(132) First, the Bank raised some private capital in 2011 with a rights issue of EUR 807 million (74). As mentioned in recital 104, the Bank also managed to raise capital from private investors through the Spring 2013 recapitalisation. The pre-existing shareholders were also heavily diluted by the Spring 2013 recapitalisation, since the HFSF held 81 % of the Bank’s shares following the Spring 2013 recapitalisation and new investors 17 %, leaving the pre-existing shareholders with only a 2 % shareholding. No dividend has been paid in cash since 2008.

(133) The Bank raised EUR 1 750 million of capital from the market in April 2014 to cover its additional capital needs and to repay the preference shares held by Greece. The new shares were issued at EUR 1,70, namely the price paid by the HFSF in the framework of the Spring 2013 recapitalisation.

(134) Moreover, the bank generated capital by buying back its own hybrid and subordinated debt instruments at a discount to nominal value. In March 2012 the Bank offered to buy back some hybrid and lower tier 2 instruments. The price, determined on the basis of the market value and including a premium of no more than ten percentage points, was fixed at 37 % of the nominal value for the hybrid instrument and 50 % of the nominal value for the lower tier 2 instrument. The respective participation rates were 52,8 % and 18,2 %. In May 2013 the Bank launched an additional liability management exercise to buy-back up to EUR 321 million of outstanding securities. The participation rate was 20 %. Those successive buy-backs resulted in a total capital gain of approximately EUR 120 million (75).

2.5. COMMITMENTS OF THE GREEK AUTHORITIES

(135) On 25 June 2014 Greece gave a commitment that the Bank and its affiliates will implement the restructuring plan submitted on the same day and gave further commitments regarding the implementation of the restructuring plan (‘the Commitments’). The Commitments, which are in the Annex, are summarised in this section.

(136) First Greece has given a commitment that the Bank will restructure its commercial operations in Greece, setting a maximum number of branches and employees at 31 December 2017 in Greece as well as a maximum amount of total costs for the Greek activities over the year 2017 (76).

(137) Greece has also given a commitment that the Bank will reduce the cost of deposits collected in Greece. It will comply with a maximum ratio of net loans-to-deposits on 31 December 2017 (77). […]

(138) Regarding the Bank’s foreign subsidiaries, Greece has given a commitment that the Bank will deleverage its foreign assets by 30 June 2018 (78). Furthermore liquidity or capital support to those subsidiaries is strictly limited in terms of nominal amount and restricted to specific circumstances.

(139) Greece has given a commitment that the Bank will divest a number of securities. In addition, the Bank will not purchase non-investment grade securities, with limited exceptions (79).

(140) Greece gave a number of commitments related to the corporate governance of the Bank. It committed to limit the remuneration of the Bank’s employees and managers (80).

(141) Greece has also given a commitment that the Bank will apply a prudent credit policy, in order to ensure decisions on granting and restructuring loans aim at maximising the viability and profitability of the Bank. The Bank will comply with high standards regarding the monitoring of credit risk as well as the restructuring of loans (81).

(142) A number of commitments deal with the operations of the Bank with connected borrowers. Those commitments aim at ensuring that the Bank does not deviate from prudent banking practices when for instance granting or restructuring loans to its employees, managers and shareholders, as well as to public entities, political parties and media companies (82).

(143) Finally, Greece has given a commitment that the Bank will comply with some behavioural limitations, such as a coupon and dividend ban, an acquisition ban and a ban on advertising State support (83).

(144) Those commitments will be monitored until 31 December 2018 by a monitoring trustee.

(145) Separately, in its submission of 25 June 2014 Greece indicated that it would seek the approval of the Commission prior to any buy-back of the warrants by the Bank or by any State entity including the HFSF (84).

3. GROUNDS FOR INITIATING THE FORMAL INVESTIGATION PROCEDURE ON THE FIRST BRIDGE RECAPITALISATION

(146) On 27 July 2012, the Commission opened the formal investigation procedure in order to verify whether the conditions of the 2008 Banking Communication (85) were met regarding the appropriateness, necessity and proportionality of the first bridge recapitalisation provided by the HFSF in favour of the Bank (measure B1).

(147) Regarding the appropriateness of the measure, the Commission, given the fact that the aid came after prior recapitalisation and liquidity aid and given the protracted rescue period, expressed doubts as to whether all actions possible had been taken by the Bank to avoid it again needing aid in the future (86). In addition, the Commission was not clear who would control the Bank in the future once the first bridge recapitalisation was replaced by a permanent recapitalisation (87) as the Bank might come either under the control of the State or under the control of the minority private owners who could enjoy control and high leverage. In either case the Commission indicated that the quality of the Bank's management and notably its lending process should be preserved in order for it to find the first bridge recapitalisation appropriate.

(148) Regarding the necessity of the first bridge recapitalisation, in recital 70 of the Piraeus Opening Decision the Commission questioned whether all the measures possible had been taken to avoid the Bank needing aid again in the future. Moreover, since the duration of the bridge recapitalisation period was uncertain the Commission could not conclude whether it was sufficient and complied with the remuneration and burden-sharing principles under State aid rules. Furthermore, as the terms of the conversion of the first bridge recapitalisation into a permanent recapitalisation were not known at the time the Piraeus Opening Decision was adopted, the Commission could not assess them.

(149) Regarding the proportionality of the measure, the Commission expressed doubts whether the safeguards (State support advertisement ban, coupon and dividend ban, call option ban and buy-back ban as described in recital 76 of the Piraeus Opening Decision) were sufficient in relation to the first bridge recapitalisation. Furthermore, in recital 77 of the Piraeus Opening Decision the Commission stated that the lack of rules preventing the HFSF from coordinating the four largest core banks (namely, the Bank, Eurobank, NBG and Alpha Bank), and the absence of adequate safeguards to prevent them from sharing commercially sensitive information could lead to distortions of competition. The Commission, therefore, proposed the appointment of a monitoring trustee, physically present in the Bank.

4. COMMENTS FROM INTERESTED PARTIES ON THE FORMAL INVESTIGATION PROCEDURE ON THE FIRST BRIDGE RECAPITALISATION

4.1. COMMENTS FROM THE BANK

(150) On 30 August 2012, the Commission received comments from the Bank on the Piraeus Opening Decision.

(151) Regarding the appropriateness of the measures, the Bank noted that the debt crisis in Greece and the euro area has been an unprecedented situation. The capital injection in May 2009, equivalent to 1,0 % of its RWA, was a direct response to the exceptional turbulence in global financial markets. At the end of 2011, Greece’s additional capital injection of EUR 380 million was equivalent to 1,1 % of the Bank’s RWA at that time and was designed to address the capital shortfall that was expected to derive from the deepening recession. The EUR 4,7 billion recapitalisation of the Bank by the HFSF was the first part of the recapitalisation that would address the capital shortfall that resulted from the PSI and from the assessment of the loan portfolios carried out by Blackrock (88) as well as from the deepening recession.

(152) It also took the view that the appointment by Greece and the HFSF of one and two members respectively in the Bank’s Board of Directors as their representatives and of one member of the HFSF as a member of the Bank’s Board Risk Committee, along with others, ensured that it could not take excessive risks.

(153) Regarding the necessity of the measures, the Bank commented that the form of the recapitalisation as bridge financing was decided by the Greek authorities and by the European Union, the IMF and the ECB and that the amount of bridge recapitalisation of EUR 4,7 billion almost offset the PSI effect. As regards the conversion of the bridge recapitalisation into permanent capital, after the protracted period without a government in Greece in the second quarter of 2012, once a final structure was approved, the dilution of existing shareholders would inevitably be triggered and an adequate remuneration agreed (depending on the terms and instruments used).

(154) Regarding the proportionality of the measures, the Bank noted that since 2009 it had adjusted its lending practices by applying stricter credit criteria, accelerated repayment terms and reduced credit limits. As of the first quarter of 2009, all requests for disbursements over a specific amount had been reviewed and approved by the deputy Managing Director and the General Manager/Group Credit. It would not alter its current business practices as laid out in the business plan submitted to the Bank of Greece and not undermine current lending standards. Those standards were amongst the strictest in the industry as also indicated by the very good results the Bank had achieved in the Blackrock Solutions diagnostic exercise. Those intentions would be secured by the representation of Greece and HFSF in the Bank’s Board of Directors.

(155) Regarding the Commission’s proposal for the appointment of a monitoring trustee, the Bank’s view was that there was already close monitoring by several third parties, such as the Bank of Greece, external auditors, Greece’s representative and HFSF representatives.

4.2. COMMENTS FROM ANOTHER GREEK BANK

(156) On 3 January 2013, the Commission received comments from a Greek bank on the Piraeus Opening Decision. That Greek bank commented that the recapitalisation of Greek banks by the HFSF constituted, in principle, a welcome step towards a healthier and more viable banking system and expressed no objection to the recapitalisation of the Bank.

(157) However, while expressing its entire support for the principle of the recapitalisation of Greek banks by the HFSF, that Greek bank explained that, in order to minimise distortions of competitions and to avoid discrimination, it expected recapitalisation by the HFSF to be open to all banks operating in Greece under similar conditions.

5. COMMENTS FROM GREECE ON THE FORMAL INVESTIGATION PROCEDURE ON THE FIRST BRIDGE RECAPITALISATION

(158) On 5 September 2012, Greece submitted comments, which had been prepared by the Bank of Greece and the HFSF.

5.1. COMMENTS FROM THE BANK OF GREECE

(159) Regarding the appropriateness of the first bridge recapitalisation, the Bank of Greece noted that the amount of EUR 18 billion of capital with which the HFSF recapitalised the four largest Greek banks in May 2012 was less than the final amount which was needed for those banks to gradually reach and maintain a Core Tier 1 capital ratio set at 10 % by June 2012 and a Core Tier 1 capital ratio set at 7 % under a three-year adverse stress scenario. It also noted that the first bridge recapitalisation was temporary, given that the recapitalisation process would be concluded with share capital increases by those four banks.

(160) The Bank of Greece also observed that the recapitalisation of the largest Greek banks was part of the longer-term restructuring of the Greek banking sector. It noted that where a bank remains in private hands, the management will most probably remain the same, while if a bank becomes State-owned (that is to say, owned by the HFSF), the HFSF could appoint new management which, in any case, will be assessed by the Bank of Greece. The Bank of Greece noted that it assesses the corporate governance framework, the adequacy of management and the risk profile of every bank on an ongoing basis in order to ensure that excessive risks are not taken. It also pointed out that the HFSF had already appointed representatives in the Boards of Directors of the recapitalised banks.

(161) Regarding the necessity of the first bridge recapitalisation, the Bank of Greece observed that the Bank’s recapitalisation was limited so as to ensure that the then applicable minimum capital requirements (8 %) were met. It also stated that the protracted period of time prior to the recapitalisations was due to the sharp deterioration of the operating environment in Greece and the impact of the PSI programme, to the complexity of the whole project and to the need to maximise private investors’ participation in the share capital increases.

(162) Regarding the proportionality of the first bridge recapitalisation, the Bank of Greece pointed out that the full implementation of the restructuring plan to be submitted to the Commission would be safeguarded by the fact that the suspension of the voting rights of the HFSF would be lifted if, inter alia, the restructuring plan were substantively violated. The Bank of Greece also observed that the Bank’s difficulties were not due either to an underestimation of risks by the Bank’s management or to commercially aggressive actions.

5.2. COMMENTS FROM THE HFSF

(163) Regarding the appropriateness of the first bridge recapitalisation, to address the issue of potential State interference in the event that the State provides high amounts of State aid through the HFSF and the HFSF has full voting rights, the HFSF stated that the HFSF-funded banks are not considered to be public entities or under State control and that they will not be controlled by the State after they have been permanently recapitalised by the HFSF. The HFSF pointed out that it is a fully independent private-law legal entity with autonomy of decision. It is not subject to government control, pursuant to Article 16(C)(2) of the HFSF law, according to which the credit institutions to which the HFSF has provided capital support are not part of the broader public sector. It also pointed to the governing structure of the HFSF.

(164) As regards the intervention of the HFSF in the Bank’s management, the HFSF noted that it would respect the Bank’s autonomy and not interfere with its day-to-day management given that its role is limited to that laid down in the HFSF Law. It stated that there would not be any State interference or coordination and that the decisions of the Bank regarding the lending process (inter alia on collateral, pricing and solvency of borrowers) would be taken on the basis of commercial criteria.

(165) The HFSF pointed out that the HFSF Law and the pre-subscription agreement contained appropriate safeguards in order to prevent existing private shareholders from excessive risk-taking. It pointed to elements such as (i) the appointment of HFSF representatives as independent non-executive members of the Board of Directors of the Bank and their presence at committees, (ii) the HFSF carrying out due diligence in the Bank and (iii) the fact that after the final recapitalisation its voting rights would be restricted only for as long as the Bank complied with the terms of the restructuring plan.

(166) The HFSF stated that there are appropriate measures in place in order to ensure that banks in which the HFSF participates do not share commercially sensitive information between them. They include the appointment of different HFSF representatives to those banks, the mandates addressed to those representatives which specifically safeguard against the flow of information from one representative to another and clear internal instructions to those representatives not to transmit commercially sensitive information of the banks. Moreover, the HFSF stated that it does not exercise its rights in relation to the banks in a manner which may prevent, restrict, distort or significantly lessen or impede effective competition. Lastly, the HFSF pointed out that the members of its Board of Directors and its employees are subject to strict confidentiality rules and fiduciary duties and are bound by provisions concerning professional secrecy with regards to its affairs.

6. ASSESSMENT OF AID RELATED TO THE ACQUISITION OF ATE AND THE GREEK OPERATIONS OF THE THREE CYPRIOT BANKS

6.1. ASSESSMENT OF AID RELATED TO ATE

(167) In the ATE Restructuring Decision, the Commission concluded that the measures described in recitals 58 and 108 of this Decision constitute State aid and that they are in line with the internal market.

(168) In the ATE Liquidation Decision, the Commission concluded that the measures described in recitals 109 and 110 of this Decision constitute State aid to the ATE Transferred Activities. Moreover, the Commission concluded that the aid to ATE is compatible with the internal market only if the integration of the ATE Transferred Activities is implemented according to plan and if the restructuring plan of the Bank – which includes the ATE Transferred Activities — enables its long-term viability to be restored. That restoration of long-term viability will be established in section 7.6.2.

(169) Therefore, the Commission does not have to reassess the aforementioned measures and confirms that they are compatible with the internal market.

6.2. ASSESSMENT OF AID RELATED TO THE GREEK OPERATIONS OF THE THREE CYPRIOT BANKS (MEASURE C)

6.2.1. Existence and the amount of aid

(170) The Commission has to establish the existence of State aid within the meaning of Article 107(1) of the Treaty in relation to measure C. According to that provision, State aid is any aid granted by Member State resources in any form whatsoever which distorts, or threatens to distort, competition by favouring certain undertakings or the production of certain goods, in so far as it affects trade between Member States.

(171) The recapitalisation by the HFSF of the Bank for EUR 524 million, was committed in March 2013 during the bidding process for the acquisition of the Cypriot Transferred Activities. The measure was therefore granted in March 2013. The actual recapitalisation took place in the framework of the Spring 2013 recapitalisation (89).

(172) The recapitalisation of the Bank was made by the HFSF, which is an entity set up and financed by Greece to support banks, and so the disbursement was made by using State resources.

(173) As to the beneficiary of the State aid, the recapitalisation, as explained in recital 72, aimed to cover the capital needs that would result from the acquisition of the Cypriot Transferred Activities. Moreover, the recapitalisation would be available to any Greek bank that would acquire the Cypriot Transferred Activities. The bid of the Bank, as submitted to the HFSF for approval, took into account a recapitalisation by the HFSF. At that time capital was scarce for the Greek banks and none of them would have acquired the Cypriot Transferred Activities without the promise of a recapitalisation. Therefore, even though the formal recipient of the capital provided by the HFSF is the Bank, the Commission considers that the beneficiary of the State aid is the Cypriot Transferred Activities, since the measure enables them to be sold to a Greek bank. Without the recapitalisation of the Bank, they would not have been acquired by a Greek bank. They would have been left in groups undergoing extreme difficulties (both Cyprus Popular Bank and Bank of Cyprus were under resolution in view of their large capital needs) and would therefore probably have failed or, at least, would have suffered from a large outflow of deposits. In relation to the existence of an advantage, the Commission also observes that the recapitalisation of the Bank by the HFSF does not comply with the market economy investor principle: at that time of high uncertainty, a private investor operating under normal market conditions would not have given a commitment to inject a large amount of capital into the Bank in the future without knowing the terms of the future injection (that is to say the issue price) in advance.

(174) Moreover, the measure is prima facie selective since it applies exclusively to the Cypriot Transferred Activities (each of which constitutes an undertaking) and not to any other undertaking.

(175) Last, the Cypriot Transferred Activities, that is to say. the Greek branches of the three Cypriot Banks, compete with other banks, including subsidiaries of foreign banks, which are active in Greece or potentially interested in entering the Greek market. Hence, the rescue of those activities distorts competition and has an effect on trade between Member States.

(176) The Commission therefore concludes that the recapitalisation of the Bank by the HFSF amounting to EUR 524 million constitutes State aid within the meaning of Article 107(1) of the Treaty.

Beneficiary of the State aid

(177) As already explained in recital 173, the Commission regards the Cypriot Transferred Activities as being the beneficiary of the disbursement of the EFSF bonds by the HFSF.

(178) Furthermore, as explained in recitals 71 and 173, the Cypriot Transferred Activities, that is to say the Greek branches of the three Cypriot Banks, had to be acquired by another bank for reasons of financial stability and mainly because the three Cypriot Banks were in a very difficult situation. Therefore, the sale of the Cypriot Transferred Activities and whether that sale entails State aid to the buyer, that is to say the Bank, should be examined under the ‘Viability through sale of a bank’ section of the Restructuring Communication (90).

(179) For the purpose of that sale, the Bank of Greece decided to contact only the largest domestic banks operating in Greece, of which only the Bank and two other banks submitted non-binding offers. The Bank is the only bidder that submitted a valid binding offer. The limited set of buyers contacted cannot exclude that the tender was open given that it was reasonable not to expect a formal bid from other investors. Indeed, at that time, due to the financial instability of the Greek banking system, which registered large loan losses due to the deep and protracted recession, foreign banks present in Greece had divested, or were about to divest themselves of their Greek activities (e.g. Geniki, MBG, Emporiki Bank). In other words, they were exiting the Greek market and were not seeking new investments opportunities in Greece. Moreover it is reasonable to assume that only an investor able to quickly stabilise and make viable the acquired activities — i.e. a large banking group — would have been interested in those activities. Finally, due to the very short timeframe available to close the sale — which was dictated by the financial crisis within which the selling banks were operation — the participation of foreign banks or other types of investors in the sales procedure was very unlikely, since those investors would normally have wanted to carry out a due diligence of the assets offered for sale before submitting a formal bid.

(180) The Commission, therefore, concludes that the sale price of the Cypriot Transferred Activities was the market price and that aid to the buyer, that is to say the Bank, can be excluded.

6.2.2. Legal basis for the compatibility assessment

(181) Article 107(3)(b) of the Treaty empowers the Commission to find that aid is compatible with the internal market if it is intended ‘to remedy a serious disturbance in the economy of a Member State’.

(182) The Commission has acknowledged that the global financial crisis can create a serious disturbance in the economy of a Member State and that measures supporting banks may remedy that disturbance. This has been confirmed in the 2008 Banking Communication, the Recapitalisation Communication, and the Restructuring Communication. The Commission still considers that the requirements for State aid to be approved pursuant to Article 107(3)(b) of the Treaty are fulfilled in view of the reappearance of stress in financial markets. The Commission confirmed that view by adopting the 2011 Prolongation Communication (91) and the 2013 Banking Communication (92).

(183) In respect of the Greek economy, in its decisions approving and prolonging the Greek Banks Support Scheme as well as in its approvals of State aid measures granted by Greece to individual banks (93), the Commission has acknowledged that there is a threat of serious disturbance in the Greek economy and that State support of banks is suitable to remedy that disturbance. Therefore, the legal basis for the assessment of the aid measures should be Article 107(3)(b) of the Treaty.

(184) During the financial crisis, the Commission has developed compatibility criteria for different types of aid measures. Principles for assessing aid measures were first laid down in the 2008 Banking Communication.

(185) In line with point 15 of the 2008 Banking Communication, in order for an aid to be compatible under Article 107(3)(b) of the Treaty it must comply with the general criteria for compatibility: (a) Appropriateness: The aid has to be well-targeted in order to be able to effectively achieve the objective of remedying a serious disturbance in the economy. It would not be the case if the measure were not appropriate to remedy the disturbance. (b) Necessity: The aid measure must, in its amount and form, be necessary to achieve the objective. Therefore it must be of the minimum amount necessary to achieve the objective, and take the form most appropriate to remedy the disturbance. (c) Proportionality: The positive effects of the measure must be properly balanced against the distortions of competition, in order for the distortions to be limited to the minimum necessary to achieve the measure’s objectives.

(186) During the financial crisis, the Commission has developed compatibility criteria for different types of aid measures. Principles for assessing aid measures were first laid down in the 2008 Banking Communication.

(187) The Recapitalisation Communication sets out further guidance on the level of remuneration required for State capital injections.

(188) Finally, the Commission has explained in the Restructuring Communication how it will assess restructuring plans. In its assessment of the restructuring plan of the Bank under the Restructuring Communication, the Commission will take into account all the measures listed in Table 11.

6.2.3. Compliance of the aid measure C with the 2008 Banking Communication and the Recapitalisation Communication

6.2.3.1. Appropriateness

(189) With respect to the appropriateness of the measure, that is to say, the commitment given by the HFSF to recapitalise the Bank amounting to EUR 524 million, the Commission considers that the measure is appropriate because it allowed the Greek operations of the three Cypriot Banks to be sold to the Bank.

(190) In the absence of the measure, none of the Greek banks, including the Bank, would have been willing to acquire the Cypriot Transferred Activities at a time no bank outside of Greece was willing to enter that market. If the Cypriot Transferred Activities had not been acquired, those activities and in particular the deposits of the Greek branches would have been in danger. The measure therefore ensured that financial stability in Greece is maintained. On that basis, the Commission finds that the measure is appropriate as rescue aid.

6.2.3.2. Necessity

(191) In line with the 2008 Banking Communication, the aid measure must, in its amount and form, be necessary to achieve the objective of the measure. It implies that a capital injection, for example, must be of the minimum amount necessary to achieve that objective.

(192) At a time when it was very difficult for Greek banks to find capital, the measure covered the capital needs that would result from the payment of the purchase price for the acquisition of the Cypriot Transferred Activities so that the acquisition could occur.

(193) Moreover, the Commission notes positively that the aid took the form of a capital injection in the framework of the Spring 2013 recapitalisation as the HFSF did not give a grant to the Bank but received ordinary shares for the same value.

(194) The measure is therefore necessary to achieve the objective of limiting the disturbance in the Greek banking system and the economy as a whole.

6.2.3.3. Proportionality

(195) The aided activities were sold after the Greek authorities launched a call for tender. In addition, the acquired activities were quickly integrated within the Bank. The aid did not allow the aided activities to remain as separate competitors on the market.

(196) Furthermore the amount of the aid was relatively small as it corresponds to around 3 % of the total net loans of the Cypriot Transferred Activities (or around 3 % of their RWA) (94).

(197) Therefore, the Commission considers that the measure was designed in such a way as to minimise undue distortions of competition.

6.2.3.4. Conclusion on the compliance with the 2008 Banking Communication and the Recapitalisation Communication

(198) On the basis of the analysis in recitals 189 to 197, it is concluded that the recapitalisation of the Bank by the HFSF amounting to EUR 524 million was appropriate, necessary to achieve the objective of limiting the disturbance in the Greek banking system and the economy as a whole and was designed in such a way as to minimise undue distortions of competition, and is in line with the 2008 Banking Communication and the Recapitalisation Communication.

6.2.4. Compliance of the aid measure with the Restructuring Communication

(199) As explained in recital 178, the sale of the Cypriot Transferred Activities falls under the section of the Restructuring Communication on ‘Viability through sale of a bank’. In line with point 17 of the Restructuring Communication, in the case of the sale of an ailing bank to another financial institution, the requirements of viability, own contribution and limitations of distortions of competition need to be respected.

6.2.4.1. Long-term viability of the Cypriot Transferred Activities through sale

(200) Point 17 of the Restructuring Communication clarifies that the sale of an ailing bank to another financial institution can contribute to the restoration of long-term viability, if the purchaser is viable and capable of absorbing the transfer of the ailing bank, and may help to restore market confidence.

(201) The Bank successfully integrated the Cypriot Transferred Activities. As stated in section 7.6, on the basis of its restructuring plan the Bank can be considered as a viable entity. Therefore, the fact that the Cypriot Transferred Activities have been transferred to the Bank allows their long-term viability to be restored.

6.2.4.2. Own contribution and burden-sharing

(202) Concerning the contribution of the shareholders of the three Cypriot Banks to the restructuring costs, the Commission observes that the three Cypriot Banks did not sell the Cypriot Transferred Activities at their book value but at the value adjusted in line with the PIMCO report. In addition, even after that adjustment was made, the three Cypriot Banks transferred more assets than liabilities to the Bank. Therefore, sufficient burden-sharing of shareholders was achieved since the loss in the value of the Cypriot Transferred Activities was borne by their sellers.

6.2.4.3. Measures to limit distortions of competition

(203) Regarding measures to limit distortions of competition, point 30 of the Restructuring Communication provides that ‘the Commission takes as a starting point for its assessment of the need for such measures, the size, scale and scope of the activities that the bank in question would have upon implementation of a credible restructuring plan … The nature and form of such measures will depend on two criteria: first, the amount of the aid and the conditions and circumstances under which it was granted and, second, the characteristics of the market or markets on which the beneficiary bank will operate.’

(204) As described in recital 196, the amount of aid corresponds to around 3 % of the RWA of the Cypriot Transferred Activities. Therefore the Commission considers it to be relatively small given that that amount enabled the sale of the Cypriot Transferred Activities and, as explained in recital 190, ensured the maintenance of the financial stability in Greece.

(205) Following the sale of the Cypriot Transferred Activities, the Greek branches ceased to exist as stand-alone competitors as they were fully integrated into the Bank.

(206) The Commission concludes that given the relatively small aid amount to the Cypriot Transferred Activities and the fact that they will not continue to exist as stand-alone competitors, there are no undue distortions of competition.

6.2.4.4. Conclusion on compliance with the Restructuring Communication

(207) On the basis of the analysis in recitals 199 to 206, it is concluded that the sale of the Cypriot Transferred Activities and their integration into the Bank ensure their long-term viability, that aid is limited to the minimum necessary and that there is no undue distortion of competition, in line with the Restructuring Communication.

(208) The recapitalisation of the Bank amounting to EUR 524 million by the HFSF should therefore be declared compatible with the internal market.

7. ASSESSMENT OF AID GRANTED TO THE BANK

7.1. EXISTENCE AND AMOUNT OF AID

(209) The Commission has to establish the existence of State aid to the Bank within the meaning of Article 107(1) of the Treaty.

7.1.1. Existence of aid in the measures granted under the Greek Bank Support Scheme

7.1.1.1. State liquidity support granted under the guarantee and the government bond loan measures (measure L1)

(210) The Commission has already established in the decisions approving and prolonging the Greek Banks Support Scheme (95) that liquidity support granted under the scheme constitutes aid. In 2011, the Bank issued bonds guaranteed by the State amounting to a total of EUR 9,9 billion. Greece also lent the Bank EUR 1 289 million of government bonds. At the end of March 2014, the outstanding amount of bonds guaranteed by the State and of government bonds was EUR 9,9 billion and EUR 1 024 million respectively (96). Future liquidity support granted under the Greek Banks Support Scheme would also constitute aid.

7.1.1.2. State recapitalisation granted under the recapitalisation measure (measure A)

(211) The Commission has already established in the Decision of 19 November 2008 on the Greek Banks Support Scheme that recapitalisations to be granted under its recapitalisation measure constitutes aid. The Bank has received EUR 750 million by means of preference shares, which represents 2,1 % of the Bank’s RWA (97).

7.1.2. Existence of aid in the State-guaranteed ELA (measure L2)

(212) The Commission clarified in point 51 of the 2008 Banking Communication that the provision of central banks’ funds to financial institutions does not constitute aid if four cumulative conditions are met regarding the solvency of the financial institution, the collateralisation of the facility, the interest rate charged to the financial institution, and the absence of counter-guarantee from the State. Since the State-guaranteed ELA granted to the Bank does not comply with those four cumulative conditions, in particular because it is State-guaranteed and it is granted in conjunction with other support measures, it cannot be concluded that the State-guaranteed ELA does not constitute State aid.

(213) The State-guaranteed ELA meets the requirements laid down in Article 107(1) of the Treaty. First, because that measure includes a State guarantee in favour of the Bank of Greece, any loss will be borne by the State. The measure therefore involves State resources. ELA enables banks to get funding at a time when they have no access to the wholesale funding market and to the regular Eurosystem refinancing operations. The State-guaranteed ELA therefore grants an advantage to the Bank. Because the State-guaranteed ELA is limited to the banking sector the measure is selective. Because the State-guaranteed ELA allows the Bank to continue operating on the market and avoids it defaulting and having to exit the market, it distorts competition. Since the Bank is active in other Member States and since financial institutions from other Member States operate or would potentially be interested in operating in Greece, the advantage granted to the Bank affects trade between Member States.

(214) On the basis of the above, the Commission considers that the State-guaranteed ELA (measure L2) constitutes State aid. The amount of State-guaranteed ELA has varied over time. On 31 December 2012, it amounted to around EUR 31,4 billion. After a sharp decrease in 2013, it amounted to only EUR 750 million at the end of that year.

7.1.3. Existence of aid in the measures granted through the HFSF

7.1.3.1. First bridge recapitalisation (measure B1)

(215) In section 5.1 of the Piraeus Opening Decision, the Commission has already concluded that the first bridge recapitalisation constitutes State aid. The capital received amounted to EUR 4,7 billion.

7.1.3.2. Second bridge recapitalisation (measure B2)

(216) Measure B2 was implemented with HFSF resources, which, as explained in recital 65 of the Piraeus Opening Decision, involve State resources.

(217) As regards the existence of an advantage, measure B2 increased the Bank’s capital ratio to a level that allowed it to continue to function on the market and to access Eurosystem funding. Furthermore, the remuneration of measure B2 consisted of the accrued interests on EFSF notes and an additional 1 % fee. Because that remuneration is manifestly lower than the remuneration of similar capital instruments in the market, the Bank would have certainly been unable to raise that capital on such terms in the market. Therefore, measure B2 granted an advantage to the Bank from State resources. As the measure was made available only to the Bank, it is selective in nature.

(218) The position of the Bank was strengthened as a result of measure B2 since the Bank was provided with the financial resources necessary to continue to comply with the capital requirements, thus leading to distortions of competition. Since the Bank is active in banking markets in other Member States and since financial institutions from other Member States operate in Greece or would potentially be interested in operating in Greece measure B2 affects trade between Member States.

(219) The Commission considers that measure B2 constitutes State aid. It was notified as aid by the national authorities. The capital received amounted to EUR 1 553 million.

7.1.3.3. Commitment letter (measure B3)

(220) By measure B3, the HFSF committed to provide the additional capital necessary to complete the recapitalisation of the Bank up to the amount requested by the Bank of Greece in the framework of the stress test of 2012. The HFSF receives its resources from the State. The letter therefore commits State resources. The circumstances in which the HFSF can grant support to financial institutions are precisely defined and limited by law. Accordingly the use of those State resources is imputable to the State. The HFSF gave a commitment to provide up to EUR 1 082 million of additional capital.

(221) The commitment letter granted an advantage to the Bank because it reassured depositors that the Bank would be able to raise the entire amount of capital it had to raise, that is to say, the HFSF would provide the capital should the Bank fail to raise it on the market. That commitment also facilitated the raising of private capital from the market, since investors were reassured that, if the Bank could not find part of the capital from the market, the HFSF would provide it. No private investor would have accepted to commit before the terms of the recapitalisation were known, and at that time the Bank had no access to capital markets. That advantage is selective since it was not granted to all the banks operating in Greece.

(222) Since the Bank is active in other Member States and since financial institutions from other Member States operate or would potentially be interested in operating in Greece, measure B3 is also likely to affect trade between Member States and to distort competition.

(223) Measure B3 therefore constitutes aid and was notified as State aid by the Greek authorities.

7.1.3.4. HFSF’s participation in the Spring 2013 recapitalisation to cover the capital needs of the stress test of 2013 (measure B4)

(224) HFSF’s participation in the Spring 2013 recapitalisation aiming to cover the capital needs identified in the stress test of 2012 (measure B4) is the partial conversion of the first and second bridge recapitalisations (measures B1 and B2) into a permanent recapitalisation of EUR 5 891 million in ordinary shares. Since measure B4 is the partial conversion of aid already granted, it still involves State resources but it does not increase the nominal amount of aid. However for a given nominal amount of aid, it increases the advantage to the Bank (and therefore the distortions of competition) since it is a permanent recapitalisation and not a temporary recapitalisation as in the case of measures B1 and B2.

(225) The Commission notes that such support was not granted to all banks operating in Greece. As regards distortions of competition and effect on trade, the Commission notes for instance that the aid enabled the Bank to pursue its operations in other Member States. A liquidation of the Bank would have led to the termination of its activities abroad, through the liquidation of those activities or their sale. In addition, certain banks from other Member States were operating in Greece. Therefore, the measure distorts competition and affects trade between Member States. The Commission therefore considers that measure B4 constitutes State aid.

7.1.3.5. Conclusion on measures B1, B2, B3 and B4

(226) Measures B1, B2, B3 and B4 constitute State aid within the meaning of Article 107(1) of the Treaty. The amount of State aid included in measures B1, B2, and B3 is EUR 7 335 million. As indicated in section 7.1.3.3, since the Bank attracted private capital amounting to EUR 1 444 million in the Spring 2013 recapitalisation, only part of the first and second bridge recapitalisation (measures B1 and B2) was converted into a permanent recapitalisation (measure B4). The additional capital of EUR 1 082 million (measure B3) committed by the HFSF was not necessary and therefore not paid out. The amount of State support paid out was therefore only the sum of the first and the second bridge recapitalisations, that is to say EUR 6 253 million and part of that aid was repaid within six months during the Spring 2013 recapitalisation (measure B4) as the private participation exceeded the amount of the commitment.

(227) Point 31 of the Restructuring Communication indicates that, besides the absolute amount of aid, the Commission has to take into account the aid ‘in relation to the bank’s risk-weighted assets’. Measures B1, B2, and B3 were granted over the course of a one-year period, from April 2012 until May 2013. During that period, the RWA of the Bank increased greatly following successive acquisitions. The question therefore arises as to which level of RWA should be used, and more particularly whether the State aid should be assessed by reference to the RWA that existed at the beginning of the period or at the end of the period. Measures B1, B2, and B3 aim at covering a capital need identified by the Bank of Greece in March 2012 (the stress test of 2012). In other words, the capital needs that those State support measures aim to address already existed in March 2012. The Commission therefore considers that the aid amount included in measures B1, B2, and B3 should be compared to the RWA of the Bank at 31 March 2012. It is also recalled that, after March 2012 and until the Spring 2013 recapitalisation, the Bank of Greece did not take into account acquisitions made by Greek banks to adjust their capital needs upwards or downwards. That element further demonstrates that measures B1, B2, and B3 were aid measures related to the perimeter of the Bank as it existed at 31 March 2012.

(228) The aid granted to the Bank amounted to the sum of the first and the second bridge recapitalisations (measures B1 and B2) and the commitment given by the HFSF (measure B3), that is to say EUR 7 335 million or 21,5 % of the Bank’s RWA at 31 March 2012.

(229) The aid paid out to the Bank amounted to the sum of the first and the second bridge recapitalisations (measures B1 and B2), that is to say EUR 6 253 million or 18,4 % of the Bank’s RWA at 31 March 2012.

(230) Since the Bank managed to attract private capital, the amount definitively injected by the HFSF into the Bank in the form of ordinary shares amounted to EUR 5 891 million, which represents 17,3 % of the Bank’s RWA at 31 March 2012.

7.1.4. Conclusion on the existence and total amount of aid received by the Bank

(231) Measures A, B1, B2, B3, B4, L1 and L2 constitute State aid within the meaning of Article 107(1) of the Treaty. Those measures are summarised in Table 11. Table 11 Overview of the total aid received by the Bank Ref. Measure Type of measure Amount of aid Aid/RWA A Preference Shares Capital support EUR 750 million 2,1 % B1 B2 B3 First bridge recapitalisation Second bridge recapitalisation Commitment letter Capital support EUR 4 700 million EUR 1 553 million EUR 1 082 million 13,8 % 4,5 % 3,2 % Total capital aid granted to the Bank A + B1 + B2 + B3 EUR 8 085 million 23,7 % Total aid paid out to the bank A + B1 + B2 EUR 7 003 million 21,6 % B4 Recapitalisation Capital support EUR 5 891 million 17,3 % Total capital aid paid out to the Bank minus aid repaid within 6 months EUR 6 641 million 19,4 % Ref. Measure Type of measure Nominal amount of aid L1 Liquidity support Guarantee Bond loan Guarantees: EUR 9,9 billion Bond loans: EUR 1,3 billion L2 State-guaranteed ELA Funding and Guarantee EUR 31,4 billion Total liquidity aid granted to the Bank EUR 42,6 billion

7.2. LEGAL BASIS FOR THE COMPATIBILITY ASSESSMENT

(232) As concluded in recital 183, the legal basis for the assessment of the aid measures should be Article 107(3)(b) of the Treaty (98).

(233) During the financial crisis, the Commission has developed compatibility criteria for different types of aid measures. Principles for assessing aid measures were first laid down in the 2008 Banking Communication.

(234) Guidance for recapitalisation measures can be found in the Recapitalisation Communication and the 2011 Prolongation Communication.

(235) The Restructuring Communication defines the approach adopted by the Commission as regards the assessment of restructuring plans, in particular the need to return to viability, to ensure a proper contribution from the beneficiary and to limit distortions of competition.

(236) That framework was complemented by the 2013 Banking Communication, which applies to aid measures notified or granted without prior approval by the Commission after 31 July 2013.

7.2.1. Legal basis for the assessment of the compatibility of the liquidity support to the Bank (measure L1)

(237) The liquidity support already received by the Bank has been definitively approved through the successive decisions authorising the measures under the Greek Banks Support Scheme and its amendments and prolongations (99). Any future liquidity support for the Bank will have to be granted under a scheme duly approved by the Commission. The terms of such aid will have to be authorised by the Commission before it is granted and therefore do not have to be further assessed in this decision.

7.2.2. Legal basis for the assessment of the compatibility of the preference shares (measure A)

(238) The recapitalisation granted in 2009 in the form of preference shares (measure A) was granted under the recapitalisation measure of the Greek Banks Support Scheme, which was approved in 2008 under the 2008 Banking Communication. It therefore does not have to be reassessed under the 2008 Banking Communication and has to be assessed only under the Restructuring Communication.

7.2.3. Legal basis for the assessment of the compatibility of the State-guaranteed ELA (measure L2)

(239) The compatibility of the State-guaranteed ELA (measure L2) should