EN ECB-PUBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 22 November 2011  
on the recapitalisation of credit institutions by the State  
(CON/2011/95) 
 
Introduction and legal basis   
On 9 November 2011, the European Central Bank (ECB)  received a request from the Portuguese Ministry 
of State and for Finance for an opinion on a draf t law amending and republishing Law No 63-A/2008 of 
24 November, which adopted measures  reinforcing the financial robustness of credit institutions in the 
context of the initiative for financial stability and li quidity supply (hereinafter the ‘draft law’).  
The ECB’s competence to deliver an  opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
functioning of the European Union and on the thir d and sixth indents of Article 2(1) of Council 
Decision 98/415/EC of 29 June 1998 on the consu ltation of the European Central Bank by national 
authorities regarding draft legislative provisions1, as the draft law relates to the Banco de Portugal (BdP) 
and to the rules applicable to financial institutions insofar as they materially influence the stability of 
financial institutions and markets. In accordance with  the first sentence of Article 17.5 of the Rules of 
Procedure of the European Central Bank, th e Governing Council has adopted this opinion. 
 1.  Purpose and background of the draft law 
1.1 The draft law is one of the actions cons idered necessary under the Economic Adjustment 
Programme for Portugal, with a view to restoring confidence in the banking sector and achieving financial stability in the Portuguese economy.   
1.2 The draft law will establish the conditions an d procedures for providing temporary support from 
public sources to viable credit institutions to bolster  the resilience of the banking sector. To achieve 
this goal, banks have been asked to further stre ngthen their capital buffers to raise core Tier 1 
capital ratio to 9% by the end of 2011 and to 10% by the end of 2012. Subsequently, on 26 October 2011, the European Banking Authority (EBA) announced measures aimed at addressing the increase in systemic risk triggered by the sovereign debt crisis in the euro area. In 
particular, banks are required to strengthen th eir capital positions by building up a temporary 
capital buffer against sovereign debt exposures to re flect market prices by the end of June 2012. All 
credit institutions with a head office in Portugal, regardless of the legal form in which they were 
incorporated, may benefit from public recapitalisation on the basis of the draft law.  
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
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2 1.3 Capitalisation may have recourse to financial in struments or resources eligible for Core Tier 1 
capital, through (a) acquiring the credit instituti on’s own shares or other equity stakes; 
(b) increasing the share capital thro ugh the issuance of (i) special  shares to the State; or 
(ii) ordinary shares2 to the shareholders and/or the public3; and (c) other financial instruments or 
resources eligible for Core Tier 1 capital under th e applicable eligibility conditions. According to 
the draft law, the shares issued under the draft law ar e special shares, subject to the ordinary shares 
regime, except that they grant the State a priori ty dividend. The State may only exercise its voting 
rights in matters pertaining to amendments to the articles of association, mergers, split-ups, 
conversion or dissolution of the credit instituti on or other matters in which the law or the 
institution’s by-laws require a qualified majority. Th e issuance of ordinary shares with voting rights 
is also envisaged by the draft law if the State’s stake exceeds a certain threshold to be determined 
by the implementing legislation. 
1.4 Access to public investment depends on the subm ission to the BdP of a recapitalisation plan by the 
credit institution. Such a plan must provide fo r the necessary and appropriate measures for that 
purpose, including the timetable, and demonstrate that the credit institution meets conditions of 
soundness and solvency thus allowing its activity  to continue. The State may under certain 
conditions appoint one representative to the administ ration and supervisory bodies of the institution 
that should among others: (i) ensure verification of  compliance with the recapitalisation plan and 
other obligations of the credit in stitution under the recapitalisati on legal framework; (ii) prepare 
and send monthly situation assessment reports to th e BdP and the Minister for Finance and inform 
them of any relevant facts. As long as a credit in stitution benefits from pub lic investment, it will be 
subject to the terms, conditions and financial char ges set out in the ministerial decision approving 
the recapitalisation operation.  
1.5  In principle, recapitalisation will be voluntary, a nd public disinvestment is to occur within three 
years unless market conditions justify an extension by up to another two years. If a credit institution does not meet the required Core Tier 1 capital ratio and does not request recapitalisation 
on its own initiative, or if it does not submit a recapitalisation plan compliant with the BdP’s 
guidelines, the latter may require the credit instit ution to submit a recapitalisation plan with 
recourse to public capital, under the control of th e BdP. If the credit institution does not comply, 
the BdP may (i) appoint a transitional administration to run the credit institution, (ii) withdraw the 
institution’s banking licence which will imply its wind ing-up, or (iii) apply any resolution measures 
foreseen in the Legal Framework for Cred it Institutions and Financial Companies. 
1.6 Provided that the credit institution ensures mainte nance of a proper Core Tier 1 capital ratio, public 
disinvestment must take place within three years in accordance with the market conditions. During 
such time, the State may only dispose partially or entirely of its stake in the credit institution to 
shareholders of the institution on the date of di sinvestment, and in accordance with pre-emptive 
                                                 
2  Referred to as ‘common shares’ under some legal systems. 
3  The State may underwrite or guarantee the placement of the issue in whole or in part. 
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3 right rules. The shares constituting the State’s stak e will automatically convert to ordinary shares at 
the time of disinvestment. If public disinvestment do es not take place within three years, or at any 
time in the event of non-fulfilment of a recapitali sation plan, the State will have increased powers. 
As a final rule, public disinvestment must occur within five years at the latest.  
 2. General observations  2.1 The ECB was not consulted on Law No 63-A/2008 which the draft law amends. Furthermore, the 
ECB understands that the current text of the draf t law is evolving and th at it may have to be 
amended in the light of future developments. Mo reover, the ECB notes that the draft law will be 
implemented by means of a ‘ portaria ’ (hereinafter the ‘Ministerial Order’) on which the ECB 
expects to be consulted in due time, due to the ma ny important issues not yet contained in the draft 
law that it will address. It trusts that the observati ons contained in this opini on will be considered in 
connection with the drafting of the Ministerial Order. 
2.2. The ECB welcomes the draft law and its approach  directed at restoring the solvency of viable 
banks. The draft law delegates to implementing legislation the setti ng of the threshold above which 
the State may exercise the voting rights connected to  its participation in the credit institution. The 
ECB understands that even in this case, the benefici ary credit institution must be a viable bank. To 
the extent that special shares with limited voti ng rights constitute a special class of shares not 
envisaged by the Companies Code, the ECB in vites the Portuguese auth orities to consider 
specifying in the draft law, instead of the Ministerial Order, the shareholding threshold that would result in the conversion of a certain portion of shares held by the State from special shares, with limited voting rights attached, into ordinary shares with full voting rights. This would be beneficial 
to legal certainty and transparency.  
2.3 The draft law defines the ‘State’ for the pur pose of the draft law as including any entity whose 
capital is fully held by the State
4. Under this wide definition, the State’s capital injection into the 
credit institution could also be undertaken by a State-owned company such as another publicly-
owned bank. As any such entity could be a compe titor of the State-supported institution, the ECB 
questions whether this was the legislator’s intention.  
2.4 Finally, the draft law should specify that a ny recapitalisation from public resources will be made 
exclusively by means of a cash transfer, other than by means of new bonds or other debt instruments issued by the State which can be used as collateral in credit operations with the BdP.  
 3. Nature of the shares to be issued under the draft law 3.1 The draft law provides that the special shares ar e subject to the ordinary share regime under the 
Companies Code, but that they do have special rest rictions attached to them while temporarily held 
                                                 
4  Article 22 of the draft law.  
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4 by the State5. However, the ECB understands that the sp ecial shares are to be treated as another 
class of shares and that attached to the special sh ares will be the right to appoint one non-executive 
director to the Board of the institution according to Article 14(2) of the draft law. If that is the case, 
the State as the special shareholder will not be in the same position as the other ordinary 
shareholders as regards the rights it can exercise.  In view of the credit institution now having 
different classes of shareholders, its statutes may need  to be amended. It will also be necessary for 
the voting and other rights and powers of the non-executive director to be further specified.   
3.2 Article 14(1)(a) provides that the credit institution covered by the public investment is subject to a 
Ministerial decision with regard to the use of m eans provided within the scope of strengthening the 
equity capital, in particular the contribution of such credit institution to financing the economy and 
small and medium-sized enterprises. The ECB unders tands that this provision intends only to set 
out general obligations and should not lead the State to direct the allocation of credit by such credit 
institution. In particular, the credit institutions c overed by the public investment should retain the 
ability to prioritise lending to the productive sect ors of the economy, and not, for instance, State-
owned undertakings. To the extent that this provision may be understood as allowing the State to interfere with the day-to-day business of the credit institution, it is inconsistent with the State’s 
special shares carrying limited voting rights aimed at ensuring that the State does not intervene in 
the day-to-day business of the cred it institution. If this provision was to be retained in the draft law, 
the ECB recommends clearly confining its scope to  the adoption of guidelines of a general nature, 
to eliminate the possibility of interpreting this  provision as requiring the recapitalised credit 
institution to finance a specific entity and a specific amount of such financing.
 
  
4.  Shareholder rights 
4.1 The draft law derogates from certain provisions of the Companies Code. It is important for 
fundamental shareholder rights not to be infri nged while the credit institution is still being 
supervised as a going concern and the conditions  for its resolution have not been triggered6. It is 
also particularly important, in a period when ma rkets are unsettled, for current shareholders of 
institutions which may need to be recapitalised under the draft law to have legal certainty as to their 
rights under the recapitalisation regime. In this re spect the ECB appreciates that the draft law 
requires the capital increase and the recapitalisation plan to be submitted to and approved by the 
shareholder meeting7. Nonetheless the Portuguese authoriti es are invited to consider further 
clarifying a number of relevant provisions with a view to Directive 77/91/EEC8.  
                                                 
5  Article 4 of the draft law. 
6 See Title VIII  of the Legal Framework for Credit Ins titutions and Financial Companies as it currently reads. 
7  Articles 4(5) and 9(2) of the draft law. 
8  Second Council Directive 77/91/EEC of the Council of 13 December 1976 on coordination of safeguards which, for the 
protection of the interests of members a nd others, are required by Member States of companies within the meaning of the 
second paragraph of Article 58 of the Treaty, in respect of the formulation of public limited liability companies and the 
maintenance and alteration of their capita l, with a view to making such safeguar ds equivalent (OJ L 26, 31.1.1997, p 1).  
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5 4.2 The draft law specifies that an  increase of capital by subscription for special shares may only take 
place under certain conditions, which could be read as setting aside the procedure of the Companies 
Code regarding the issuance of subscribed shares9.  
4.3 Furthermore, the draft law appears to empower th e shareholder meeting to mandate the institution’s 
Board to take any decision regarding implemen ting measures under the draft law, including 
increasing capital by  any amount required10. The ECB considers that if  the maximum amount of the 
increase is laid down by the credit institution’s st atutes, and there is no legislatively prescribed 
maximum, the shareholders’ agreed maximum amount should be respected11. 
4.4 Under the draft law, in the event of a shareholde r meeting convened specifically for the approval of 
the recapitalisation plan, the convocation must be i ssued to shareholders not later than 14 days 
before the meeting12. Under Directive 2007/36/EC13 such reduced convocation period is only 
available if the company ‘offers the facility for sh areholders to vote by electronic means accessible 
to all shareholders’ and that the shareholder meeting has taken a decision on the matter which meets the conditions set down in the Directive
14. 
4.5 Finally, the ECB notes that Article 8(3) app ears to go further than necessary to safeguard pre-
emptive rights of the existing shareholders. A ccording to Directive 77/91/EEC, the aim of pre-
emptive rights is to offer shareholders the right to acquire new shares in proportion to their existing 
shareholdings. The ECB sees no compelling reason to rule out the possibility of selling shares to third parties after the pre-emptive rights of existin g shareholders have been exhausted by means of 
law. Furthermore, to the extent that the draf t law departs from the Companies Code, it may be 
necessary to specify the time frame during which the existing shareholders may exercise their pre-
emptive rights according to Article 8(3). 
 5. Other issues  
5.1 The ECB understands that the recapitalisation plan referred to in the draft law
15 is synonymous with 
the restructuring plan that will be required fro m the State-supported institution by the European 
Commission in compliance with its State aid rules.  
5.2 The draft law provides that acquisition by the St ate of shareholdings or assets in credit institutions 
will not be considered a concentration of companies16. The draft law should clarify how this 
provision relates to the exclus ive competence of the Commission to assess Union-wide mergers. 
The draft law further provides that insofar as public  intervention is maintained under the draft law, 
                                                 
9  Article 4(4) of the draft law.  
10  Article 9(4) of the draft law.  
11  See Article 25(2) of Directive 77/91/EEC. 
12  Article 10 of the draft law.  
13 Directive 2007/36/EC of the European Parliament and of the C ouncil of 11 July 2007 on the exercise of certain rights of 
shareholders in listed comp anies (OJ L 184, 14.7.2007, p. 17)  
14   See Article 5 of the Directive. 
15  Articles 9 and 12 of the draft law.  
16 Article 20(1) of the draft law.  
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6 certain aspects must be considered. This provision  should be further clarified, as it is currently 
unclear what it addresses.  
5.3 The ECB notes that the Ministerial Order implementing the draft law will specify the methods for 
determining the purchase price of the shares to be  subscribed by the State. The ECB recommends 
that the delegated authority, in laying down the re levant rules to determine the fair value, should 
abide by the general principles of lowering the taxpayers’ burden and ensuring reasonable 
expectations of State remuneration in co mpliance with the relevant Union law. 
5.4 Finally, under ordinary circumstances the State must divest its special shareholding in the credit 
institution within three years17. The ECB considers that this period could also be more closely 
aligned with the European Commission’s deve loping practice as regards the duration of a 
restructuring plan18. Finally, the ECB recommends extending th e scope of Article 17, which refers 
to the bank solvency support facility (EUR 12 billion) under the Economic Adjustment Programme 
of Portugal as the sole source of public financing to be used for the purposes of capital increase 
under this draft law. Such provision may prove to be too restrictive, in case other sources of public 
financing could be usefully relied on.  
 This opinion will be published on the ECB’s website.    Done at Frankfurt am Main, 22 November 2011. 
 
[signed] 
 
The President of the ECB 
Mario DRAGHI 
                                                 
17  Article 24 of the draft law.  
18  See Commission Communication on the return to viability and the assessment of restructuring measures in the financial 
sector in the current crisis under the State aid rules,  (OJ C 195, 19.8,2009, p. 9), in  particular paragraph 15.