EN Official Journal of the European Union L 183/29

COMMISSION DECISION (EU) 2015/1092

of 23 July 2014

on the State aid SA.34824 (2012/C), SA.36007 (2013/NN) SA.36658 (2014/NN), SA.37156 (2014/NN), SA.34534 (2012/NN) implemented by Greece for National Bank of Greece Group related to:

— Recapitalisation and restructuring of National Bank of Greece S.A.,

— Resolution of First Business Bank S.A. through a transfer order to National Bank of Greece S.A.,

— Resolution of Probank S.A. through a transfer order to National Bank of Greece S.A.,

— Resolution of Cooperative Bank of Lesvos-Limnos, Cooperative Bank of Achaia, and Cooperative Bank of Lamia

(notified under document C(2014) 5201)

(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,

Whereas,

1. PROCEDURE

1.1. PROCEDURE RELATED TO THE NATIONAL BANK OF GREECE GROUP (1) (‘THE 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).

(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) In May 2009, the Bank was recapitalised under the recapitalisation measure of the Greek Banks Support Scheme.

(4) On 2 August 2010, the Greek authorities submitted a restructuring plan in respect of the Bank to the Commission. The Commission registered that plan, its subsequent updates as well as additional information submitted by the Greek authorities as Case SA.30342 (PN 26/10) and then Case SA.32788 (11/PN).

(5) In December 2011, the Bank was again recapitalised by Greece under the recapitalisation measure. On 22 December 2011, the Commission approved the second recapitalisation of the Bank (3).

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

(7) On 18 March 2012, the Bank of Greece proceeded with the withdrawal of the licenses of three Cooperative Banks (‘the three Cooperative Banks’), namely the Cooperative Bank of Lesvos-Limnos (‘Lesvos-Limnos Bank’), the Cooperative Bank of Achaia (‘Achaia Bank’) and the Cooperative Bank of Lamia (‘Lamia Bank’) and put them into liquidation.

(8) The Commission registered the information informally received from Greece on the resolution of the Cooperative Banks as Case SA.34534 (12/NN).

(9) On 23 March 2012, the Bank of Greece proceeded with the transfer of selected liabilities of the three Cooperative Banks to the Bank and determined the amount of the funding gaps (5) which would be covered by the Hellenic Financial Stability Fund (‘HFSF’) pursuant to the law 4051/2012 (6). The funding gaps were equal to the value of the transferred liabilities since there was no transfer of assets of the three Cooperative Banks.

(10) On 20 April 2012, the 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 7 430 million to the Bank (‘the first bridge recapitalisation’).

(11) In May 2012, the Greek authorities 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.34824 (12/NN)) as the measure had already been implemented.

(12) On 27 July 2012, the Commission opened a formal investigation procedure on the first bridge recapitalisation (‘the NBG Opening Decision’) (7).

(13) In December 2012, the HFSF granted a second bridge recapitalisation of EUR 2 326 million to the Bank (‘the second bridge recapitalisation’) (8). The Greek authorities notified that measure to the Commission on 27 December 2012. The Commission registered those measures as case SA.36007 (13/NN).

(14) In June 2013, the Bank announced the successful completion of its EUR 1 079 million rights issue (9) while the HFSF partially converted the first and second bridge recapitalisations into equity (‘the Spring 2013 recapitalisation’, which includes both the EUR 1 079 million rights issue and the conversion of the first and second bridge recapitalisations). The total amount of the Spring 2013 recapitalisation was EUR 9 756 million, out of which EUR 8 677 million was injected by the HFSF (the ‘HFSF's participation in the Spring 2013 recapitalisation’).

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

(16) On 25 June 2014, the Greek authorities submitted a final restructuring plan for the Bank (‘the restructuring plan’) to the Commission. On the same date they provided information on the State-guaranteed ELA. They indicated that they wanted 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. The Commission registered the notification under number SA.34824 (12/C).

(17) The Commission had numerous meetings, teleconferences and electronic mail exchanges with representatives of the Greek authorities and the Bank.

(18) Greece accepts that exceptionally this Decision is adopted in English only.

1.2. PROCEDURE RELATED TO THE ACQUIRED BUSINESSES

1.2.1. Procedure related to First Business Bank S.A.

(19) In July 2009, First Business Bank S.A. (‘FB Bank’) was recapitalised by Greece under the recapitalisation measure of the Greek Banks Support Scheme (10), for an amount of EUR 50 million.

(20) In spring 2013, the Bank of Greece decided to proceed with the resolution of FB Bank through a Purchase & Assumption procedure (11).

(21) On 1 May 2013, the Bank of Greece invited the four largest banks in Greece to submit non-binding offers for a portfolio of FB Bank's assets and liabilities. The Bank of Greece, in its letter to the bidders, stated that the HFSF would, on top of the funding gap, cover the capital needs of the acquirer which were related to the assets transferred from FB Bank.

(22) On 8 May 2013, the Bank and another bank submitted their preliminary bids.

(23) On 10 May 2013, the Bank revised its offer.

(24) On the same date, the Bank of Greece proceeded with the resolution of FB Bank and the transfer of selected assets and liabilities to the Bank.

(25) On 11 May 2013, the Greek authorities submitted information to the Commission regarding the resolution of FB Bank. The Commission registered that information and the subsequent submissions by the Greek authorities as Case SA.36658 (14/NN).

(26) On 28 June 2013, the HFSF disbursed two-thirds of the funding gap as it was initially estimated.

(27) On 29 July 2013, the Greek authorities notified to the Commission the financing of the funding gap for a total amount of approximately EUR 524 million, as estimated at the time of the resolution on the basis of data at 31 March 2013.

(28) On 7 November 2013, the Bank of Greece finalised the calculation of the total funding gap, which amounted to EUR 457 million (12).

(29) On 13 November 2013, the HFSF paid the remaining balance of the funding gap to the Bank.

(30) On 25 June 2014, the Greek authorities notified the Commission that the Bank does not intend to ask the HFSF to inject the amount of capital needs created by the acquisition of FB Bank's assets into the Bank.

1.2.2. Procedure related to Probank S.A.

(31) On 10 May 2013, the Bank of Greece appointed a Commissioner at Probank S.A. (‘Probank’).

(32) In July 2013, the Bank of Greece decided to proceed with the resolution of Probank through a Purchase & Assumption procedure.

(33) On 22 July 2013, the Bank of Greece invited the four largest banks in Greece to submit offers for a portfolio of Probank's assets and liabilities. The Bank of Greece, in its letter to the potential bidders, stated that the HFSF, would, on top of the funding gap, cover the capital needs of the acquirer which were related to the assets transferred from Probank.

(34) On 24 July 2013, a bank submitted a draft offer and on 25 July 2013 the Bank submitted its binding offer.

(35) On 26 July 2013, the Bank of Greece proceeded with the resolution of Probank and the transfer of selected assets and liabilities to the Bank.

(36) On 29 July 2013, the Greek authorities notified to the Commission the financing of the funding gap for a total amount of EUR 238 million, as estimated by the Bank of Greece on the basis of data at 31 March 2013. The Commission registered that notification and subsequent information submitted by the Greek authorities as Case SA.37156 (14/NN).

(37) On 9 August 2013, the HFSF disbursed two-thirds of the funding gap as it was initially estimated.

(38) On 30 December 2013, the Bank of Greece finalised the calculation of the total funding gap, which amounted to EUR 563 million.

(39) On 31 December 2013, the HFSF paid the remaining balance of the funding gap to the Bank.

(40) On the same date, the Bank of Greece provided the Commission with further information on the finalisation of the funding gap.

(41) On 25 June 2014, the Greek authorities notified the Commission that the Bank does not intend to ask the HFSF to inject the amount of capital needs created by the acquisition of Probank's assets into the Bank.

2. DESCRIPTION

2.1. THE BANK AND ITS DIFFICULTIES

2.1.1. General context of the Greek banking sector

(42) 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 (13). Those developments have adversely affected the performance of the assets of Greek banks and generated large loan losses. Table 1 Real GDP Growth in Greece, 2008-13 Greece 2008 2009 2010 2011 2012 2013 Real GDP growth, % – 0,2 – 3,1 – 4,9 – 7,1 – 6,4 – 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

(43) 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 (14). The Greek authorities announced the results of that exchange of bonds on 9 March 2012 (15). 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. Table 2 Total PSI losses of the main Greek banks (EUR million) Banks Face amount of GGBs (1) Face amount of state related loans (2) Total face amount (3)=(1)+(2) PSI loss on GGBs (4) PSI loss on state-related loans (5) Total gross PSI loss (6)=(4)+(5) Total gross PSI loss/Core Tier 1 (16) (Dec 2011) (%) Total gross PSI loss/Total assets (Dec 2011) (%) 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 Probank 415 0 415 295 0 295 105,1 8,7 FB Bank 70 0 70 49 0 49 33,8 3,1 Source: Bank of Greece, Report on the Recapitalisation and the Restructuring of the Greek Banking Sector, December 2012, p. 14.

(44) 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 International Monetary Fund (‘IMF’) and the European Central Bank (‘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) (1) Total gross PSI loss (Dec 2011) (2) Provisions related to PSI (June 2011) (3) Gross Cumulative Loss Projections for credit risk (4) Loan loss reserves (Dec 2011) (5) Internal capital generation (6) Target Core Tier 1 (Dec 2014) (7) Capital needs (8) = (7) – (1) – (2) – (3) – (4) – (5) – (6) 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 Probank 281 – 295 59 – 462 168 147 180 282 FB Bank 145 – 49 0 – 285 167 – 29 116 168 Source: Bank of Greece, Report on the Recapitalisation and the Restructuring of the Greek Banking Sector, December 2012, p. 8.

(45) According to the MEFP, ‘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 only the four largest banks (Eurobank, National Bank of Greece, Piraeus Bank and Alpha Bank) to be viable (20). They received a first recapitalisation from the HFSF in May 2012.

(46) 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 out 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.

(47) 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).

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

(49) In spring 2013, the bridge recapitalisations of the four banks were converted into permanent recapitalisations in ordinary shares, with the HFSF holding more than 80 % of the shareholding of each of the four banks. For the banks which succeeded in attracting a pre-determined amount of private capital, the HFSF received non-voting shares and private investors who injected new money along with the HFSF were granted warrants on the shares acquired by the HFSF.

(50) 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.

(51) Based on the advisor's assessment of the CLPs, the Bank of Greece launched a new stress test exercise in autumn 2013 (‘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.

(52) 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 Source: Bank of Greece, 2013 Stress Test of the Greek Banking Sector, March 2014, p. 42.

(53) 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.

(54) Between the end of March 2013 and early May 2014, the four banks proceeded with capital increases.

2.1.2. The beneficiary

(55) The Bank provides universal banking services mainly in Greece, Turkey and other countries of Central, Eastern and South-Eastern Europe (Cyprus, Romania, Bulgaria, Serbia, Albania and the Former Yugoslav Republic of Macedonia (‘FYROM’)). 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, insurance, treasury, capital markets and other services. The Bank is incorporated in Greece and its shares are listed on the Athens Stock Exchange. On 30 September 2012, the Bank employed a total of 37 831 people (28), of which around one-third were employed in Greece, and one-third in Turkey, while the remaining third were employed in other countries, mainly in South-Eastern Europe.

(56) The Bank participated in the PSI programme, exchanging GGBs and State-related loans with a face value of EUR 14 749 million. Its total PSI-related charge amounted to around EUR 11 735 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.

(57) The key figures of the Bank in December 2010, December 2011, December 2012 and December 2013 (consolidated data as per annual financial statements) are presented in Table 5. Table 5 National Bank of Greece key figures, 2010, 2011, 2012 and 2013 (30) Profit and loss (EUR million) 2010 2011 2012 2013 Net Interest Income 4 148 3 843 3 365 3 157 Total Operating Income 4 639 4 372 3 527 3 771 Total Operating Expenses – 2 512 – 2 541 – 2 322 – 2 547 Pre Provision Income 2 127 1 833 1 205 1 224 Impairment Losses to cover credit risk – 1 450 – 3 439 – 2 966 – 1 373 Impairment losses on GGBs and loans eligible to PSI 0 – 11 783 – 187 0 Net profit/loss 440 – 12 325 – 2 131 807 Selective Volume figures (EUR million) 31 December 2010 31 December 2011 31 December 2012 31 December 2013 Total Net Loans and Advances to Customers 77 262 71 496 69 135 67 250 Deposits 68 039 59 544 58 722 62 876 Total Assets 120 745 106 870 104 798 110 930 Total Equity (31) 10 905 – 253 – 2 042 7 874

(58) Table 5 illustrates that, apart from the huge losses it booked in 2011 due to the PSI programme (EUR 11 735 million (32)), 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. The liquidity position of the Bank was hit by deposit outflows but its net loan-to-deposit ratio remained relatively low compared to other Greek banks (118 % at 31 December 2012 (33)).

(59) Following the stress test of 2013, according to which the capital needs of the Bank were estimated at EUR 2 183 million in the baseline scenario, the Bank sought to raise EUR 2,5 billion of capital on the market.

(60) On 6 May 2014, the Bank announced the launch of the book-building exercise (34) for an amount of EUR 2,5 billion (35).

(61) On 9 May 2014, the Bank announced the issue and placement of 1 136,4 million new ordinary shares, at a price of EUR 2,20 per share, for total gross proceeds of EUR 2,5 billion (36). The share capital increase was carried out through the cancellation of pre-emption rights for existing shareholders, as decided by the general meeting of shareholders held in Athens on 10 May 2014 (37). The HFSF approved the share capital increase on the basis of two valuations reports carried out by independent experts as per law 3864 (38).

2.2. THE BANK'S ACQUISITIONS OF GREEK BANKING ACTIVITIES

2.2.1. Acquisition of selected liabilities of the three Cooperative Banks

(62) On 18 March 2012, the Bank of Greece noted that the three Cooperative Banks did not meet the capital adequacy requirements and concluded that they would not be able to increase their capital. Therefore, the Bank of Greece decided to withdraw their licenses and put them into liquidation.

(63) The Bank of Greece considered that taking resolution measures and in particular the auctioning of the deposits in the context of the resolution framework (Article 63(D) of law 3601/2007) and the financing of the relevant funding gap was crucial to maintain the increases in depositors' confidence that had occurred in the aftermath of the successful conclusions of the PSI and the Second Adjustment Programme and that, despite the recent turnaround of the market sentiment, such sentiment was fragile. The Bank of Greece estimated that on 19 March 2012 the total amount of customer deposits (based on unaudited data at 30 September 2013) in those three Cooperative Banks amounted to approximately EUR 325 million.

(64) The Bank of Greece proceeded with a Purchase & Assumption procedure whereby all deposits, including interbank deposits, and the claims and liabilities towards the Hellenic Deposit and Investment Guarantee Fund (‘HDIGF’) but no loans would be transferred to an acquirer. On 20 March 2012, the Bank of Greece invited the five largest Greek credit institutions at that time to submit their offers. The Bank and three other banks submitted binding offers. The Bank's offer was the preferred one, in terms of consideration and time required for the conclusion of the transfer. The Bank offered to pay as consideration an amount equal to […] (39) % of the transferred deposits and estimated that the transfer could be completed within one working day.

2.2.1.1. Cooperative Bank of Lesvos-Limnos (‘Lesvos-Limnos Bank’)

(65) On 23 March 2012, the Bank of Greece decided that the deposits and the claims and liabilities of Lesvos-Limnos Bank towards the HDIGF were to be transferred to the Bank (40). According to the Bank of Greece (41), the fair value of the transferred liabilities amounted to EUR […] million, while no assets were transferred. The consideration was calculated (42) at EUR […] million, that is to say, […] % of the transferred deposits. The funding gap was covered by the HFSF pursuant to Article 63D(13) of law 3601/2007. On 10 April 2012, the HFSF disbursed two-thirds of the total funding gap in EFSF Notes while it committed that the remaining amount would be paid upon the final determination of the funding gap. On 22 June 2012, the Bank of Greece determined that the final funding gap of Lesvos-Limnos Bank amounted to EUR 56,6 million. The HFSF covered the undisbursed part of the funding gap on 20 July 2012.

(66) At the time of its resolution, Lesvos-Limnos Bank employed 37 people and had 3 branches. The Bank took over no branches of Lesvos-Limnos Bank and its employees were laid off.

2.2.1.2. Cooperative Bank of Achaia (‘Achaia Bank’)

(67) On 23 March 2012, the Bank of Greece decided that the deposits and the claims and liabilities of Achaia Bank towards the HDIGF were to be transferred to the Bank (43). According to the Bank of Greece (44), the fair value of the transferred liabilities amounted to EUR […] million, while no assets were transferred. The consideration was calculated (45) at EUR […] million, that is to say, […] % of the capital of the transferred deposits. The funding gap was covered by the HFSF pursuant to Article 63(D)(13) of law 3601/2007. On 10 April 2012, the HFSF disbursed two-thirds of the total funding gap in EFSF Notes while it committed that the remaining amount would be paid upon the final determination of the funding gap. On 22 June 2012, the Bank of Greece determined that the final funding gap of Achaia Bank amounted to EUR 212,9 million. The HFSF covered the undisbursed part of the funding gap on 20 July 2012.

(68) At the time of its resolution, Achaia Bank employed 103 people and had 13 branches. The Bank took over no branches of Achaia Bank and its employees were laid off.

2.2.1.3. Cooperative Bank of Lamia (‘Lamia Bank’)

(69) On 23 March 2012, the Bank of Greece decided that the deposits and the claims and liabilities of Lamia Bank towards the HDIGF were transferred to the Bank (46). According to the Bank of Greece, the fair value of the transferred liabilities amounted to EUR […] million, while no assets were transferred. The consideration was calculated (47) at EUR […] million, that is to say, […] % of the capital of the transferred deposits. The funding gap was covered by the HFSF pursuant to Article 63D(13) of law 3601/2007. On 10 April 2012, the HFSF disbursed two-thirds of the total funding gap in EFSF Notes while it committed that the remaining amount would be paid upon the final determination of the funding gap. On 22 June 2012, the Bank of Greece determined that the final funding gap of Lamia Bank amounted to EUR 56,3 million. The HFSF covered the undisbursed part of the funding gap on 20 July 2012.

(70) At the time of its resolution, Lamia Bank employed 47 people and had 5 branches. The Bank took over no branches of Lamia Bank and its employees were laid off.

(71) The amounts of the funding gaps of the three Cooperative Banks are set out in Table 6. Table 6 Final funding gaps of the three Cooperative Banks Final funding gap (in EUR million) Lesvos-Limnos Bank 56,6 Achaia Bank 212,9 Lamia Bank 56,3 Total 325,8 Sources: Decisions 3/1/EC, 3/2/EC, 3/3 of 22 June 2012 of the Resolution Measures Committee of the Bank of Greece.

2.2.2. Acquisition of selected assets and liabilities of First Business Bank

(72) FB Bank was a small bank with a total balance sheet of EUR 1,4 billion at the time of its resolution, and a market share of less than 1 % in loans and in deposits. FB Bank had 19 branches across Greece and employed 260 employees at 31 December 2012.

(73) Under the Greek bank Support Scheme FB Bank received (i) a capital injection of EUR 50 million from the Greek State in July 2009, (ii) Greek Government Securities amounting to EUR 60 million in May 2012 (48) and (iii) a State guarantee for issued bonds with a nominal value of EUR 50 million in March 2011.

(74) FB Bank participated in the PSI programme, exchanging GGBs with a face value of EUR 70 million. As illustrated in Table 2, its total PSI-related charge amounted to around EUR 49 million before tax. As illustrated in Table 3, the capital needs of FB Bank were estimated at EUR 168 million in the stress test of 2012.

Acquisition of First Business Bank

(75) On 8 November 2012, the Bank of Greece requested FB Bank to complete the capital increase by 30 April 2013 in order to restore its Core Tier 1 ratio.

(76) As FB Bank failed to raise the required capital by 30 April 2013, the Bank of Greece decided to proceed with the withdrawal of the license of FB Bank and put it into liquidation.

(77) The Bank of Greece considered that taking resolution measures through a Purchase & Assumption procedure, in particular the financing of the relevant funding gap and the associated coverage of the capital needs related to the transferred assets, was crucial to maintain the depositors' confidence in the Greek banking system and thus to preserve financial stability. The Bank of Greece estimated that on 31 December 2012 the total amount of customer deposits in FB Bank amounted to approximately EUR 1 278 million, of which only EUR 830 million were guaranteed by the HDIGF. Therefore, if FB Bank had been put into liquidation without the application of resolution measures, around EUR 448 million of deposits would not have been covered.

(78) For those financial stability considerations, the Bank of Greece proceeded with the auction of the selected assets and liabilities of FB Bank, including deposits. However, the acquisition of FB Bank's assets could have created further capital needs for the acquirer and hence no bank would accept to acquire the selected assets and liabilities. The Bank of Greece, in its letter to the HFSF dated 8 May 2013, indicated that it considered it to be appropriate that the HFSF should cover those capital needs as part of the resolution costs. In its final binding bid dated 10 May 2013, the Bank requested that the capital needs created by the acquisition of the assets transferred from FB Bank be covered by the HFSF. The amount of those capital needs was estimated at around EUR 100 million by the Bank of Greece at the time of the resolution (49).

(79) On 8 May 2013, only the Bank and another bank submitted non-binding offers. The bids of both banks were based on the understanding that the HFSF would cover both the funding gap and the capital needs related to the transferred assets. On 10 May 2013, the Bank submitted its final offer. The Bank of Greece decided to transfer the assets and liabilities of FB Bank to the Bank, whose offer was considered to be the preferred one.

(80) Customer loans (other than those permanently in arrears) and most cash balances, as well as intangible assets and goodwill, property rights, contracts related to the lease or purchase of property, interbank liabilities and customer deposits were transferred to the Bank.

(81) According to the initial assessment of the Bank of Greece at the time of the resolution (50), the value of the liabilities transferred from FB Bank to the Bank was estimated at EUR 1 402 million while the value of the transferred assets was estimated at EUR 878 million, the difference being the funding gap of EUR 524 million. The funding gap was covered pursuant to Article 63D(13) of law 3601/2007 by the HFSF, which on 28 June 2013 disbursed the two-thirds of the estimated funding gap, meaning EUR 349,6 million. After the finalisation of the calculation of the funding gap by the Bank of Greece on 7 November 2013 (51) at EUR 457 million, on 13 November 2013 (52) the HFSF paid to the Bank the balance of EUR 107,4 million.

2.2.3. Acquisition of selected assets and liabilities of Probank

(82) Probank had a network of 112 branches across Greece and employed 1 087 people (53) at 31 March 2013.

(83) The balance sheet of Probank was around EUR 3,2 billion at 30 June 2013 (54). Probank had a market share of 1,1 % in loans and a market share of 1,7 % in deposits at 31 March 2013.

(84) Probank participated in the PSI programme, exchanging GGBs with a face value of EUR 415 million. As illustrated in Table 2, its total PSI-related charge amounted to around EUR 295 million before tax. As illustrated in Table 3, the capital needs of Probank were estimated at EUR 282 million in the stress test of 2012.

Acquisition of Probank

(85) On 26 October 2012, the Bank of Greece requested Probank to increase its capital by EUR 282 million.

(86) As Probank failed to increase its capital, in July 2013 the Bank of Greece decided to proceed with the withdrawal of its license and put it into liquidation (55). More precisely, the own funds of Probank were negative and were estimated at around EUR – 16 million based on data at 31 March 2013 on a consolidated basis. Therefore, Probank did not meet its minimum capital requirements and its own funds were lower than the minimum share capital for any bank, as set at Article 5(4)(a) of law 3601/2007.

(87) The Bank of Greece considered that resolution measures were crucial to maintain depositors' confidence in the Greek banking system and thus to preserve financial stability. The Bank of Greece estimated that on 31 March 2013 the total amount of customer deposits in Probank amounted to approximately EUR 3 123 million, of which only EUR 1 998 million were guaranteed by the HDIGF. Therefore, if Probank had been put into liquidation without the application of resolution measures, around EUR 1 125 million of deposits would not have been covered.

(88) For those financial stability considerations, the Bank of Greece proceeded with the auction of selected assets and liabilities of Probank, including deposits. However, the acquisition of Probank's assets could have created further capital needs for the acquirer and hence no bank would accept to acquire the selected assets and liabilities. Therefore, in its final binding bid dated 25 July 2013, the Bank requested that the capital needs created by the acquisition of the assets transferred from Probank be covered by the HFSF. The requested commitment to cover those capital needs was taken into account by the HFSF when assessing the bids received. The amount of those capital needs was estimated at EUR [180 to 280] million (56).

(89) On 24 July 2013 another large Greek bank submitted a draft offer and on 25 July 2013 the Bank submitted its offer. The bids of both banks were based on the understanding that the HFSF would cover both the funding gap and the capital needs created by the transferred assets. The Bank of Greece decided to transfer the assets and liabilities of Probank to the Bank, whose offer was considered to be the preferred one.

(90) Customer loans (other than the loans permanently in arrears) and most cash balances, as well as intangible assets and goodwill, property rights, contracts related to the lease or purchase of property, interbank liabilities and customer deposits were transferred to the Bank.

(91) According to the initial assessment of the Bank of Greece at the time of the resolution (57), the value of the liabilities transferred from Probank to the Bank was estimated at EUR 3 198,9 million while the value of the transferred assets was estimated at EUR 2 961,4 million, the difference being the funding gap of EUR 237,6 million. The funding gap was covered pursuant to Article 63D(13) of law 3601/2007 by the HFSF, which on 9 August 2013, disbursed in cash two-thirds of the estimated funding gap, meaning EUR 158,4 million. The funding gap, the calculation of which was finalised by the Bank of Greece on 30 December 2013, amounted to EUR 562,7 (58). On 31 December 2013, the HFSF paid the Bank the balance of EUR 404,4 million in cash (59).

2.3. AID MEASURES

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

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

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

(93) The Bank has benefited and continues to benefit from aid under the guarantee measure and the government bond loan measures. That aid will be described in this Decision as ‘measure L1’. As of 30 November 2013 (60), the guarantees granted to the Bank amounted to around EUR 14,8 billion. At that date, the outstanding loans of government bonds to the Bank amounted to EUR 847 million. As of 15 April 2011, the Bank had received loans of government bonds amounting to EUR 787 million and State guarantees amounting to EUR 12,9 billion.

(94) In the restructuring plan for the Bank submitted by the Greek authorities to the Commission on 25 June 2014, the Greek authorities signalled their intention to continue granting guarantees and lending government bonds to the Bank under the Greek Banks Support Scheme during the restructuring period.

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

(95) In May 2009 and December 2011, the Bank received from Greece under the recapitalisation measure capital injections of EUR 350 million and EUR 1 000 million respectively, totalling EUR 1 350 million (measure A), equivalent to around 2 % of the risk weighted assets (‘RWA’) of the Bank at that time.

(96) The recapitalisation took the form of preference shares subscribed by Greece which had a coupon of 10 % and a maturity of five years. In 2010 the duration of the preference shares was extended while their remuneration was increased. From the end of the initial five-year period, if the preference shares are not redeemed and no decision has been taken by the general meeting of shareholders as to the redemption of those shares, the Greek Minister of Finance will increase the coupon by 2 % a year on a cumulative basis (that is to say, a coupon of 12 % for year six, 14 % for year seven, etc.…).

2.3.2. State-guaranteed ELA (measure L2)

(97) 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 such a financial institution for ELA is […] basis points (‘bps’) higher than the interest it pays for regular ECB refinancing.

(98) 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 (61). 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.

(99) At 31 January 2012 the Bank had benefited from EUR 8,6 billion of State-guaranteed ELA (62), while at 31 December 2012 the Bank had benefited from EUR 30,9 billion of State-guaranteed ELA (63).

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

(100) Since 2012, the Bank has benefited from several capital support measures granted by the HFSF. Table 7 provides an overview of those aid measures. Table 7 Aid measures granted to the Bank through the HFSF 1st bridge recapitalisatio — May 2012 (EUR million) 2nd bridge recapitalisation — Dec 2012 (EUR million) Spring 2013 recapitalisation — May 2013 (EUR million) Measure B1 B2 B3 Amount (EUR million) 7 430 2 326 8 677

2.3.3.1. The first bridge recapitalisation (measure B1)

(101) Recitals 14 to 33 of the NBG Opening Decision give a detailed description of the first bridge recapitalisation of May (64) 2012 (measure B1). The background and main features of that measure are set out in this section.

(102) 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 6,9 billion.

(103) Under measure B1, the HFSF transferred EUR 7,4 billion of EFSF bonds to the Bank on 28 May 2012, in line with the provisions for bridge recapitalisations laid down in the law 3864/2010 establishing the HFSF (the ‘HFSF law’). The Commission has already established in recital 50 of the NBG 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 % at 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 did not cover entirely the capital needs identified by the stress test of 2012. The Bank was supposed to raise the capital through a future capital increase and the bridge recapitalisation was only intended to preserve the Bank's eligibility for ECB financing until that capital increase had taken place.

(104) 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 to the HFSF 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 (65).

2.3.3.2. The second bridge recapitalisation (measure B2)

(105) 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.

(106) A second bridge recapitalisation became necessary as a result. On 21 December 2012, the HFSF implemented a second bridge recapitalisation of EUR 2 326 million (measure B2), which was again paid by transferring EFSF bonds to the Bank.

(107) The total of the two bridge recapitalisations (measures B1 and B2) meant that the total capital needs identified by the stress test of 2012 (EUR 9,76 billion (66)) were already disbursed by the HFSF at 21 December 2012.

2.3.3.3. HFSF's participation in the Spring 2013 recapitalisation (measure B3)

(108) On 22 May 2013 the Board of Directors of the Bank announced the issue of 2 274,1 million new shares with a nominal value of EUR 0,30 at a price of EUR 4,29 per share (67).

(109) On 21 June 2013 (68) the Bank announced the full payment of the total increase in shares for a total amount of EUR 9 756 million, including premium amounts. The total private participation in the Bank's share capital increase amounted to EUR 1 079 million (69). The participation of the HFSF in the share capital increase of the Bank therefore amounted to EUR 8 677 million (measure B3).

(110) That amount is equal to the sum of measures B1 and B2, after deduction of the amount of private participation. By means of the Bank's share capital increase, the first and second bridge recapitalisations (measures B1 and B2) were partially converted into a permanent recapitalisation.

(111) The price of new shares was set at 50 % of the volume-weighted average stock price over the 50 trading days preceding the determination of the offer price. As a result of a reverse stock split and of a reduction of the Bank's share capital, both decided by the extraordinary general meeting of shareholders on 29 April 2012 (70), the price of new shares was set at EUR 4,29 per share.

(112) Immediately after the Spring 2013 recapitalisation, the HFSF became the majority shareholder of the Bank with a stake of 84,39 % (71). The HFSF issued 245 779,6 million warrants and granted private investors one warrant for each share subscribed, for no consideration (72). Each warrant incorporates the right to buy 8,23 shares of the HFSF, at specified intervals and strike prices. The first exercise date is 26 December 2013, and then the warrants are exercisable every six months until 26 December 2017. The exercise price is equal to the subscription price of EUR 4,29 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) (73).

(113) The HFSF law as amended in 2014 provides that only the warrant strike prices may be adjusted in the event of a rights issue. Additionally, the adjustment must take place ex post and only up to the amount of the proceeds realised 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

2.3.4.1. State support to the three Cooperative Banks

(114) As already mentioned in section 2.2.1, the funding gaps of Lesvos-Limnos bank, Achaia Bank and Lamia Bank of EUR 56,6 million, EUR 212,9 million and EUR 56,3 million respectively, were covered by the HFSF. Therefore, the total amount of the funding gaps was EUR 325,8 million.

2.3.4.2. Aid measures to FB Bank

(115) Since 2009, FB Bank has benefited from several aid measures. Table 8 provides an overview of those aid measures. Table 8 Overview of the aid measures to FB Bank Aid beneficiary Measure Description Entity which granted the aid Date State aid amount (in EUR million) FB Bank's activities FB1 Preference shares granted under the Greek Banks Support Scheme State July 2009 50 FB2 Lending of Greek government bonds under the Greek Banks Support Scheme State From January 2009 60 FB3 State guarantee for issued bonds under the Greek Banks Support Scheme State March 2011 50 FB4 Financing of the funding gap for assets transferred from FB Bank to the Bank HFSF 10.5.2013 (Date of the resolution) 456,97 FB5 Commitment to cover the capital needs related to the assets transferred from FB Bank to the Bank HFSF 10.5.2013 (Date of the resolution) 100 Total amount FB4 and FB5 556,97

2.3.4.2.1 State recapitalisation received by FB Bank (measure FB1)

(116) In July 2009, Greece injected EUR 50 million into FB Bank, equivalent to around 3 % of its RWA at that time. That capital injection was made under the recapitalisation measure which is part of the Greek Banks Support Scheme. The recapitalisation took the form of preference shares.

2.3.4.2.2 State liquidity support received by FB Bank (measures FB2 and FB3)

(117) FB Bank has also benefited from liquidity support under the guarantee measure and the government bond loan measures which are part of the Greek Banks Support Scheme. In January 2009, FB Bank received Greek government securities amounting to EUR 60 million, which matured in December 2011 (Measure FB2). In May 2012 it received Greek government securities amounting to EUR 60 million, which were supposed to mature in April 2015 but were cancelled on 23 May 2013 (Measure FB3) (74). In March 2011, FB Bank also received a State guarantee for issued bonds with a nominal value of EUR 50 million.

2.3.4.2.3 Measures related to the resolution of FB Bank (measures FB4 and FB5)

(i) Coverage of the funding gap of assets transferred from FB Bank to the Bank for an amount of EUR 456,97 million (measure FB4)

(118) The HFSF covered the funding gap (75) of assets transferred from FB Bank to the Bank. In line with the decisions of the Bank of Greece of 10 May and 7 November 2013, the HFSF paid the total amount of EUR 456,97 million in two instalments, on 26 July and on 13 November 2013 (76).

(ii) Commitment of the HFSF to cover the capital needs related to the transferred assets (measure FB5)

(119) Under the resolution procedure, the HFSF committed to cover the capital needs arising from the acquisition of the assets transferred from FB Bank. Therefore the HFSF would be required to inject an amount of capital equivalent to 9 % of the transferred RWA into the Bank. At the time of the resolution, the capital needs related to the transferred assets were estimated at around EUR 100 million.

(120) As already mentioned in recital 30, the HFSF will not inject any further capital into the Bank, as the Bank in its restructuring plan waives its right to request the HFSF to cover potential capital needs related to the transferred assets.

2.3.4.3. Aid measures to Probank

(121) Probank has not benefited from any aid measure under the Greek Banks Support Scheme. Table 9 provides an overview of the other aid measures from which Probank has benefitted. Table 9 Overview of the aid measures to Probank Aid beneficiary Measure Description Entity which granted the aid Date State aid amount (in EUR million) Probank's activities PB1 Financing of the funding gap of assets transferred from Probank to the Bank HFSF 26.7.2013 (Date of the resolution) 562,73 PB2 Commitment to cover the capital needs related to the assets transferred from Probank to the Bank HFSF 26.7.2013 (Date of the resolution) [180 to 280] Total amount PB1 and PB2 [742,73 to 842,73]

2.3.4.3.1. Coverage of the funding gap of the assets transferred from Probank to the Bank for an amount of EUR 562,73 million (measure PB1)

(122) The HFSF financed the funding gap of the assets transferred from Probank to the Bank. In line with the decisions of the Bank of Greece of 26 July and 30 December 2013, the HFSF paid the total amount of EUR 562,73 million in two instalments, on 9 August and 31 December 2013.

2.3.4.3.2. Commitment of the HFSF to cover the capital needs related to the transferred assets (measure PB2)

(123) Under the resolution procedure, the HFSF committed to cover the capital needs of the buyer arising from the acquisition of the assets of Probank. Therefore the HFSF would be required to inject an amount of capital equivalent to 9 % of the transferred RWA into the Bank. At the time of the resolution, the capital needs related to the transferred assets were estimated at around EUR [180 to 280] million.

(124) As already mentioned in recital 41, the HFSF will not inject any further capital into the Bank, as the Bank in its restructuring plan waives its right to request the HFSF to cover the potential capital needs related to the transferred assets.

2.4. THE RESTRUCTURING PLAN

(125) On 25 June 2014, Greece submitted the restructuring plan of the Bank, which explains how the Bank, as a combined entity resulting from the acquisitions of FB Bank, Probank and the three Cooperative Banks, intends to restore its long-term viability.

2.4.1. Domestic operations

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

(127) Regarding Greece, the key priority of the Bank is to bring its Greek banking operations back to strong profitability and viability by the end of the restructuring period, namely 31 December 2018. 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.

(128) As regards operational efficiency, the Bank has already started a vast programme of rationalisation. From 31 December 2009 to 30 December 2012, the Bank reduced its physical presence in Greece. It reduced its number of branches from 575 in 2009 (77) to 511 in 2012 (78) and also reduced the workforce of the Greek banking activities (from 12 534 in December 2009 (79) to 11 230 in December 2012 (80)).

(129) From December 2012 until the end of 2017, the Bank plans to further decrease the number of employees in Greece (from 13 675 to […]) (81) despite the impact of the acquisitions of FB Bank and Probank that employed 260 and 1087 employees (82) respectively. The difference between the workforce of the Greek banking activities at 31 December 2012 (11 230) and the total Greek workforce at the end of 2012 (13 675) is due to the headcounts of non-banking activities such as insurance (Ethniki Hellenic General Insurance S.A.), tourism (Astir Palace Vouliagmenis S.A.) or real estate (NBG Pangaea Reic).

(130) From December 2012 until the end of 2017, the Bank will pursue the rationalisation of its domestic network. The number of branches will increase by […] from 511 to […]. It is recalled that in 2013 the Bank acquired the FB Bank and Probank networks with 19 and 112 branches respectively.

(131) The increased efficiency in terms of branches and personnel will help to bring down the total cost of its Greek activities by […] % from EUR 1 301 million on a pro forma basis in 2012 to EUR […] million in 2017 (83). As a result, the expected cost-to-income ratio of its Greek banking activities will fall below […] % at the end of the restructuring period.

(132) 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 on deposits (average of time deposits, sight deposits and savings rates) are expected to decrease in Greece. Similarly, the Bank's reliance on the State-guaranteed ELA and wider Eurosystem funding will decrease during the restructuring period.

(133) The restructuring plan anticipates that the Bank will also strengthen its balance sheet. Its net loan-to-deposit ratio in Greece will further decrease, while its capital adequacy will improve (from a Core Tier 1 ratio of 8,4 % at group level at 31 December 2013).

(134) Another priority of the Bank is the management of non-performing loans. The Bank will enhance its credit processes regarding both the origination of loans (better collateral coverage, reduced limits) and the management of non-performing loans. The rate of non-performing loans will […], with an expected rate of […] % at the end of the restructuring period (84). The cost of risk (loan loss impairments) will decrease from EUR 2 billion in 2012 to EUR […] billion in 2018 (85).

(135) The improvement of operational efficiency, the increase in the net interest margin, and the decreasing cost of risk will enable the Bank to increase its profitability. The Bank anticipates that its profits in Greece will amount to EUR […] million and EUR […] million in 2014 and 2018 respectively. The return on equity will reach […] % in 2017 for the Greek activities (86), which is sufficient given the risk profile of the Bank at that date (87).

2.4.2. International banking activities (except Turkey)

(136) The Bank has already started to deleverage and restructure its international network. The number of branches in South-Eastern Europe has been reduced by 170 since 2009 (88).

(137) The Bank will continue to restructure and deleverage its international network. In particular, the Bank will sell its foreign subsidiaries in […] and divest its branches in […]. Those divestments represented […] % of the Bank's assets outside Greece and Turkey, that is to say EUR […] million out of EUR 12,101 million at the end of 2012.

(138) Branches in the […] and […] as well as the subsidiary in […] will be […].

(139) As a result of those divestments, the net parent funding will be eliminated by the end of the restructuring period.

2.4.3. Turkey

(140) The Bank intends to reduce its ownership in Finansbank to 60 %[…].

(141) […] will provide Finansbank with […] and enhance the commitment of the Bank to provide […] to Finansbank over the restructuring period.

(142) The Bank plans that Finansbank will grow significantly during the restructuring period. It will also implement a cost control plan. In 2014, Finansbank intends to […] and to […]. In the following years, the […], resulting in a decrease in the cost-to-income ratio from […] to […] at the end of the restructuring period (89).

(143) The restructuring plan foresees close scrutiny of risks taken by Finansbank. It is expected that impairments will amount to less than […] % of customer loans from 2014 to 2018, with a return on assets expected at […] % in 2018. The return on equity of Finansbank will remain high throughout the period.

(144) The Bank sold its Turkish insurance business (life and non-life) in 2012 at a capital gain of EUR […] million (90).

2.4.4. Non-banking activities: sale of […] real estate activities

(145) The Bank has reduced its ownership in its real estate subsidiary Pangea below 35 % with a positive impact on the Core Tier 1 ratio of the Bank (91).The Bank also plans to sell […] by […] and its private equity subsidiary by […].

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

(146) The Bank succeeded in raising significant amounts of capital on the market and reduced thereby the State aid which it needed.

(147) First, the Bank raised private capital in 2009 with a rights issue of EUR 1 247 million. In 2010 the Bank again raised EUR 1 815 million (92) in private capital from the market. As mentioned in recital 109, the Bank also managed to raise EUR 1 079 million in capital from private investors through the Spring 2013 recapitalisation. The shareholders, which included those who participated in the 2009 and 2010 capital increases, were heavily diluted by the Spring 2013 recapitalisation: the HFSF received 84,4 % of the Bank's shares and the new investors received 10,5 % of the shareholding, leaving the pre-existing shareholders with a shareholding of only 5,1 %. No dividend has been paid to ordinary shareholders since 2007 or to US preference shareholders since 2009 (93).

(148) The Bank raised EUR 2,5 billion in capital from the market in May 2014. The Bank intends to […].

(149) Regarding the contribution by hybrid and subordinated debt holders, on 3 January 2012 the Bank offered to buy back preferred securities at prices ranging from 45 % to 70 % of the nominal value of those securities. On that occasion, the Bank also bought back covered bonds. For each of those buy-backs, the price was determined on the basis of the market value of the instruments and contained a premium of not more than ten percentage points, which was added to encourage investors to participate in the buy-back. The acceptance rate was 44 % and the overall increase in capital amounted to about EUR 302 million (94).

(150) Later in 2012 and 2013 the Bank launched additional liability management exercises on securities issued to investors, including covered bonds, hybrid instruments, Tier 2 instruments and preference shares issued in the United States. Those buybacks generated additional capital of EUR […] million. Overall, the Bank indicates that the total amount of capital generated by liability management exercises over recent years amounts to approximately EUR […] million (95). As a result of those buy-backs, the outstanding amount of subordinated and hybrid debt decreased to EUR 293 million at 31 December 2013.

2.5. COMMITMENTS OF THE GREEK AUTHORITIES

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

(152) First, Greece has given a commitment that the Bank will restructure its commercial operations in Greece, setting a maximum number of branches and employees as well as a maximum amount of total costs to be achieved by 31 December 2017 (96).

(153) Greece has also given a commitment that the Bank will reduce the cost of deposits collected in Greece and will comply with a maximum ratio of net loans-to-deposits (97) by 31 December 2017 (98).

(154) Regarding the Bank's foreign subsidiaries, Greece has given a commitment that the Bank will not provide […], and that it will divest a minority stake in that subsidiary. Greece has also given a commitment that the Bank will deleverage a number of foreign subsidiaries by 30 June 2018 (99).

(155) Greece has given a commitment that the Bank will divest […] and its private equity subsidiary, as well as a number of securities. In addition, the Bank will not purchase non-investment grade securities, with limited exceptions (100).

(156) Greece has given a number of commitments related to the corporate governance of the Bank. It gave a commitment to limit the remuneration of the Bank's employees and managers, […] (101).

(157) Greece has also given a commitment that the Bank will enhance its credit policy, in order to ensure that decisions on granting and restructuring loans aim at maximising the viability and profitability of the Bank. Greece has given a commitment that the Bank will comply with high standards regarding the monitoring of credit risk as well as the restructuring of loans (102).

(158) 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 granting or restructuring loans to its employees, managers and shareholders, as well as to public entities, political parties and media companies (103).

(159) 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 (104).

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

(161) Separately, Greece has 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 (105).

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

(162) On 27 July 2012, the Commission opened the formal investigation procedure in order to verify whether the conditions of the 2008 Banking Communication (106) were met regarding the appropriateness, necessity and proportionality of the first bridge recapitalisation provided by the HFSF in favour of the Bank (measure B1).

(163) Regarding the appropriateness of the measure, since the aid came after prior recapitalisations and liquidity aid and given the protracted rescue period, the Commission expressed doubts as to whether all actions possible had been taken by the Bank to avoid a need for aid in the future (107). In addition, the Commission was not clear who would control the Bank once the first bridge recapitalisation was replaced by a permanent recapitalisation (108) as the Bank might come under the control either of the State or of minority private owners. The Commission noted that it would wish to ensure that the quality of the Bank's management and in particular its lending process should not deteriorate in either case.

(164) Regarding the necessity of the first bridge recapitalisation, in recital 67 of the NBG Opening Decision the Commission questioned whether all the measures possible had been taken to avoid the Bank again needing aid in the future. Moreover, since the duration of the bridge recapitalisation period was uncertain the Commission could not reach a conclusion as to whether the remuneration 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 NBG Opening Decision was adopted, the Commission could not assess them.

(165) Regarding the proportionality of the measure, the Commission expressed doubts as to whether the safeguards (State support advertisement ban, coupon and dividend ban, call option ban and buy-back ban as described in recital 71 of the NBG Opening Decision) were sufficient in relation to the first bridge recapitalisation. Furthermore, in recital 72 of the NBG Opening Decision the Commission stated that distortions of competition could be caused by the lack of rules preventing the HFSF from coordinating the four largest Greek banks (namely, the Bank, Alpha Bank, Eurobank and Piraeus Bank) and the absence of adequate safeguards to avoid them sharing commercially sensitive information. The Commission, therefore, proposed the appointment of a monitoring trustee, who would be physically present in the Bank.

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

Comments from a Greek bank

(166) On 3 January 2013, the Commission received comments from a Greek bank on the NBG 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.

(167) 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

(168) 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

(169) 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 in order for those banks to gradually reach and maintain a Core Tier 1 ratio set at 10 % and Core Tier 1 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.

(170) The Bank of Greece also observed that the recapitalisation of the largest Greek banks is 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 may 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 Board of Directors of the recapitalised banks.

(171) 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.

(172) 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 is safeguarded by the fact that the suspension of the voting rights of the HFSF will be lifted if, inter alia, the restructuring plan is 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

(173) Regarding the appropriateness of the first bridge recapitalisation, to address the issue of potential State interference if 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 16C(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 referred to the governing structure of the HFSF.

(174) 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.

(175) The HFSF pointed out that the HFSF law and the pre-subscription agreement set 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.

(176) Regarding the necessity of the first bridge recapitalisation and specifically regarding the level of the remuneration of aid, the HFSF stated that the remuneration had been agreed with the representatives of the Commission, the ECB and the IMF. That agreed level took into account that the first bridge recapitalisation would be converted into a permanent recapitalisation before 30 September 2012, a deadline which was set in March 2012 in the MEFP between the Commission, the ECB, the IMF and Greece.

(177) Regarding the proportionality of the first bridge recapitalisation, the HFSF noted that the measures it adopted, such as those described in recital 175, are sufficient safeguards in view of the large amounts of aid received and the protracted rescue period. Moreover, 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. Such measures 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 officers 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 ACQUIRED BUSINESSES

6.1. ASSESSMENT OF THE STATE SUPPORT RELATED TO THE RESOLUTION OF THE THREE COOPERATIVE BANKS

6.1.1. Existence and the amount of aid

(178) The Commission first has to assess whether the State support related to the resolution of the three Cooperative Banks (meaning the financing of the funding gaps which enabled the transfer of the deposits) constitutes State aid within the meaning of Article 107(1) of the Treaty. According to that provision, State aid is any aid granted by a Member State or through State resources in any form whatsoever which distorts, or threatens to distort, competition by favouring certain undertakings, in so far as it affects trade between Member States.

(179) The Commission will start by assessing whether or not there was an advantage for the following potential beneficiaries: (i) the Cooperative Banks and the potentially transferred ‘activities’ to the Bank; and (ii) the Bank.

(i) Existence of aid to the three Cooperative Banks and to the activities potentially transferred to the Bank.

(180) With regards to the three Cooperative Banks, the Commission notes that Lesvos-Limnos Bank, Achaia Bank and Lamia Bank have been put in liquidation and their banking licenses withdrawn. Therefore, they will no longer carry out economic activities on the banking market.

(181) The State support, that is to say the financing of the funding gaps, would constitute State aid to the transferred claims and liabilities within the meaning of Article 107(1) of the Treaty only if they together constitute an undertaking. The concept of an undertaking encompasses every entity engaged in an economic activity, regardless of legal status and the way in which it is financed. Any activity consisting in offering goods or services on a given market is regarded as an economic activity. Therefore, in order to conclude whether there is aid to an undertaking, it should be assessed whether the transfer of claims and liabilities entail the transfer of an economic activity.

(182) As already mentioned in section 2.2.1, following the resolution of the three Cooperative Banks, only the deposits and the claims and liabilities towards the HDIGF were transferred to the Bank. The three Cooperative Banks employed 187 employees and had 21 branches in total. It should be noted that there was no automatic transfer of branches or employment contracts or loans between the three Cooperative Banks and the Bank. Therefore, the fact that loans are not transferred to the Bank but remain with the three Cooperative Banks in liquidation, the fact that no branches were transferred and the lack of automatic transfer of labour contracts contribute (109) to the conclusion that there is no transfer of economic activity. The transferred liabilities (that is to say deposits) cannot be considered to be the beneficiary of State support, as they do not constitute an undertaking.

(183) In summary, the three existing legal entities have been put into liquidation and no longer carry out any banking activities. At the same time, the transferred liabilities do not constitute an economic activity.

(184) It is therefore concluded that the grant of EFSF bonds by the HFSF to the Bank to cover the funding gap of the acquired assets and liabilities of the three Cooperative Banks does not allow the continuation of the latter's economic activities. Therefore, the HFSF support does not constitute either aid to the liquidated entities or aid to the transferred assets and liabilities.

(ii) Existence of aid to the Bank

(185) With regards to whether the sale of the three Cooperative Banks' assets and liabilities entails State aid to the Bank, the Commission must assess whether certain requirements are met and in particular whether (i) the sale process was open, unconditional and non-discriminatory; (ii) the sale took place on market terms; and (iii) the State maximised the sale price for the assets and liabilities involved (110).

(186) As already mentioned in recital 64, the Bank of Greece only contacted the five largest Greek credit institutions operating in Greece at that time. The limited set of buyers contacted cannot exclude that the tender was open given that they were the only credit institutions likely to be interested in submitting an offer. Indeed, the package for sale only included deposits. Therefore, to benefit from synergies on those deposits, it is necessary to operate in the geographical area concerned. A bank with no presence in those areas could not offer services to depositors, thus deposit retention would be minimal and the acquirer would support the cost of acquiring the deposits for no benefit. The Bank of Greece could therefore reasonably assume within the short timeframe available to resolve the three Cooperative Banks that only credit institutions whose business models were consistent with being able to service those depositors would have an interest in acquiring those assets. The Bank and three other banks submitted binding offers. The Bank's offer was the preferred one in terms of consideration and time required for the conclusion of the transfer. The Bank offered to pay as consideration an amount equal to […] % of the transferred deposits and estimated that the transfer could be completed within one working day.

(187) On the basis of the above, the Commission concludes that State aid to the Bank can be excluded, in line with point 20 of the Restructuring Communication and the Commission's decisional practice (111).

(iii) Conclusion on the existence of aid

(188) The State support involved in the sale of the three Cooperative Banks does not constitute State aid to the three Cooperative Banks, to the transferred assets or to the Bank. Therefore, the measure does not constitute aid within the meaning of Article 107(1) of the Treaty.

6.2. ASSESSMENT OF AID RELATED TO FIRST BUSINESS BANK

6.2.1. Existence and the amount of aid

(189) The Commission has to assess whether the measures constitute State aid within the meaning of Article 107(1) of the Treaty.

6.2.1.1. Existence of aid in the measures granted under the Greek Banks Support Scheme (measures FB1, FB2 and FB3)

(190) The EUR 50 million capital injection by Greece into FB Bank in July 2009 (measure FB1), the Greek government securities amounting to EUR 60 million in May 2012 (Measure FB2) and the State guarantee given to FB Bank for issued bonds with a nominal value of EUR 50 million in March 2011 (measure FB3) were granted under the Greek Banks Support Scheme (112). In the decision approving that scheme, the Commission concluded that measures granted under that scheme would constitute State aid.

(191) Therefore, the Commission notes that the transferred activities would no longer exist without those measures. Those measures have contributed to the stabilisation and the continuance of the economic activities which were later transferred to the Bank and therefore the Commission considers that they have benefited the economic activities of FB Bank which were later transferred to the Bank and constitute State aid within the meaning of Article 107(1) of the Treaty.

6.2.1.2. Existence of aid in the measures granted in view of the resolution of FB Bank (measures FB4 and FB5)

(192) The Commission notes that the HFSF is an entity set up and financed by Greece to support banks, and therefore measures FB4 and FB5 involve State resources. The Commission also notes that measures FB4 and FB5 are selective in nature, since they only benefit FB Bank's activities.

(193) Moreover the Commission considers that measures FB4 and FB5 provide FB Bank's activities with a clear advantage by keeping them alive. The transfer order in that case is indeed a sale ‘en bloc’. While the equity and subordinated debt will not be transferred, the key productive banking assets will be transferred (branches, deposits and loans). Measure FB4 therefore provides the transferred activities with an advantage as it provides sufficient assets to cover its deposits and the transferred activities continue to exist due to the sale of FB Bank's assets en bloc.

(194) Moreover, without measure FB5, the sale would not be possible because the transfer would have a potential negative impact on the acquirer's capital adequacy ratio. Therefore, the transferred activities would no longer exist and measures FB4 and FB5 thus provide them with a clear advantage.

(195) The Commission considers that measures FB4 and FB5 do not comply with the market economy investor principle (‘MEIP’). In fact, the HFSF has no prospect of making a profit on its contribution: in exchange for its contribution, it received no claim against the Bank but only a claim against the entity under liquidation, that is to say FB Bank (113). Therefore, the HFSF will not probably fully recover the money contributed.

(196) The selective advantage which measures FB4 and FB5 provide distorts competition by keeping one banking activity alive, allowing it to operate on the market and to compete with other banks, including subsidiaries of foreign banks, which are active in Greece or potentially interested in entering the Greek market. Hence, measures FB4 and FB5 have an effect on trade between Member States and potentially distort competition.

(197) The Commission therefore concludes that the coverage by the HFSF of the funding gap of EUR 456,97 million related to the assets transferred from FB Bank to the Bank and the commitment of the HFSF to cover the capital needs related to those assets, which may amount to EUR 100 million, constitute State aid within the meaning of Article 107(1) of the Treaty.

Beneficiary of measures FB4 and FB5

(198) As already explained in recital 193, the Commission considers FB Bank's activities as the beneficiary of measures FB4 and FB5, as the aid allowed the continuation of those economic activities within the Bank.

(199) As to whether the sale of FB Bank's activities entails State aid to the Bank, in line with point 49 of the 2008 Banking Communication, the Commission needs to assess whether certain requirements are met. It needs to examine in particular whether (i) the sale process was open and non-discriminatory; (ii) the sale took place on market terms; and (iii) the financial institution or the government maximised the sale price for the assets and liabilities involved.

(200) The Bank acquired the package of the assets and liabilities of FB Bank because it submitted the preferred offer in the framework of a non-discriminatory tender procedure open to other banks. The Bank of Greece decided to contact only the four largest banks operating in Greece, of which only the Bank and one other bank submitted non-binding offers. The Bank of Greece invited the two bidders to submit improved offers. The Bank of Greece selected NBG because its offer entailed lower resolution costs (114).

(201) The Commission observes that the Bank of Greece only contacted four banks (115). The limited set of buyers contacted cannot exclude that the tender was open given the lack of other banks operating in Greece with sufficient size to absorb the tendered assets and with adequate capital at the time of resolution and given the limited interest, at the time of resolution, shown by foreign credit and financial institutions in engaging in banking activities in Greece. Moreover, the Bank of Greece determined in advance the portfolio of the assets and liabilities to be transferred and the timetable the offers should meet in order to be valid. The Commission considers that the sale process was open and non-discriminatory.

(202) The negative price (that is to say, taking into account the funding gap and the coverage of the aforementioned capital needs) for the assets and liabilities of FB Bank does not preclude that the sale price reflects the market value of the business (116). The Commission has no reason to consider that the offer made and the price paid did not reflect the market price of the business. It is recalled that, under Greek law, the fair value of the transferred assets is initially estimated by the Bank of Greece and then verified and adjusted by external experts during the following six months. As a result, the Commission considers that the sale took place on market terms. On the basis of the above, in line with point 49 of the 2008 Banking Communication, point 20 of the Restructuring Communication and its decisional practice (117), the Commission concludes that State aid to the Bank can be excluded.

6.2.1.3. Conclusion on the existence and total amount of aid received

(203) On the basis of recitals 190 to 197, the Commission considers that measures FB1, FB2, FB3, FB4 and FB5 all fulfil the conditions laid down in Article 107(1) of the Treaty and constitute State aid.

(204) Therefore, the Commission concludes that the activities of FB Bank have received State aid in the form of capital support of EUR 606,97 million (measures FB1, FB4 and FB5), in addition to loans of Greek government securities of EUR 60 million (measure FB2) and State guarantees of EUR 50 million (measure FB3), as summarised in Table 10. Table 10 Overview of the total aid to FB Bank's activities Aid beneficiary Measure Nature of aid Amount of aid (in EUR million) FB Bank's activities FB1 Recapitalisation 50 FB4 Financing of funding gap from FB Bank to the Bank 456,97 FB5 Commitment letter to cover the capital needs related to FB Bank's transferred assets to the Bank 100 Total capital aid granted 606,97 Total capital aid eventually disbursed 506,97 Aid beneficiary Measure Nature of aid FB Bank's activities FB2 Bond loan 60 FB3 Guarantee 50 Total liquidity aid granted 110

6.2.2. Legal basis of the compatibility assessment

(205) 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’.

(206) 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 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 (118) and the 2013 Banking Communication (119).

(207) With respect to 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, 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.

(208) 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 reach 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.

(209) 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.

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

(211) 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 10.

6.2.3. Compliance of the aid measures with the 2008 Banking Communication and the Recapitalisation Communications

6.2.3.1. Compliance of measures FB1, FB2 and FB3 with the 2008 Banking Communication

(212) Measures FB1, FB2 and FB3 were granted under the Greek Banks Support Scheme. The measures included under that scheme have already been assessed as compatible with the internal market in the Commission's Decision of 19 November 2008.

6.2.3.2. Compliance of measures FB4 and FB5 with the 2008 Banking and Recapitalisation Communications

6.2.3.2.1. Appropriateness

(213) As regards the appropriateness of measures FB4 and FB5, the Commission considers that those measures are appropriate because they safeguarded the depositors of FB Bank and therefore safeguarded financial stability. Those activities would not have been able to continue without the aid from the HFSF, as FB Bank had a negative equity at the time of the resolution and in the then prevailing difficult market conditions no bank would have acquired a portfolio of assets and liabilities with negative value and which would have worsened its capital adequacy position. The measures thereby ensured that financial stability in Greece would be maintained. On that basis, the Commission finds that the measures are appropriate as rescue aid.

6.2.3.2.2. Necessity

(214) According to 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 must be of the minimum amount necessary to reach that objective.

(215) As the Bank of Greece stated in its letter of 8 May 2013, despite the small size of FB Bank, the withdrawal of its license without the application of resolution measures could have damaged depositors' confidence in the Greek banking system and thus an impact on financial stability. Moreover, the Bank of Greece added that among the different resolution options, it favoured the resolution of FB Bank through the application of the Purchase & Assumption procedure in line with the MEFP of December 2012. It considered that that procedure offered an immediate and definite solution to the problems faced by FB Bank. The Commission considers that those financial stability elements support the necessity of measures FB4 and FB5.

(216) As regards the amount of the intervention, the Bank of Greece in its decision 10/1/10.5.2013 stated that a transfer order of selected assets and liabilities was the preferred solution as it minimised the resolution cost. That decision was also in line with the MEFP of March 2012. Moreover, the Commission observes that the final amount of the funding gap was carefully assessed by the Greek authorities, which took into account the valuation report prepared by a statutory auditor. The contribution exactly covered the difference between the fair value of the transferred assets and the value of the liabilities. Moreover, the HFSF committed to cover the capital needs only up to 9 % of the transferred assets, as estimated by the Bank of Greece. The fact that only the Bank, among the two bidders, agreed to revise its offer supports the conclusion that the contribution was not excessive.

(217) Furthermore, the equity of FB Bank was not transferred and was therefore left in the liquidated entity, that is to say FB Bank. Therefore, the shareholders will suffer a full loss and the contribution of the HFSF is not inflated by the cost of rescuing them.

(218) As regards the remuneration of the aid, as previously indicated in recital 195, the HFSF will most probably not fully recover the amount of money contributed (120). It therefore clearly does not receive any remuneration and its contribution is similar to a grant. As indicated in point 44 of the Recapitalisation Communication, an insufficiently remunerated recapitalisation can only be accepted in the case of distressed banks which cannot pay any remuneration. The Commission considers that is the case for FB Bank. The absence of remuneration triggers the need for in-depth restructuring, in line with the Recapitalisation Communication.

(219) In conclusion, measures FB4 and FB5 are necessary as rescue aid in both its amount and form to achieve the objectives of limiting the disturbance in the Greek banking system and economy as a whole.

6.2.3.2.3. Proportionality

(220) The Commission notes that FB Bank no longer exists as it previously existed. The fact that the aid rescues the activities transferred from could in theory create distortions of competition. However, the Commission takes positive note of the small size of FB Bank and of the sale process in which competitors had the opportunity to bid for the selected assets and liabilities of FB Bank. Moreover, immediately after their transfer, the economic activities of FB Bank were fully integrated within the Bank and ceased to exist as a separate economic activity or competitor. The Commission therefore concludes that the aid does not create undue distortions of competition.

Conclusion on the compliance of measures FB4 and FB5

(221) It is concluded that measures FB4 and FB5 are appropriate and necessary and, in light of the small size of FB Bank and its disappearance as a standalone competitor through its full integration into the Bank, are proportionate to the intended objective, in line with the 2008 Banking Communication and the Recapitalisation Communication.

6.2.4. Compliance of the aid measures with the Restructuring Communication

(222) As regards the remuneration of measure FB4, the Commission noted in recital 218 that the HFSF will probably not fully recover the EUR 456,97 million injected for the resolution of FB Bank (measure FB4). The absence of remuneration triggers the need for in-depth restructuring, both in terms of viability measures and in terms of measures to limit distortions of competition.

6.2.4.1. Long-term viability of FB Bank's activities through sale

(223) Point 21 of the Restructuring Communication provides that where the credit institution in difficulty cannot credibly return to long term-viability, its orderly liquidation or its auctioning off should be considered. Member States may therefore encourage the exit of non-viable players while allowing for the exit process to take place within an appropriate time frame that preserves financial stability.

(224) However, FB Bank was not viable on a standalone basis and was put into liquidation. In that respect, point 17 of the Restructuring Communication clarifies that ‘the sale of an ailing bank to another financial institution can contribute to restoring long-term viability, if the purchaser is viable and capable of absorbing the transfer of the ailing bank and may help restoring market confidence’.

(225) As stated in section 7.5.2, based on the Bank's restructuring plan, the Bank can be considered as a viable entity. Therefore, the fact that the activities of FB Bank have been transferred to the Bank allows their long-term viability to be restored. Moreover, the fact that FB Bank's activities were fully integrated (121) within the Bank and ceased to operate as a stand-alone competitor constitutes in-depth restructuring as required by the insufficient remuneration of the State aid.

6.2.4.2. Own contribution and burden-sharing

(226) As explained in recital 216, the selected way of resolving FB Bank ensures the limitation of the restructuring costs to the minimum. First, the funding gap was carefully assessed by the Greek authorities, taking into account a report by independent auditors. Moreover, the HFSF committed to cover the capital needs of the buyer stemming from the transferred activities only up to the minimum amount required by law. In addition, the integration of the economic activities of FB Bank into a larger entity and the concomitant realisation of synergies, through the rationalisation of FB Bank's branch network, the consolidation of the IT infrastructure and the reduction of funding costs, help limit the restructuring costs to the minimum compared to a scenario where the State would have tried to restore FB Bank's viability on a standalone basis.

(227) The equity and the subordinated debt were not transferred to the Bank but remained in FB Bank, the entity in liquidation. Hence, the Commission considers that sufficient burden-sharing by shareholders was achieved since the latter are entitled to proceeds from the liquidation only if the proceeds are sufficient to repay first the HFSF, which has a priority claim over other creditors. Therefore, given the scarcity of the liquidated assets, the shareholders are unlikely to get their investments back.

6.2.4.3. Measures to limit distortions of competition

(228) 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.’

(229) The total aid received in form of capital amounts to EUR 606,97 million (measures FB1, FB4 and FB5), in addition to Greek government securities of EUR 60 million (measure FB2) and State guarantees of EUR 50 million (measure FB3). Measure FB1 corresponded to 3,25 % of the FB Bank's RWA as of 31 December 2008. Measure FB4, the financing of the funding gap from FB Bank to the Bank, corresponded to around 33,44 % of the RWA of FB Bank as of 31 March 2013. Measure FB5, by definition, corresponded to 9 % of the transferred RWA of FB Bank to the Bank. Such amounts of aid in combination with the absence of remuneration call for a significant reduction in the mar