Case T-163/05

Bundesverband deutscher Banken eV

v

European Commission

(State aid – Transfer of public assets to Landesbank Hessen-Thüringen Girozentrale – Decision declaring the aid to be, in part, incompatible with the common market and ordering its recovery – Private investor test – Duty to state reasons)

Summary of the Judgment

1. State aid – Meaning – Private investor test

(Art. 87(1) EC)

2. State aid – Meaning – Assessment in accordance with the private investor test

(Art. 87(1) EC)

3. State aid – Meaning – Application of the private investor test – Discretion of the Commission

(Art. 87(1) EC)

4. State aid – Meaning – Assessment in accordance with the private investor test

(Art. 87(1) EC)

5. State aid – Meaning – Assessment in accordance with the private investor test

(Art. 87(1) EC)

1. In order to determine whether a State measure constitutes aid, it is necessary to establish whether the recipient undertaking receives an economic advantage which it would not have obtained under normal market conditions. In that regard, it cannot be held that the exercise of ascertaining whether the transaction took place under normal conditions of a market economy must necessarily be made by reference to the single investor or to the single undertaking benefiting from the investment, when it is the interaction between the various economic operators which is precisely the feature of a market economy. Nor, furthermore, does that exercise require the constraints connected with the nature of the asset transferred to be disregarded altogether, since it is necessary to take into account, as a reference, the conduct of a private investor finding himself, as far as possible, in the same situation as a public investor.

In those circumstances, the Commission is obliged, in assessing whether the undertaking enjoys an advantage which it would not have been able to obtain under market conditions, to make a complete analysis of all factors that are relevant to the transaction at issue and its context, including the situation of the beneficiary undertaking and of the relevant market. The Commission can, in particular, examine whether the undertaking would have been able to procure funds entailing the same advantages from other investors and, if necessary, under what conditions, since a measure cannot constitute State aid if it does not place an undertaking in a more advantageous position than it would have been in if the public authority had not intervened.

(see paras 35-37, 175)

2. A public authority which makes a capital contribution to a bank, providing for remuneration based on a phased model under which, in the early years following the transfer of that contribution, the remuneration fixed for the expansion of the business is paid not on the whole contribution but on tranches agreed in advance, does not necessarily confer on the bank an advantage which it could not have obtained in any other way.

In the absence of any arguments from which it might be established that the Commission made a manifest error of assessment, the Commission is entitled to find that, in a situation characterised, on the one hand, by the fact that a public authority wanted to invest in a non-liquid asset and did not want to divide it and, on the other, by the fact that that bank did not, either in the short or medium term, need capital on the scale of that of the special fund, a private investor would not have been able to obtain from the bank immediate remuneration for the whole of the contribution at issue at the rate of remuneration for the expansion of the bank’s competitive business. In any event, there does not appear to be a manifest error in taking the view that a bank will not agree to pay the rate corresponding to remuneration for the expansion of its competitive business in respect of capital which it knows in advance it will not be able to use for that purpose. While such capital may enable the bank to strengthen its solvency or avoid its deterioration and, therefore, to reduce or maintain its financing costs, it does not enable the bank to obtain additional income from new transactions.

Accordingly, a private investor in that public authority’s situation should have taken into account the fact that, since, for supervisory purposes, it was impossible for the bank to use the whole of the contribution available immediately for the expansion of its competitive business, that part of the contribution which was not available for the bank to use did not have the same economic function for the bank as the part which was available.

(see paras 51, 58, 66-68)

3. The assessment by the Commission of the question whether an investment secures an advantage which the undertaking would not have been able to obtain on the market involves a complex economic appraisal. When the Commission adopts a measure involving such an appraisal it enjoys a wide discretion, and judicial review of that measure, even though it is in principle a comprehensive review of whether a measure falls within the scope of Article 87(1) EC, is limited to verifying whether the Commission complied with the relevant rules governing procedure and the statement of reasons, whether the facts on which the contested finding was based have been accurately stated and whether there has been any manifest error of assessment of those facts or a misuse of powers. In particular, the Court is not entitled to substitute its own economic assessment for that of the author of the decision.

Thus, the comparison of the capital contribution at issue with other hybrid instruments is a matter of some economic complexity, over which the Commission enjoys a wide margin of assessment. In addition, the classification of the contribution at issue as a time-limited silent partnership contribution or as share capital is merely an analytical tool used by the Commission in applying Article 87(1) EC.

The Commission’s assessment in that regard does not therefore permit it to make an automatic determination as to the existence and scale of State aid, but merely allows it to use for its assessment a starting point which takes into account the conditions in which private investors have carried out transactions that are as similar as possible. The Commission’s conclusion on that point does not relieve it of its obligation to make a complete analysis of all factors that are relevant to the transaction at issue and its context, including the situation of the beneficiary undertaking and of the relevant market, in order to verify whether that undertaking is receiving an economic advantage which it would not have obtained under normal market conditions.

(see paras 38, 96-98)

4. Although subscription to the whole of a capital contribution representing 40% of the issuing bank’s own funds represents a risk for the investor, a remuneration premium is justified only if that factor constitutes an advantage for the issuing bank for which it is prepared to pay, or if that bank needs the funds proposed by the investor and is not in a position to obtain them from others. By contrast, while the increase in risk for the investor stems from a decision which he has taken for his own reasons, without being influenced by the bank’s wishes or requirements, the bank will refuse to pay a remuneration premium and will obtain funds from other investors.

(see paras 229, 234)

5. With regard to the classification of an investment in an undertaking as State aid, it is the existence of an advantage for the undertaking that is decisive. It follows from this that, in a case where a public authority seeks to invest a particular type of asset, a transaction cannot be deemed to give rise to State aid where, following negotiations between that public authority wishing to invest and the undertaking, the terms which the latter is prepared to accept on account of the disadvantages facing that undertaking because of the nature of the capital transferred result in a remuneration that is lower than that agreed on the market for cash investments. In so far as those terms are not more advantageous for the undertaking than those which it could have obtained if the transaction related, as would normally be the case, to liquid capital, it does not gain an advantage which it would not have been able to obtain on the market. By contrast, it cannot be held that, for a transaction of that kind not to be regarded as giving rise to State aid, the public authority must always receive the same remuneration for its investment as an investor who is prepared to transfer liquid capital.

(see para. 277)

JUDGMENT OF THE GENERAL COURT (Fourth Chamber)

3 March 2010 ( )

(State aid – Transfer of public assets to Landesbank Hessen-Thüringen Girozentrale – Decision declaring the aid to be, in part, incompatible with the common market and ordering its recovery – Private investor test – Obligation to state the reasons on which the decision is based)

In Case T‑163/05,

Bundesverband deutscher Banken eV, established in Berlin (Germany), represented by H.‑J. Niemeyer, K.‑S. Scholz and J.‑O. Lenschow, lawyers,

applicant,

v

European Commission, represented by N. Khan and T. Scharf, acting as Agents,

defendant,

supported by

Federal Republic of Germany, represented by M. Lumma and C. Schulze-Bahr, acting as Agents, and by J. Witting, lawyer,

by

Land Hessen (Germany), represented initially by H.‑J. Freund and M. Holzhäuser, and subsequently by H.‑J. Freund and S. Lehr, lawyers,

and by

Landesbank Hessen-Thüringen Girozentrale, established in Frankfurt am Main (Germany), represented by H.‑J. Freund, lawyer,

interveners,

APPLICATION for annulment of Commission Decision 2006/742/EC of 20 October 2004 on aid granted by Germany [to] Landesbank Hessen-Thüringen – Girozentrale (OJ 2006 L 307, p. 159),

THE GENERAL COURT (Fourth Chamber),

composed of O. Czúcz (Rapporteur), President, V. Vadapalas and I. Labucka, Judges,

Registrar: C. Kristensen, Administrator,

having regard to the written procedure and further to the hearing on 9 September 2008,

gives the following

Judgment

Background to the dispute

A – The contribution at issue

1 The Landesbank Hessen-Thüringen Girozentrale (‘Helaba’) is one of Germany’s largest banks. Its legal status is that of a body governed by public law. Since 1 January 2001, Helaba has been owned by the Sparkassen- und Giroverband Hessen-Thüringen with an 85% stake, Land Hessen (‘the Land’) with a 10% stake, and the Land of Thuringia with a 5% stake. Helaba operates as the principal banker to the Länder of Hessen and Thuringia and as the central institution of the Hessen and Thuringia savings banks. It also operates as a commercial bank both on the national and on the international markets.

2 By a law of 17 December 1998, the Land established a special fund called ‘Wohnungswesen und Zukunftsinvestition’ (Housing and Future Investment; ‘the special fund’). The special fund comprises the Land’s claims from low-interest loans granted between 1948 and 1998 for the purpose of promoting social housing construction. As at 31 December 1998, the loan portfolio amounted to DEM 7.829 billion (approximately EUR 4 billion). Its cash value was determined by two independent experts at DEM 2.473 billion (EUR 1.264 billion).

3 The special fund was transferred to Helaba, under a contract (‘the contract’) between Helaba and the Land, as a ‘silent partnership contribution’ in the form of an internal partnership entering into force on 31 December 1998 (‘the contribution at issue’). According to clause 1(2) of the contract, the purpose of the contribution was to serve, permanently, as liable equity capital for Helaba, in the form of core capital. The Bundesaufsichtsamt für das Kreditwesen (Federal Banking Supervisory Office; ‘BAKred’), in fact, recognised the entire contribution as core capital. The view was thus taken, inter alia, that the contribution was in line with the Sydney Declaration, a press release by the Basel Committee on Banking Supervision of 27 October 1998 stating that the share of hybrid equity capital instruments (instruments which have certain characteristics both of shareholdings and of debt obligations) in the core capital of credit institutions may not exceed 15%, except in the case of instruments the contractual terms of which provide that the capital is issued permanently and is not coupled with any explicit feature – other than a pure call option by the issuer – which might lead to the instrument being redeemed.

4 The parties to the contract agreed that, in consideration for that silent partnership contribution, Helaba would pay the Land a remuneration of 1.4% per annum of the amount of the contribution, after deducting the part required to cover the promotion of social housing construction. That remuneration consists of a remuneration for the liability function of 1.2% per annum and a premium of 0.2% for the perpetuity of the contribution and Helaba’s unilateral right of notice. It was agreed, under a phased arrangement, that this remuneration would not be payable in the first four years (1998 to 2002) on the full value of the fund, but on the tranches rising in annual increments (‘the phased model’). The tranches were fixed at DEM 700 million, DEM 1.2 billion, DEM 1.6 billion and DEM 2 billion (approximately EUR 380 million, EUR 610 million, EUR 820 million and EUR 1.02 billion, respectively).

B – Cases concerning the German Landesbanken

5 By letters of 31 May and 21 December 1994 the applicant, the Bundesverband deutscher Banken eV (Association of German Banks), informed the Commission of the European Communities that a certain number of Länder, including the Land of North-Rhine Westphalia, had transferred loans for housing construction to the liable equity capital of certain Landesbanken (regional banks), such as Westdeutsche Landesbank Girozentrale (‘WestLB’) or, if not, that they intended to do so. According to the applicant, the parties had not agreed any remuneration consistent with the test of the private investor operating in a market economy (‘the private investor test’) in return for these contributions, and therefore the increase in the equity capital of the relevant Landesbanken resulting from those transactions distorted competition in favour of the recipient banks.

6 By two letters of 6 August 1997 and 30 July 1998 the applicant informed the Commission of two further transfers of assets, including the contribution at issue.

7 Initially, the Commission examined the transfer of assets to WestLB (‘the WestLB case’), announcing that it would examine the transfers to the other banks in the light of the outcome of that case. On 8 July 1999, the Commission adopted Decision 2000/392/EC on a measure implemented by the Federal Republic of Germany for WestLB (OJ 2000 L 150, p. 1; ‘the 1999 WestLB decision’), by which it found that the transaction in question constituted State aid that was incompatible with the common market, and ordered the recovery of the aid. That decision was annulled by the judgment in Joined Cases T‑228/99 and T‑233/99 Westdeutsche Landesbank Girozentrale and Land Nordrhein-Westfalen v Commission [2003] ECR II‑435 (‘WestLB’ or ‘the WestLB judgment’) owing to a failure to state adequate reasons.

8 By letter of 13 November 2002, the Commission informed the Federal Republic of Germany of its decision to initiate formal investigation procedures in relation, inter alia, to the contribution at issue. The decision initiating the procedure in relation to the contribution at issue was published in the Official Journal of the European Union (OJ 2003 C 72, p. 3).

C – The contested decision

9 On 20 October 2004, the Commission adopted Decision 2006/742/EC on aid granted by Germany [to] Landesbank Hessen-Thüringen – Girozentrale (OJ 2006 L 307, p. 159; ‘the contested decision’).

10 In the contested decision, the Commission took the view that, since the special fund was recognised by BAKred as core capital of Helaba, it was appropriate – in order to examine whether the Land’s conduct corresponded to that of a private investor – to compare the contribution at issue with equity instruments that were recognised as core capital in Germany in the year of the contribution and that were available to Helaba at the time of the transfer specifically for an investment of this order of magnitude, which made up significantly more than 15% of Helaba’s core capital. It rejected the applicant’s argument that the characteristics of the contribution at issue, as they appear in the contract concluded between the Land and Helaba, were such that the contribution was more akin to share capital than to a ‘normal’ – that is to say, time-limited – silent partnership contribution (recitals 128 to 139 to the contested decision).

11 As regards the calculation of the remuneration which a private investor would have required for a contribution such as the contribution at issue, the Commission distinguished the amount which was available to underpin Helaba’s competitive business from that which, for various reasons could not, in the Commission’s view, be used by Helaba for that purpose (recitals 141 and 142 to the contested decision).

12 With regard to the amount which was available to underpin Helaba’s competitive business, in the first place, the Commission took the view that it was necessary to take into account the fact that Helaba was required to pay tax on industrial and commercial operations (‘trade tax’), which has to be paid by industrial and commercial investors conducting business in Germany, but which, in the present case, had to be paid by Helaba because the Land was not obliged to do so (recitals 157 to 159 to the contested decision).

13 In the second place, the Commission explains that, on the market, the rate used as a reference for the calculation of the remuneration is either fixed, corresponding generally to the yield on public bonds with a 10-year maturity, or variable, corresponding to the interbank market rates, such as the Libor or Euribor rates. The Commission states that a remuneration premium is added, irrespective of the type of reference rate used, the composition of which varies according to whether the remuneration is variable or fixed. It explains that, if the remuneration is variable, the remuneration premium corresponds to the liability remuneration for the silent partnership in question (‘the liability remuneration’). However, if the remuneration is fixed, the remuneration premium comprises two elements: the refinancing premium, that is to say the premium on the yield on public bonds which the bank has to pay on the market to procure liquidity, and the liability remuneration corresponding to the risk profile of the silent partnership contribution in question (recital 162 to the contested decision).

14 Given that the contribution at issue does not entail a transfer of liquid capital or involve additional refinancing costs for Helaba, the Commission takes the view that Helaba has to pay only a liability remuneration to the Land (recitals 162, 184 to 187 to the contested decision).

15 Therefore, as regards the issue whether the agreed remuneration, together with the increase on account of the trade tax effect, is in line with market conditions, the Commission took the view that, since the remuneration was in the upper part of the market range for liability remuneration, it did not see any evidence of favourable treatment of Helaba and hence of State aid (recitals 172 and 183 to the contested decision).

16 As regards the amount which, according to the Commission, was not available to underpin Helaba’s competitive business because it had to be used to cover the business of the special fund of promoting social housing construction or by reason of the phased model, the Commission took the view that its entry in Helaba’s balance sheet from the time of the transfer represented an advantage for Helaba in so far as it operated as a guarantee which had to be paid for, contrary to what was envisaged by the parties, at a rate of 0.3% per annum before tax. The Commission therefore deemed Helaba to have received EUR 6.09 million in State aid (recitals 155 and 190 to the contested decision).

Procedure and forms of order sought by the parties

17 By application lodged at the Registry of the Court on 18 April 2005, the applicant brought the present action.

18 By documents lodged at the Registry of the Court on 29 July, 4 and 8 August 2005 respectively, Helaba, the Federal Republic of Germany and the Land applied for leave to intervene in the present proceedings in support of the Commission. By order of 30 September 2005, the President of the Third Chamber of the Court granted them leave to intervene.

19 By letters of 9 and 23 August 2005 and 15 December 2005 the applicant applied for certain confidential information contained in the application and in the reply to be excluded from the copies to be sent to the interveners. It produced a non-confidential version of those pleadings. The interveners were sent only the non-confidential versions of those pleadings and raised no objection in that regard.

20 By a letter of 20 December 2005 the applicant informed the Court that it had not named the banks which had provided it with certain information included in the reply because the banks feared that their commercial relationships with Helaba would be seriously damaged if their identity were to become known to Helaba. It explained that this information would be provided to the Court alone at the Court’s request.

21 The interveners lodged their statements within the prescribed period. The applicant, in turn, lodged its observations on the statements in intervention within the prescribed period. The Commission declined to submit observations on those statements.

22 By letter of 28 March 2006 the Commission requested the Court to remove from the file certain annexes to the reply. Since the applicant had no objection to that request in relation to Annex C.3 to the reply, Annex C.3 was removed from the file by decision of the President of the Third Chamber of 28 June 2006. The decision concerning the other annexes which the Commission had applied to have removed was reserved.

23 Owing to a change in the composition of the chambers of the Court, the Judge-Rapporteur was assigned to the Fourth Chamber to which, in consequence, the present case was assigned.

24 In view of the end of the term of office of one of the members of the Chamber, the President of the Court designated another Judge to complete the Chamber, in accordance with Article 32(3) of the Rules of Procedure of the Court.

25 Upon hearing the Judge-Rapporteur, the Court (Fourth Chamber) decided to open the oral procedure and, in the context of the measures of organisation of procedure provided for in Article 64 of the Rules of Procedure, requested the Commission to lodge certain documents and put questions in writing to the parties, to which they replied within the prescribed period.

26 The parties presented oral argument and their answers to the questions put by the Court at the hearing on 9 September 2008. At the end of that hearing, the Commission was authorised to reply in writing to one of the questions put by the Court. The Commission replied by letter of 19 September 2008 and, on 2 October 2008, the applicant lodged its observations on that reply. The oral procedure was closed on 8 October 2008.

27 The applicant claims that the Court should:

– annul the contested decision;

– order the Commission to pay the costs.

28 The Commission, supported by the interveners, contends that the Court should:

– declare the action inadmissible and, in the alternative, dismiss it as unfounded;

– order the applicant to pay the costs.

Law

A – Admissibility

29 The Commission contends that the action is likely to be inadmissible in so far as the applicant is not individually concerned by the contested decision.

30 It must be noted that the Court is entitled to assess, according to the circumstances of each case, whether the proper administration of justice justifies the dismissal of the action on the merits without first ruling on the objection of inadmissibility raised by the defendant (Case C‑23/00 P Council v Boehringer [2002] ECR I‑1873, paragraphs 51 and 52, and judgment of 13 September 2006 in Joined Cases T‑217/99, T‑321/00 and T‑222/01 Sinaga v Commission, not published in the ECR, paragraph 68).

31 It must be observed in this instance that, while the present case and the case giving rise to the judgment of the Court of today’s date in Case T‑36/06 Bundesverband deutscher Banken v Commission [2010] ECR II‑0000 raise slightly different issues of admissibility on account of the legal basis of each of the contested decisions, they raise issues of substance that are essentially similar, since, in the case giving rise to the aforementioned judgment of today’s date, the parties repeat many of the arguments that were put forward in the present proceedings. Consequently, the Court considers it necessary to begin by adjudicating on the pleas put forward by the applicant, without first ruling on the plea of inadmissibility raised by the Commission, since the action for annulment is, in any event, unfounded on the grounds set out below.

B – Substance

32 The applicant submits that the contested decision is contrary to Article 87(1) EC inasmuch as the remuneration agreed between the Land and Helaba in respect of the part of the contribution which the latter could use to underpin its competitive business is not consistent with what a private investor would have required at the time of the transaction, and the Land’s willingness to forgo an appropriate remuneration constitutes State aid. It submits, moreover, that the reasons stated in respect of some of the findings in the contested decision are inadequate.

33 Specifically, the applicant submits, first of all, that the Commission did not take into account the market situation at the time when the contribution at issue was made. It goes on to criticise the Commission’s findings in relation to each of the steps taken to reach the conclusion that the remuneration agreed in respect of the part of the contribution at issue that could be used to underpin Helaba’s competitive business does not constitute State aid. In the first place, it takes issue with the Commission’s view that, for the purposes of a comparison of the remuneration agreed in respect of the contribution at issue with remuneration for other transactions that took place on the market, the contribution at issue had more in common with a time-limited silent partnership contribution than with share capital. In the second place, it objects to the Commission’s acceptance of the solution involving a phased remuneration for that part of the contribution at issue which could be used to underpin Helaba’s competitive business, in accordance with the phased model. In the third place, it objects to the Commission’s findings in respect of possible premiums and deductions which might be applied to the market range of liability remuneration to take account of the specific nature of the contribution at issue. In the fourth place, it objects to the Commission’s deduction from the remuneration that would be required on the market of the refinancing costs associated, as far as Helaba is concerned, with the purported lack of liquidity of the contribution.

34 It must be borne in mind at the outset that the aim of Article 87(1) EC is to prevent trade between Member States from being affected by advantages granted by public authorities which, in various forms, distort or threaten to distort competition by favouring certain undertakings or certain products.

35 In order to determine whether a State measure constitutes aid, it is therefore necessary to establish whether the recipient undertaking receives an economic advantage which it would not have obtained under normal market conditions (Case C‑39/94 SFEI and Others [1996] ECR I‑3547, paragraph 60, WestLB, cited in paragraph 7 above, paragraphs 207 and 243).

36 In that regard, it cannot be held that the exercise of ascertaining whether the transaction took place under normal conditions of a market economy must necessarily be made by reference to the single investor or to the single undertaking benefiting from the investment, when it is the interaction between the various economic operators which is precisely the feature of a market economy (WestLB, cited in paragraph 7 above, paragraph 327). Nor, furthermore, does that exercise require the constraints connected with the nature of the asset transferred to be disregarded altogether, since it is necessary to take into account, as a reference, the conduct of a private investor finding himself, as far as possible, in the same situation as a public investor (see, to that effect, Case C‑482/99 France v Commission [2002] ECR I‑4397, paragraph 70; Case C‑334/99 Germany v Commission [2003] ECR I‑1139, paragraph 133; and WestLB, cited in paragraph 7 above, paragraph 270).

37 In those circumstances, the Commission is obliged, in assessing whether the undertaking enjoys an advantage which it would not have been able to obtain under market conditions, to make a complete analysis of all factors that are relevant to the transaction at issue and its context, including the situation of the beneficiary undertaking and of the relevant market (WestLB, cited in paragraph 7 above, paragraph 251). The Commission can, in particular, examine whether, in a case such as this one, the undertaking would have been able to procure funds entailing the same advantages from other investors and, if necessary, under what conditions, since a measure cannot constitute State aid if it does not place an undertaking in a more advantageous position than it would have been in if the public authority had not intervened.

38 Lastly it must be borne in mind that the assessment by the Commission of the question whether an investment secures an advantage which the undertaking would not have been able to obtain on the market involves a complex economic appraisal. When the Commission adopts a measure involving such an appraisal it enjoys a wide discretion, and judicial review of that measure, even though it is in principle a comprehensive review of whether a measure falls within the scope of Article 87(1) EC, is limited to verifying whether the Commission complied with the relevant rules governing procedure and the statement of reasons, whether the facts on which the contested finding was based have been accurately stated and whether there has been any manifest error of assessment of those facts or a misuse of powers. In particular, the Court is not entitled to substitute its own economic assessment for that of the author of the decision (Joined Cases T‑126/96 and T‑127/96 BFM and EFIM v Commission [1998] ECR II‑3437, paragraph 81; Case T‑296/97 Alitalia v Commission [2000] ECR II‑3871, paragraph 105; and WestLB, cited in paragraph 7 above, paragraph 282).

39 Before examining the applicant’s various objections to the contested decision, it is appropriate to analyse the parties’ arguments in relation to the context in which the contribution at issue was negotiated.

1. Context in which the contribution at issue was negotiated

40 The applicant submits that it is wrong to take the view that Helaba did not need a core capital contribution and that the contribution was made essentially in the interests of the Federal Republic of Germany, in particular of the Land.

41 The Commission, supported by the Land and Helaba, rejects that presentation of the context of the case.

42 So far as Helaba’s situation is concerned, it must be noted that, before the transfer of the contribution at issue, Helaba had a core capital ratio of 5.4% and an equity ratio of 9.6%, both higher than the minimum ratios set by law, namely 4% and 8% respectively (recitals 28 and 32 to the contested decision). Unlike in the WestLB case, to which the applicant refers several times, there was no amendment of the applicable rules that made an increase in the equity ratios of European banks essential in 1998. The fact that Helaba’s ratios were less favourable than those of the major German private banks does not mean that the contribution at issue was essential for Helaba’s survival or for Helaba to be able to maintain its volume of business, since it cannot be the case that all German banks not having the ratios of the major private banks need an injection of capital. In any event, the applicant did not provide details of the ratios of the major private banks for 1998, only for the period from 1984 to 1994.

43 In those circumstances, it must be held that Helaba needed only such new funds as were necessary in order to attain the growth targets laid down in its business plan. Aside from the fact that any failure to obtain the funds needed for that purpose would have had the effect merely of impeding its growth and would have compromised neither its survival nor its volume of business at that time, the growth targets fixed in Helaba’s business plan required – according to the observations of the Federal Republic of Germany set out in recital 54 to the contested decision – only a substantially smaller increase in core capital than the amount of the contribution at issue, indeed of the tranches provided for by the phased model.

44 That finding is not affected by the statements of the Chairman of Helaba’s Board of Managing Directors which were published in the German press in 1998 and to which the applicant referred. Helaba’s dependence on the contribution at issue cannot in any way be inferred from the Chairman’s statement that ‘[i]f international developments permit it, [Helaba] would very much like [the special fund] to be made available to [it] as equity capital in return for a market remuneration’. Similarly, an urgent need for equity capital cannot be inferred from his assertion that, ‘in the long term at least, consideration [had to] be given to Helaba’s capital adequacy’.

45 Those statements do indeed show that Helaba was an interested party as regards the contribution at issue, and that the contribution was required to put Helaba in the position of being able to cover its capital needs over a number of years and increase its risk-bearing transactions. It is, in fact, only because Helaba was expecting to benefit that it suggested taking on the special fund in the form of a silent partnership contribution. However, that does not mean that it was dependent on the contribution at issue or that it could not have increased its core capital by calling on private investors.

46 As far as the situation of the Land is concerned, it is apparent from the contested decision and from the documents in the case that it wanted to generate additional income by using the social housing promotion portfolio for other purposes, that it nevertheless did not want to sell it so as to be able to continue to use it for promotion activities, that it did not wish to divide it between several institutions – owing, on the one hand, to the fact that, as a revolving fund, it has to be refinanced by returns on loans granted and, on the other, to the ensuing costs and loss of flexibility in administering the aid – and that it wanted to organise the administration of the assets as effectively and cheaply as possible (recital 20 to the contested decision).

47 Helaba declared that it was prepared to take on and manage the whole aid portfolio of the special fund. The fact that Helaba was already managing funds and aid programmes and that, since it was a bank governed by public law, the Land had a supervisory role and was better equipped to monitor its solvency and its development, inter alia, persuaded the Land that Helaba was the appropriate partner. The cooperative banks had, admittedly, spontaneously shown their interest in the special fund, but they wanted the Land to sell it. Furthermore, in spite of the allegedly very modest remuneration agreed for the contribution at issue and the fact that the Land’s intention to transfer the funds had been made public, the applicant having become aware of it by summer 1998 at the latest, the major private banks, unlike the cooperative banks, did not make rival offers.

48 It is, therefore, against that background that the Court must consider the parties’ arguments and determine whether the Commission made a manifest error of assessment in taking the view, in essence, that the financial burden on Helaba associated with the part of the special fund that it could use to underpin its competitive business was not less than Helaba would have borne under normal market conditions to obtain the same advantages, and that, in consequence, the contribution at issue did not involve State aid.

49 Given that one of the applicant’s arguments concerning the allegedly erroneous classification of the contribution at issue as a silent partnership contribution and the allegedly modest level of remuneration relates to the very high volume of the contribution, and the Commission counters that argument on the basis of the phased model, it is this issue that must be examined first of all.

2. Taking the phased model into account

a) The contested decision

50 As indicated in paragraph 11 above, the Commission took the view that the remuneration for the part of the contribution at issue which was available to underpin Helaba’s competitive business should be distinguished from the part which, for various reasons, was not.

51 With regard to the determination of the part of the contribution at issue which was available to underpin Helaba’s competitive business, the Commission accepted that it should take into account the phased model agreed between the parties, under which, in the first four years following the transfer of the contribution at issue, the 1.4% remuneration fixed in the contract was paid not on the whole contribution – with the exception of the part required to cover the promotion of social housing construction – but on tranches agreed in advance. The Commission justified its acceptance of the phased model by stating that, although the funds were de facto usable by Helaba from the outset, Helaba had indicated that it only needed the assets in stages in order to underpin its competitive business and, moreover, that, within the agreed tranches, it was the actual usability or non-usability that was taken into consideration. The Commission took the view that a private investor in the situation of the Land who did not wish to divide up the special fund would not have been in a position to impose any faster increase in the capital base to be remunerated at the agreed rate of 1.4% (recitals 143 to 146 to the contested decision). The Commission took the view, however, that the remainder of the contribution at issue over and above the agreed tranches was required to be remunerated at a rate of 0.3% (recitals 142, 191 and 192 to the contested decision).

b) Arguments of the parties

52 The applicant submits that the Commission made a manifest error of assessment when it took the view that the phased model satisfies the private investor test. It maintains that, as the Commission itself recognised, the question whether the issuer actually uses the full amount to underpin its competitive business is irrelevant to the investor, since what counts for the investor is the fact that he has made his assets available to the bank, thereby forgoing their use and risking their loss.

53 The applicant takes the view that the reasons put forward by the Commission for nevertheless accepting the phased model are erroneous.

54 As regards the fact that Helaba had informed the Land that it would not use the entire contribution at issue straightaway, the applicant claims that, while Helaba’s conduct in demanding the phased model may have been reasonable from an economic point of view, the same cannot be said for the Land, since a private investor in those circumstances would not have forgone part of his remuneration but would have sought other investment opportunities enabling him to maximise his profits, or at least would have transferred the special fund in stages in accordance with Helaba’s requirements. At the hearing, the applicant nevertheless stated in reply to a question put by the Court that it was not a question in this instance of whether the Land had to transfer its special fund in stages or try to place it elsewhere, but whether it ought not to have required remuneration for the full funds transferred.

55 The applicant states that, contrary to what is claimed by the Commission, the Commission departed from the practice which it had followed in the cases concerning the other Landesbanken. Thus, it claims that the Commission maintained in the defence which it submitted in the proceedings giving rise to the WestLB judgment, cited in paragraph 7 above, that no private investor would make capital available to an undertaking and agree to be remunerated only in part on the ground that the amount in question actually exceeded the undertaking’s real requirements.

56 As regards the fact that the remuneration had to be paid on the basis of tranches agreed between the parties, irrespective of whether or not Helaba had used the full amounts, it submits that the contract did not include a clause prohibiting Helaba from using the contribution at issue for the expansion of its business beyond the reference amounts. It takes the view, therefore, that the establishment of those reference amounts did not constitute an advantage for the Land since it was possible to envisage Helaba using a larger amount for liability purposes. The applicant takes the view, moreover, that a private investor would have required remuneration for the advantage in terms of Helaba’s rating on account of the increase in its core capital.

57 The Commission, supported by the Land and Helaba, opposes those arguments.

c) Findings of the Court

58 It must be held, first of all, that, as the applicant itself conceded at the hearing, the question as to what alternative investment opportunities might have been of interest to the Land is irrelevant in the present case. It is not a question of determining whether the Land could have obtained a better return on its special fund by investing it differently or in another undertaking, but whether, by investing that special fund in Helaba under the agreed conditions, the Land conferred an advantage on Helaba which it could not have obtained in any other way.

59 Next, it must be noted that the parties agree that a private investor who makes his capital available to a bank as that bank’s core capital, and thereby forgoes the use of it and exposes himself to the risk of losing it, will require remuneration for the whole of the capital transferred. The Commission thus took the view in the contested decision that the whole of the contribution at issue had to be remunerated from the very first day of its transfer to Helaba, since it was from that point on that the Land risked losing it and Helaba was able to enjoy its benefits (recitals 142, 155, 191 and 192 to the contested decision).

60 The Commission took the view, however, that a private investor would have agreed to two different rates of remuneration, according to the purpose served by each part of the contribution at issue (recitals 142, 143 and 191 to 193 to the contested decision). It thus decided that a private investor would, on the one hand, have accepted the remuneration agreed by the Land and Helaba for that part of the contribution at issue that was available for Helaba’s use in expanding its competitive business and would, on the other, have required a remuneration of 0.3% for the remainder of the contribution at issue on account, inter alia, of the rating advantage to Helaba entailed in its being entered from the outset as core capital. Given that the Land had not required remuneration for that part of the contribution at issue which was not likely to be used for the expansion of Helaba’s competitive business, the Commission found, in respect of the period from 31 December 1998 to 31 December 2003, that State aid had been granted in the amount of EUR 6.09 million and ordered its recovery by the Federal Republic of Germany.

61 The applicant objects to the Commission’s assessment that, in the circumstances of the present case, a private investor would have accepted the phased model and consequently that, in the early years, a part of the funds which, for supervisory purposes, was available for use in underpinning Helaba’s competitive business – namely the part of the contribution at issue exceeding the tranches of the phased model and not needed to underpin the promotion of social housing construction – would not be remunerated at the same rate as the rest of those funds.

62 In the first place, the applicant submits that, as the Commission itself admits in the contested decision and stated in the WestLB case, a private investor would not accept that his return should depend on the amount of equity capital actually used.

63 It must be held in that regard that the basis for the remuneration agreed between the parties did not, even in the early years following the contribution at issue, depend on the amount of the contribution that was actually used. It is apparent from the contested decision that Helaba was required to remunerate the Land for the agreed tranches in full, irrespective of their actual use for the purposes of expanding its competitive business. At the end of the period in which the phased model applied, that is to say from 2003, the remuneration agreed between the parties was required to be paid on the whole of the contribution at issue, with the exception of the part required to underpin the promotion of social housing construction, irrespective of the amount actually used by Helaba to underpin its competitive business. The contested decision is therefore consistent with the principle relied on by the applicant, that a private investor would not accept that his return should depend on the amount of equity capital actually used.

64 In the second place, the applicant states that the Commission’s differentiation – in drawing a distinction as to whether the capital is, as in the present case, not supposed to be used for business expansion purposes because the bank announced beforehand that it was not needed and would not be used, or can be used freely – is irrelevant to the investor since, in both cases, he no longer has the capital. It maintains that, in any event, the agreement reached between the Land and Helaba does not protect the Land, because it does not include any undertaking by Helaba to use the funds transferred only up to the amount of the agreed tranches.

65 As regards the applicant’s assertion that it is irrelevant to the investor that Helaba had announced that it did not immediately need all the capital, it should be borne in mind that, according to the case-law (see paragraph 36 above), whether a transaction is in line with market conditions cannot be assessed from the point of view of the single investor but must be assessed taking into account the interaction between the various economic operators and the context in which the transaction took place.

66 In that respect, the applicant does not put forward any arguments from which it might be concluded that the Commission made a manifest error of assessment in finding that, in a situation such as that of the present case, characterised, on the one hand, by the fact that the Land wanted to invest in a non-liquid asset and did not want to divide it and, on the other, by the fact that Helaba did not, either in the short or medium term, need capital on the scale of that of the special fund, a private investor would not have been able to obtain from the bank immediate remuneration for the whole of the contribution at issue at the rate of remuneration for the expansion of the bank’s competitive business. On the contrary, the applicant itself states that Helaba probably behaved reasonably by requiring the phased model to be applied.

67 In any event, there does not appear to be a manifest error in taking the view that a bank will not agree to pay the rate corresponding to remuneration for the expansion of its competitive business in respect of capital which it knows in advance it will not be able to use for that purpose. While such capital may, as the Commission states, enable the bank to strengthen its solvency or avoid its deterioration and, therefore, to reduce or maintain its financing costs, it does not enable the bank to obtain additional income from new transactions.

68 Accordingly, in the circumstances of the present case, a private investor in the Land’s situation should have taken into account the fact that, since, for supervisory purposes, it was impossible for Helaba to use the whole of the contribution available immediately for the expansion of its competitive business, that part of the contribution which was not available for Helaba to use did not have the same economic function for Helaba as the part which was available.

69 It is true that this aspect did not justify the Land forgoing receipt of any remuneration at all for the capital which was not available for Helaba to use and which was nevertheless transferred to Helaba in order to avoid any division of the special fund. Since that capital served from the outset to guarantee Helaba’s debts, it was subject to a certain risk of loss from that moment on, and gave Helaba an advantage in terms of rating and reputation. It is precisely in order to ensure remuneration of the risk taken on by the Land and of the advantage to Helaba that the Commission imposed the payment of a remuneration of 0.3% per annum for that part of the contribution at issue.

70 As to the fact that the contract does not include a clause by which Helaba undertakes not to use amounts in excess of the agreed tranches for the expansion of its competitive business, it must be held that this does not render manifestly erroneous the Commission’s assessment that the part of the contribution at issue above those tranches did not have a business expansion function. It must be noted that the Land managed to ensure that the tranches were fixed at a much higher level than would have been necessary given Helaba’s capital requirements according to its business plan, thereby ensuring that the tranches would not be exceeded. It follows from the observations of the Federal Republic of Germany, set out in recital 54 to the contested decision and confirmed by the applicant and Helaba in their written pleadings, that the tranches were fixed at approximately EUR 384 million (1999), EUR 614 million (2000), EUR 818 million (2001) and EUR 1.02 billion (2002), whereas, on the basis of planned annual growth, the bank needed approximately EUR 150 million per annum.

71 Finally, it must be observed that the applicant, which focuses on the situation of the Land as investor, does not explain how the solution adopted by the Commission – acceptance of the phased model and the imposition of 0.3% remuneration for the part of the contribution above the agreed tranches – entailed a competitive advantage for Helaba which it would not have been able to obtain under market conditions.

72 Therefore, the Commission did not make a manifest error of assessment in taking the view that, in the circumstances of the present case, the fact that, between 1999 and 2002, Helaba did not pay a remuneration at a level appropriate to a business expansion function for that part of the capital which, while perfectly usable – from a supervisory point of view – for the underpinning of its competitive business, would not be used for the purpose, did not give rise to an advantage which Helaba would not have been able to obtain under market conditions.

73 That conclusion is unaffected by the applicant’s argument that the Commission’s acceptance of the phased model in the present case represents a departure from its earlier practice, in particular from the position which it defended in the judicial proceedings concerning the 1999 WestLB decision. It must be noted that the Court annulled that decision in the WestLB judgment, cited in paragraph 7 above, and that the decision adopted by the Commission following that annulment – Decision 2006/737/EC of 20 October 2004 on aid from Germany for Westdeutsche Landesbank – Girozentrale (WestLB), now WestLB AG (OJ 2006 L 307, p. 22; ‘the 2004 WestLB decision’) – no longer imposes the remuneration rate premium which the Commission had sought to justify on the basis of the argument invoked by the applicant. In any event, it cannot be held that the Commission accepted that the Land would be only partly remunerated for that part of the contribution at issue which, from a supervisory point of view, could be used for the expansion of Helaba’s competitive business. The Commission essentially took the view that, following the compromise resulting in the phased model, the Land did not let the use of the funds transferred be determined by Helaba’s commercial judgment and that, given the imposition of a 0.3% remuneration for that part of the contribution at issue exceeding the agreed tranches, it was not a partial remuneration that the Land received but a remuneration appropriate to each part of the contribution according to its function for Helaba.

74 It follows from the foregoing that the present complaint must be rejected.

3. The complaint that the Commission incorrectly classified the contribution at issue as a ‘normal’ silent partnership contribution instead of as an investment in share capital

a) The contested decision

75 The Commission summarises the arguments put to it, stating that, according to the applicant, ‘the only legal form properly available to Helaba … was that of share capital’ and that, as a result, the contribution at issue represented ‘a formal abuse of a “normal” silent partnership’. The Commission also states that, according to the applicant, in economic terms, the contribution at issue had so many points in common with share capital that an investor would have insisted on the payment of interest corresponding to the remuneration of share capital. Nevertheless, according to the Federal Republic of Germany, ‘another legal form available was that of a silent partnership contribution of unlimited duration’ (‘perpetual’) (recitals 127 and 128 to the contested decision).

76 In the first place, the Commission notes that the silent partnership contribution was expressly established as such by the Land and Helaba and accepted as such by the competent German authorities (recital 129 to the contested decision).

77 In the second place, the Commission states that, with regard to a risk analysis, the contribution at issue is more akin to a ‘normal’ silent partnership, that is to say time-limited, than to share capital. It regards as essential in that respect the fact that, as the Federal Republic of Germany explained in reliance on an expert’s report, in insolvency proceedings, the contribution at issue would, like other ‘normal’ silent partnerships, have to be repaid before share capital. It adds that, so long as the undertaking is not making a loss, both the Land and the investor of a time-limited silent partnership receive the entire agreed remuneration, whereas the investor in share capital can claim only payment of a dividend that is in proportion to profits (recitals 130 to 132 to the contested decision).

78 In the third place, the Commission explains why it considers that the arguments put forward by the applicant during the administrative procedure do not suffice to invalidate that conclusion.

79 Thus, first of all, the Commission rejects the applicant’s argument that the contribution at issue should be compared – just as it was in the WestLB case – to a share capital investment on account of its volume, which resulted in the long term in an increase of almost 50% in Helaba’s core capital. It states in that regard that Helaba could easily have covered its estimated capital requirement in the period from 1998 to 2002 by taking up, at intervals, several smaller silent partnership contributions from a number of different institutional investors (recital 133 to the contested decision).

80 Second, the Commission rejects the applicant’s argument that, as a result of the contribution at issue, the proportion of share capital in Helaba’s total core capital (‘the share capital buffer’) did not exceed 50%, whereas that of private credit institutions was more than 80%. The Commission took the view that this did not mean that a private investor would not have made the contribution at issue, since the Federal Republic of Germany had shown that the regional banks generally made greater use of silent partnership contributions beyond the 15% limit, including from private investors (recital 134 to the contested decision).

81 Third, as regards the consequences in terms of the level of risk of the perpetuity of the contribution at issue, the Commission rejects the applicant’s arguments that institutional investors are only prepared to acquire hybrid equity capital instruments of fixed duration or instruments for which repayment can be assumed, because the payout rate rises incrementally. In its view, the perpetuity of the contribution primarily entails a risk to the investor of not being able to profit from interest rate increases on the market, but has no effect on the risk of loss. The Commission concludes from this that the perpetuity of the contribution at issue does not in this instance justify that contribution being compared – for the purposes of a review of the appropriate level of the agreed remuneration – to remuneration for share capital, instead of to remuneration for silent partnership contributions (recitals 136 and 138 to the contested decision).

82 The Commission concludes from this that the Land’s transfer of the special fund ‘was undoubtedly made in the legal form of a silent partnership that has much more in common with other silent partnerships than with share capital’. It states in that regard that ‘[t]here is, therefore, in [its] view, not sufficient evidence of an abuse of the legal form of a silent partnership for a contribution of capital that in actual economic terms constituted share capital’. It concludes that ‘[t]he basis for the remuneration of [the contribution at issue] is, therefore, “normal”, i.e. time-limited silent partnership assets typical in size of those observable on the market, on whose remuneration a premium may possibly have to be charged’ (recital 139 to the contested decision).

b) Arguments of the parties

83 The applicant submits that the contribution at issue should not have been classified as a ‘normal’ silent partnership contribution and, therefore, that its remuneration should not have been compared to that of time-limited silent partnership contributions issued on the market.

84 It emphasises that the Commission considered whether the parties had improperly classified the contribution at issue as a silent partnership, rather than share capital, and only examined the economic characteristics of the contribution at issue as a secondary point. It states that this reasoning is erroneous and that it is not a question, in the present case, of whether that was impropriety but of considering whether, from an economic point of view, the contribution at issue had more in common with other silent partnership contributions on the market or with investments in share capital.

85 The applicant takes the view that, contrary to the Commission’s conclusion, the contribution at issue differs in legal and economic respects from the company law model of a silent partnership or from time-limited silent partnerships issued on the market and recognised as core capital, and has a special structure which precludes any comparison with the silent partnerships selected by the Commission for that purpose. It takes the view, furthermore, that the Commission did not make its assessment on the basis of the situation as it was at the time the contribution at issue was made and, moreover, that its assessment of the market situation at that time was poor.

86 As regards, in the first place, the specific legal features of the contribution at issue, the applicant submits that, in terms of form, the contribution is not a ‘normal’ silent partnership within the meaning of German company law, inter alia, because it was devised to satisfy the conditions laid down by law and by the Sydney Declaration so as to enable it to be regarded as part of Helaba’s core capital, albeit above the 15% limit.

87 As regards, in the second place, the special economic features of the contribution at issue, the applicant mentions five factors which render the risk profile of the contribution at issue more akin to that of share capital than of time-limited silent partnerships: its size, its guarantee status, its profitability profile, the protection of capital invested and its duration and the impossibility of withdrawal.

88 As regards, in the third place, the market situation at the time when the contribution was made, the applicant submits that the Commission infringed the private investor test by selecting the wrong reference period. It thus maintains that the Commission based its conclusion that the contribution at issue had to be compared with time-limited silent partnerships on information about private bank practices during the period after the date of the contribution at issue.

89 In addition, the applicant challenges the Commission’s assertions that, at the time of the contribution at issue, there was an established market in Germany in hybrid equity capital instruments and, moreover, that Helaba could equally have satisfied its capital requirements by issuing the silent contribution in several smaller tranches. It argues, in particular, that it is not a question of what Helaba could have done to obtain funds, but whether a private investor would have granted it a contribution that was similar and on the same terms as the contribution at issue.

90 The Commission and the interveners oppose those arguments.

c) Findings of the Court

91 As a preliminary point, it is necessary to clarify the parties’ position regarding the significance to the outcome of the present dispute of the legal form chosen by Helaba and the Land for the contribution at issue.

92 It follows from the contested decision, in particular from recitals 127, 128 and 139 thereto (see paragraphs 75 and 82 above), that the Commission interpreted the arguments put forward by the applicant during the administrative procedure as being aimed at eliciting a declaration that the legal form of the silent partnership was abused.

93 In its application, the applicant challenges that interpretation and submits that it has never claimed that the contribution at issue was, in legal terms, share capital. It maintains that it claimed during the administrative procedure that, by the particular way in which it was set up, the contribution at issue differed considerably, economically, from a silent partnership and that it had far more in common with share capital, with the result that a private investor would have required a remuneration appropriate to the risk profile of share capital in return for that contribution. In addition, it examines the legal characteristics of the contribution at issue and submits that the Commission’s assertion that the contribution at issue is comparable to ‘normal’ silent partnership contributions does not stand up to in-depth analysis of the legal structure of the contribution, and that it has significant special features in comparison with a ‘normal’ silent partnership contribution corresponding to the company law model.

94 It nevertheless follows from the parties’ written statements as a whole that the question whether or not the Commission correctly interpreted the arguments put forward by the applicant during the administrative procedure is not the real subject-matter of the present dispute. It is clear from the parties’ arguments that they agree that the contribution at issue was described in legal terms by the Land and by Helaba as a silent partnership contribution and recognised as such by the German authorities. They also agree that the particular features of the contribution at issue did not prevent the Land or Helaba from using the legal form of a silent partnership contribution.

95 The parties’ arguments in respect of the classification of the contribution at issue, for the purposes of determining the reference transactions, therefore concentrate on whether that contribution displays such similarities – in terms of risk profile – with share capital that a private investor would have required remuneration appropriate to that of share capital, or whether it is more akin to silent partnership contributions which are time-limited and recognised as core capital, so that its remuneration could be compared to that of such silent contributions.

96 In that regard, it must be noted that the comparison of the contribution at issue with other hybrid instruments is a matter of some economic complexity, over which the Commission enjoys a wide margin of assessment (WestLB, cited in paragraph 7 above, paragraph 351).

97 In addition, the classification of the contribution at issue as a time-limited silent partnership contribution or as share capital is merely an analytical tool used by the Commission in applying Article 87(1) EC (see, to that effect, WestLB, cited in paragraph 7 above, paragraph 250).

98 The Commission’s assessment in that regard does not therefore permit it to make an automatic determination as to the existence and scale of State aid, but merely allows it to use for its assessment a starting point which takes into account the conditions in which private investors have carried out transactions that are as similar as possible. The Commission’s conclusion on that point does not relieve it of its obligation to make a complete analysis of all factors that are relevant to the transaction at issue and its context, including the situation of the beneficiary undertaking and of the relevant market, in order to verify whether that undertaking is receiving an economic advantage which it would not have obtained under normal market conditions (see, to that effect, WestLB, cited in paragraph 7 above, paragraphs 251 and 257).

99 It is necessary to consider the parties’ arguments as to the different characteristics of the contribution at issue by studying, first of all, the arguments concerning the characteristics on which the Commission principally based its view that the remuneration for the contribution at issue had to be compared to remuneration for time-limited silent partnerships; next, those concerning the characteristics of the contribution at issue which the Commission deemed not to preclude such a comparison; and, lastly, those concerning the characteristics of the contribution at issue which were not relied upon during the administrative procedure or examined in the contested decision. It will also be necessary to examine the applicant’s objections regarding the reference period taken into account by the Commission for the application of the private investor test.

The characteristics on which the Commission based its view that the remuneration for the contribution at issue had to be compared to remuneration for time-limited silent partnership contributions

– Risk of loss in the event of insolvency or liquidation

100 The Commission took the view that the contribution at issue represented the same risk in the event of insolvency or liquidation as time-limited silent partnerships already on the market because, in such cases, it had to be repaid before share capital. The Commission relied in that regard on the provisions of the contract and on an expert report produced by the Federal Republic of Germany (recital 131 to the contested decision).

101 The relevant provisions of the contract are clauses 3 and 9. Clause 3, on ‘Participation in losses’, provides under subclause (2):

‘The relationship between claims of the contributor and those of other investors within the meaning of Paragraph 10 of the [Kreditwesengesetz] shall be determined in accordance with the chronological order of capital investment in the bank, claims arising from earlier capital injections thus having priority. In the case of simultaneous capital contributions, claims shall be satisfied according to the share of liability capital that they represent for the purposes of Paragraph 10(4) and (5) of the [Kreditwesengesetz]. For contributions pursuant to Paragraph 10(4) of the [Kreditwesengesetz] the relevant date shall be that on which the contribution was made; for participation rights the relevant date shall be the first date of their validity.’

102 Paragraph 9 on ‘Deferred priority’ provides:

‘In the event of the bank’s insolvency or liquidation, claims for the return of funds shall be dealt with – subject to Paragraph 3(2) … – only after settlement of claims of all the bank’s creditors with the exception of lower-ranking private investors in accordance with Paragraph 10 of the [Kreditwesengesetz].’

103 The expert report produced by the Federal Republic of Germany states:

‘Clause 3(2) of the contract does not in any way alter the priority laid down by law for repayment of the silent contribution on any credit balance in the event of the bank’s insolvency or liquidation. This is demonstrated, first, by the economy of the provision which, in its second sentence, refers only to capital within the meaning of Paragraph 10(4) and (5) of the [Kreditwesengesetz] and which, in its third sentence, defines the date determining the chronological order for the purposes of that provision only in respect of silent partnership contributions and participation rights.’

104 The applicant submits, first of all, that, although a silent partnership must, as a rule, be repaid before share capital, the question whether the same applies to the contribution at issue remains open in view of the wording of the contract. It states, furthermore, that it does not know upon what information the author of the expert report cited by the Commission relied in concluding, contrary to the wording of the contract, that the contribution at issue has to be repaid before share capital. In its reply, the applicant states that, in so far as claims of creditors who have invested core capital are settled in the chronological order of their contributions in accordance with clauses 3(2) and 9 of the contract, the Land was required to proceed on the basis that its claim would be settled only after all others in the event of Helaba’s insolvency or liquidation, not only after those of all ‘normal’ creditors, but also after those of all investors in core capital and thus also after those of investors in share capital.

105 In that regard, it must be noted that the contract does not expressly provide that the contribution at issue must be repaid after share capital and, moreover, that the reference to ‘other investors within the meaning of Paragraph 10 of the [Kreditwesengesetz]’ in the first sentence of clause 3(2) of the contract creates a problem of interpretation in relation to whether the priority of claims on capital injected earlier also covers contributions of share capital.

106 It must be observed that, although the applicant states in certain passages in its pleadings that the contract provides for the contribution at issue to be repaid after share capital, the applicant also states in its application that the question whether the supplementary rule – under which silent partnership contributions must be repaid before share capital – is applicable to the contribution at issue remains open. Moreover, in spite of the fact that the expert report mentioned by the Commission was sent to the applicant at the Court’s request, the applicant did not put forward any arguments to challenge the interpretation of the author of the expert report, according to which the reference to ‘other investors within the meaning of Paragraph 10 of the [Kreditwesengesetz]’ in the first sentence of clause 3(2) of the contract had to be understood in the light of the second and third sentences of that provision, which relate to silent partnership contributions and participation rights, not to share capital.

107 In those circumstances, it must be held that it cannot be concluded from the applicant’s arguments that the Commission made a manifest error of assessment in taking the view, in the light of the expert report provided by the Federal Republic of Germany, that the contribution at issue had to be repaid before share capital in the event of insolvency or liquidation. The mere fact that the applicant interprets the contract differently than the expert report, the Commission and the parties to the contribution at issue is not sufficient to prove that there has been a manifest error of assessment.

108 The applicant submits, second, that, although the contribution at issue had to be repaid before share capital, the risk of loss would be similar to that of share capital since, in practice, lower-ranking creditors and investors receive nothing in an insolvency.

109 Suffice it to note in that regard that, even on the assumption that every case of insolvency in the banking sector involves both owners and lower-ranking creditors losing all their capital, which the Commission and the interveners deny, this feature is common to all silent partnership contributions recognised as core capital, since they are all, necessarily, lower-ranking claims. As a result, while this may be a feature that the contribution at issue has in common with share capital, it does not distinguish the contribution at issue from silent partnership contributions recognised as core capital.

110 In those circumstances, it must be held that the applicant’s arguments do not support a finding that the Commission made a manifest error of assessment in concluding that the contribution at issue represented the same risk as silent partnerships in the event of insolvency or liquidation.

– Profitability profile

111 The Commission took the view that the contribution at issue was a normal silent partnership in that, like an investor in a time-limited silent partnership, the Land receives the entire agreed remuneration so long as the undertaking is not making a loss, whereas the investor in share capital can claim only payment of a dividend that is in proportion to profits (recital 132 to the contested decision).

112 The applicant objects to that assessment and submits that both fixed and variable remuneration can be used for share capital and for silent partnerships, and that each can prove to be as advantageous as the other, depending on the bank’s results. It observes in that regard that, in the WestLB case, the Commission compared the transaction concerned with share capital, in spite of the fact that the remuneration in question was fixed. It adds that, in any event, from the investor’s point of view, the main question is whether payment of the remuneration depends on profits being made. It considers that to be the case in this instance, since the Land receives the whole of its remuneration only if Helaba’s profits are at least equal to the remuneration and if no refinancing is necessary for that purpose.

113 As regards, in the first place, the fixed or variable nature of the remuneration, it must be held as a preliminary point that it is not a question in this instance of which is the more advantageous in a specific situation, but of determining whether the Commission made a manifest error of assessment in concluding that the fact that the remuneration agreed between the parties is fixed, and must be paid, in principle, as soon as Helaba is not making a loss, means the contribution at issue has more in common with time-limited silent partnerships than with share capital because that method of remuneration is appropriate to silent partnership contributions.

114 In that regard Helaba contends, pertinently, that, even where there is provision for fixed remuneration for share capital, the actual profits which the bank’s owners make from their investment are always variable. In so far as profits exceeding the fixed remuneration paid will be applied towards increasing the bank’s reserves which have to be distributed in the event of liquidation or which have a positive influence on share values, the profits of an investor in share capital will exceed the remuneration he received. That being the case, the final amount cannot be stipulated in advance, which thus means that the final remuneration for the investment is variable.

115 Helaba also states, without contradiction by the applicant, that, according to the study of hybrid core capital lodged by the applicant itself, the best core capital is that which takes the form of share capital, since that alone does not give rise, inter alia, to fixed payment obligations.

116 It follows from this that, while that may not always be the case, it is common for silent partnerships to be remunerated on a fixed basis and capital by means of variable dividends. In any event, while it is mandatory for the remuneration for silent partnerships to be paid as soon as the contractual conditions laid down are satisfied, the owners can use the profits in various ways, such as adding them to the reserves or distributing profits, depending, as a rule, on the will of the majority.

117 That conclusion is not affected by the applicant’s argument relating to the 1999 WestLB decision. It must be borne in mind that that decision was annulled by the Court in WestLB, cited in paragraph 7 above. Moreover, in so far as the applicant’s argument could be understood as referring to the 2004 WestLB decision, the fact that the Commission took the view that the remuneration of capital transferred in the transaction at issue should be compared to the remuneration of share capital does not mean that the profitability profile of that transaction is appropriate to share capital, but simply that, in the context of the examination of the transaction as a whole, other factors are strongly in favour of such a comparison. The Commission had, in particular, mentioned that the capital transferred was regarded as core capital whereas the instruments which the Federal Republic of Germany suggested should be used for comparison purposes could be used in Germany only as additional own funds.

118 As regards, in the second place, the applicant’s argument that, both in the case of the contribution at issue and in that of share capital, the remuneration depends on the existence of profits, it must be held that the fact that payment of the remuneration, even if fixed, is subject to the bank not recording an annual deficit and to such payment not giving rise to such a deficit is common to all silent partnerships recognised as core capital, since this is required under Paragraph 10(4) of the German Law on credit institutions (Kreditwesengesetz). Consequently, that aspect is unlikely to demonstrate that the Commission made a manifest error of assessment in taking the view that the contribution at issue bore similarities to silent partnerships recognised as core capital which already existed on the market.

119 Moreover, it must be held that the amount of profits required in order for the remuneration of the contribution at issue, or other silent partnership contributions, to be payable is less than that required in order for the bank’s owners to receive a dividend. The remuneration of silent partnership contributions constitutes, according to German legislation, an operating expense which is therefore paid before tax and before the distribution of profits. It follows from this that, for investors to receive their full remuneration, the bank only needs to achieve an annual surplus before tax equal to the remuneration for contributions. By contrast, in order for the owners to receive the same amount in the form of dividends, the bank would, as a rule, have to achieve an annual surplus before tax equal to the sum of the remuneration for silent contributions, tax and that dividend.

120 The applicant’s argument, put forward in reply to a question put by the Court at the hearing, according to which that feature does not really distinguish the contribution at issue and silent partnerships negotiated on the market from share capital, since the owners can show distributable profits even in the case of annual losses – in particular by reducing reserves – contradicts its argument that the conditions of payment of the remuneration for the contribution at issue are such that it has more in common with share capital than with silent partnerships issued on the market. Whereas payment of remuneration for silent partnerships requires an annual surplus, payment of dividends can proceed even in the case of annual losses, by showing a distributable profit.

121 In addition, while payment of the remuneration for silent partnerships is mandatory once the conditions laid down in the contract are satisfied, payment of dividends at the end of a financial year in which there have been annual losses does not follow automatically but requires the approval of the majority of shareholders. Moreover, as the applicant acknowledged at the hearing in reply to a question put by the Court, it would damage a bank’s reputation and the prospects of success of future issues if the bank paid dividends after incurring annual losses and failing to pay the remuneration for silent partnership contributions.

122 In those circumstances, it must be concluded that the applicant has not demonstrated that the Commission made a manifest error of assessment in taking the view that the profitability profile of the contribution at issue was characteristic of silent partnership contributions.

The characteristics of the contribution at issue which the Commission regarded as not precluding a comparison of remuneration for the contribution at issue with the remuneration for time-limited silent partnership contributions

123 The Commission rejected the applicant’s arguments in relation to the volume of the contribution at issue, the share of Helaba’s core capital that it represents and its perpetuity.

– Volume

124 The Commission took the view that the large overall volume of the contribution at issue did not necessarily mean that it had to be classified as share capital. It referred in that regard to the fact that, as a result of the phased model, between 1999 and 2002 Helaba was able to use only part of the funds transferred to underpin its competitive business. Furthermore, it rejected the comparison with the WestLB case on the ground that, in that case, the large volume of the capital injection was only one of several indicia of its equivalence to share capital. It states in that regard that it also took into account, inter alia, the fact that the funds were exposed to the full risk of loss in the event of insolvency or liquidation and the fact that there was not yet a developed market in hybrid core capital instruments in Germany (recital 133 to the contested decision).

125 The applicant submits that it is appropriate, from the investor’s point of view, to distinguish two aspects – the total amount of the issue and the size of the share attributable to each investor. It criticises the Commission for having failed to make that distinction.

126 As regards, in the first place, the total amount of the issue, the applicant begins by disputing the grounds put forward by the Commission for taking the view that, even though the large volume of the issue was taken into account in the WestLB case as evidence of a similarity to share capital, the large volume of the contribution at issue did not warrant such classification in this instance. Accordingly, it observes that, in its view, the contribution at issue participates, economically, in the full risk of loss in the event of insolvency or liquidation, and submits that a capital market on which a private investor would have made an investment in Helaba such as the contribution at issue never existed in 1998 or afterwards. It submits that both the Commission in the 1999 WestLB decision, and the Court in its WestLB judgment, cited in paragraph 7 above, attached considerable importance to the high volume of the contribution of funds when classifying the transaction. The applicant takes the view that the fact that the volume of the contribution at issue is particularly high and, therefore, of considerable importance in the present case, is confirmed by the comparison with the transactions mentioned by the Commission in recital 164 to the contested decision, but also by the fact that the contribution at issue accounts for 25% of the total European volume of hybrid core capital instruments in 1998.

127 Second, according to the applicant, the Commission’s reasons in relation to the phased model cannot be accepted since a private investor would not have accepted it, and it is wrong to conclude that this arrangement amounts to five smaller contributions since the entire contribution at issue was immediately recognised as core capital of Helaba and, moreover, in the case of contributions paid at different times, the conditions of each contribution would be different whereas, in the present case, the entire contribution is subject to the same conditions.

128 So far as, first of all, the comparison with the WestLB case is concerned, it should be borne in mind that the 1999 WestLB decision on which the applicant relies was annulled by the Court. Furthermore, while it is true that, in its 2004 WestLB decision – adopted following that annulment and referred to in recital 133 to the contested decision – the Commission took account of the large volume of capital transferred in treating the transfer at issue in that case as share capital, it did not rely on the overall volume of the transaction but on the part of WestLB’s own funds which the capital concerned represented as well as, definitively, on the fact that, when that transaction was carried out, hybrid core capital instruments constituted no more than 20% of core capital, were not regarded as core capital in Germany and were not all issued for unlimited duration (recitals 204, 206, 208 and 209 to the 2004 WestLB decision).

129 By contrast, so far as the contribution at issue is concerned, the amount of that contribution (EUR 1.264 billion), albeit higher than that of the transactions used by the Commission for comparison purposes, is still far removed from the volume of the transaction at issue in the WestLB case (EUR 3.02 billion shown on the balance sheet, of which EUR 2.05 billion was recognised as original own funds) (recitals 54 and 71 to the 2004 WestLB decision). Furthermore, as the Commission points out, the contribution at issue was granted at the end of 1998, whereas the contribution in the WestLB case dated back to 1991. There is no dispute about the fact that, at the end of 1998, hybrid core capital instruments could already be regarded, according to German legislation, as original own funds and not only as additional equity, could be issued for an indefinite period and, by satisfying the requirements of the Sydney Declaration, could represent a significant part of a bank’s core capital.

130 The applicant’s argument that, in its WestLB judgment, cited in paragraph 7 above, the Court attached considerable significance to the criterion of the volume of the investment must also be rejected. The Court held in that judgment that the Commission had explained why it took the view that the differences between the hybrid core capital instruments and the transaction at issue were such that a comparison of that transaction with those instruments was of only limited value, and stated that, in particular, the Commission had drawn attention to the fact that the hybrid core capital instruments to which the applicants in that case referred generally constituted only a small part of the own funds of a bank, unlike the funds transferred to WestLB. The Court thus confined itself to ascertaining that the Commission’s reasoning in that case was not vitiated by a manifest error of assessment, without confirming that the criterion of the large volume of funds transferred was always conclusive. Moreover, it observed that the Commission had a wide margin of assessment in making that determination (WestLB, cited in paragraph 7 above, paragraphs 350 and 351).

131 Next, as regards the reasons put forward by the Commission to the effect that, in consequence of the phased model, between 1999 and 2002 Helaba was able to use only part of the funds transferred to underpin its competitive business, it has been held in paragraphs 58 to 73 above that the Commission did not make a manifest error of assessment in accepting that phased model. Furthermore, while it is true, as the applicant points out, that the entire contribution was shown on Helaba’s balance sheet from the date of the contribution, the fact remains that the part in excess of the annual tranches provided for by the phased model, like the part which was required to underpin housing promotion activities, was regarded by the Commission as fulfilling merely a liability function, not the expansion of its competitive business, and that, as a result, its remuneration was fixed by reference to the remuneration which a private investor would require for a guarantee, instead of by reference to the remuneration which such an investor would require for a silent partnership contribution enabling the bank to expand its competitive business. Given that the silent partnership contributions facilitate an immediate expansion of competitive business, the Commission was entitled to take the view – without making a manifest error of assessment – that, taking the phased model into account, the contribution at issue was not equivalent to a silent partnership contribution of EUR 1.2 billion enabling Helaba to expand its business immediately, but to a series of five silent partnership contributions of between EUR 180 million and EUR 380 million.

132 That conclusion is not affected by the applicant’s argument that, where contributions are paid at different times, the conditions of each contribution differ, whereas the contribution at issue is subject to the same conditions. It must be noted that the applicant does not explain why the conditions applicable to five successive contributions would necessarily differ.

133 As regards, in the second place, the part of the issue attributable to each investor, the applicant maintains that the fact that the issue was not shared between a certain number of investors but was taken up by a single investor is also unusual. It states in that regard that the risk run by an investor increases gradually with the size of the capital contributed both in absolute terms and in comparison with the risk run by other operators making smaller investments. The applicant takes the view that, under those circumstances, the contribution at issue which was made by a single investor is similar to an investment in share capital.

134 In that regard, suffice it to note that the applicant does not put forward any evidence at all from which it might be concluded that it is common for the remuneration of an investor subscribing to part of a silent partnership contribution to vary according to the size of that part in the issue as a whole, and therefore that investors who subscribe to larger volumes are more highly remunerated than others. In addition, in the transactions which the Commission used for comparison purposes in the contested decision, reference is made only to a remuneration rate, and there is nothing to suggest that investors who invested more received a higher remuneration. Furthermore, the applicant does not explain how the increase in the risk run by the Land as a result of its wish not to split the special fund makes its investment similar to an investment in the share capital of a bank, since the latter investment is not necessarily distinguished by its size and a shareholder can subscribe to an amount that is smaller both in absolute terms and in comparison with total capital.

135 In those circumstances, it cannot be concluded from the applicant’s arguments that the Commission made a manifest error of assessment in finding that the volume of the contribution at issue did not preclude the view that that contribution had more in common with silent partnership contributions issued on the market than with share capital.

– Share capital buffer

136 The Commission took the view that the reduced share capital buffer was not such that it could rule out a private investor having made a similar investment – in the form of a silent partnership contribution – to the contribution at issue. It relied in that regard on the fact that the Landesbanken use silent partnership contributions to a greater extent than private banks since, as institutions governed by public law, they cannot raise share capital on the financial markets. It stated that investors, including some private investors, were more inclined to accept a smaller share capital buffer in the case of the Landesbanken because of their reduced risk structure (recital 134 to the contested decision).

137 The applicant submits that, although the Commission raises the fact that the share capital buffer is smaller in the present case than in that of private banks, it disregards the fact that the contribution at issue has four characteristics which give it a special liability quality and which make it appear to be a means – in common with share capital – of guaranteeing Helaba’s capital base permanently. It objects, moreover, to the Commission’s assessment that the reduced nature of the share capital buffer did not enable it to rule out a private investor making an investment comparable to the contribution at issue in the form of a silent partnership contribution.

138 As regards, on the one hand, the four characteristics of the contribution at issue which give it a special liability quality, first, the applicant mentions the fact that it represents an abnormally high proportion of Helaba’s core capital, namely 40%. Second, it notes that this high proportion of Helaba’s core capital was taken up by a single investor whereas, in the silent partnership contributions used by the Commission for comparison purposes, no individual investor had more than 1%. The share capital buffer for the investor is thus 99% in the case of the silent partnership contributions used for comparison purposes and 60% in the case of the contribution at issue. Third, it emphasises that the whole of that contribution was deemed to be core capital and not merely equity capital. Fourth, it notes that the entire contribution was deemed to constitute core capital of Helaba and not just of the group to which Helaba belongs, thus giving Helaba greater flexibility regarding its use, with the result that a private investor would have required a premium on his remuneration.

139 In that regard it must be held, first of all, that the contribution at issue in itself represents a really very significant proportion of Helaba’s core capital whereas, according to the Sydney Declaration, time-limited silent partnerships may account for no more than 15% of core capital. There is, without question, a difference between the contribution at issue and time-limited silent partnership contributions.

140 Next, as regards the fact that the contribution at issue was taken up by a single investor who, as a result, holds 40% of Helaba’s equity capital, it must be held that, in economic terms, that fact cannot transform a silent contribution into share capital, in just the same way as the fact that an investor holds a minute proportion of the share capital does not make his investment any less of a share capital investment.

141 Admittedly, the equity share held by an investor determines the level of his exposure to risk, but it does not affect the nature of that risk or the classification of investments in economic terms. Thus, the essential characteristics distinguishing silent partnership contributions from share capital – their ranking in the event of insolvency or liquidation, conditions of payment of remuneration and the advantages or disadvantages to the bank associated with the use of one or the other approach – remain the same, irrespective of the size of the individual investment.

142 As to the fact that the contribution at issue was deemed to form part of the core capital of Helaba rather than of its group, it must be noted that the Commission and the interveners did not deny that this was in fact a particular feature of the contribution at issue. However, the fact – referred to by the applicant – that that classification gives Helaba greater flexibility in its use of the capital does nothing to increase the risk profile of the contribution at issue in comparison with silent partnership contributions or to make it similar to share capital.

143 Lastly, as regards the fact that the entire contribution at issue was regarded as core capital, the applicant merely mentions that feature without developing the argument. In so far as that feature is a product of the fact that the contribution at issue was devised as a ‘perpetual’ without a step-up provision, reference must be made to the findings of the Court in relation to the permanent nature of the contribution at issue (see paragraphs 150 to 154 below).

144 As regards, on the other hand, the Commission’s assessment that the reduced share capital buffer was not such that it could rule out the possibility of a private institutional investor having made a similar investment – in the form of a silent partnership contribution – to the contribution at issue, the applicant maintains that the fact that the Landesbanken are more likely to resort to silent partnerships does not mean that investors will forgo appropriate remuneration. It adds that those silent partnerships were, in any event, taken up by their owners, public investors, not by private investors and, therefore, they could not be referred to by the Commission for comparison purposes. Concerning the Commission’s assertion that investors would be more inclined to accept a smaller share capital buffer in the case of the Landesbanken because of their reduced risk structure, the applicant submits that the comparison between the rating of the Landesbanken and that of private banks shows that the risk structure of the Landesbanken is not reduced.

145 It must be noted that, as the applicant indicates, it is not a question of whether the contribution at issue could be issued on the market in spite of a share capital buffer of only 60%, but whether that factor means that the contribution at issue has more in common, so far as its risk profile is concerned, with time-limited silent partnership contributions or with share capital and requires a higher level of remuneration.

146 In that regard, it is apparent from the documents before the court that, prior to the Sydney Declaration, silent partnership contributions represented only a small proportion of banks’ core capital. It is only as a result of that declaration, in October 1998, that clarification was provided as to the fact that hybrid core capital instruments could be recognised as core capital beyond t