1999/508/EC: Commission Decision of 14 October 1998 conditionally approving aid granted by France to Société Marseillaise de Crédit (notified under document number C(1998) 3210) (Only the French text is authentic) (Text with EEA relevance)
Date: 1998-10-14
Institutions: European Commission
Subjects: France, State aid, aid for restructuring, aid to undertakings, capital increase, credit institution

30.7.1999

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Official Journal of the European Communities

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 14 October 1998

conditionally approving aid granted by France to SociØtØ Marseillaise de CrØdit

(notified under document number C(1998) 3210)

(Only the French text is authentic)

(Text with EEA relevance)

(1999/508/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

plan for the bank, the Commission concluded that no State aid
was involved (letter of 13 October 1993, D/9462).

Having regard to the Treaty establishing the European
Community, and in particular
subparagraph of
Article 93(2) thereof,

the first

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

Having given the parties concerned the opportunity to submit
in accordance with the abovementioned
their comments,
Articles,

Whereas:

1. INTRODUCTION

In July 1993 the French authorities informed the Commission
that between August 1993 and the beginning of 1994 SociØtØ
Marseillaise de CrØdit (SMC), a bank in which the French State
was the sole shareholder, was to receive a capital
injection
from the State amounting to some FRF 860 million, in two
instalments.

By letter of 3 October 1996 the Commission notified the
French authorities that on 18 September it had decided to
initiate proceedings under Article 93(2) of
the Treaty in
respect of other State measures in support of SMC (1). The
Commission took the view that the following measures might
contain State aid components caught by Article 92(1) of the
Treaty: (i) capital increases totalling FRF 1 241 million in 1994
and
of
FRF 858 million in 1996.

projected

increase

capital

1995;

and

(ii)

a

The Commission also said that it might re-examine the capital
increases which had been notified in 1993,
totalling FRF
860 million, if the information assembled in the course of the
proceedings it was now initiating showed that the assessment
in 1993 was based on incorrect
which it had made
there had been material changes in the
information, or if
circumstances which had led it to form a favourable opinion
of the aid.

By letter of 23 July 1998 the Commission informed the French
authorities that on 14 July it had decided to extend the
Article 93(2) proceedings to include a fresh injection of capital
into SMC amounting to FRF 2 909 million, and a guarantee to
cover possible claims of up to about FRF 400 million (2).

After examining the case on the basis of
the information
provided by the French authorities, including the restructuring

(1) OJ C 49, 19.2.1997, p. 10.
(2) OJ C 249, 8.8.1998, p. 11.

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2. DESCRIPTION OF THE MEASURES

2.1. Background

SMC has been a publicly-owned bank since its nationalisation
in 1982. Its legal form is that of a public limited company
governed by the Law of 24 July 1966 on commercial
companies, the Nationalisation Law of 11 February 1982, and
the Banking Law of 24 January 1984. It is also subject to the
its
Law of 26 July 1983 on public-sector democratisation:
five
board is made up of
five representatives of the State,
employee
and five
government-appointed figures selected for their expertise. As a
deposit bank its object is to carry out banking, financial and
commission-based operations of all kinds both inside and
It operates mainly in the south of France,
outside France.
where its clientele is made up principally of
small and
medium-sized enterprises operating in the region, traders, and
private individuals. Large companies established in the south
and real estate firms are also important customers.

elected by the

representatives

staff,

The bank has 156 branches in the south and altogether six
offices in Paris. It has a number of specialised subsidiaries in
banking-related areas, such as property financing.
It has no
foreign subsidiaries.

At the end of 1997 its balance-sheet total was about FRF
23 000 million. It had a total of 2 054 employees at that time.

SMC was profitable up to 1990,
though at a low and
its profitability,
from 1987 to 1990,
decreasing level:
expressed as the ratio between net profits and consolidated
own funds, fell from 5 % to 1 %. In the 1990s SMC entered the
property financing market, both on its own account and
through its specialised subsidiaries. These activities, which were
embarked on too rapidly just before the property market fell,
and often with insufficient selectivity and risk assessment,
resulted in heavy losses. In addition, operating costs, and in
particular staff costs, have remained at too high a level, both
In terms of the various
in absolute terms and individually.
productivity ratios (number of staff/net receipts from banking,
number of
staff
costs/staff), SMC is well above the average for banks belonging
to the Association Fran(cid:231)aise des Banques (hereinafter: (cid:145)AFB(cid:146)).

and executives/total

senior

staff,

staff

As from 1991 SMC began to register losses, which have today
reached a total of FRF 6 110 million (1991: FRF 11 million;
1992: FRF 451 million; 1993: FRF 317 million; 1994: FRF
1 257 million; 1995: FRF 952 million; 1996: FRF 22 million;
1997: FRF 3 100 million). The State as shareholder has thus
had to recapitalise SMC on several occasions so as to enable it
to comply with the European solvency requirements for banks.

The loss in 1994, which was almost equal to total own funds,
to provisions
was due to the magnitude of allocations
requested by the French banking supervisory authority,
the
Commission Bancaire,
following an inquiry which it had
carried out into SMC (3).

In 1995 SMC recorded a consolidated loss of FRF 952 million.
This was linked to FRF 330 million in provisions for real-estate
subsidiaries,
to which must be added FRF 400 million in
provisions for bad or doubtful debts (including FRF 80 million
in respect of real estate). According to the French authorities,
such provisions were due to the continuing economic crisis in
1995, which was particularly serious in the south, and to
SMC’s continuing failure to monitor commitments sufficiently.
In addition, operating costs remained too high as compared
with those of competitors.

Despite the financial reorganisation carried out in 1994 and
1995, SMC has continued to record losses. Its results for 1996
are once again weighed down with a heavy burden of
provisions. Substantial provisions had to be set aside for
leasing
doubtful debts,
operations,
Excluding
and
subsidiaries, total allocations to provisions and write-downs on
doubtful claims on customers and in respect of leased property
came to FRF 246 million; of this figure, claims on property
developers accounted for FRF 48 million, and other loans and
advances to customers for FRF 198 million.

claims on customers,

including
losses

property

claims.

on

Despite the effort at retrenchment, reflected in the sell-off of
selection of customers, and a
non-strategic assets, better
reduction in charges, SMC did not succeed in balancing its
accounts in the first half of 1997, when it made a consolidated
loss of FRF 1,8 million. New management was appointed in
December 1997, with a brief to put
forward proposals to
ensure the bank’s future, and it proceeded to analyse this result
exhaustively. Audits were
independent
consultants;
the further provisions
required would exceed the bank’s remaining own funds, and
would leave it in a position incompatible with the prudential
and regulatory constraints to which it was subject (4).

it became clear

carried out

that

by

(3) Provisions for real-estate transactions amounted to a total value of
FRF 555 million. (This includes FRF 320 million for the building in
rue Auber in Paris alone. It should be pointed out that in 1990 a
capital gain of FRF 570,5 million on real-estate promotion
transactions involving the Paris branch enabled SMC to offset the
current losses for the financial year with exceptional
income of
some FRF 400 million. However, at that time the speculative boom
on the property market was at its peak.) Losses on swaps and a
capital
loss on reclassification of a block of long-term securities
amounted to FRF 294 million. To this amount must be added FRF
191 million by way of backdated provisions for long-standing bad
debts and FRF 240 million by way of provisions specific to 1994
for loans to SMEs.

(4) The total additional provisions recommended by the independent
outside auditor amount to about FRF 2,2 billion, broken down as
lending portfolio, FRF 757 million; bad debts, FRF
follows:
368 million; subsidiaries, FRF 230; million social
liabilities, FRF
416 million; real-estate assets or claims, FRF 227 million; other,
FRF 245 million.

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In those circumstances, SMC’s shareholder took the view that
the only way to ensure that SMC had a future was to
recapitalise it and to associate it with a partner capable of
successfully completing its restructuring. The process of selling
off SMC was set in motion on 22 April 1998, when a notice
was published in the Journal officiel de la RØpublique fran(cid:231)aise
announcing that it would be sold by private treaty without any
conditions being attached. 16 banks were contacted (5), four
were allowed to inspect the documentation (6), and just one,
Banque Chaix, made a firm offer. Banque Chaix is a subsidiary
of CrØdit Commercial de France, a private French banking

group which owns a nationwide network of retail branches
and a number of regional banks; on 12 June 1998 Banque
Chaix signed the contract for the purchase of the shares in
SMC. On the same day SMC’s board approved the accounts for
1997, showing a consolidated loss of FRF 3 100 million,
fresh capital of FRF 2 909 million was
which meant
needed in order to reconstitute the minimum own funds
required by the prudential rules. Before transferring ownership,
the State decided to inject FRF 2 909 million by way of final
recapitalisation of
the bank, and to give the buyer an
additional guarantee of up to FRF 423 million.

that

Table 1

SMC: main financial indicators

(million FRF)

1992

1993

1994

1995

1996

1997

1 240

1 344

ﬂ 104

ﬂ 451

1 353

1 334

18

1 023

1 262

ﬂ 239

ﬂ 317

ﬂ 1 257

977

1 204

ﬂ 228

ﬂ 952

1 442

1 170

272

ﬂ 22

1 211

1 158

53

ﬂ 3 100

27 587

26 100

26 812

25 634

23 860

23 149

1 106

1 300 (1)

2 147 (1)

1 755 (1)

835

797

Overall operating income

Overheads and depreciation

Gross operating profit or loss

Net profit or loss

Balance-sheet total

Equity capital

(1) Including capital injections in 1993, 1994 and 1995.
Source: SMC annual reports 1992 to 1997

2.2. Grounds for initiating and later extending the

proceedings

the Commission took the view that

When it decided to initiate proceedings, on 18 September
1996,
there might be
elements of State aid within the meaning of Article 92(3) of
the Treaty, in the capital increases in 1994 and 1995, totalling
FRF 1 241 million (both operations being entered in the
accounts for 1994), and the projected capital increase of FRF
858 million in 1996.

The Commission pointed out
injections,
which between them amounted to FRF 2 099 million, had
become necessary to SMC’s survival because the recovery plan
drawn up in 1993 had failed. There was no restructuring plan

these capital

that

available which would return the company to long-term
viability within a reasonable time. It had not been shown that
a controlled liquidation would have been more costly than
recapitalisation, as the French authorities believed. Nor had it
been shown that the aid was proportionate and confined to
the minimum strictly necessary.

its

Lastly, although the Commission had approved the FRF
860 million in fresh capital notified in 1993, it had to check
whether
assessment had been based on incorrect
information, or whether there had been any material changes
in circumstances that might affect its previous assessment. In
either case the FRF 860 million notified in 1993 might also be
considered State aid.

(5) ABN AMRO; Argentaria, Spain; Banco de Santander, Spain; Banque
Chaix, Banque Nationale de Paris; BBV, Spain; BCH, Spain; Caisse
d’(cid:201)pargne Provence-Alpes-Corse; Carron & Cie (Korkmaz Yigit
Holding, Turkey); Cie FinanciŁre Edmond de Rothschild; CrØdit
Agricole; CrØdit Mutuel; Groupe Banques Populaires; La Caixa,
Spain; San Paolo, Italy; and SociØtØ GØnØrale.

(6) Banque Chaix, Banque Nationale de Paris, Caisse d(cid:145)(cid:201)pargne

Provence-Alpes-Corse, and SociØtØ GØnØrale.

It was for the same reasons that the Commission decided on
14 July 1998 that the new measures to assist SMC, consisting
of a capital injection of FRF 2 909 million and an additional
guarantee of some FRF 400 million, might likewise contain
elements of State aid. In the course of the proceedings the
Commission also wished to check whether the terms of the
involve aid to SMC, and
privatisation procedure might

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whether, in the light of the privatisation procedure followed,
the selling price might involve aid to the buyer.

They supplemented these observations in letters dated 7, 16
and 21 April, 26 August, and 10 December 1997, and 19 and
25 June 1998. In response to these letters the Commission
extended the proceedings, and the French authorities then put
forward further observations in letters dated 28 July, 12 August
and 11 September 1998.

3. OBSERVATIONS SUBMITTED BY INTERESTED PARTIES

In response to the notice announcing the decision to initiate
proceedings which was published in the Official Journal of the
European Communities, the Commission received the following
observations.

4.1. The capital injections

the principle of

SociØtØ GØnØrale, in a letter of 25 February 1997, comments
specificially on the Commission’s view regarding the costs
in its capacity as
which the State would have to bear
shareholder in the event that SMC were to be wound up.
SociØtØ GØnØrale argues that
the limited
liability of a shareholder does not apply to the main
shareholder in a bank, who has an added responsibility to
safeguard the confidence of depositors and markets. SociØtØ
GØnØrale cites the first paragraph of Article 52 of the French
Banking Law of 24 January 1984, which requires
the
Governor of the Banque de France to ask the shareholders in
an ailing bank to provide the support it needs. According to
(cid:145)in the event of difficulty a majority
SociØtØ GØnØrale,
shareholder clearly cannot evade the obligation to guarantee
the outstanding liabilities of a bank(cid:146).

is

substantially by

in a letter of 5 March 1997, supports SociØtØ
The AFB,
the principle of
GØnØrale’s view, arguing in particular that
limited liability
the
tempered very
aforementioned first paragraph of Article 52 of the Banking
Law. If it were accepted that the shareholder was liable only to
the
and
shareholding,
reorganisational measures taken in respect of credit institutions
would be deprived of the essential part of their effectiveness;
this could lead to failures and compulsory windings up, which
would not be conducive to creditor confidence or to the sound
operation of the economy (7).

preventive

extent

the

his

of

Following the extension of the proceedings decided on 14 July
1997 the Commission received no observations
from
interested third parties.

In their letter of 3 December 1996 the French authorities
stated that the recovery plan for SMC notified in July 1993
had been complied with in all essentials,
in particular with
respect to the reduction of staff costs. SMC’s poor results in
1994 could be attributed to a slower than anticipated increase
in net receipts from banking, and an increase, rather than the
hoped-for reduction,
in provisions and in the cost of bad
debts.

In their letter of 26 August 1997 the French authorities stated
that the injections of capital into SMC by the State apparently
had not distorted or threatened to distort competition. SMC
had not applied a pricing policy which distorted competition
between banks:
its rates on loans to customers were higher
than those offered by its competitors, and its charges for
services were at, or above, the average for banks in the same
area. SMC had not strengthened its competitive position at the
expense of other banks: since 1994 there had been a slow
erosion of its market share and a stagnation in the number of
its customers.

In their letters of 10 December 1997 and 18 and 25 June
1998 the French authorities stated that despite the effort at
retrenchment, reflected in the sell-off of non-strategic assets,
better selection of customers, and a reduction in charges, SMC
had not succeeded in balancing its accounts in the first half of
1997. Following in-depth analysis and exhaustive audits
carried out by the new management and by independent
the only
consultants,
solution capable of ensuring SMC’s future was to associate it
with a partner with the know-how needed to complete its
reorganisation. The authorities took the view that the decision
to recapitalise SMC for
time, by injecting FRF
the last
2,9 billion and providing a guarantee of some FRF 400 million,
would allow the bank to be sold to a private buyer prepared to
restructure it.

the French authorities concluded that

4. OBSERVATIONS SUBMITTED BY THE FRENCH
AUTHORITIES

the Commission observations
The French authorities
defending the measures at issue by letter of 3 December 1996.

sent

4.2. Costs of winding up

(7) The Governor of the Banque de France also sent a letter, at the
beginning of August 1997, which was outside the time properly
allowed in these proceedings.

In the course of the proceedings and by letter of 16 April
1997 the French authorities and the AFB supported SociØtØ
GØnØrale’s position, arguing in particular that there were three

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legislative provisions which substantially qualified the principle
of the limited liability of a shareholder in a bank: the first
paragraph of Article 52 of the Banking Law, already referred
to, Article 180 of the Law of 25 January 1985 on company
recovery and compulsory winding up, under which directors
in law or in fact who have mismanaged a company may be
required to make good all or part of
its liabilities, and
Article 1382 of the Civil Code, under which a person who by
a wrongful act causes injury to another person is liable for that
injury (8).

which in the past was more likely to be confined to the
domestic market of the particular Member State.

the survival of a domestic credit

Aid measures like the measures to assist SMC, designed to
institution which
permit
operates on a regional basis and which is suffering from
insufficient profitability and from an incapacity to meet
competitive challenges, are consequently liable to distort
competition in the Community, because they make it more
difficult for foreign banks to enter the French regional banking
markets.

In their letter of 21 April 1997 the French authorities supplied
a valuation of the costs of a voluntary winding up. They stated
that if instead of injecting fresh capital the State had decided to
wind SMC up on a voluntary basis at the beginning of 1995,
the cost of
the liquidation would have been around FRF
4,7 billion.

If the measures do contain an aid component, therefore,
it
must be concluded that they are caught by Article 92(1) of the
Treaty, because they constitute State aid which distorts
competition in a manner
trade between
Member States.

liable to affect

5. ASSESSMENT OF THE AID MEASURES

5.2. Do the measures constitute aid?

5.2.1. The procedure for the sale of SMC

5.1. Distortion of trade between Member States

regard to frontiers, but

The liberalisation of financial services and the development of
the common market
in such services are making trade
between Member States more and more sensitive to distortion
of competition.
In principle, banks carry on their business,
based mainly on the taking of deposits and the granting of
they do
loans, without
encounter obstacles to expansion abroad (9). These obstacles
are frequently due to the roots that domestic banks have in
their own areas, which make entry to the market more
capital
banks.
expensive
movements will make it easier for banks to offer their services
in other Member States, as CrØdit Lyonnais, Deutsche Bank
and Westdeutsche Landesbank have done, for example; and
any aid given to a local bank will obstruct this development.

Liberalisation

in fact

foreign

for

of

Competition between financial institutions in different Member
the background of
States is growing more intense against
economic and monetary union. With the creation of the single
currency, trade will be able to develop within the Community
free of exchange risks and exchange costs, and this will render
more acute the distortion of competition caused by State aid,

(8) See footnote 7.
(9) The entry of foreign banks into the French market is a relatively
recent phenomenon; they reached 8 % of the whole in 1993, but
fell back to 7,7 % in 1994.

When it extended the present proceedings, on 14 July 1998,
the Commission said it would have to check whether the
terms of the privatisation procedure that had been followed
might involve aid to SMC or to the buyer.

In its Twenty-third report on competition policy, covering the year
1993, the Commission set out its position on privatisation,
indicating when it might consider that a privatisation did not
involve State aid and when the privatisation procedure to be
followed could be presumed to include a State aid component,
so that the measure would have to be notified (10). According
to these principles there is no State aid, and no notification is
necessary, if the following conditions are met:

(cid:151) an unconditional competitive tender is held,

(cid:151) the tender is open to all comers and transparent,

(cid:151) the company is sold to the highest bidder, and

(cid:151) bidders are given enough time and information to carry
out a proper valuation of the assets as the basis for their
bid.

(10) Point 403, p. 255. The Director-General

already informed the French authorities of
position, by letter of 14 July 1993.

for Competition had
the Commission’s

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On the other hand, a transfer may entail elements of State aid
in the following cases:

(cid:151) sale after negotiation with a single prospective purchaser,
or a number of selected bidders, in which case there may
be aid to the buyer if the price is not a market price and is
underestimated,

(cid:151) sale preceded by the writing-off of debt by the State,
another public enterprise or any public body,
in which
case there is aid to the enterprise receiving the injection of
capital,

(cid:151) sale preceded by the conversion of debt into equity or by
capital increases, in which case aid is likewise given to the
enterprise receiving the injection of capital, and

(cid:151) sale on conditions that are not customary in comparable
in a market

investors

transactions between private
economy.

guarantee it required against any injury arising out of a
liability whose origin had not been revealed or a tax liability
which was identified but uncertain. The independent auditor
had evaluated the guarantee for the tax risk at FRF 123 million,
and this
shown to those who inspected the
documentation.

figure was

Banque Chaix, the only prospective buyer to make a firm offer,
asked for a guarantee against unrevealed liabilities and
inaccurate statements amounting to FRF 300 million. On
12 June 1998 Banque Chaix signed the contract to take over
SMC, subject to the condition that the Commission approve
the aid given to SMC by the State.

available

from those banks;

The Commission has examined the letters that the Treasury’s
consultant bank sent to the banks contacted with a view to the
privatisation of SMC;
the
the replies
valuation report on SMC drawn up by the consultant bank,
which was
the
sale given to those
documentation;
prospective buyers; and the contract for the transfer of the
shares in SMC signed by the buyer. On the basis of
the
information in its possession the Commission is satisfied that
the procedure followed ensured the necessary impartiality and
transparency for the sale.

to those
the draft contract of

allowed to inspect

In SMC’s case,
it appears at first sight that the sale might
involve aid both to the buyer and to SMC, because the
company is being sold by private treaty and because the sale
was preceded by an increase in capital; but a more thorough
examination of
it did
provide the necessary transparency and impartiality.

the procedure followed shows that

In addition, the State has imposed no obligations on the buyer
which might entail additional costs justifying a reduction in
the price of privatisation, other than those linked to the
implementation of the recovery plan.

The French Minister in charge, Mr Strauss-Kahn, issued a press
release announcing the sale on 21 April 1998, and on 22 April
a notice appeared in the Journal officiel de la RØpublique fran(cid:231)aise
stating that SMC would be sold by private treaty without any
special conditions attached; the bank acting as consultant to
the Treasury, Lazard FrŁres et Compagnie, then contacted 16
banks, both French and foreign, namely ABN AMRO;
Argentaria, Spain; Banco de Santander, Spain; Banque Chaix;
Banque Nationale de Paris; BBV, Spain; BCH, Spain; Caisse
d’(cid:201)pargne Provence-Alpes-Corse; Carron & Cie (Korkmaz Yigit
Holding, Turkey); Cie FinanciŁre Edmond de Rothschild; CrØdit
Agricole; CrØdit Mutuel; Groupe Banques Populaires; La Caixa,
Spain; San Paolo, Italy; and SG. Four of these asked to inspect
the documentation: Banque Chaix, Banque Nationale de Paris,
Caisse d’(cid:201)pargne Provence-Alpes-Corse, and SG. Only Banque
Chaix made a firm offer to buy SMC, on 3 June 1998.

Of the banks contacted all those that manifested an interest in
acquiring SMC were informed that before the handover, and
after allowance for the consolidated net profit or loss for
1997, SMC would be recapitalised so as to comply with the
European prudential and solvency ratios. The banks permitted
to inspect the documentation were given a draft contract for
the
the
recapitalisation and asked the prospective buyer to state what

SMC, which showed the

sale of

figure

for

The Commission is accordingly satisfied that
element of aid either
privatisation procedure followed.

to SMC or

to the buyer

there is no
in the

5.2.2. The capital injections and the guarantee

the capital

In its decisions to initiate these proceedings and then to extend
them the Commission indicated that
injections
might include a State aid component caught by Article 92(1)
of the Treaty. SMC is a publicly-owned bank set up by the
State and controlled by the authorities, so that any injection of
in
funds into it by the authorities constitutes State aid if
ordinary market conditions a private investor would not have
done the same (11).
there is aid the Commission has to
determine whether it is compatible with the Treaty.

If

(11) In order to determine whether injections of public money into an
enterprise constitute State aid,
the
principle of the private investor in a market economy: see the
Commission communication to the Member States (OJ C 307,
13.11.1993, p. 3).

the Commission applies

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the capital
the capital

The recapitalisation measures which may contain elements of
totalling FRF
State aid are:
860 million;
in 1994 and 1995,
amounting to a total FRF 1 241 million, entered in the
accounts for 1994; the capital injections in 1996, amounting
to FRF 858 million, entered in the accounts for 1995; and the

increases in 1993,
injections

injection announced in 1998,

capital
to be entered in the
accounts for 1997, amounting to FRF 2 909 million; this gives
an unadjusted total of FRF 5 868 million. The State guarantee
of FRF 423 million may likewise
include a State aid
component.

Injections of capital by the State into SMC considered in these proceedings

Table 2

Date

Funds provided
(million FRF)

Observations

1993
First instalment
Second instalment

1994
First instalment (1)
Second instalment

1995 (1)

1996 (1)

1998 (1)

460
160

95
326

On 13 October 1993, the Commission concluded that the contributions
of funds planned for 1993 to 1994, totalling FRF 860 million, were
outside the scope of Article 92.

The first instalment, FRF 95 million, and FRF 145 million of the second
instalment, giving a total amount of FRF 240 million, are to be regarded
as
included in the contributions proposed in 1993 which were
approved by the Commission on 13 October 1993. The amount on
which the Commission did not take a decision is FRF 181 million.

1 060

Information supplied at the end of April 1995

858

Information supplied at the beginning of June 1996

2 909

Information supplied in June 1998

Total at
current prices

5 868

(1) In respect of the previous financial year.

the Commission concluded on the
On 13 October 1993,
injection
basis of the information available that the capital
proposed in 1993 for the period 1993 to 1994,
totalling
FRF 860 million, was outside the scope of Article 92 of the
Treaty.

the

did

not

plan

1993

recovery

In the course of the proceedings, the Commission has been
shown observations made by the Commission Bancaire in a
letter of 27 December 1994 to the chairman of SMC’s board
of directors: the Commission gathers from these observations
follow the
that
recommendations of
the Commission Bancaire, which had
drawn attention to weaknesses in the bank’s system of risk
assessment. The Commission Bancaire emphasises that
the
development of new activities such as market operations and
property financing and of specialised subsidiaries has not
always been accompanied by the introduction of measurement
and monitoring machinery, with the result that management
and directors have sometimes not been aware or have had
the risks being taken. The
only an incomplete picture of
Commission Bancaire indicates that some of these weaknesses
had already been pointed out in an earlier report in 1992, and
nevertheless still existed in 1994. The Commission Bancaire
takes the view that in 1993 and 1994 no progress was made
with supervision of assistance to property developers or of

market operations, or with headquarters control over
network of branches and subsidiaries.

the

from factors
Thus, SMC’s negative results derive in part
to the bank which were foreseeable but which
internal
apparently were not
taken into account when the 1993
restructuring plan was drawn up. These factors were not
brought to the Commission’s attention when it assessed the
first capital
for 1993, which amounted to FRF
860 million.

injection,

that

therefore,

The Commission now takes the view,
the
injection of capital by the State in respect of the year 1993
does constitute aid caught by Article 92: the State, as the
shareholder, ought
the capital
injection would not produce a normal return; and indeed
rather than being able to anticipate an appropriate return on
its investment, without having to provide further financing, the
State actually had to inject additional capital which amounted
to even more than what had been decided in 1993.

to have been aware that

injections in 1994, 1995 and 1997
The successive capital
became
the
for
SMC’s
comprehensive restructuring measures applied since 1993

necessary

survival

because

L 198/8

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Official Journal of the European Communities

30.7.1999

failed to achieve some of
their objectives and were not
sufficient to restore the bank to viability. Under the plan, the
bank ought to have made a loss of about FRF 190 million in
1993 and become profitable from 1994 onward. In fact the
loss in 1993 turned out worse than forecast, at about FRF
317 million, and 1994 ended in a loss of FRF 1 257 million.
SMC had to turn to its shareholder in order to comply with
the minimum solvency ratio of 8 %. The same thing happened
in 1995. Given the worsening in the bank’s financial situation
in 1997, the State decided to launch the procedure for the sale
of SMC, because it had concluded that the only possible way
to ensure that the bank had any future was to associate it with
a solid partner with the know-how needed to complete its
restructuring. At the same time the State would recapitalise the
company for the last time in order to cover losses made and
risks incurred by the bank in the past.

Without the injection of State capital the bank would have
been obliged to seek bankruptcy proceedings. SMC is being
sold to a private buyer, who undertakes to restructure it; the
price to be paid is FRF 10 million, so that the State has not
recovered its investment nor obtained a return in proportion
to the risk of the operation. The State has not acted as a
private investor in a market economy would have done, and
the measures it has taken to assist SMC must be considered
State aid.

State

Turning now to the scale of the aid, it must be borne in mind
that all the increases in capital were intended to cover losses.
The
entirely
non-refundable.
the State aid
It must be concluded that
component in the capital injections is equal to the whole sum
of FRF 5 868 million.

financing was

therefore

almost

The Commission has also to evaluate the aid component in the
guarantee of FRF 423 million given by the State. The State
here undertakes to indemnify the buyer for any injury caused
by a liability whose origin was not revealed to it, or by a tax
liability which is precisely identified but uncertain. Whether or
this guarantee will be invoked is not clear, because
not
essentially it covers
identified and
risks which are not
hypothetical events internal to SMC.

The independent auditor evaluated the guarantee against tax
risks at FRF 123 million, and this figure was given to those
allowed to inspect the documentation. The draft contract given
to those prospective buyers asked each of them to indicate the
amount of
required against unrevealed
liabilities and inaccurate statements. The buyer who made a
firm offer evaluated the guarantee for unrevealed liabilities and
inaccurate statements at FRF 300 million.

the guarantee it

evaluated by

past,
it is reasonable for a buyer seeking to determine the
amount that should be covered by a guarantee of this kind to
be particularly prudent. The Commission considers, therefore,
that this valuation of the guarantee is justified, and that the aid
component is equal to the amount guaranteed. The tax risk
FRF
was
at
the uncertainty of
123 million;
the precise
determination of
there should be a margin of
variation of 10 % up or down in the value of the guarantee
covering it. The Commission should accordingly set
the
maximum State aid authorised by way of guarantee at FRF
435,3 million.

in view of
the risk,

independent

consultant

the

letter of 21 April 1997,

In their
the French authorities
observed that these capital injections were the solution least
costly to the State as shareholder.

that

indeed it

is convinced,

The Commission accepts,
the
confidence of depositors and markets in the sound operation
and stability of credit institutions must be maintained. Respect
for market discipline, with the possibility that structurally
unprofitable credit institutions may be penalised and in some
cases pushed out of the market, is one of the foundations of
that confidence. To keep alive institutions which have no
of
provokes
prospect
competition, raises a problem of moral hazard, and ultimately
renders the rest of the banking system more fragile. It also
seriously distorts the allocation of funds, and thus leads to
lopsided development in the economy as a whole.

distortion

recovery

serious

of

In a market economy, shareholders will as a rule support an
economic activity if it has sufficient prospect of profitability in
the long term. Conduct of that kind will usually be compatible
with the private investor principle.

In exceptional cases a shareholder may judge it advisable to
provide support even though there is no sufficient prospect of
the business becoming profitable,
in order to safeguard his
own reputation. In order to establish that the conduct of the
State in its capacity as shareholder does not constitute State
aid, therefore, it must first be shown that its reputation is at
stake in the particular case in the same way as the reputation
of a private shareholder might be. But even if that test is
the State still cannot escape the application of
satisfied,
Article 92 of the Treaty without contravening Article 222. If
that were possible, public enterprises, whose shareholders have
unlimited powers of
intervention, would all be outside the
scope of Article 92. Where the shareholder is the State,
therefore, any contribution on its part that goes beyond what
a private shareholder would normally provide in similar
circumstances can be considered State aid liable to cause
distortion of competition.

In view of SMC’s financial position, and the fact that its real
provisioning requirements have been underestimated in the

The Commission takes the view that,
in the event of a
liquidation, it is only exceptionally that a shareholder will be
liable beyond the amount of his shareholding. He may have a

30.7.1999

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Official Journal of the European Communities

L 198/9

in the

fraud, or

liability in cases of

specific
case of
mismanagement or wrongful conduct of the kind cited by the
French authorities here, if he can be shown to have committed
the financial
the offence, and then only to the extent of
consequences of his actions (12). But even if
it were to be
shown that the State as shareholder could be deemed to be a
director or manager of the business, in law or in fact, or that it
had committed acts of mismanagement or other wrongful acts
causing injury to others, and that the financial injury for which
it was liable was equal to the amount of the aid, such rules
could not allow the State to escape the application of
Article 92 without breaching the principle of law according to
which one is not entitled to base a claim on one’s own
wrongdoing (nemo auditur propriam turpitudinem allegans). The
Commission takes
the general
principle of the limited liability of a shareholder in a limited
company applies here as elsewhere.

the view,

therefore,

that

finds itself

in difficulty, but

it would point out

The French authorities have cited the first paragraph of
Article 52 of the French Banking Law; the Commission does
not contest the validity of this provision in the light of the
that
European Banking Directives. But
under this rule shareholders are to be asked to support a credit
institution that
they are not
required to do so. Neither the French authorities nor the other
interested parties have referred to any obligation on the part of
shareholders to provide support. In some French bank failures
the shareholders have been asked to support the bank by the
Governor of the Banque de France, and have refused; and in
the recent Compagnie du BTP case the Paris Court of Appeal
confirmed that Article 52 of the Banking Law was not be
interpreted as binding on the shareholders (13). Where the
main shareholders in banks have indeed provided support,
they have done so either to safeguard their interests as owners
of other businesses or to avoid graver legal consequences. This
cannot be taken to mean that a shareholder in a bank is
always and everywhere under a general obligation to meet the
bank’s liabilities. Such an obligation would de facto run counter
to the principle that the liability of the shareholders is to be
borne by them in proportion to the capital
they have
contributed to the company. And if such an obligation existed
it would constitute discrimination between privately- and
publicly-owned banks, because a private investor does not
have access to the same unlimited resources as the State. In
practice, it would make it impossible for a private shareholder
to have majority control of a privately-owned bank of any
size, because of the colossal sums it might be called on to find,
and would thus further discriminate between privately- and
publicly-owned banks.

the

in its

capacity as

in particular

constitutes State aid, a distinction has to be drawn between
the State may have to bear in its capacity as
costs that
it may have to bear for other
shareholder and costs that
reasons,
authority
responsible for monetary and financial stability. The argument
that the State as shareholder is liable for outstanding liabilities
on liquidation, over and above its contribution to the capital,
has already been rejected by the Commission and by the Court
of Justice of the European Communities, on the grounds that
to extend its liability in this way would blur the distinction
between the roles of the State as shareholder and the State as
guardian of public welfare (14). When the costs of the course
chosen are to be compared to the costs of alternatives, then,
the only costs that are relevant are those borne by the State in
its capacity as shareholder, because the answer to the question
whether there is State aid depends on how the State behaves
as compared with how a private investor would behave. It will
be obvious that other irrelevant costs, such as social costs or
taxes, may not be included in the comparison either, because
in ordinary circumstances the company or the shareholders
would have to bear these costs out of their own resources, and
in the event of liquidation the shareholders would not be liable
for them beyond the value of the capital or guarantees they
have subscribed (15).

In SMC’s case, the Commission would point out first of all that
the cost of the reorganisation to the State would have been
lower if an in-depth analysis had been carried out and drastic
restructuring measures taken earlier (cid:151) certainly no later than
the first report by the Commission Bancaire in 1992. A private
investor might have been expected to intervene following the
poor results at the beginning of the 1990s, rather than waiting
until the company had made losses for seven consecutive years
before taking the necessary restructuring measures. In taking
this passive stance,
the State was not acting as a prudent
shareholder would. Thus, the French authorities’ argument that
the cost of winding up would have been heavier than the cost
of recapitalisation cannot be accepted.

Secondly,
the Commission rejects the argument seeking to
extend the liability of the State as shareholder to include any
outstanding liabilities on liquidation beyond its contributions
to the capital of the company for the following reasons:

The French authorities argue that in its capacity as shareholder
the State ought to bear the company’s liabilities by reason of a
responsiblity for a lack of supervision or for negligence on its
own part
the authority it has over
institutions of this kind; the Commission would point out that
when seeking to determine whether or not State action

in the exercise of

(12) See Articles 179 and 180 of the French Law of 25 January 1985
on company recovery and compulsory winding up, Journal officiel
de la RØpublique fran(cid:231)aise, 26.1.1985.
(13) Judgment delivered on 13 January 1998.

(cid:151) the argument

for extending liability has not made any
distinction between the State’s obligations as shareholder
and the obligations it considers itself bound by in other
capacities, as guardian of the public welfare with a duty to
preserve social stability, for example, or as the monetary
authority,

(14) See in particular the Commission Decisions in Bull (OJ L 386,
31.12.1994, p. 1), CrØdit Lyonnais (OJ L 308, 21.12.1995, p. 92),
and Efim (OJ C 349, 29.12.1993, p. 2), and the judgment of the
Court of Justice in Hytasa (Joined Cases C-278/92, C-279/92 and
C-280/92 [1994] ECR I-4103).

(15) Always provided these are guarantees subscribed on commercial

terms and do not constitute State aid measures.

L 198/10

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Official Journal of the European Communities

30.7.1999

(cid:151) the

of

has

been

liability

extension

presented

In particular,

the 1985 Act.

as
unconditional and unlimited, rather than in the restrictive
framework of
the French
authorities have not shown that the State as shareholder
was in law or in fact responsible for the management of
SMC, and that by virtue of that position it was under an
obligation to grant
issue, by reason of a
responsibility for fraud, or mismanagement, or wrongful
acts causing injury to others. Nor have they shown that
the financial consequences of any such responsibility were
equal to the amount of the aid,

the aid at

(cid:151) even if all these factors had been proven, which they have
the State to escape the
not,
they could not permit
application of Article 92 without
contradicting the
principle of law, already mentioned, that one may not base
a claim on one’s own wrongdoing,

(cid:151) the authorities have not argued that the reputation of the
State is at stake here in the way that a private shareholder’s
reputation might be. But even if this argument had been
invoked,
the State to escape the
application of Article 92 without infringing Article 222.

it could not permit

Accordingly, a private investor would not have carried out
such recapitalisation or given such a guarantee; and as the
measures are liable to affect trade between Member States, they
do contain elements of State aid within the meaning of
Article 92(1). As the Commission made clear at the outset of
the proceedings, the measures may be held to be compatible
with the common market only under Article 92(3)(c), on the
basis of the new restructuring plan put forward by the buyer,
which must in particular show that the company can become
viable.

5.2.3. The possibility that the selling price might involve aid to the

buyer

When it extended the proceedings on 14 July 1998,
the
Commission said it would have to check whether, in the light
of the privatisation procedure pursued, the selling price might
involve aid to the buyer.

At
recital 5.2.1,
privatisation procedure
transferred with the necessary impartiality and transparency.

the Commission concluded
ensured that SMC’s

the
that
shares were

The bank acting as consultant to the Treasury has estimated
the value of the company; if the buyer, Banque Chaix, bought

the shares at a price below their value, there would be a
presumption that it had received State aid.

The value of SMC as estimated by the Treasury’s consultant
bank, after recapitalisation by the State and before deduction
of the costs of any redundancy programme, varies between
FRF 50 million and FRF 250 million. The consultant bank used
several methods ordinarily applied in the valuation of
stock
businesses, based on revalued net
exchange value, and current
the own
funds. The consultant bank’s valuation clearly specifies that it
takes no account of
restructuring costs deriving from a
it has been estimated that a restructuring
reduction in staff:
plan costing between FRF [(cid:133)] (*) million and FRF [(cid:133)] (*)
million is needed, which would have to be paid for by the
buyer.

transaction value of

current

assets,

On the basis of this valuation, and once the restructuring costs
deriving from a reduction in staff are taken into account, the
value of the bank is negative.

procedure

followed, which

the privatisation

Under
is
considered to be impartial and transparent, the only firm offer
for the acquisition of SMC was that made by Banque Chaix,
which offered FRF 10 million. The recovery plan, to be paid
for by the buyer, will cost Banque Chaix a total of some FRF
950 million, equal to the accumulated losses forecast for the
three years 1998, 1999 and 2000: in order to comply with
the regulatory solvency ratios it will have to offset these losses
by recapitalising the company.

The total cost to be borne by the buyer includes the cost of
implementing the redundancy programme, which has been
estimated at around FRF [(cid:133)] (*) million. Even allowing for the
possibility that the buyer might invoke the State guarantee of
FRF 423 million for any unidentified risks, the price paid is a
positive price, and exceeds
the value estimated by the
consultant.

The Commission concludes that the selling price agreed by the
parties is a market price and does not involve aid to the buyer.

5.3. The compatibility of the aid granted

In considering the compatibility of the aid the Commission
in the
will be following the general principles

set out

(*) Some parts of this text have been edited so as not to disclose
those parts are contained in square

information;

confidential
brackets and asterisked.

30.7.1999

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Official Journal of the European Communities

L 198/11

aid for

rescuing

Community Guidelines on State
and
restructuring firms in difficulty (16), which clarify the tests
which must be satisfied if aid of this kind is to be considered
compatible with the Treaty. The measures at issue here are not
(cid:145)rescue(cid:146) measures within the meaning of
the Guidelines,
because they are not temporary measures taken pending a
restructuring operation, so that it remains to be considered
whether they constitute restructuring aid, and if so whether
they satisfy the tests for the compatibility of restructuring aid.

The Commission believes that restructuring aid can (cid:145)facilitate
the development of certain economic activities(cid:146) and (cid:145)does not
adversely affect trading conditions to an extent contrary to the
common interest(cid:146) where the following conditions are met.

1. There must be full implementation of a restructuring plan
which within a reasonable time restores
the requisite
minimum return on capital invested, and thus ensures the
long-term viability of the business.

2. There must be a quid pro quo sufficient

the
distortive effect of the aid on competition, so that it can be
concluded that the aid is not contrary to the common
interest.

to offset

3. The aid must be in proportion to the objectives pursued,
and limited to the strict minimum necessary to enable
restructuring to be undertaken,
the effort of
recovery is as far as possible borne by the firm itself.

so that

The Commission accordingly takes the view that
in these
proceedings all the measures in support of SMC that constitute
State aid should be considered for their compatibility with the
Treaty together, in the light of the most recent restructuring
plan, which was drawn up by the buyer.

5.3.1. The restructuring and viability measures

few years.

The restructuring plan submitted is based primarily on a
continuation of the rationalisation already undertaken in the
last
In the period 1994 to 1996 non-strategic
holdings were sold off for FRF 221 million. Steps were also
taken to reduce operating costs; these included staff reductions
of about 1 000 (772 between 1990 and 1994, and 210
between 1994 and 1997), and out-sourcing of financial and
administrative skills within the retail banking business. SMC’s
commercial position declined by 20 % between 1995 and
1997. In the area it covers, its share of total funds employed
fell by 20 %, from 2,55 % in December 1995 to 2,02 % in the
second half of 1997.

Banque Chaix proposes to make SMC into a profitable regional
bank able to finance its own development; this will require
further efforts in a number of areas:

(cid:151) the

remaining non-core businesses will have

to be

abandoned, and wound up or sold off,

4. The restructuring plan must be implemented in full, and
laid down by the Commission

any other obligations
decision must be discharged.

(cid:151) there will have to be a significant and lasting reduction in

operating costs,

5. Arrangements must be made for monitoring compliance

with the preceding condition.

(cid:151) organisation and working methods will have

to be

modernised and simplified.

The information supplied by the French authorities at the time
of the injections of capital into SMC in respect of 1993, 1994
and 1995 did not enable the Commission to make a proper
assessment of the viability of the bank.

The plan put forward by Banque Chaix covers the period 1997
to 2002; the main points are as follows.

The new State measures to be taken in respect of 1997 are
the attempts at
thus partly the result of
comprehensive restructuring undertaken since 1993 have
failed.

the fact

that

(16) OJ C 368, 23.12.1994, p. 12.

(a) SMC is to concentrate entirely on its core business as a
Its balance sheet will contract by FRF
local bank.
2 910 million, equal to 12,6 % of its 1997 figure, as a
result of the closure of its banking subsidiary Soficim (5 %
of the 1997 balance sheet), the abandonment of assistance
to property developers (2 % of the 1997 balance sheet),
the ending of other property business (3 % of the 1997

L 198/12

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Official Journal of the European Communities

30.7.1999

balance sheet),
the ending of venture capital business
(0,7 % of the 1997 balance sheet), the sale of GP Banque,
and the abandonment of lending to local authorities.

redundancy programme comes on top of the two earlier
redundancy programmes, which cost a total of FRF
256 million and achieved a saving of about 10 % in staff
costs.

(b) A redundancy programme is to be implemented, paid for
by Banque Chaix, costing some FRF [(cid:133)] (*). million, and
saving 28 % of staff expenditure in 2002 by comparison
in 2002 the staff will
with 1997.
in 1997. This
number [(cid:133)] (*), as compared with[(cid:133)] (*)

is planned that

It

(c) Overheads other than staff costs are to be reduced by
26 % in 2002 as compared with 1997, as a result of
administrative rationalisation and simpler and slimmer
structures.

Table 3

Business plan for SMC submitted by the buyer

1997

1998

1999

2000

2001

2002

(million FRF)

Net receipts from banking

Staff costs

Severance payments

1 211

ﬂ 691

ﬂ30

947

907

948

1 004

1 083

ﬂ 676

ﬂ 684

ﬂ 595

ﬂ 510

ﬂ 520

ﬂ30

0

Other overheads and depreciation

ﬂ 437

ﬂ 390

ﬂ 347

Total charges

ﬂ 1 158

ﬂ 1 096

ﬂ 1 031

Gross operating profit or loss

53

ﬂ 149

ﬂ 124

0

ﬂ 342

ﬂ 937

11

0

ﬂ 338

ﬂ 848

156

0

ﬂ 325

ﬂ 845

238

Operating ratio

Provisions

95,6 %

115,7 %

113,7 %

98,8 %

84,5 %

78,0 %

ﬂ 3 153

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

Profit or loss after provisioning

ﬂ 3 100

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

Cost of restructuring plan (1)

0

[(cid:133)] (*)

0

0

0

0

Profit or loss

ﬂ 3 100

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

Accumulated profit or loss 1998, 1999, 2000

ﬂ 950

Own funds after recapitalisation

487

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

(1) Cost of social restructuring, including all spending linked directly or indirectly to the redundancy programme.

In the first phase of

As a result of these measures the decline in the company’s
business should stop in 2000.
the
restructuring plan (1998 to 2000), it is expected that operating
results will worsen significantly once again; the correction of
assets and the reduction of exposures will lead to a big drop in
net receipts from banking; at the same time reorganisation and
the slimming down of the bank will bring major extra costs.
The total amount of losses over the period 1998 to 2000 will
be about FRF 950 million.

The bank is expected to be profitable once again in 2002, with
a return on own funds of about 20 % and a return on the
buyer’s investment (ROI) of about 11 %. This would be the
result of an appreciable recovery in the operating ratio,
brought about by the
redundancy programme and the
synergies achieved in cooperation with the buyer’s own group,
and a return to a normal pattern with regard to the cost of
risk.

These new operating losses will necessitate one or more
injections of capital by the buyer, totalling FRF 950 million.
This recapitalisation will cover only the fresh operating losses
recorded between 1998 and 2000, and will not increase the
amount of SMC’s own funds after profit or loss, or its overall
financial capacity. Banque Chaix’s intention is to hold SMC’s
own funds to the regulatory minimum of 4 %. Given the
changes
the
exposures
concentration on core business and the reduction in capacity,
the level of SMC’s (cid:145)hard(cid:146) own funds will remain below FRF
500 million throughout the period 1998 to 2001.

associated with

in weighted

The Commission concludes that the first test laid down in the
Guidelines, namely that the firm must be restored to viability
within a reasonable time, is satisfied.

5.3.2 The quid pro quo

In order to ensure that the aid does not have the effect of
restoring to the market a firm which is excessively strong and

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Official Journal of the European Communities

L 198/13

in a position revert to an unreasonably aggressive policy, the
firm receiving the aid must finance a significant part of the
costs of restructuring out of
its own resources. Under the
principle laid down in the Guidelines, the recipient firm must
not merely sell off subsidiaries and lines of business which are
a burden on its accounts, but must also dispose of quality
assets and subsidiaries, thus securing the resources necessary to
finance restructuring, minimising the demands made on the
public purse, keeping the amount of new aid to a minimum,
and forcing the firm to make a significant contribution to its
own restructuring.

Since 1992, SMC’s balance-sheet
total has been falling
from FRF 24 597 million in 1992 to FRF
continuously,
23 149 million in 1997, a drop of 16 %. This decline is the
result primarily of a reduction in loans and advances to
customers, reflecting the fall
in funds employed (a drop of
18,9 % between 1994 and 1997), and of a 40 % reduction in
the gradual decline in the
leasing business as a result of
volume of business of SMC’s subsidiary PBS.

(ii) Reduction of retail banking business

Over the two years 1998 and 1999 SMC’s net receipts
from banking are to fall by 25 % by comparison with
1997, which was itself 15 % down on 1996. Over the
same period exposures on customer business and on
securities portfolios will fall by the same proportion. This
reduction in the retail banking business will result from
deliberate action undertaken to regain control of credit
policy and from the options for the targeting of customers
set out in the buyer’s plan.

(iii) Out-sourcing of specialised financial and administrative

skills

Within the retail banking business SMC intends to hive off
specialised activities, especially:

these

But
management.

reductions are

in part due

simply to poor

(cid:151) safekeeping of securities,

The further action taken by SMC, and the business plan
proposed by the private buyer, make provision for additional
offsetting measures of three kinds.

(cid:151) management on behalf of third parties: SMC will no
longer itself produce the financial products it sells to
customers, where
billion
there was
outstanding on 31 December 1997,

FRF

5,5

(i) The immediate and definitive abandonment of five lines of

business

(cid:151) cash and market activities,

(cid:151) the closure of Soficim, one of

the last French
institutions specialised in real-estate loans direct to its
own clientele (which is separate from the clientele of
the network),

(cid:151) handling of cheques.

(cid:151) the sale of GP Banque, which was to have been the
in the international

vehicle of SMC’s development
sphere,

(cid:151) an end to the property-leasing business centred on the

subsidiary PBS, which is to be sold,

(cid:151) the abandonment of lending to local authorities, and

sale of the portfolio,

(cid:151) an end to the venture capital business, which had been

built up via several specialised subsidiaries.

In view of the considerations regarding the viability of
SMC and the quid pro quo required which are set out
above,
the Commission
the condition laid down in the
takes
distortion of
Guidelines
competition is met.

in particular at point 5.3.2(i),
the view that
that

there be no undue

5.3.3. Other conditions

There are other conditions that must be met under
Guidelines.

the

This will involve a further reduction of FRF 2 910 million
in SMC’s balance sheet, equal
the 1997
balance sheet and 10 % of net receipts from banking in
1997.

to 12,6 % of

The principle that aid must be limited to the strict minimum
means that SMC’s own funds must be sufficient to meet its
regulatory obligations but must not be increased beyond what
is strictly necessary. The Commission observes that the scale of
the recapitalisation being carried out by the State is dictated by

L 198/14

EN

Official Journal of the European Communities

30.7.1999

its obligation as the shareholder to comply with the rules on
minimum own funds, unless it decides instead to wind up the
bank. The buyer is left free to inject what further capital
it
considers appropriate in view of
the SMC’s activities and
portfolio; so that it can be concluded that after State aid has
been granted SMC’s level of capitalisation will not be such as
to strengthen it beyond what
is strictly necessary for its
restructuring.

In accordance with the Guidelines, the losses offset by the
capital increases must not be carried over for tax purposes.

HAS ADOPTED THIS DECISION:

Article 1

The measures taken by France to support SMC, taking the
form of capital
increases of FRF 5 868 million and a State
guarantee of FRF 423 million, constitute State aid within the
meaning of Article 92(1) of
the Treaty. They are hereby
declared compatible with the common market and with the
EEA Agreement
the
Treaty and Article 61(3)(c) of the Agreement, subject to the
conditions in Article 2. The aid hereby authorised is limited to
FRF 6,3033 billion.

in accordance with Article 92(3)(c) of

Lastly, it must be established that the restructuring plan has
been properly implemented. The French authorities should
submit six-monthly reports to the Commission from the date
of the Commission decision and until the date of performance
of the commitments in the restructuring plan.

France

1.
implement
Commission,
therein.

Article 2

confirm that
restructuring

fully
shall
the
the
including the reductions in activity proposed

company will
to
submitted

the
plan

6. CONCLUSIONS

The Commission concludes that the capital increases in 1993,
1994, 1995 and 1997, which totalled FRF 5 868 million, and
the guarantee of FRF 423 million contain elements of State aid
within the meaning of Article 92(1) of the Treaty. Given the
uncertainty of the precise value of the tax risk, the guarantee
covering that risk can be considered subject to a margin of
variation of 10 % on either side. The total estimate of the aid
authorised is accordingly FRF 6,3033 billion.

Consideration has been given to the measures in the light of
Article 92(3)(c) of the Treaty to establish whether they can be
considered compatible with the
common market. The
Commission is satisfied that the aid given to SMC meets the
conditions laid down in the Community Guidelines on State
aid for rescuing and restructuring firms in difficulty. The aid
accordingly qualifies for exemption from the prohibition in
Article 92(1) of
the EEA
Agreement, because it may be considered compatible with the
common market under Article 92(3)(c) of
the Treaty and
Article 61(3)(c) of the EEA Agreement,

the Treaty and Article 61(1) of

France shall submit to the Commission detailed six-monthly
reports containing all the information the Commission needs
to be able to verify that the restructuring plan is proceeding
properly.

France shall ensure that SMC cannot carry forward for

2.
tax purposes the losses offset by the capital increases.

Article 3

Within two months of notification of this Decision France
shall inform the Commission of the measures taken to comply
with it.

Article 4

This Decision is addressed to the French Republic.

Done at Brussels, 14 October 1998.

For the Commission

Karel VAN MIERT

Member of the Commission