99/288/EC: Commission Decision of 29 July 1998 giving conditional approval to the aid granted by Italy to Banco di Napoli (notified under document number C(1998) 2495) (Only the Italian text is authentic) (Text with EEA relevance)
Date: 1998-07-29
Institutions: European Commission
Subjects: Italy, State aid, aid for restructuring, bank, closing of accounts, privatisation

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Official Journal of the European Communities

4.5.1999

COMMISSION DECISION

of 29 July 1998

giving conditional approval to the aid granted by Italy to Banco di Napoli

(notified under document number C(1998) 2495)

(Only the Italian text is authentic)

(Text with EEA relevance)

(1999/288/EC)

THE COMMISSION OF THE EUROPEAN
COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular Articles 92 and 93
thereof,

Having regard to the Agreement on the European
Economic Area, and in particular Articles 61 and 62
thereof,

Having,
Articles, given interested parties
submit their comments (1),

in accordance with the abovementioned
formal notice to

Whereas:

1. Introduction

is a former public monetary
Banco di Napoli
institution. When Law No 218 of 30 July 1990 (the
(cid:28)Amato’ Law) was adopted with its implementing
decrees, the Bank’s banking activities were entrusted
to a joint stock company separated from the former
public body, and its social security activities were
entrusted to a transferring body (Foundation) which
holds the capital of the banking company. Before the
aid in question, the Foundation held 48,1 % of the
equity of Banco di Napoli and 71,2 % of its voting
rights. The Treasury held 9,1 % of the capital, which
represents 13,5 % of
rights. The other
shareholders had 10,3 % of the capital, representing
15,3 % of the voting rights. The remaining capital
(32,4 %) took the form of savings’ shares, without
voting rights, quoted on the stock market.

voting

(1) OJ C 328, 1.11.1996, p. 23.

two

directly,

controlled

The Banco di Napoli group, composed of Banco di
Napoli SpA at the head, a sub-holding company, 11
companies
companies
controlled indirectly and 16 other major direct or
indirect holdings, was present at the end of 1994
throughout the national territory, with 810 branches,
of which 684 were located in the south and 126 in
In addition to that
central and northern Italy.
network, it was present abroad, with main subsidiaries
in France, Luxembourg, Germany, Great Britain,
Spain, United States of America and Hong Kong. The
group’s activities cover various areas of
financial
intermediation and credit, movable and immovable
property activities, factoring, leasing, management of
trust funds and unit trusts, merchant banking and
insurance. At
the end of 1993, Banco di Napoli
ranked seventh in Italy in terms of total balance sheet
(total consolidated assets of ITL 126 000 billion), with
a capital-debt ratio (9,3 %) above the minimum of
8 % but with a low profitability (profits for the
financial year to net assets ratio of 3,8 %).

(hereinafter (cid:28)the Bank’)

Banco di Napoli
incurred
particularly severe losses in 1994 and 1995 of ITL
1 147 billion and ITL 3 155 billion respectively, which
virtually wiped out its assets and made it impossible to
comply with the prudential ratios laid down by the
rules on credit.

The reasons for such extensive losses are many. For a
long time the major reference point for local bodies,
the Bank launched a particularly active policy of
expansion at the beginning of the 1990s, focusing on
to the large
its network of branches and loans
industrial groups of northern Italy and small and
medium-sized enterprises in the south, at a time when
the economy had already entered into a recession. The
difficulties experienced by debtors,
together with
unsuitable credit selection methods and inadequate
risk control procedures, led to serious losses on loans.
The Bank’s public status delayed its adjustment to an
increasingly competitive environment and the adoption
of the measures necessary to increase its technical

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efficiency and its organisation. Staff
expenditure
continued to be particularly high, exceeding the
national average. Acquisition and asset management
policy was haphazard as it was not based on criteria
of profitability, while the risks faced by firms in which
it had invested were being insufficiently monitored by
the head of
the group. The overall management
control system, consisting of rules and bodies that are
relevant
financing and supervision of a
company ((cid:28)corporate governance’), proved inadequate.

to the

the autumn of 1996, bids were invited for 60 % of the
Bank’s equity. The procedure ended at the beginning
of January 1997 with the acquisition of a 60 %
holding in the Bank by a company, in turn owned as
to 51 % by Istituto nazionale per le assicurazioni
(INA) and as to 49 % by Banca Nazionale del Lavoro
(BNL). In the meantime, the Italian authorities had
decided to increase the Bank’s capital before the end
of 1996 in order to prevent it being wound up.

proportion

non-performing

The further deterioration in the Bank’s results, chiefly
due to an increase in loan defaults, together with an
imbalance between earnings and charges and an
increasing
assets,
of
compelled the Bank to have continual recourse to the
inter-bank market, which increased the
cost of
resources
profitability. The
diminished
financing difficulties led to a liquidity crisis which was
resolved by means of a debenture loan of
ITL
2 365 billion granted in January 1996 by Cassa dei
Depositi e Prestiti and other banks.

and

its

On 27 March 1996, the Italian Government approved
as a matter of urgency a decree-law on the reform,
restructuring and privatisation of Banco di Napoli SpA
(Decree-Law No 163 of 27 March 1996). By decision
of 30 July 1996, notified to the Italian authorities by
letter of 12 August 1996, the Commission initiated the
procedure under Article 93(2) of the Treaty in respect
of various measures in the decree,
in particular the
recapitalisation of ITL 2 000 billion by the Treasury,
the advances from Banca d’Italia under the Ministerial
Decree of 27 September 1974 and the tax concessions.

No comments were received by the Commission from
this procedure
other interested parties as part of
within the period specified.

2. Description of the public measures to assist Banco

di Napoli

in its

initiation of

Following a preliminary examination of the case, the
this
Commission concluded,
procedure, that some of the measures provided for in
Decree-Law No 293 of 27 May 1996, which replaced
and amended Decree-Law No 163 of 27 March 1996,
were likely to contain elements of State aid within the
meaning of Article 92(1) of the EC Treaty and could
not, at that stage and on the basis of the information
available at the time, be regarded as compatible with
the common market. In particular, the Commission
asked for further clarification concerning the following
aid measures:

At the same time, however, the Commission decided
that other measures to assist
the Bank could be
implemented as either they did non constitute aid, e.g.
the debenture loan of ITL 2 365 billion granted by
Cassa dei Depositi e Prestiti and other public and
private credit institutions in January 1996, and the
capital injected under the (cid:28)Amato’ Law, or they took
the form of a measure which comprised aid, namely
the possibility of releasing the mandatory reserve
deposited by the Bank with Banca d’Italia, but could
be regarded as compatible under the guidelines on
rescue and restructuring aid, despite the unlawful
nature of such aid due to the fact that it was not
notified.

(1) Treasury contributions to increases in the Bank’s
capital totalling ITL 2 000 billion, in accordance
with the
in the
abovementioned decree;

commitments provided for

(2)

the possibility for Banca d’Italia to grant
the
Bank, in order to facilitate the restructuring of the
group, advances under the Treasury Decree of
27 September 1974 to cover losses resulting from
financing and other measures taken by the Bank
to assist group companies being wound up and in
the interests of creditors of the latter;

The Italian authorities
subsequently informed the
Commission that a new decree-law had been approved
which amended the preceding decree in order to
facilitate and assist the privatisation of the Bank. In

(3)

tax measures relating to the registration fee (fixed
at a flat rate of ITL 1 million) for acts relating to
transfers of enterprises, branches of enterprises,
assets and legal
established by
members of the group before 30 June 1997.

relationships

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Amendments were then made to the abovementioned
decree in order to speed up the restructuring, recovery
and privatisation of the Bank (Decree-Law No 396/96).
In particular, the Italian authorities made provision for
the possibility of setting up a hive-off structure with
the task of managing, liquidating and deconsolidating
some ITL 12 400 billion of the Bank’s less performing
assets. They
an accelerated
also provided for
procedure for disposing of 60 % of the Bank’s capital
by invitation to tender, the procedures for which are
provided for in the Treasury Decree of 14 October
1996. The specific measures are described below.

2.1. Treasury participation in the Banco di Napoli

capital increase

for

the

and

588

converted

into Law No

Decree-Law No 163 of 27 March 1996, as last
amended (2) by Decree-Law No 497 of 24 September
1996,
of
19 November 1996, provides for a series of financial
measures
and
reform,
privatisation of the Bank. In particular, provision is
made for Treasury contributions to one or several
totalling ITL
capital
to a
2 000 billion. The contributions are subject
Italian
number of
authorities as a guarantee of the commercial nature of
the State measure.

to the Bank,

contributions

imposed by

restructuring

conditions

the

investors or

First, Treasury funds may not be contributed unless
they are accompanied by funds from one or several
an
institutional
and other
banks
undertaking given by the
they will
participate in the bidding procedure for the controlling
interest in the Bank amounting to 60 % of the capital.
This allowed the Treasury to proceed with the capital
increase after receiving preliminary offers from the
banks and thus being certain of finding a purchaser
for the Bank.

latter

that

Secondly, the Treasury funding was not granted until
the equity had been adjusted on the basis of an

(2) See Decree-Laws No 293 of 27 May 1996, No 394 of

26 July 1996 and No 497 of 24 September 1996.

of

the

that

contribution

assessment of the Bank’s assets on 31 March 1996.
The reason for this condition was the need to base the
Treasury
new
and
shareholders on a more recent picture of the Bank’s
assets. The writing-off of losses at the end of the first
quarter of 1996 involved a reduction in net assets
from ITL 3 867 billion to ITL 422 billion and in
equity from ITL 1 111 billion to ITL 128 billion. The
losses in the second quarter, totalling ITL 389 billion,
were carried forward to the end of the year. The
decision not to incorporate the first six months’ losses
in the half-yearly accounts was based on two reasons:
on the one hand, the need to maintain a minimum
to avoid the statutory
level of capital
obligation to wind up the Bank; on the other hand,
the need for the Treasury, as a minority shareholder of
the Bank,
to obtain from the Foundation, as the
majority shareholder, a mandate to manage its shares
with a view to the successful sale of the Bank. Thus,
the transaction was subject
to the transfer to the
Treasury, as a guarantee, of the voting shares in the
Bank
(the
the majority
Foundation), or to the granting to the Treasury of an
open mandate to exercise the voting right attached to
the shares in question in order to give it a majority of
voting rights
in the meetings which would have
decided on the capital increases and renewal of the
social organs of the Bank.

shareholder

in order

held

by

Thirdly, the decree provided that the administrative
bodies of the Bank must adopt no later than 30 June
1996, an appropriate restructuring plan, which must
be drawn up with the assistance of an expert
appointed by the Treasury, submitted for approval by
Banca d’Italia and comply with Community law. The
main points of the plan, drawn up with the assistance
of the merchant banker Rothschild, were notified to
the Commission on 4 July 1996. An amendment to the
plan, involving the setting-up of a hive-off structure,
was notified to the Commission on 6 December 1996.

Fourthly, Treasury funds were to be granted on
condition that trade union agreements were concluded
on reducing labour costs by 31 December 1997, in
particular by levelling down the unit cost including
social security costs to the average for the banking
sector. The agreements were concluded between 19
and 22 July 1996. As regards the additional pension
costs borne by the Bank, the equalisation mechanisms
were suspended until an adequate level of profitability
was achieved and, in any event, not before 2000. In
addition,
to
some 800 persons.

the Bank could offer early retirement

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2.2. The advances granted by Banca d’Italia under the

Ministerial Decree of 27 September 1974

In order to facilitate the restructuring of the group,
Article 3(6) of Law No 588/96 enables Banca d’Italia
to grant the Bank advances, in accordance with the
procedures in the Treasury Decree of 27 September
1974, to offset the losses incurred by the Bank from
loans granted to group companies being wound up
and other funding granted to the latter and to their
creditors, as well as to other group companies which
received, after authorisation from Banca d’Italia, loans
and other non-property assets of
the Bank. The
Treasury Decree of 27 September 1974 provides that
the Banca d’Italia may grant 24-month advances at
1 % on long-term Treasury bonds to banks which,
acting by surrogation on behalf of depositors of other
banks in compulsory liquidation, are required to write
off bad debts. Banca d’Italia determines the amount of
the advances on the basis of the extent of the losses
and the write-off requirements.

the possibility of using the advances

Initially,
in
question was limited to any losses which may have
arisen in connection with the winding-up of Isveimer.
Later, this possibility was extended to losses relating
to assets of the Bank transferred to a specific hive-off
structure as regards the part not covered by the
proceeds from the sale of the Bank’s assets.

2.2.1. The winding-up of Isveimer

On 3 April 1996 Isveimer, in which the Bank had a
65 % holding, entered into voluntary liquidation and
the Bank’s stake in its capital was reduced from ITL
402 billion (at the end of 1994) to ITL 1. In the
course of the winding-up, the liquidators will be able
to reimburse Isveimer’s creditors on the due dates
thanks to the liquidities provided by the Bank. The
advances
intended to
compensate the Bank for the losses incurred by it as a
result of the loans granted to Isveimer to enable the
latter to repay its creditors. The intention is to protect
fully the interests of Isveimer’s creditors. The financing
is limited to the negative result of the winding-up

from Banca d’Italia

are

procedure, in so far as Isveimer’s assets do not cover
the value of
its commitments. The transaction is
intended to prevent tension and the undesirable effects
this can entail
in
particular, of the extent of the involvement of foreign
financial institutions in Isveimer.

financial markets

in view,

for

2.2.2. The hive-off vehicle

The hive-off operation enabled the Bank to separate
itself from its balance sheet and to transfer a number
of less-performing assets to an ad hoc structure. The
hive-off structure is composed of SGA (Societa` per la
gestione di attivita` SpA) (SGA), which acquired the
non-performing assets (loan defaults, doubtful loans in
excess of ITL 100 million, claims restructured or in
the process of being restructured) and eight of the
Bank’s holdings, with the exception of property assets,
for a total of ITL 12 378 billion. The assets were
acquired at net book value on 30 June 1996, i.e. after
provisioning for estimated losses on those assets,
which reduces the risk of future losses on the same
assets. As regards the holdings transferred, the largest
of which is in Banco di Napoli International (BNI),
the Bank’s Luxembourg branch, those quoted on the
stock exchange were valued at market rates, the others
by the net assets method. The BNI was valued on the
basis of a recent audit by the specialised firm KPMG
using a mixed assets/income method.

in June was sufficient

The purpose of the operation was to avoid the risk of
future losses on those assets and thus facilitate the
the Bank. Although in principle the
early sale of
provisioning carried out
to
reduce estimated future losses on the assets to zero, it
is possible that in future it will be necessary to adjust
the book value of the assets to their actual value. The
transaction also makes it possible to remove from the
Bank’s balance sheet assets which would normally, like
any other asset, require provisioning in accordance
with the rules on solvency. In this way it was possible
to minimise the amount of capital injected by the State
in order to strengthen the solvency ratio.

The following table shows the values of the hived-off
assets.

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Table 1a

arithmetical mean of
preceding year:

the following rates

for

the

Value of the assets transferred to SGA

Commitments

(billion ITL)

— average yearly yield of the 3-month Treasury bills

(average of the 24 auctions a year),

Gross value

Provisioning
rate

Net value

Short-term liabilities

3 670

49,7 %

1 845

Medium-/long-term
liabilities

Sub-total

Doubtful loans (1)

Restructured loans

Assets related to
developing countries

Shareholdings (2)

3 953

7 623

6 677

1 411

839

292

28,3 %

38,6 %

17,1 %

10,3 %

28,1 %

0,0 %

2 835

4 680

5 537

1 266

603

292

— 90-day inter-bank offered rate (average of the day’s

rates),

— average yearly yield prime rate ABI (Associazione
Bancaria Italiana) (average of the day’s rates).

Total

16 839

26,5 %

12 378

The following table shows projections based on
objective estimates of the abovementioned rates.

(1) Provisioning for bad debt consists of ITL 936 billion in capital
and ITL 200 billion in default interest, the amount being subject
to change.

(2) These concern eight companies, the largest of which is the Bank’s

subsidiary in Luxembourg, BNI.

In addition,
appropriations:

there are the following commitment

Table 1b

Value of assets transferred to SGA
Off-balance-sheet commitments

Gross
value
(billion
ITL)

27

195

53

275

Provisioni-
ng rate
(%)

Net value
(billion
ITL)

25,9

3,1

0,0

4,7

20

189

53

262

Liabilities

Doubtful loans

Restructured claims

Total

The hive-off vehicle will be financed with a loan
granted by the Bank equal to the value of the assets
transferred. The loan will be repaid as and when the
interest
hived-off assets are
applicable to the loan is based on the principle that
the Bank must neither benefit nor incur losses in
relation to its position prior to the hive-off. It was
therefore decided to use a compound rate based on the

sold. The

rate of

Table 2

Interest rates on the Bank’s loan to SGA

1997

1998

1999

2000

Average 3-month
Treasury bills

Average 90-day rate

Average prime rate

Total

8,6

8,8

11,0

9,4

6,5

6,7

8,7

7,3

5,6

5,6

7,5

6,2

5,4

5,2

6,9

5,8

Source: Data provided by the Bank on the basis of forecasts by

Prometeia and ABI Financial Outlook.

The hive-off vehicle is expected to operate for five
years. The Bank may not repurchase hived-off assets.
To avoid conflicts of interest in the management of the
hived-off assets, specific measures were provided for.
the hive-off vehicle would be managed by
First,
persons not
related to the Bank. Second, asset
management would be based on the principle of (cid:28)the
Bank proposes and the vehicle decides’. To that end, a
specific structure would be set up under the general
management of the Bank, which would be separate
the Bank in order to deal with
from the rest of
relations with SGA and the Bank’s
subsidiaries
entrusted by the SGA with the task of managing the
assets. The administrative and accounting separation
between the Bank and SGA will be guaranteed by the
adoption of a specific electronic accounting system
that is separate from the Bank’s internal accounting
system.

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2.3. Tax concessions

risks of such a transaction are too great or are
spread over too long a period;

is

fully

applicable only

Article 3(7) of the Law provides that the registration
fee will be replaced by a flat-rate tax of ITL 1 million
for acts concluded by 30 June 1997 in connection
with transfers of enterprises, branches of enterprises,
assets and legal relationships established by members
of the Bank’s group. The Italian authorities stated that
the measure
to debt
assignments to third parties and transfers of branches.
The tax concessions granted under this heading in
1996 amounted to under ITL 6 billion in respect of
debt buy-backs totalling ITL 1 154 billion, and ITL
21 billion for the sale of 50 branches. An additional
tax concession of some ITL 10 billion is provided for
in respect of the sale of an additional 27 branches. All
in all, tax relief will total some ITL 36 billion gross.
After deduction of
the benefit
resulting from the transactions totals ITL 17 billion.

corporation tax,

3. Assessment of the aid content of the measures to

assist Banco di Napoli

3.1. The capital increase

In order to assess assistance granted by the State, the
Commission usually applies
the (cid:28)market economy
investor principle’ as described in its communication
on public undertakings (3). The communication states
that there is State aid if a private investor operating
under normal market economy conditions would not
have undertaken the transaction. As regards public
holdings in the capital of a firm, the Commission
communication of 1984 (4) states that there is State aid
where capital
is contributed in circumstances that
would not be acceptable to a private investor in the
following cases:

(a) where the financial position of the company is
such that a normal return (in dividends or capital
gains) cannot be expected within a reasonable
invested, or because the
time from the capital

(b) where the injection of capital

into companies
is divided between private and
whose capital
public shareholders makes
the public holding
reach a significantly higher level than originally
and
private
shareholders is largely due to the company’s poor
profit outlook;

disengagement

relative

the

of

(c) when the amount of the holding exceeds the real

value of the company.

The three conditions have been met in the case in
question. Firstly, the Treasury’s injection of ITL 2 000
billion at
the end of 1996 and entered into the
accounts for the same year is essential to the survival
of the Bank as the losses in 1994 and 1995 and in the
first six months of 1996 exhausted virtually all the
leaving it with a solvency ratio
Bank’s own funds,
close
i.e. well below the minimum
requirement of 8 %. Furthermore, owing to further
restructuring measures, in particular the entry in the
accounts at the end of 1996 of losses relating to the
hived-off assets and the restructuring costs, including
those for 1997, the Bank’s net position plunged into
the red which, under the Italian civil code, requires the
administrators either to recapitalise it or wind it up.

to zero,

Secondly, the State is the sole shareholder taking part
in the transaction, the other shareholders, in particular
the Foundation and the private shareholders, having
refused to take part. Thus, as a result of
the
transaction, the State becomes the major shareholder,
having previously held only 9 % of the Bank’s capital.
Its injection of ITL 2 000 billion served to offset the
1996 losses estimated at over ITL 1 650 billion.
Obviously no private shareholder would be prepared
to inject funds intended to cover losses unless the
future income from the remaining capital was able to
offset
losses and loss of profits during the
restructuring period. This is not the case, as the Bank’s
restructuring plan predicts that normal yields only will
not be achieved before the end of 1999.

initial

(3) Commission communication to the Member States on the
application of Articles 92 and 93 of the EC Treaty and of
Article 5 of Commission Directive 80/723/EEC to public
undertakings in the manufacturing sector (OJ C 307,
13.11.1993, p. 3).

(4) Bull. 9–1984.

In theory, the State could have recovered at least part
of its investment when it sold 60 % of its holding in
the Bank, but the proceeds of the sale were very
modest, amounting to some ITL 61 billion, which was
insufficient to recover the capital injection. Although a

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valuation of the remaining capital by means of the
discounted cash flow and share price methods is likely
to provide a higher estimate,
it does not guarantee
recovery of the difference. In addition, the proceeds
from the sale cannot be deducted from the costs of the
capital
injection, as they are intended to cover any
losses incurred by the hive-off vehicle. Accordingly, the
net cost to the State of the capital injection can be
estimated as equal to the amount of the injection, i.e.
ITL 2 000 billion.

Cassa dei Depositi e Prestiti into a subordinated loan
subject to the same interest rates in June 1996 and its
subsequent conversion into capital in December 1996,
before the end of the bidding procedure, must be
transactions not complying with the
regarded as
private investor principle and hence as containing
elements of aid.

the

did

that

As regards the pre-conditions for the capital increase
which, according to the Treasury, were designed in
principle to guarantee compliance with the principle of
the private investor operating in a market economy,
the Commission notes
conditions were
included in the decree to ensure that the Treasury
contribution
an
accompanying plan for the Bank’s recovery. Such
the
conditions, however,
transaction to be regarded as complying with the
private investor principle,
for the reasons set out
above. However, although the conditions do not
the Commission
preclude
considers
to ensure the
compatibility of the aid (see Section 5 below).

the presence of
that

they are sufficient

place without

sufficient

are not

take

aid,

not

for

The Bank was recapitalised by the Treasury before the
Commission took its decision. The Italian authorities
stated that the Bank had to be recapitalised before the
end of the year, failing which it would have to be
wound up. Under Articles 2446, 2447 and 2448 of the
Italian civil code,
the Bank’s administrators are
required to convene a shareholders’ meeting in the
event of huge losses in order to reduce the capital and
recapitalise, or wind up the bank. Otherwise,
the
administrators are legally liable. On 31 July 1996, the
specific
shareholders’ meeting decided, under
derogation
until
for
31 December 1996, on a partial reduction of the
capital (not affecting the savings shares) and a capital
increase of ITL 2 000 billion to be carried out before
the end of 1996. The authorities stressed that they had
complied with the terms of
the decree-law which
require the Treasury to recapitalise only after receiving
a commitment from a bank that it will submit a firm
offer for the Bank.

a
decree

provided

the

in

resulted

initiated,

stated when the procedure was

As
the
Treasury acted initially without the support of private
banks. In particular, it should be noted that half of the
ITL 2 000 billion capital injected in December 1996
stems from the conversion of the subordinated loan
granted by the Treasury to the Bank in June 1996. The
from the
however,
subordinated loan,
conversion of the debenture loan of ITL 1 000 billion
granted by Cassa dei Depositi e Prestiti to the Bank in
January 1996. The transaction whereby the Treasury
converted the debenture loan from Cassa dei Depositi
ITL
e Prestiti,
1 000 billion into its accounts as a subordinated loan,
must affect the Treasury since the risk associated with
the loan in the event of bankruptcy is increased
because the loan is subordinate in relation to other
debts of the Bank, without any extra compensation for
the Treasury in return for the greater risk.

thus enabling the Bank to enter

The Commission understands the reasons why the
authorities carried out the transaction before the end
of the year; however, it concludes that the transaction
took place unexpectedly, without a formal request,
and before the end of the bidding procedure for the
controlling interest
the
information supplied at the time to the Commission
was incomplete. The Commission was thus unable to
decide on the compatibility of the aid to the Bank
before the recapitalising as a result of the delayed
submission by the Italian authorities of a restructuring
plan. The aid must therefore be regarded as unlawful.

in the Bank.

In addition,

The conversion of the subordinated loan into capital
in 1996 took place before the conclusion of
the
bidding procedure launched in October 1996 for 60 %
of the Bank’s capital, although only one public bank
expressed an interest in making an offer, on terms that
were not disclosed. Thus
the conversion by the
Treasury of the ITL 1 000 billion debenture loan from

The Commission also notes that the transfer procedure
the
ended in January 1997 with the award of
controlling interest
in the Bank to the insurance
company INA, which took 51 %, and to BNL, which
took 49 %, the offer made by Mediocredito Centrale
having been considered inadequate.

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It must therefore be concluded that a private investor
in a market economy would not, unlike the Italian
State, have injected capital
into the Bank only to
recover a small fraction of the investment when the
Bank was privatised. Accordingly, on the basis of the
information available,
ITL
2 000 billion must be regarded as State aid.

increase of

the capital

3.2. Advances granted by Banca d’Italia under the

Decree of 27 September 1974

3.2.1. Liquidation of Isveimer

the measures

intended to cover

In general, when the winding-up of a bank enables all
its commercial and intermediation activities to be
it may be
freely distributed among its competitors,
said that
losses
incurred by creditors as a result of the winding-up are
not likely to cause distortions of competition within
the meaning of Article 92(1) of the EC Treaty. On the
other hand, if the assets and liabilities of a bank in
liquidation are transferred as a whole to another
entity, it is possible that the Decree of 27 September
1974, which allows the purchaser to be compensated
for the negative value of the acquisition, could distort
competition as it could enable the purchaser to pursue
the activities of the wound-up establishment. As the
Commission stated in its guidelines on State aid for
rescuing and restructuring firms in difficulty, (cid:28)it will
not be possible to evade control by transferring the
business to another legal entity or owner’ (5).

In the case in question, the Italian authorities stated
that the winding-up of Isveimer corresponds to the
first possibility described above. They added that the
Bank’s stake in Isveimer had already been reduced
from ITL 402 billion to ITL 1. They stressed that the
measures were applicable only in order to resolve
difficulties connected with the winding-up of Isveimer.
According to the first
interim balance sheet of
Isveimer in liquidation, drawn up at 31 December
1996, there was a shortfall in own funds of some ITL
that stage to the
1 775 billion, corresponding at

(5) See Community guidelines on State aid for rescuing and
restructuring firms in difficulty (OJ C 368, 23.12.1994,
p. 12).

estimated discounted value of the probable liquidation
losses. From the start of the winding-up procedure on
9 April 1996 to 31 December 1997, the sale of loans
to customers and a regular
repayments
reduced assets by ITL 5 028 billion, bringing them to
ITL 6 224 billion, of which ITL 3 086 billion is in the
form of liquidities. At the end of the year, liabilities
totalled,
ITL
6 341 billion compared with ITL 12 077 billion at the
procedure. That
beginning
procedure is thus nearly completed.

the winding-up

deduction

flow of

funds,

after

own

of

of

The Italian authorities pointed out that the transaction
did not distort competition at Community level as it
was not intended to save Isveimer but to protect the
interests of the creditors of the institution which, as it
is being wound up, has withdrawn from the market.
They stated that a large number of foreign financial
institutions were among Isveimer’s creditors. Lastly,
they stated that
the Bank would not enjoy any
particular financial advantage from the advances in
question
as
compensation, including compensation for the charges
borne by the Bank as a result of the loans granted to
its subsidiaries to facilitate the winding-up procedure.
In other words the advances simply transit through the
Bank. The authorities also ruled out the possibility of
the bank acquiring any of Isveimer’s assets under the
winding-up procedure, unless it proved impossible to
sell them to third parties or to recover them on more
advantageous terms for the winding-up.

they were

intended

purely

as

also

some

totalling

the loans. Thus

considered whether

The Commission
the
advances in question were intended to offset possible
losses incurred by the Bank on loans granted by it to
ITL 800 billion. The
Isveimer,
authorities stated that the loans were fully guaranteed
by mortgages registered for amounts in excess of the
value of
the Bank would have
recovered its loans under the winding-up proceeding
It
even without
should also be noted that the Bank’s loans to Isveimer
are to be repaid only at the end of the winding-up
procedure. Accordingly,
the Commission considers
that there are grounds for considering that the Bank
does not enjoy any undue advantage from the
application of the Decree of 27 September 1974.

the advances from Banca d’Italia.

case,

the explanations given by the Italian
In view of
in the
the Commission considers that,
authorities,
present
the Decree of
the application of
27 September 1974 does not constitute State aid
within the meaning of Article 92(1) of the EC Treaty.
It nevertheless considers it necessary that it should in
the future be notified in advance if
the decree is
applied to other cases, for example where the assets

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4.5.1999

and liabilities of a credit institution in liquidation are
transferred as a whole to another entity, in so far as
this could constitute State aid under Article 92(1) of
the Treaty.

significant losses and that it was intended to reduce
concerning the valuation of
uncertainties
certain
balance sheet
items which could have delayed the
privatisation.

3.2.2. The hive-off operation

In general, the Commission takes the view, as it has in
other cases, that operations to hive-off banking assets
constitute State aid since they allow the credit
establishment in difficulty to remove from its balance
sheet all
it would
the commitments and losses
normally have borne alone, as well as facilitating
compliance with the solvency regulations They also
help any future privatisations by enabling potential
buyers to avoid undertaking lengthy and difficult
valuations, given the nature of the hived-off assets, of
the exact amount of provisioning required. The
hive-off vehicle is financed from resources granted
through the bank conducting the hiving-off operation
or through a company specifically set up for the
purpose which operates between the bank and the
hive-off vehicle. In any event, losses incurred by the
hive-off vehicle are eventually borne by the State
through public guarantee mechanisms or, as in the
present case, through recourse to advances from Banca
d’Italia under the Decree of 27 September 1974.

it

the nature of

is often difficult

the hived-off assets,

Because of
the
financial mechanism used and the duration of the
operation,
to obtain a precise
estimate of the final cost of a hive-off. It is, however,
essential to quantify the estimated cost to the State in
order to approve the aid and determine the necessary
compensation to be granted in order
to offset
distortions of competition. The Commission paid
particular attention to this aspect, in the light of its
experience in other cases of hive-off operations, chiefly
because of the significant disparities between actual
results and estimates submitted to it for examination
under the rules on State aid. The updating of estimates
of the net value of assets in portfolio, variations in
market interest rates, a downturn in the rate of sales
of assets or in the repayment of the loan granted by a
bank to the hive-off structure may significantly affect
the cost of the operation borne by the State.

When the hive-off structure was set up, the Italian
incur
authorities

confirmed that

it would not

that

to cover

first pointed out

The Italian authorities
the
structure and mechanisms of the hive-off are very
different
from those used previously and already
examined by the Commission, as the Bank’s assets
were transferred to the hive-off structure at their net
value and not at their gross value. This means that the
Bank had already provided in 1995 and 1996 for
expected losses on the assets transferred, with the
result that it reported losses of over ITL 1 650 billion
in 1996 and ITL 3 160 billion in 1995. All in all, the
Bank used own resources, i.e. by reducing reserves and
losses and loan loss provisions
equity,
totalling ITL 4 460 billion,
i.e. 26,5 % of the total
value of the hived-off assets of ITL 16 840 billion. The
value of
the assets was assessed on an individual
rather than on a flat-rate basis. In addition, by means
of a computerised system known as the (cid:28)Centrale dei
Rischi’, which provides banks with information on a
client’s total exposure in other banks and their risk
ratings,
the Bank was also able to adjust its risk
assessment of customers that are also in debt to other
banks, in particular as regards its poorly performing
assets. As
the Bank
applied a particularly prudent classification criterion
whereby loans are placed in this category as soon as
the second payment has not been made. Lastly, the
asset write-off was
strictly supervised by Banca
the independent authority responsible for
d’Italia,
banking supervision. The results of the first sales of
assets, by SGA appear to confirm that
the book
valuations were assessed correctly.

the doubtful claims,

regards

the Commission took the view that

the
While
explanations given by the Italian authorities were
reasonable as regards the values attributed to the
hived-off assets, it nevertheless considered it advisable
to commission a detailed report on SGA in view of the
financial charges it was bearing. In 1998 therefore, the
merchant bankers Rothschild submitted a study to the
Commission on SGA and its possible future losses,
based on information from Banca d’Italia and the
Bank as well as from other sources.

Rothschild examined the following aspects: (a) the
organisational structure of SGA,
its activities and
relations with the Bank; (b) the management policies
followed by SGA in its recovery activities; (c) the

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proceeds from assets sold in 1997; (d) the financial
values at which the assets were transferred to SGA; (e)
the balance between the interest paid on the assets
transferred and the borrowing interest rate on the loan
granted by the Bank, on the basis of the advances
from Banca d’Italia.

(a) SGA is organised as follows:

— a structure that

is dedicated to directing,
stimulating, coordinating and controlling the
disposal of assets. Its staff come from outside
the Bank and have appropriate experience and
skills in the field of debt management and
recovery,

— another

separate structure composed of a
central department which works solely for
SGA and a network of the Bank’s branches
Bank
are
by
staffed
responsible
and
for managing
investigating claims and proposing decisions,

employees who
claims,

Board

— decision-making powers are shared by the
Management
the managing
director, both being empowered to manage the
larger,more delicate claims and having sole
responsibility for the recovery and sale of
assets.

and

to manage

SGA is able
the many claims
distributed widely throughout the country with
efficiency owing to its organisational structure,
where tasks are shared by an autonomous and
separate structure, a central
service and the
Bank’s branch network. This should allow it to
carry out its tasks within a reasonable time and at
reasonable cost. In addition, the allocation and
separation of management and investigation tasks
and those of directing, controlling and deciding
between the Bank’s employees and those of the
SGA, satisfies the requirements for separation
between the hive-off vehicle and the Bank.

(b)

In accordance with Banca d’Italia rules, SGA
based its recovery policy on the principles of
maximisation of returns, taking account of the

on

by,

the

depending

settlements

firm. Out-of-court

objectives of limiting the time and money spent
by
are
preferred to the lengthy judicial procedure which
can reduce the value of the assets in question,
case,
accompanied
multiannual repayment plans limiting repayment
times to a minimum. This approach allowed
account to be taken of the recovery prospects of
the debtor
effects
In the case of restructured
wherever possible.
loans, it was decided not to grant new financing,
to reduce, where possible, loans already provided
for
in restructuring agreements and to avoid
converting loans into risk capital.

firms, avoiding traumatic

the

totalling

(c) The sales of assets produced satisfactory results:
ITL
at 31 December 1997 loans
1 476 billion were recovered, accounting for some
12 % of assets, of which ITL 660 billion stemmed
from the sale of foreign securities and loans to
risk countries (with a gross added value of some
ITL 80 billion) and ITL 780 billion from poor
quality loans. A slight rise in added value was
also recorded from the sale of Italian securities. In
addition,
agreements were
concluded which, from 1998, will produce a total
than ITL 580 billion. The SGA
of more
ITL
Management Board examined a total of
3 789 billion and agreed a
ITL
total of
3 559 billion. The proceeds from the assets sold
by SGA one year after it started business are in
line with the forecasts made when the Bank’s
restructuring plan was drawn up.

repayment

loan

in

of

size

terms

comparable

(d) Rothschild compared the valuation of assets and
the provisioning policy adopted by some of the
banks
and
geographical location to the Bank. According to
the balance sheet at 31 December 1996, when the
Bank’s assets were transferred to SGA, the Bank’s
policy of provisioning and restructuring of
its
balance sheet was either in line with that of the
major banks, or was more conservative. However,
it is necessary to estimate losses in view of the
possibility that, once a high level of asset recovery
has been achieved, SGA may decide to cease
operating and wind up any remaining cases where
the prospects of recovery are uneconomic. The
conservative estimate drawn up by Rothschild
indicates a (cid:28)normal’ loss of not more than 10 %
of
ITL 1 000 to
1 200 billion.

transferred,

the assets

i.e.

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(e) As regards the costs of

financing the hive-off
vehicle, the Italian authorities pointed out that the
interest rate on the loan from the Bank to SGA
was based on the principle that the former should
not benefit or lose from its loan to the hive-off
vehicle. Thus the rate corresponds to the actual
interest rate on the hived-off assets. On that basis
SGA should be able to use income from the assets
in portfolio in order to pay the interest on the
Bank’s loan.

outlined by Rothschild where the assets retained by
SGA would not have any positive value.

However, the Commission, as in other cases, also took
account of additional factors likely to reduce the cost
borne by the State.

The analysis carried out by Rothschild of the hive-off
vehicle also took account of the possibility of financial
imbalances; in particular, it examined the possibility
that the borrowing interest rate on the loan from the
Bank to SGA is definite and considerable, whereas the
amount of
interest paid on claims transferred or
dividends on securities is at the very least uncertain
and not considerable. In 1997, the imbalance between
the financial charges borne by SGA for the financing
received from Banco di Napoli (ITL 1 089 billion) and
including default interest (ITL
the interest received,
1 039 billion), amounted to ITL 60 billion. The
difference could in theory vary depending on such
factors as: the possibility of recovering default interest
on claims, the proportion of claims producing a fixed
rate of interest to those with a variable rate of interest,
a gradual reduction in interest rates as a result of a
general cut in rates, a gradual reduction in the loan to
SGA as a result of write-offs and repayments, and a
gradual deterioration in the assets transferred to SGA.
As the events of 1997 may occur again in future years
and in view of the expected lifetime of the hive-off
vehicle and the factors described above, the difference
should, according to a conservative estimate produced
by Rothschild’s, range from ITL 1 000 billion to ITL
2 700 billion in the next two to three years, including
the costs referred to in recital (d).

the

stand,

Italian authorities

results
According to the
recorded at that date would suggest that SGA was
to wind down its activities without any
about
significant
the
losses. However, as matters
Commission cannot rule out the risk that a gradual
decline in the value of the assets of SGA could entail
larger losses and an increase in the difference between
financing charges and interest received. In view of the
difficulty in recovering default interest and on the
basis of other factors, the Commission considers it
would be more prudent to assume maximum losses of
ITL 2 700 billion. In addition, the State guarantee
covers
ITL
12 378 billion resulting from the hypothetical situation

the maximum theoretical

loss

of

With regard to these costs, however, it must be borne
in mind that Law No 588/96 provides that any losses
incurred by the hive-off vehicle will be offset by
proceeds from the sale of shares in the Bank held by
the Treasury. As in other similar cases, the net cost to
the State is calculated by deducting from the gross cost
of the hive-off borne by the State the net proceeds
from the sale of the State’s holding in the Bank. In
addition, the value of the minority holding retained by
the State is clearly an asset that is easier to value than
when a restructuring plan is still underway, hence
making it harder to value the firm in question. The
Treasury has stated in this connection that it wishes to
sell its holding of 17,4 % in the Bank. On the basis of
stock exchange prices in the last six months, the value
of
some ITL
1 000 billion.

that holding may be estimated at

Furthermore,
it should be noted that the Treasury
should also benefit from the privatisation of BNL,
which has a holding of 27,7 % in the Bank. In the
light of the increase in the value of the Banco di
Napoli shares, confirmed by the prices quoted on the
stock exchange in the last six months, the value of
BNL’s holding in the Bank is estimated at some ITL
1 500 billion. The Treasury will benefit directly from
the increase as a result of the privatisation of BNL,
already underway in accordance with the undertaking
given by the Italian Government and formalised by
Decree of the Prime Minister of 28 January 1998,
which provides for a direct invitation to bid, in order
to set up a stable group of shareholders, and a public
invitation which should result in revenue for the State,
on the basis of
ITL
10 000 billion. Following the participation of several
banks, both Italian and foreign, in (cid:28)data rooms’, the
Treasury accepted a bid from Banco Bilbao Vizcaya
for 10 % of the capital of the Bank. The second part is
to take place in the autumn of 1998, the Treasury
having appointed (cid:28)global coordinators’ for the public
sale. It should be noted that, with a view to the future
sale of a minimum of 50 % of its stake, the Treasury
had transformed the BNL savings shares into ordinary
shares, thus reducing its holding in the Bank from
85,5 % to 70 %.

current prices, of

some

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In conclusion, the Commission takes the view that, on
the basis of the quantitative estimates, the net costs to
the State of the hive-off vehicle, after deduction of
proceeds from the sale of the shares in the Bank held
income resulting
by the Treasury and of additional
from the sale of the BNL holding during the ongoing
privatisation, may be estimated at ITL 200 billion on
the basis of
Italian
authorities.

the data provided by the

in supplementary State aid.

However, any amount in excess of those costs could
result
In particular,
variations in the net cost to the State compared with
current estimates could result in additional aid to the
Bank, as such additional costs would correspond to
losses the latter would have incurred if the assets had
not been hived-off to SGA. The uncertainty that is tied
to the creation of the hive-off vehicle is such that the
authorisation by the Commission of
the aid must
cover the entire mechanism existing at the time of its
decision. In the present case, the recent estimates by
the
Rothschild are based on trends
following
setting-up of SGA resulting in a widening of
the
estimated range of loss incurred by the hive-off. The
range, as stated above, is now situated between ITL
1 000 billion and ITL 2 700 billion. The amount of
aid approved by the Commission cannot exceed the
maximum theoretical risk covered by the guarantee,
i.e. ITL 12 378 billion.

the

explained that

Italian authorities

As regards the effects of the hive-off on the debtor
the
firms,
management of asset liquidation transactions is subject
to strict professional criteria. In accordance with its
terms of reference, SGA is required to manage the
hived-off assets on a profitable and economic basis. In
particular, its aims are to recover debts and sell other
assets, collecting the maximum amount within the
shortest possible time. The management of SGA is also
subject
by Banca d’Italia. The
Commission concludes that SGA acted like a private
investor seeking to minimise the costs of liquidating
the assets. It reserves the right, however, to examine
whether aid was granted to the debtor firms or the
assets transferred to SGA.

to monitoring

3.3. Tax concessions

regards

As
in
Article 3(7) of the Law, the Italian authorities stated

the tax concessions provided for

that the amount in question was relatively small, i.e. a
total of some ITL 36 billion, which amounts to ITL
17,2 billion net, after deduction of the firm’s profits.
They pointed out that the Bank enjoyed very little
benefit from the debt assignments and that a similar
result could have been obtained if
the Bank had
decided not to register the transfer acts, which it was
entitled to do as registration is optional. As regards
the branches, the purchaser is required to register the
sale. From a commercial standpoint, the urgency of
the Bank’s need to sell the assets puts it in a weak
position in relation to potential purchasers and it is
therefore unlikely that the tax advantages enjoyed by
the purchaser could somehow be totally or partially
passed on to the Bank.

that

the information in its
However, on the basis of
possession,
the
the Commission considers
measures in question constitute State aid, although the
amount is not considerable. As regards the advantages
connected with the debt assignments, it emerged that
the Bank had decided to register the acts in order to
increase the transparency of
transactions and thus
reassure the purchasers and its other creditors. The
decision was thus motivated by a desire to facilitate
the
uncertainty
concerning the restructuring of the Bank. Its decision
thus has an economic value.

assignments

reduce

debt

and

The same conclusions apply to the sale of the branches
in view of the possibility that, as the registration fee
must be borne by the purchaser, the tax concessions
for the Bank. As it
represent a financial benefit
constitutes a derogation from a general measure
provided for in a legal
the
it must be
restructuring and rescue of
concluded
question was
that
its
introduced to assist
restructuring. The maximum amount of aid contained
in the tax concessions in question totals, as stated
above, some ITL 17 billion net.

the Bank,
in
the Bank and facilitate

instrument aimed at

the measure

The Commission considers that the State aid to the
Bank ranges
from ITL 4 717 billion to ITL
14 395 billion. These amounts take account of the
value of the direct and indirect State holdings in the
Bank, amounting to ITL 2 500 billion: the net cost to
ITL
the
some
thus
2 217 billion, with a potential maximim of
ITL
11 895 billion if account is taken of the total hive-off
risk.

State would

amount

to

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4. Distortion of trade between Member States

5. Assessment of the compatibility of the State aid to

Banco di Napoli

financial

financial

resources

liberalisation of

The
services and the
integration of the financial market have the effect of
greatly increasing the sensitivity of intra-Community
trade to distortions of competition. Aid granted to
credit groups such as Banco di Napoli, which provides
loans and other
to competing
enterprises on the international market and offers
financial services in competition with other European
credit establishments while at the same time extending
its activity abroad through its network of agencies
distort
outside
certainly
be
trade. This
intra-Community
heightened by the introduction of the single currency
and the complete opening-up of markets, which will
increase
tension between Community
countries.

likely
tendency will

competitive

Italy,

to

is

It should also be borne in mind that although banks
are able to carry out
their activities essentially
consisting in collecting deposits and granting loans,
without frontiers, they often encounter obstacles to
expansion abroad. Such obstacles are frequently due
to the fact that local banks are well-established, which
makes it more costly for foreign competitors to enter
the market. As liberalisation will
increasingly offer
banks the opportunity to provide their services in
other Member States, for example, Cre´dit Lyonnais,
Deutsche Bank and Westdeutsche Landesbank, all aid
granted to a bank, whether international or domestic,
is likely to hamper those possibilities. Aid aimed at
enabling even local banks to survive which would
otherwise have been forced out of the market owing
to their low profitability and competitive capacity is
thus liable to distort competition in the Community as
it makes it more difficult for foreign banks to enter
the Italian market.

several

Without the aid in question, the Bank would probably
have been wound up. In that event its assets could
foreign
have been acquired by one or
competitors wishing
significant
acquire
to
commercial presence in Italy. The Bank’s customers
would also have had to deal with another bank,
it must be
possibly a foreign one. Accordingly,
concluded that aid to the Bank is covered by
Article 92(1) of the EC Treaty as it constitutes State
aid which distorts competition to an extent likely to
affect intra-Community trade.

a

5.1. General considerations

or

aid

Having decided that the financial support granted to
the Bank constitutes State aid, the Commission must
now consider whether the aid may be regarded as
compatible with the common market within the
meaning of Article 92(2) and (3) of the Treaty. In the
case in point, it must first be concluded that the aid
does not constitute social aid granted to individual
consumers
the
intended
development of certain Italian regions. Nor is it aid to
remedy a serious disturbance in the economy as it is
intended solely to remedy the difficulties of a single
recipient, the Bank, and not those of all operators in
the sector. The reasons for the Bank’s losses are
specific to it and appear to be related to a large extent
to its aggressive commercial and credit policy and
inadequate risk control procedures. The aid cannot
therefore be regarded as being in the general European
interest.

facilitate

to

Only the derogation provided for in Article 92(3)(c)
may be taken into account. The compatibility of the
aid must be assessed on the basis of the specific rules
concerning rescue and restructuring aid (6). According
to the general principle applicable to State aid granted
to firms in difficulty, aid is regarded as compatible
provided that certain conditions are met, including the
following:

(1)

full implementation of a restructuring plan based
on realistic assumptions making it possible to
restore within
the
requisite minimum return on capital invested to
ensure the long-term viability of the firm;

reasonable

time-scale

a

(2)

the existence of adequate quid pro quos to offset
the distorting effect of the aid on competition and
thus to make it possible to conclude that the aid
is not contrary to the common interest;

(6) See footnote 5.

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(3)

the proportionality of the aid to the objective
sought and limitation of the amount of the aid to
the strict minimum necessary for the restructuring
in order that the recovery effort might be borne
as much as possible by the firm itself;

(4)

the carrying-out in full of the restructuring plan
and of any other obligations provided for in the
final Commission decision;

(5)

setting-up of

the
compliance with the preceding condition.

system for monitoring

a

losses

serious economic and financial problems as a result of
claims portfolio,
the
inadequate
in the
capitalisation, a fall
in profitability and a liquidity
crisis. In particular, the losses on claims increased the
operating imbalance (reduction in the interest margin
and annual losses) and the asset imbalance (increase in
unproductive assets and reduction in liabilities without
charges)
together with excessive recourse to the
interbank market. The network of branches was
characterised by uncontrolled expansion: branches
opened in northern Italy, where banking is very
competitive,
to
less
inadequate margins, excessive risks and high structural
costs. Staff costs were out of proportion to other
credit establishments
in the area, and to market
trends, both individually and overall.

profitable

proved

owing

In accordance with the rules on restructuring aid, the
Commission concludes that the aid in question should
normally be necessary only once.

5.2. Analysis of the restructuring plan

establishment with the assistance of

The Bank’s restructuring plan was drawn up by the
the
credit
merchant bank Rothschild, the expert appointed by
the Treasury. A first plan was ready by the end of June
1996, and included various measures some of which
had already been initiated at the end of 1996. Further
measures were added at the end of November 1996 to
allow the Bank to be privatised before the end of the
year. The new plan included the transfer to a hive-off
vehicle of some ITL 12 400 billion of
the Bank’s
assets, the adoption of a stricter provisioning policy
and a more stringent plan to reduce staff and general
costs.

The plan correctly identifies the reasons for the Bank’s
failure, which includes a series of structural, financial,
management and strategic planning failures on the
part of the Bank. In particular, from the management
standpoint, there was an inappropriate staff policy, a
inadequate
complex
information
commercial
activities and a risky financial management. From the
the analysis
strategic development,
standpoint of
shows
expansion,
territorial
uncontrolled credit policy, non-integrated presence
abroad, investment in high-risk transactions and a lack
innovative products. These inadequacies caused
of

organisational
systems,

structure,
undeveloped

non-homogenous

before

period

time, well

of
the Bank’s

The restructuring plan forms part of a competitive and
transparent privatisation which was carried out over a
very
any
short
confirmation of
recovery, and which
benefited from a capital injection considerably below
the minimum level provided for by the Community
prudential rules, thus leaving it to potential purchasers
to recapitalise the Bank. In general, the Commission
takes a favourable view of such measures since,
in
principle, they provide a definitive solution to the
problem of restructuring a bank from the point of
view of the State and contribute to a reform of the
corporate governance system which lay at the root of
the group’s losses. The Commission considers that this
solution is appropriate because it allows a more
effective control system to be set up without distorting
markets.

It must be pointed out
that, with the explicit or
implicit support of the State, the Bank had in recent
years conducted an imprudent policy which had
regularly led to considerable losses. Such conduct is
particularly ill-advised for two reasons: first, because
the ineffectiveness of the corporate governance system
led to an increase in the final amount of aid needed,
owing to the passive role of the principal shareholders,
and thus also created a problem of (cid:28)moral hazard’ (7).
Second, because the consequences of wrong or unwise
decisions generally emerge only with time in the
banking sector, a longer period usually being necessary
before the consequences of taking excessive risks are
reflected in financial losses. That is why certain credit
institutions have been able to implement hazardous
policies over a period of
time, resulting in more
serious distortions.

(7) The (cid:28)moral hazard’ effect means that the greater the
management errors, the greater the aid required by the
firm committing such errors.

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4.5.1999

The restructuring plan covers all the weak areas of the
Bank, with a view to rebuilding its operational system,
restoring capital, financial and economic equilibrium
and guaranteeing privatisation as soon as possible.

for

the

provides

particular,

In
2 480
plan
redundancies, of which 1 000 already took place in
1996 and another 1 000 in 1997. In accordance with
the decree, the average per capita cost, which was ITL
125 million in 1996, will be reduced to the average
level of the Italian banking sector, i.e. ITL 117 million.
Administrative costs should be cut by 12 % in 1997
and 9 % in 1998.

Table 3

Banco di Napoli business plan

1995

1996

1997

1998

1999

(billion ITL)

Interest margin

1 961

1 635

1 597 […] (*) […] (*)

Services margin

534

621

649 […] (*) […] (*)

Brokerage margin
total

2 495

2 256

2 246 […] (*) […] (*)

Staff expenditure

(cid:159) 1 512 (cid:159) 1 540 (cid:159) 1 322 […] (*) […] (*)

Administrative
expenditure

(cid:159) 613

(cid:159) 550

(cid:159) 518 […] (*) […] (*)

Total general costs (cid:159) 2 125 (cid:159) 2 090 (cid:159) 1 840 […] (*) […] (*)

Gross operating
profit

Losses on loans
and provisions

370

166

406 […] (*) […] (*)

(cid:159) 3 112 (cid:159) 1 533

(cid:159) 202 […] (*) […] (*)

Other provisions

(cid:159) 382

(cid:159) 500

(cid:159) 270 […] (*) […] (*)

Net extraordinary
profits

Total of other
items

(cid:159) 24

201

90 […] (*) […] (*)

(cid:159) 3 518 (cid:159) 1 832

(cid:159)382 […] (*) […] (*)

Result before tax

(cid:159) 3 148 (cid:159) 1 665

23 […] (*) […] (*)

Tax

(cid:159) 8

(cid:159) 4

(cid:159) 4 […] (*) […] (*)

Result after tax

(cid:159) 3 156 (cid:159) 1 669

19 […] (*) […] (*)

(*) Parts of this text have been edited to ensure that confidential
information is not disclosed; those parts are enclosed in square
brackets and marked with an asterisk.

interest margin between loans and deposits. The
growth rate for resources remains slight, although
employment
sharply. The
should increase more
brokerage margin remains at satisfactory levels, owing
the percentage of
to the increase in commissions,
which on brokerage margins should reach the levels of
the most competitive banks. However, recovery is not
based on an increase in the brokerage margin, which
will remain below 1995 levels, but on a reduction in
general costs and the cost of credit. This is a fact
the
which further
forecasts,
the
improvement is based on factors within the control of
the firm and does not depend on the growth of the
market and of turnover. The reduction in provisions
reflects the transfer of the non-performing assets to the
hive-off vehicle and the reduction in business activity.
The plan also provides, however, for an adjustment of
the unremunerated credit rates to more normal levels.

reliability of
as

guarantees
things

the
being

equal,

other

The yield on the loan from the Bank to the hive-off
vehicle was not fixed rigidly, but was based on an
indexing system tying it to the short-term market rates
for the preceding year (see point 2.2). It would seem
that a mechanism of this type provides the Bank with
an adequate return when rates fall, taking account of
the normally higher return on loans to customers and
the cost of funds.

aspects

it would
Having analysed the documents received,
seem that
the restructuring plan is adequate. The
support of an international bank like Rothschild
ensures that
the Bank’s basic problems have been
taken into account, as the restructuring has affected
the main
day-to-day management
(employees, organisation, computerisation, commercial
aspects) and financial structure (own funds, credit
the
quality,
restructuring
been
implemented, especially the reduction in unit and
absolute labour costs. Staff costs were cut in 1997 by
ITL 142 billion or 11 %. Pension costs were cut by
ITL 83 billion, i.e. a relative value of 36 %.

liquidity). Most

profitability,

measures

already

have

of

of

The hypotheses of the plan appear to be sufficiently
realistic. They provide for a reduction in short-term
interest rates of some 300 basis points between 1996
and 1999, and a 130 basis points’ reduction in the

The Bank’s results in 1997 confirmed the ongoing
recovery and exceeded the expectations of the business
plan, despite the reduction in activity. At the end of
the first six months, the net result (ITL 16,8 billion)
exceeded forecasts as it reached the level originally

4.5.1999

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forecast for the end of the year. The improvement
continued in the second half of 1997, the accounts
showing a net result of ITL 142 billion, well in excess
of the anticipated result, which allowed the Bank to
give a dividend on savings shares (i.e. to shareholders
without voting rights but simply having a right to a
dividend). In particular, the 1997 accounts show that
the Bank was able to halt and indeed reverse the
downward trend in the brokerage margin by
increasing net commissions and stabilising the interest
margin. The considerable reduction in general costs,
thanks to radical staff cost measures, is consistent with
the predictions of the plan. In view of these results, it
can be concluded that the restructuring plan is capable
of producing
and even
improving on them over the next few years.

anticipated results

the

The credibility of the Bank’s restructuring plan was
reflected in the full support of the private shareholders
for the increase in own funds after privatisation. The
capital
injection of some ITL 900 billion did not
involve the Treasury but a large majority of private
in particular INA (8). The Commission
shareholders,
takes the view that the majority stake held by INA
and the private shareholders in this operation reflects
its commercial nature and gives greater credibility to
the Bank’s restructuring plan.

According to the Italian authorities the long-term
viability of the Bank, already secured as a result of the
restructuring plan, will be maintained even in the
event of a merger with BNL. The authorities pointed
to the positive effects of the synergies of the two
banks on the profitability of
the Bank and the
extensive restructuring undergone by BNL with a view
to its privatisation. The ongoing privatisation of BNL
precludes the risk that control of the Bank could be
transferred from the private sector (INA) to the public
sector (BNL) and, accordingly, reduces the risk of
the plan’s
further public funds being required if
objectives are not attained. On the contrary,
the
privatisation of BNL confirms the definitive transfer of
control of the Bank to the private sector.

As regards the possibility of the Bank integrating with
the
BNL at
Commission notes that no specific date has been set as
yet for this project. In any event, should it take place,

the latter’s privatisation,

the end of

(8) The private status of INA was determined on the basis of
information
authorities
by
concerning its shareholders, in particular the significant
presence of private institutional investors and the relevant
voting rights.

submitted

Italian

the

as envisaged in the Decree of 28 January 1998, the
merger should, in view of the net worth of the two
banks and of stock exchange prices, result in a new
bank, the capital of which would be owned mostly by
the private sector, with the State retaining a minority
holding.

However,
the Commission nevertheless wished to
determine whether the possibility of a merger with
BNL would not be prejudicial to the profitability of
the entity resulting from the merger and hence to
Banco di Napoli. The level of profitability achieved by
BNL in recent years was not high enough to conclude,
without further information, that the return on own
the Bank resulting from the BNL-Bank
funds of
merger would be acceptable to a private investor
operating in a market economy. The Italian authorities
pointed out
connection that BNL had
undertaken an extensive restructuring plan, the costs
of which would be borne by BNL itself before the
In particular, BNL had already made
merger.
considerable provision for
the restructuring costs,
which had produced a corresponding reduction in net
results. It was therefore reasonable to conclude that
the merger would not have negative effects on the
profitability of the new banking entity, compared with
the forecast for the Bank alone; a beneficial effect
could even be expected in the long term.

in this

A report forwarded to the Commission by Rothschild
underlines the progress achieved by BNL from 1993,
when its management was changed. Apart from the
provisioning referred to above, BNL is displaying
significant signs of structural recovery. In accordance
with the strategies pursued, the Bank succeeded in
containing the fall in interest margin which effected
the entire banking sector and in increasing the returns
on service activities as a result of stronger activity in
the savings management and insurance sectors; from
the standpoint of costs, BNL succeeded in reducing
labour costs in real terms by cutting the number of
employees. The ongoing restructuring plan, which also
provides for a later reduction in costs and labour
(some 3 700 redundancies in the period 1998 to
2000), points to good prospects of an improvement in
results over the next few years.

In the opinion of Rothschild, a merger between the
Bank and BNL would help to improve the former’s
results. A merger could produce significant synergies
of some ITL 500 billion in view of the geographic and
functional synergies of the two banks. The merger
should also produce
synergies with regard to
employees, other general costs and non-financial

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4.5.1999

savings

should total

In particular,

income.
ITL
240 billion with regard to employees (i.e. 47,5 % of
total staff costs), involving a reduction in management
staff and rationalisation of the Italian and foreign
branches; ITL 125 billion in respect of other general
costs (i.e. 25 % of total general costs); ITL 140 billion
with regard to non-financial income (i.e. 27,5 % of the
total), in particular in profit and commission centres.

In comparison with other merger cases, the hypotheses
used here appear to be sufficiently prudent. The
synergies appear
roughly to 30 % of
operating costs, while in other cases, notably in Italy
and the United Kingdom,
the synergies achieved
amounted to some 35 % of operating costs.

to amount

Thus, the rate of return on the Bank’s capital in the
event of a merger with BNL could rise from 7,6 % to
11,6 %, which would ensure the viability of the entity.
Naturally, that result, as pointed out by the merchant
the entire
bank Rothschild,
restructuring plan and the Bank-BNL merger are
carried out. In any event, the linking of the Bank to
the INA/BNL group, with INA having a majority
holding, will ensure the viability of the Bank even if a
merger between it and BNL does not take place.

is achievable only if

totalling ITL 210 billion and real estate of some ITL
230 billion.

sufficient own funds

Under the principle of limiting aid to the minimum
it is necessary to ensure that the
strictly necessary,
Bank has
to comply with
regulations but that it does not have more own funds
than strictly necessary. The Commission notes that the
minimum level of capitalisation should be assessed
with due regard for the possibility that the public
the
contribution will be followed by injections of
necessary additional funds by other shareholders. For
example, in the case of privatisation in the short term
by means of invitation to tender, it is possible that
potential
statutory
requirements.

buyers

satisfy

will

the

the losses recorded at
the Bank’s

The Commission notes that the capital injected by the
Treasury amounting to some ITL 2 000 billion was
not enough to re-establish the solvency ratio in view
the end of 1996 which
of
ITL
reduced
1 000 billion. The purchasers and other private
shareholders recapitalised the Bank in 1997 in order
to bring the capital up to the statutory level applicable
to the group. It must therefore be concluded that the
results provided by the Treasury were limited to the
minimum necessary.

net worth

some

to

In view of the foregoing, the Commission takes the
view that, in the event of a merger between the two
banks, the viability of the Banco di Napoli-BNL entity
is assured and that State aid will no longer be needed.

5.4. Compensation

5.3. Proportionality of the aid

As
regards compliance with the other conditions
provided for in the guidelines on restructuring aid, the
Commission considers
the Bank contributes
that
significantly to the restructuring costs out of its own
resources. The Bank bore the provisioning costs for all
the commitments transferred to the hive-off structure,
totalling some ITL 4 400 billion, i.e. double the capital
injection by the Treasury. In addition, there are the
transfers, not included in the hive-off, of medium-term
claims of ITL 5 300 billion over two years (1995 and
1996), of shareholdings, especially financial holdings,

As regards compensation for competitors to offset the
it is useful to restate the
distorting effects of aid,
Commission’s policy in this area. The
role of
compensation, as provided for in the Community
guidelines on State aid for rescuing and restructuring
is to counterbalance, wherever
firms in difficulty,
possible, the negative repercussions for competitors.
Otherwise aid would be (cid:28)contrary to the common
interest’ and would not benefit from exemption under
Article 92(3)(c).

Such compensation must constitute an additional
effort on the part of the assisted firm in relation to the
restructuring measures needed for its recovery. As a
result, the measures must not be financed directly or
indirectly from State aid.

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it was possible to estimate

The Commission stated in another recent banking case
the theoretical
that
distortion of competition caused by aid.
In the
banking sector, the existence of a solvency constraint
relationship between a
which establishes a direct
bank’s capital and the commitments it is authorised to
make, weighted by degree of risk, provides a very
direct measurement of the possible theoretical impact
of an increase in a bank’s capital on its level of
activity. Under Council Directive 89/647/EEC of
18 December 1989 on the solvency ratio of credit
establishments (9), as amended by Directive 96/10/EC
of the European Parliament and of the Council of
21 March 1996 (10),
is
the
applicable to all banking institutions in Europe, which
makes it easier to assess the effect of a capital increase
or aid having a similar effect. If the aid is in the form
of a capital injection, the distortion to competition can
be measured in terms of weighted assets. For example,
a capital injection of ITL 1 billion or any measure
having a similar effect enables a bank, all things being
equal, to increase the level of weighted assets in its
balance sheet
the compulsory
(taking account of
requiring a firm to have a
solvency constraint
minimum solvency ratio of 8 %, which must be
calculated on the basis of own funds, at least half of
which must comprise basic own funds) by some ITL
12,5 billion to ITL 25 billion.

solvency constraint

In the present case, the aid amounting to some ITL
2 217 billion accounts for almost half of the own
funds required in order to comply with the solvency
ratio at the end of 1994. Unlike other cases, and as
already stated in point 5.3 of this Decision, the aid in
question is aimed primarily at covering losses and at
the survival of the Bank rather than at maintaining a
level of capitalisation in order to sustain the previous
level of activity. The solvency ratio requirement is
satisfied by the capital increase in 1997 following the
privatisation. Thus in practice the aid allows the Bank
to stay in business, although at a reduced level
following the transfers.

It would seem in this respect
the measures
provided for in the restructuring plan will as far as
the distortions of
possible offset
competition caused by the aid.

the impact of

that

First,
the measures already adopted produced a
considerable reduction in the size of the Bank. The
total balance sheet fell from ITL 121 000 billion (end
1994) to ITL 69 000 billion (end 1997), i.e. a 43 %
reduction in three years. The risk-weighted assets

an

even more marked

underwent
reduction,
amounting to nearly ITL 40 000 billion of assets, not
including the effect of hiving off ITL 12 400 billion of
assets to SAG.

be

cannot

treated

completely

However, the voluntary liquidation of the subsidiary,
Isveimer (nearly ITL 15 000 billion in assets at the end
of
as
1994)
compensation as
the liquidation was a necessary
measure under the restructuring plan and will benefit
from State resources. Because the case involves a
winding-up and the sums concerned are only transiting
through the Bank, it was considered that there was no
aid in the measures
the Bank in the
winding-up of Isveimer. The winding-up corresponds
to a closure of capacity. The Bank may not acquire
any Isveimer assets during the winding-up, unless it
proves impossible to sell them to other parties or to
sell them at more advantageous conditions for the
winding-up.

to assist

ITL 200 billion of

The Bank also sold ITL 300 billion of property assets
and over
In
particular, the holdings in IMI and Banca di Roma
were sold with added value. Further sales of property
assets totalling some ITL 100 billion are also planned.

shareholdings.

level,

At national
the Bank has already sold 50
branches to Banca Popolare di Brescia and nine to
Banca Popolare Antoniana Veneta. The sale of a
further 18 branches
is underway and should be
completed by the end of the year. The profitability of
the branches sold was demonstrated, firstly by the
interest displayed on the market and the prices paid
(ITL 290 billion and ITL 34,5 billion respectively)
and, secondly, by the goodwill paid by the purchaser
the
(ITL 132 billion or 46 % of
the value of
the
transaction, and ITL 21,3 billion or 62 % of
the 59 branches
value).
included
ITL
excess
2 500 billion. A further reduction in claims of some
ITL 1 000 billion should result from the sale of the
remaining 18 branches. The sale can therefore be
regarded as adequate compensation for the aid. Once
it has sold the 77 branches, which account for some
10 % of its total establishments, the Bank will become
institution, with only a few
essentially a regional
branches abroad and in northern Italy. Other transfers
or regrouping of branches will doubtless take place in
the event of a merger with BNL.

the sale of
in

In particular,

assignments

debt

of

(9) OJ L 386, 30.12.1989, p. 14.
(10) OJ L 85, 3.4.1996, p. 17.

The Bank has already reduced its presence on the
the number of
international market considerably:

L 116/54

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Official Journal of the European Communities

4.5.1999

branches has been cut from 13 to six in two years,
and activity reduced by some 70 %. In particular, the
loans granted by subsidiaries were cut by some ITL
22 000 billion. The branches in Paris, Frankfurt, Los
Angeles, Moscow and Seoul were closed, while the
others, notably Barcelona, were sold. Its departure
from the Spanish market will soon be completed. The
other branches have experienced reductions in the
number of
staff and the level of activity. The
assessment has taken account of the transfer of the
Luxembourg branch (Banco di Napoli International)
to the hive-off vehicle, which clearly cannot be
regarded as compensation, since the setting-up of the
vehicle helped to rescue the Bank.

the Commission
the foregoing,
On the basis of
concludes that the efforts made by the Bank and the
measures taken by the authorities, while not totally
eliminating the distorting effect of the aid, constitute a
very
compensation which
of
considerably offsets the distortion caused by the aid
granted to the Bank.

significant

level

the reasons

For
the Commission
set out above,
concludes that the compensation offered by Banco di
Napoli is adequate and has the effect of bringing the
aid to the Bank into line with the common interest.

5.5. Other factors

As provided for in the Community guidelines on
restructuring aid, the Commission also examined the
Bank’s position in relation to tax credits. The
guidelines provide that firms having benefited from
State aid may not also benefit from a carry-over of tax
losses in respect of such losses covered by capital
increases which constitute aid. The Italian authorities
stated that the Bank did not qualify for this advantage
as it did not satisfy the conditions laid down in
Article 123 of consolidated Law No 917/86.

concluded that

can therefore be

It
State
contribution did not help to strengthen the Bank’s
position more than is strictly necessary and does not
restrict competition from other European banks. On
the contrary, the market share held by the Bank has
been considerably reduced. As a result, in view of its

the

contribution in terms of restructuring and reduced
the aid in question may be regarded as
activity,
complying with
on
restructuring aid and is therefore compatible with the
common market.

the Community

guidelines

6. Conclusions

In conclusion, in view of the foregoing and on the
basis of the information available, the Commission
takes the view that the Bank’s recovery plan contains
substantial State aid in the form, in particular, of a
capital increase of ITL 2 000 billion, the utilisation of
advances granted by Banca d’Italia under a Ministerial
Decree of 27 September 1974 to offset the losses
incurred by SGA, and tax concessions totalling ITL
17 billion net. Taking account of the estimated income
earned by the State for the ongoing privatisation, the
discounted net total cost to the State amounts to some
ITL 2 217 billion with a theoretical ceiling of ITL
11 895 billion. On the other hand,
the advances
granted by Banca d’Italia under the abovementioned
decree
Isveimer do not
constitute State aid to Banco di Napoli provided that
certain conditions are complied with.

the winding-up of

for

been

have

examined

The measures
under
Article 92(3)(c) of the Treaty in order to establish
whether they can be considered compatible with the
common market. In the light of the considerations set
out above, the aid granted to the Bank would seem to
meet the conditions laid down in the guidelines for aid
for
in difficulty,
provided that certain conditions are complied with,
some of which constitute essential preconditions for
viability, while others are necessary quid pro quos in
return for concluding that the aid is in the common
interest.

rescuing and restructuring firms

in view of the amount of aid
It is also necessary,
concerned, to monitor the proper implementation of
the plan, particularly as regards the restructuring
measures and the merger plan, to ensure that the
recovery plan presented to the Commission is
effectively carried out in full. Consequently, the Italian
authorities should inform the Commission every six
months from the date of approval of this Decision of
the progress of the plan and any disparity between
involving
results and forecasts. No modifications

4.5.1999

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Official Journal of the European Communities

L 116/55

further aid to the Bank may be made to the plan
without the prior approval of the Commission.

Article 2

On the basis of the guidelines on restructuring aid, the
Commission considers that it should not be necessary
to grant such aid more than once.

The aid referred to in Article 1 is authorised, subject
to Italy complying with the undertaking given by
Banco di Napoli to sell or close, by the end of 1998,
18 branches located in northern and central Italy and
in Madrid, and with the following conditions:

to these conditions,

the EC Treaty and Article 61(1) of

Subject
the aid in question
therefore qualifies for exemption under Article 92(1)
the EEA
of
Agreement, as it
is compatible with the common
market pursuant to Article 92(3)(c) of the EC Treaty
and Article 61(3)(c) of the EEA Agreement,

(a)

it must ensure that all the recovery measures and
all
the
the arrangements provided for under
scheme described in Article 1 and contained in
the
the
plan
Commission are implemented;

restructuring

presented

to

HAS ADOPTED THIS DECISION:

Article 1

to reorganise,

The measures

1.
restructure and
privatise Banco di Napoli provided for in Decree-Law
No 163 of 27 March 1996, as last amended by
Decree-Law No 497 of 24 September 1996, converted
into Law No 588 of 19 November 1996, in particular
the injection into Banco di Napoli by the Treasury of
ITL 2 000 billion, the tax concessions and the use of
advances
the
Ministerial Decree of 27 September 1974 to cover the
losses of Societa` per la Gestione di Attivita` SpA, with
a potential ceiling of ITL 14 395 billion, constitute
State aid within the meaning of Article 92(1) of the
EC Treaty.

granted by Banca d’Italia under

The transactions in question, costing the State an
estimated ITL 2 217 billion net but with a potential
maximum of ITL 11 895 billion, are hereby declared
compatible with the common market and with the
EEA Agreement under Article 92(3)(c) of
the EC
Treaty and Article 61(3)(c) of the EEA Agreement.

of

27

The advances granted by Banca d’Italia under the
2.
Ministerial Decree
in
connection with the winding-up of Isveimer do not
constitute State aid to the Bank in so far as the
resources in question are utilised in accordance with
criteria acceptable to a private investor and with the
condition in Article 2(e).

September

1974

(b)

it must not amend the conditions laid down in the
restructuring plan, after taking into account the
conditions imposed by this Decision, without the
Commission’s prior consent;

(c)

it must prevent Banco di Napoli from benefiting
from a carry-over of tax losses in respect of the
tax losses covered by the capital increase injected
by the Treasury;

(d)

it must earmark the proceeds of sales of branches,
shareholdings and other assets for the economic
and financial restructuring of Banco di Napoli;

(e)

assets

it must ensure that Banco di Napoli does not
repurchase
of
Isveimer, unless it proves impossible to sell them
to other parties or
them on more
advantageous terms in the winding-up.

from the winding-up

convert

Article 3

Italian authorities

The
fully in
monitoring compliance with this Decision and shall
submit to the Commission the following documents:

cooperate

shall

(a) a detailed report by the Italian authorities on the
implementation of the Commission Decision and
of
in
the restructuring plan. The report must
particular:

— examine the economic and financial viability
of any entities of the group remaining under
State control by presenting detailed results
compared with the estimates contained in the
plan,

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Official Journal of the European Communities

4.5.1999

— detail any State intervention benefiting those
recapitalisation,

entities,
financing, guarantees, waiver of debts, etc.,

form of

in the

— provide a detailed analysis of the procedure
followed in the event of a merger between
Banca Nazionale del Lavoro and Banco di
Napoli,

— describe the extent to which the undertaking
and conditions set out in Article 2 have been
complied with.

The report must be sent every six months from
the date of the Commission Decision until the
and
date of
conditions set out in Article 2;

the undertaking

fulfilment of

(b)

and half-yearly) drawn up by

the balance sheets, accounts and reports (both
the
annual
management of the companies forming part of the
transaction under examination, namely Banco di
Napoli and Banca Nazionale del Lavoro, until the
date of the privatisation of the latter, the hive-off

vehicle Societa` di Gestione di Attivita` SpA, until it
has completed its mission, and Isveimer, until it
has been wound up. These documents must be
submitted to the Commission as soon as they are
approved by the boards of directors of the entities
in question.

The Commission may ask for such documents and the
implementation of the plan provided for in (a) and (b)
to be assessed by means of special audits.

Article 4

This Decision is addressed to the Italian Republic.

Done at Brussels, 29 July 1998.

For the Commission

Monika WULF-MATHIES

Member of the Commission