2006/736/EC: Commission Decision of 20 October 2004 on State Aid implemented by Germany for Landesbank Berlin — Girozentrale (notified under document number C(2004) 3924)   (Text with EEA relevance)
Date: 2004-10-20
Institutions: European Commission
Subjects: Germany, State aid, bank, capital increase, control of State aid, share

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 20 October 2004

on State Aid implemented by Germany for Landesbank Berlin — Girozentrale

(notified under document number C(2004) 3924)

(Only the German text is authentic)

(Text with EEA relevance)

(2006/736/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Commu-
nity, and in particular the first subparagraph of Article 88(2)
thereof,

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

increase in WestLB
which had given rise to a capital
through the incorporation of
the housing organisation
Wohnungsbauförderanstalt (‘WfA’) and on similar increases
in the own funds of the Landesbanks of other Länder.
Germany replied in March and September 1993, providing
a description of the transfer of Wohnungsbau-Kreditanstalt
Berlin to Landesbank Berlin — Girozentrale. The Commis-
sion requested further
information in November and
December 1993, which Germany provided in March 1994.
Berlin was explicitly mentioned in the first of the two
requests.

Having called on the Member State and other interested parties
to submit their comments pursuant to the provisions cited
above (1) and having regard to their comments,

(3)

Whereas:

I.

PROCEDURE

(1)

The subject of these proceedings is the transfer, by the Land
of Berlin, of Wohnungsbau-Kreditanstalt Berlin, with its
assets, to Landesbank Berlin — Girozentrale. There are a
further six cases in which proceedings have been initiated
against Germany in connection with transfers of assets to
Landesbanks, and in particular to Westdeutsche Land-
esbank — Girozentrale (‘WestLB’).

(2)

By letter of 12 January 1993,
the Commission asked
Germany for information on the circumstances and reasons

(1) OJ C 239, 4.10.2002, p. 12.

By letters of 31 May and 21 December 1994,
the
Bundesverband deutscher Banken e.V. (‘BdB’), an association
established in Germany,
representing private banks
informed the Commission that, as at
the close of
31 December 1992, Wohnungsbau Kreditanstalt Berlin
(‘WBK’) had been transferred, with its assets, to Landesbank
Berlin — Girozentrale (‘LBB’), while the tasks previously
assigned to WBK had been transferred to the recently set-up
Investitionsbank Berlin (‘IBB’), which was operating as a
division of LBB. This increased the own funds at LBB's
disposal, and, in the BdB's view, distorted competition in
since the parties had not agreed any
LBB's
remuneration which might be in line with the principle
of the market-economy investor. In its second letter, the
BdB accordingly lodged a formal complaint and called on
the Commission to initiate proceedings against Germany
under Article 93(2) of the EC Treaty (now Article 88(2)).
The complaint also related to similar transfers of assets to
Westdeutsche
Landesbank,
Landesbank, Norddeutsche
Landesbank Schleswig-Holstein, Hamburger Landesbank
and Bayerische Landesbank. In February and March 1995
and December 1996 several banks associated themselves
individually with the complaint lodged by the BdB.

favour

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(4)

found that

The Commission first examined the transfer of assets to
In Decision 2000/392/EC finally adopted in
WestLB.
1999 (2),
the difference between the
it
remuneration paid and the normal market remuneration
constituted state aid which was incompatible with the
common market, and ordered its recovery. This decision
was annulled by the Court of First Instance of the European
Communities in a judgment handed down on 6 March
2003 (3) for not giving sufficient reasons as regards two of
the factors used to calculate the appropriate remuneration,
but it was confirmed in all other respects. At the same time
as the decision in the present proceedings, and having been
informed of an understanding between the complainant
and all seven Landesbanks concerned, the Commission is
adopting a new decision taking account of the Court's
criticisms.

(5) On 1 September 1999 the Commission sent Germany a
request for information on the transfers of assets to the
other Landesbanks, including LBB.

(11) By decision of 18 February 2004,

the Commission
approved the restructuring aid for Bankgesellschaft Berlin
AG, to which LBB belongs. The decision also covered an
agreement concluded on 23 December 2002 by the Land of
Berlin and the BGB on the treatment of any claims to
repayment brought by the Land of Berlin and arising out of
the state aid case at issue here; this agreement was regarded
as restructuring aid (5).

(12) By letter of 7 April 2004 the Commission asked Germany
for further information on all the Landesbank cases, which
Germany sent on 1, 2 and 28 June respectively.

(13) On 31 August 2004 Investitionsbank Berlin (formerly
WBK) was hived off from LBB's assets. Germany sent the
Commission detailed documentation on the related legal
and other provisions on 25 August 2004.

(6)

By letter of 8 December 1999, Germany submitted
information on the transfer of WBK to Landesbank Berlin,
which it supplemented by letter of 22 January 2001.
Representatives of Germany and the Commission also
discussed the question of the transfer and possible recovery
of any aid in connection with the examination of
restructuring aid to Bankgesellschaft Berlin (‘BGB’),
to
which Landesbank Berlin has belonged since 1994.

(14) On 27 September 2004 Germany submitted the draft of an
understanding between the complainant (the BdB), the Land
of Berlin and Landesbank Berlin, the signed version of
which reached the Commission on 8 October 2004. This
understanding covers the appropriate remuneration for the
assets transferred to LBB on 1 January 1993. Similar
understandings
involving
transfers of assets to Landesbanks were also submitted to
the Commission.

reached in five other cases

(7)

By letter of 2 July 2002,
the Commission informed
Germany of its decision to initiate the procedure laid down
in Article 88(2) of the EC Treaty in respect of the aid.

II.

1.

DETAILED DESCRIPTION OF THE MEASURES

LANDESBANK BERLIN — GIROZENTRALE (‘LBB’)

(8) After having requested, and been granted, an extension of
the deadline, Germany submitted its comments and
provided additional information by letter of 9 September
2002. Further questions were discussed at meetings with
representatives of Germany on 27 September 2002.

(9)

The Commission decision to initiate the procedure was
published on 4 October 2002 in the Official Journal of the
European Communities (4). The Commission called on
interested parties
received
comments from a competitor and from the BdB, which it
forwarded to Germany for its opinion in November 2002.
Germany replied by letter of 16 December 2002.

to submit

comments.

It

(10) At the Commission's request, Germany sent further details
about the potential aid by letters of 22 and 27 January,
28 February and 19 August 2003.

(15) LBB was set up in 1990 and, at the same time, the West
Berlin Savings Bank (Sparkasse der Stadt Berlin West) was
transferred to it by way of universal succession. Shortly
afterwards, the East Berlin Savings Bank (Sparkasse der
Stadt Berlin) was also transferred to LBB. Since then, the
savings bank business in the city of Berlin has been
conducted by a separate, legally dependent division of LBB
called ‘Berliner Sparkasse’.

(16) LBB is a public-law institution (Anstalt des öffentlichen Rechts)
for which the Land of Berlin bears institutional and
guarantor liability. At the time of the transfer of WBK at
the end of 1992, LBB was solely owned by the Land of
Berlin and had a balance-sheet total of some DEM 85 billion
and just under 7 000 employees. LBB is an all-purpose
bank with business in personal and corporate banking
(retail banking), real-estate financing and lending to the
public sector. It also conducts business abroad. In 1992 its
main line of business was the Berliner Sparkasse's retail
business.

(2) OJ L 150, 23.6.2000, p. 1.
(3)
(4) OJ C 239, 4.10.2002, p. 12.

Joined Cases T-228/99 and T-233/99 [2003] ECR II-435.

(5) Paragraphs 32 et seq. and 141 of the Commission decision on
restructuring aid for Bankgesellschaft Berlin AG (not yet published in
the Official Journal).

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(17) Since 1994 LBB has belonged to the BGB group, a group of
institutions set up in that year by merging a number of
credit institutions previously owned by the Land of Berlin.
BGB is the holding company, with an atypical silent
partnership which since 1994 has given it about 75 % of
the assets and the profits of LBB, with the exception of the
central Land promotion institution, IBB. In 1998 the Land,
as LBB's guarantor, made over its claim to a share of LBB's
profits to BGB; this made BGB the 100 % beneficial owner.
The BGB group had a balance-sheet total of just under
€190 billion in 2001, some €175 billion in 2002 and some
€153 billion in 2003. LBB's balance-sheet total was some
€87 billion in 2001, some €85 billion in 2002 and some
€93 billion in 2003. The Land of Berlin currently holds
about 81 % of the shares in BGB. Other shareholders are
Norddeutsche Landesbank with around 11 % and Gothaer
Finanzholding AG (Parion insurance group) with around
2 %. Some 6 % of the shares are dispersed among small
shareholders.

(18)

In 2001 BGB found itself in serious difficulty, mainly as a
result of high-risk real-estate transactions in the past; its
own funds and core capital ratios were insufficient, which
meant that supervisory measures might have to be taken by
the Federal Banking Supervisory Authority (Bundesauf-
sichtsamt für das Kreditwesen — ‘BAKred’, now ‘BAFin’) (6).
In August 2001 it received a capital injection of €2 billion,
of which some €1,8 billion came from the Land of Berlin
and was initially authorised by the Commission as short-
term rescue aid. After new risks were identified, BGB
received further assistance from the Land of Berlin, which,
together with the capital investment, was notified to the
Commission as restructuring aid and examined in detail by
it (7).

(19) On 18 February 2004 the Commission closed its
investigation and approved aid with a total financial value
of some €9,7 billion. Besides the capital injection and the
extensive guarantees in the form of a ‘risk shield’, the
decision also covered an agreement
concluded on
23 December 2002 by the Land of Berlin and the BGB
on the treatment of any claims to repayment brought by the
Land of Berlin and arising out of the present state aid
investigation (‘repayment agreement’) (8).

(20) This agreement governs the undertaking given by the Land
of Berlin that,
in the event of a Commission decision
requiring repayment in the present case, it would provide as
a contribution to LBB's capital a reorganisation grant to the
value necessary to prevent
the threatened repayment
requirement from forcing LBB or the BGB group, or both,

(6) Since 1 May 2002 following the merger of the banking, insurance
and stock market regulators: Bundesanstalt für Finanzdienstleistung-
saufsicht (BAFin).

(7) OJ C 141, 14.6.2002, p. 2.
(8) Paragraphs 32 et seq. and 141 of the Commission decision on
restructuring aid for Bankgesellschaft Berlin AG (not yet published in
the Official Journal).

to fall below the minimum capital ratios specified in the
agreement (9). This measure was considered necessary in
2002 in view of
the considerable risk represented by
possible repayment to the restoration of the BGB group's
profitability. It was not possible in the BGB decision to
determine the precise financial value of the measure as the
present proceedings had not yet been completed. For the
purpose of assessing the restructuring aid under
the
competition rules, and in particular the appropriateness
of the compensatory measures proposed by Germany to
reduce the group's market presence, the theoretical ceiling
for this measure was set at €1,8 billion.

(21) To sum up,

the repayment agreement was taken into
account as additional aid to the BGB group in setting
Germany's compensatory measures, although its scope was
restricted to a situation where the Commission ordered
repayment and where this resulted in the bank's capital
ratios falling below the levels set in the agreement.

2.

TRANSFER OF WBK TO LBB

(22) The restructuring of the Land of Berlin's banking holdings,
which culminated in the setting up of the BGB group in
1994, began in 1990 with the setting up of LBB; the savings
banks, first of West Berlin and then of East Berlin, were
then transferred to LBB. In 1992 IBB was set up by, among
others, the Land as a public-law institution within LBB
which was independent in organisational and economic
terms but had no authority to act in its own right; it was to
act as the central promotion institution of the Land. WBK
had until then been an independent public-law institution,
with the Land of Berlin bearing institutional and guarantor
liability for it. It had been assigned a task in the public
interest, namely the provision and maintenance of housing.
WBK was now to be transferred with its tasks to IBB, which
was given broader promotion-related assignments, e.g. in
the fields of infrastructure and environmental protection.
The transaction took place on 31 December 1992: WBK
was transferred to LBB, with all
its assets, by way of
universal succession.

(23) This increased LBB's nominal capital by the former nominal
capital of the WBK worth DEM 187,5 million. This amount
was thereafter no longer attributed to IBB's assets. WBK's
revenue reserves stood at DEM 1 905 800 million on
31 December 1992. These revenue reserves were and are
shown as a special-purpose reserve for IBB.

(24) BAKred set LBB's liable equity capital as at 31 December
1992 at DEM 3 127 714 million, which corresponded to
an increase of DEM 1 902 714 million. BAKred took
account of the DEM 187,5 million increase in nominal
capital and of WBK's revenue reserves without the net

(9) Paragraphs 32 et seq. and 141 of the Commission decision on
restructuring aid for Bankgesellschaft Berlin AG (not yet published in
the Official Journal).

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profit for 1992. In the years that followed, IBB's liable
equity capital in the form of the special-purpose reserve
continued to grow.

used. Payment is made not to the Land of Berlin, but to IBB.
Account should be taken of the fact that the part of IBB's
special-purpose reserve which could be used as liable equity
capital was far higher than the amount actually used.
Recourse was had to it for the first time in 1995.

3.

CAPITAL REQUIREMENTS UNDER THE OWN FUNDS

AND SOLVENCY DIRECTIVES

institutions (11)

(25) The German Banking Act (Kreditwesengesetz, or KWG) was
amended for the fourth time in 1993 in line with Council
Directive 89/647/EEC of 18 December 1989 on a solvency
ratio for credit institutions (10) (the ‘Solvency Directive’) and
Council Directive 89/299/EEC of 17 April 1989 on the
own funds of credit
(the ‘Own Funds
Directive’), which require banks to have a level of own
funds equal to 8 % of their risk-adjusted assets. At least
4 percentage points of that amount must consist of what is
termed core capital, or ‘tier 1’ capital, meaning capital items
institution's disposal without
which are at
restriction and immediately in order to cover risks or
losses as soon as they arise. The core capital is of decisive
importance because additional capital, or ‘tier 2’ capital, is
accepted as underpinning for risk-bearing transactions only
up to the amount of the available core capital. Under the
fourth KWG Amending Act, German banks had to adapt
their own funds to the new requirements by 30 June 1993.

the credit

4.

EFFECTS OF THE TRANSFER ON LBB'S CAPITAL BASE

(26) According to Germany, the new rules were not the reason
for WBK's transfer to LBB as the latter clearly met the new
capital requirements even without WBK's revenue reserves.
However, in the early 1990s a surge in growth was expected
as a result of unification especially in Berlin, which would
for business expansion in the
open up the potential
If banks wanted to increase their
financial sector too.
business volume significantly, a larger capital base was
needed, especially in the light of the new solvency rules.
The transfer of WBK gave LBB a considerably stronger
capital base for
its commercial, competitive lending
business, allowing it to extend its operations significantly.

(27) LBB paid or pays 0,25 % (12) on average for calling on IBB's
special-purpose reserve, but only on the amount actually

(10) OJ L 386, 30.12.1989, p. 14; replaced by Directive 2000/12/EC of
the European Parliament and of the Council (OJ L 126, 26.5.2000,
p. 1).

(11) OJ L 124, 5.5.1989, p. 16; replaced by Directive 2000/12/EC.
(12) 0,25 % before tax and 0,11 % after tax according to a remark in the
relevant table submitted for the period 1995-98; however, there is no
indication as to which taxes are concerned.

III.

GROUNDS FOR INITIATING THE PROCEDURE

(28) The starting point for the investigation was the principle of
the market-economy investor. According to this principle,
the fact that undertakings are publicly owned and receive
funding from the public authorities does not
in itself
constitute state aid. The provision of public money confers
an advantage only if own funds are made available to such
an undertaking on terms which it would not have obtained
under normal market conditions.

(29) The Commission took the view that the investigation in this
case therefore had to examine whether the resources had
been made available by the Land of Berlin on terms which a
private investor — an ‘investor operating in a market
economy’ — would also have found acceptable in providing
funds to a private company. Such a market investor would
not be prepared to provide funds in particular if a normal
return could not be expected within a reasonable time from
the capital invested.

(30)

In the Commission's view, a rate of 0,25 % on average
payable on the sums actually used could hardly be regarded
as appropriate remuneration for the Land, when even the
long-term risk-free rate (for 10-year Federal bonds) was a
good 7 % in 1992. The Commission also noted that the
remuneration was not paid directly to the Land, but to IBB,
which is a division of LBB even though, as a dependent
public-law institution and central promotional institution
it operates as an organisationally and
for
financially separate unit within LBB. Moreover, the sums
used, as far as the Commission knew, lay well below the
amounts of the special-purpose reserve available to LBB for
use as liable equity capital. However, the increased equity
base allowed LBB to expand its lending capacity and thus its
business.

the Land,

(31) The Commission established in its preliminary assessment
that the data regarding the amount of IBB's capital available
for covering liabilities, the amount used and the remunera-
tion paid were incomplete or even unavailable and took as

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an initial, provisional amount for the transferred and usable
funds a figure of ‘approximately DEM 2 billion’.

(32) However, the Commission acknowledged that the special-
purpose reserve did not provide LBB with any liquidity
because, under the Act of 25 November 1992 setting up
IBB, WBK's revenue reserve, which now became a special-
purpose reserve earmarked for IBB, was to be used in the
first place to finance IBB's promotional work, notwith-
standing its function as own funds within the meaning of
the Banking Act, and LBB could not use the funds
transferred directly for its banking business. In order to
be able actually to expand its business, LBB therefore had to
refinance the additional volume of credit in full on the
capital markets, meaning that the Land could not expect the
same return as a provider of liquid capital could.

(33) As regards the calculation of a remuneration in conformity
with the market-economy investor principle, the Commis-
it intended to apply the
sion stated that, at this stage,
methodology set out
in Decision 2000/392/EC, while
taking into account the specific circumstances of the case in
question.

(34) According to this methodology, the appropriate remunera-
tion for
the capital usable to underpin the bank's
commercial business is calculated starting from the market
remuneration for liquid ordinary capital
investment. A
premium or a discount is then applied, in order to take
account of the particularities of the measure concerned
(before investor taxes). So as to take into account the
liquidity cost arising from the lack of liquidity of the capital
investment in question, the net refinancing costs (total
refinancing costs minus applicable taxes,
in particular
corporation tax) are deducted from this rate.

(35) Germany had stated that in the years both before and after
the transfer LBB was a high-return institution, with a return
on equity stated to be 5,37 % in 1991, 13,5 % in 1992 and
30,83 % in 1993. The Commission commented that the
basis for this calculation had not been clarified. Without
further information, it was unable to assess this argument
regarding the absence of any aid element in the measure.
The German authorities had also argued that the Land of
Berlin had secured proper remuneration for the function of
IBB's capital as liable own funds for supervisory purposes
on the basis of
its silent
partnership in 1994 and of its claim to profits in 1998,
excluding IBB in both cases. However, further details had
not been given.

the Land’s sale to BGB of

(36) The Commission summed up by stating that it lacked
important information for a proper and sufficiently detailed
assessment of the capital injection and the remuneration
paid.
investigation
therefore asked Germany to provide this
procedure,
information, including a full statement of all the resources

In its decision initiating the formal

it

transferred, the amount recognised as liable equity capital
for LBB, the take-up and remuneration, the basis on which
the remuneration was determined,
the
calculation of LBB's return on equity, updated figures and
all the factors which,
in Germany's opinion, ensured a
normal market return.

the basis

for

(37) However, on the basis of the information available, the
Commission expressed serious doubts about whether the
Land of Berlin had received a normal market remuneration
or rate of interest for the transfer of some DEM 2 billion,
almost all of which appeared to be available to LBB as a
liable capital base and which placed it at an advantage over
its competitors. The Commission drew the provisional
conclusion that it was likely that competition was being, or
might be, distorted and that,
in view of the increasing
integration in the financial services sector, trade between
Member States was being affected. The measure therefore
probably constituted state aid within the meaning of
Article 87(1) of the EC Treaty. Since none of the exemption
clauses contained in Article 87(2) and (3) of the EC Treaty
were applicable to this case, the Commission supposed that,
if aid were present, there was reason to doubt that it was
compatible with the common market.

(38) Since neither Germany nor any other legal or natural
person had indicated that LBB provided services of general
economic interest within the meaning of Article 86(2) of
the EC Treaty, the Commission was unable to conclude that
the aid could be approved under that provision. In the
absence of any change in this situation, it assumed that this
point would not be relevant for a final decision on an
assessment of the measure at issue.

(39) The Commission also explained that,

the EC Treaty (13),

in making its
preliminary assessment and in accordance with Article 1
(b) of Council Regulation (EC) No 659/1999 of 22 March
1999 laying down detailed rules for the application of
Article 93 of
it had assumed that,
inasmuch as it constituted state aid, the measure was new
and not existing aid. In this connection, it also referred to
Article 15(2) of the above Regulation, pointing out that the
limitation period had been interrupted by the actions
described in the decision initiating the procedure, such as
the Commission's letters dated 12 January, 10 November
and 13 December 1993 and 1 September 1999,
the
decision initiating the procedure in this case, as well as the
decision initiating the procedure and Decision 2000/392/
EC closing the procedure in WestLB. Since the potential aid
had not been notified and had been effective since its
implementation,
the
decision to initiate the procedure added nothing to the
suspensory effect of the third sentence of Article 88(3) of
the EC Treaty with regard to Germany's obligation to refrain
from putting the measure into effect until such time as the
Commission has reached a final decision.

the Commission also found that

(13) OJ L 83, 27.3.1999, as amended by the 2003 Act of Accession.

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IV.

COMMENTS FROM GERMANY

(40)

In its comments, Germany began by outlining the reasons
for the transfer of the former WBK (later IBB), stating that
the time were geared towards
the Land’s objectives at
establishing a ‘strong banking group’ in the interests not
only of the merged credit institutions but also of the Land
as owner and of its banking sector. It again stressed that for
LBB, unlike in the WestLB case, satisfying the capital ratios
under the new solvency rules played no role in the transfer,
as demonstrated by the fact that LBB did not have recourse
to IBB's (formerly WBK's) liable equity capital until
late
1995.

(41) Germany confirmed that DEM 1,902714 million of LBB's
liable equity capital determined by the banking regulator as
at 31 December 1992 corresponded to the increase brought
about by the transferred funds. DEM 187,5 million of that
amount corresponded to the increase in LBB's nominal
capital (14) and some DEM 1,715214 million corresponded
to WBK's revenue reserves, without the net profit for the
the close of
year of DEM 190,586 million. As at
31 December 1992, so with effect on 1 January 1993, all
WBK's responsibilities were transferred to IBB, which was
itself transferred to LBB. The transferred capital and special-
purpose reserve were available to LBB for use as liable core
capital as at the close of 31 December 1992 or on 1 January
1993.

(42) According to Germany, in the years which followed, IBB's
special-purpose reserve continued to grow. However, it was
not fully available to LBB since part of it was needed each
year to underpin IBB's promotional activities. Germany
submitted precise data for each year from 1993 to 2003
(which can be found in the table at paragraph 142).

(43) With IBB's hive-off from LBB on 1 September 2004, the
special-purpose reserve was transferred back to the Land of
Berlin, and €1,1 billion of it was transferred to two silent
partnerships held by the Land in LBB.

(44)

IBB's nominal capital of DEM 187,5 million incorporated at
the time remained in the nominal capital of LBB. LBB was
in turn sold to BGB in 1994 (75,01 % of the shares) and
1998 (24,99 % of the shares).

(45) Germany also completed the other data. It again stated that
only part of the special-purpose reserve had actually been
used to cover liabilities. The amount taken up in this way,
starting in December 1995, had varied between about
DEM 212 million in 1995 and over DEM […] (*) billion in
recent years. The remuneration paid to IBB for the amounts
used as of December 1995 (between a good DEM 1 million
for 1995/96 and DEM […] million in 2001) was calculated
monthly on the basis of an interest rate which ranged over

(14) This amount was no longer attributed to assets.
(*) Confidential information, hereinafter […].

the period from 0,2 % (1998) to 0,35 % (1996). The precise
figures provided by Germany can be found in the table at
paragraph 149.

(46) As the basis for determining the remuneration for any use
made of IBB's special-purpose reserve, Germany provided a
management board resolution dating from June 1993. This
resolution states that ‘… remuneration should be paid to
Investitionsbank Berlin for this capital charge (take-up) in
an amount equivalent to the cost of raising subordinated
liable capital’. This resolution was given practical effect in
1995, when the remuneration was equated to a subordina-
tion premium. The reason given was that LBB could have
raised alternative subordinated capital on the market which
would have been fully available not only in its guarantee
function but also in an earnings function.

(47) However, since the IBB special-purpose reserve performed
the difference between the
only a guarantee function,
interest rate for ordinary outside capital, which does not
perform that function, and capital which also performs a
guarantee function was set as the ‘price’ for the utilisation
function. This premium was calculated in basis points by
comparison with LIBOR (London Interbank Offered Rate)
on the basis of specific terms or external market data for
subordinated loans. The bases for the calculation and
statistical data were attached.

(48) Germany justifies the decision to require remuneration only
for the part of the IBB special-purpose reserve actually
taken up inter alia on the grounds that the reserve was
available primarily to IBB and that, if it were insufficient, it
was first LBB which was obliged to reduce its risk assets or
raise subordinated capital on the market. As owner of IBB,
the Land of Berlin was entitled to withdraw parts of the
special-purpose reserve at any time.

(49) Germany also commented in this connection that

the
liquidity of the special-purpose reserve was tied up in IBB's
existing business and was not available to LBB for financing
purposes. IBB had to underpin its lending itself with own
funds and, in so doing, to have recourse to the special-
purpose reserve. Germany stated that, in the light of these
specific factors, WBK's assets could not be equated with
freely available financial assets and that, therefore, only the
the business expansion
guarantee function and thus
function were at issue.

(50) Whether the remuneration was paid to the Land or to IBB
was immaterial here since the Land as guarantor would, in
any event, profit from both IBB and LBB, either through
LBB's increase in value and distribution of profits or
through inflows into IBB's special-purpose reserve, on
which the Land had a claim.

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(51) Besides

these comments on the direct

in an investment decision and that

remuneration,
Germany also argued that it was not a factor, or not the
only factor,
‘in
accordance with the case law, … an investor who does
not hold or seek to hold a significant share in the relevant
company but who is interested in a rapid return on his
investment must be distinguished from investors geared to
the long term, such as holding companies’. The latter were
interested in long-term return expectations and would also
take account of strategic considerations.

(52) As sole owner of LBB, the Land assumed at the time of the
investment that it would benefit fully and directly from the
increase in LBB's value brought about by WBK's transfer.
Taking the assessment criterion applied by the Commission
in Decision 2000/392/EC (15) as a basis,
‘a financial
measure must be considered unacceptable to a market-
economy investor if the financial position of the company
is such that a normal return (in dividends and capital gains)
cannot be expected within a reasonable period of time’. At
issue, therefore, were the return expectations at the time of
the investment decision.

(53) Germany initially indicated that LBB's return-on-equity
ratio was 13,5 % in 1992 and 30,83 % in 1993. These
figures, submitted back in 1999, related to the ratio
‘earnings before (income) tax/equity capital shown in the
balance sheet at the start of the same year’. However, in
supplying these figures, Germany had not included IBB's
special-purpose reserve in LBB's equity capital from 1993
onwards. At the Commission's request, this was corrected
with the sending of data series covering a longer period. For
the period 1985-1992 these figures gave an average return
on equity of about 13 %.

(54) Germany stated that these figures would fall within the
range of values obtained by private German banks in the
same period, but it did not initially provide data produced
by a similar method for other banks.
It subsequently
submitted its own calculations based on the published
profit and loss statements of 35 German banks (16). Taking
‘earnings before tax as a percentage of equity capital shown
in the balance sheet at the start of the same year’, this gave
an average return-on-equity ratio for these banks of around
11 % in 1992 and just under 13 % for the period from 1988
to 1992.

from ordinary business or

decision and that, in the case of banks, it could best be
derived from profit
from
operating result as a percentage of equity capital shown
in the balance sheet since extraordinary earnings and
expenditure would then be excluded. In the years 1990-92
in particular the
LBB faced extraordinary circumstances,
integration of the East Berlin Savings Bank and the related
setting up of its own pension scheme, at the same time as it
had to pay a compensation fee for withdrawing from the
Federal and Länder Pension Institution and to make
provision for the general banking risks of the former East
Berlin Savings Bank.

(56) As regards obtaining methodologically comparable return-
on-equity ratios for other banks in the same period,
Germany stated that banks were required only as of 1993
to enter extraordinary result and profit
from ordinary
business separately in the profit and loss account, and that
this cannot be compared with the pre-1993 method, when
extraordinary income and expenditure were included,
together with other
income and
items, under
expenditure’ and therefore could not be identified precisely.
For the period pre-1993, Germany submitted its own
calculations. In the course of the proceedings Germany also
made corrections and additions
to the method for
calculating LBB's return on equity, in order to render the
figures for LBB comparable with the Bundesbank's official
survey of German banks. According to Germany, this did
not change the basic assessment that LBB's return on equity
was in line with the average for the sector.

‘other

(57)

In Germany's view, all the data showed that, at the time of
the capital injection, LBB had a high earning capacity. The
Land of Berlin was the sole owner and would alone benefit
from the bank's commercial success, whether in the form of
dividends or an increase in value. In this respect, the Land
would not have to share the expected increase in return
with other
‘intra-group’
shareholders and the almost
investment was sound conduct from the point of view of
an investor operating in a market economy. The question of
whether and how large a remuneration was paid by LBB for
the capital
to an
assessment of the transfer's market-economy status.

injection was

irrelevant

therefore

(55) Germany also stated that, from a business point of view,
earning capacity was a decisive factor in an investment

(15) Paragraph 162 of the Decision, see footnote 2.
(16) Profit and loss statements published in the Hoppenstedt company
database; the 35 banks selected include 4 large private banks, 5 other
private banks, 17 public-sector institutions, 2 cooperative banks and
7 mortgage-lending institutions.

(58) According to Germany,

the Commission expressly laid
down this assessment criterion in Decision 2000/392/EC:
‘Therefore, one way of ensuring an adequate return on the
capital provided would have been to increase the Land’s
participation in WestLB accordingly, provided that
the
bank's overall profitability corresponds to the normal rate
of return that a market-economy investor would expect

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investment. This would have avoided the
from his
discussion of whether the 0,6 % rate of remuneration is
appropriate. However, this course was not adopted by the
Land (17).’

(59)

In this connection, Germany also stated that LBB's increase
in value as a result of WBK's assets benefited the Land after
LBB's incorporation into BGB. The transfer, undertaken in
three stages in 1994 and 1998, of 100 % of the beneficial
ownership in LBB to BGB was carried out on the basis of
expert reports by various chartered accountants and one
investment bank on the value of the Land’s silent partner-
ship in LBB and on whether the quid pro quo — the BGB
shares transferred,
including in relation to other share-
holders — equated to an acceptable market price. Germany
provided relevant extracts from these reports and the
related correspondence with the accountants. According to
these documents,
the value of LBB was set at some
DEM 3,5 billion in 1993 (excluding IBB itself, but taking
account of LBB's higher core capital ratio as a result of the
special-purpose reserve) and, by a further expert, at just
under DEM 6 billion at 31 December 1997.

(60) Germany also suggested, in the alternative, that the method
used by the Commission in Decision 2000/392/EC was
faulty in that it assumed comparability with liquid ordinary
capital investment. This approach failed to take account of
the particularities of
issue in these
to use comparable equity
proceedings.
instruments as a basis for calculating even the starting
amount. While this might be difficult, as the Commission
had explained in the WestLB case, the difficulties would not
be overcome by using a completely unsuitable equity capital
instrument, almost as a ‘way around’ the problem.

the transaction at

It was proper

(61)

It was also mistaken to use average return as a benchmark.
Only a return below the range available to investors for
assessment purposes was no longer acceptable to a private
investor. Lastly,
it was erroneous to deduct only net
refinancing costs instead of total refinancing costs. Any tax
savings by the company were immaterial
from the
investor's point of view. A further consideration showed
that this approach was unacceptable since with non-liquid
provision of capital the earnings function of the capital was
still available to the investor and could be re-invested by
him to obtain at least the risk-free rate of interest, and he
would thus achieve ‘double’ earnings.

(62) Germany also argued that the limitation period had expired
(pursuant to Article 15(1) of Regulation (EC) No 659/1999)
and that the Commission therefore had no power to order
recovery of any aid. The basic resolution on WBK's transfer
had been adopted on 16 June 1992, i.e. more than ten years
before the decision initiating the investigation procedure
was served on 4 July 2002. The resolution expressed the

(17) Paragraph 182 of the Decision, see footnote 2.

activities

basic intention to merge the Land’s bank holdings and WBK
into one holding company (later BGB), provided that WBK's
promotional
the
assumption of sovereign tasks and the tax exemption were
guaranteed. The resolution had been in the public domain
since then, and the Commission had been informed of its
date in 1999.

could continue

and that

(63)

In a number of decisions, the Commission had already
taken the declaration of intent by the relevant body, even
subject to conditions, as marking the point at which the aid
was implemented. This was also the position adopted by
the Commission in the decision on rescue aid for BGB (18),
even though the resolution concerned, adopted on 22 May
2002, had still required the approval of Parliament and of
the Commission.

(64) Moreover, in Germany's view, the limitation period had not
been interrupted pursuant
to the second sentence of
Article 15(2) of Regulation (EC) No 659/1999, which
states that only action taken by the Commission can
interrupt the period. The first such Commission action was
the letter regarding the initiation of the procedure dated
4 July 2002, and not the requests for information, which
were not measures taken by the Commission or
the
relevant Commission Member. Account should moreover
be taken of the fact that the limitation period existed in the
interests of legal certainty, not only in relations between the
Commission and the Member States but also for the
recipients of state aid. As Germany was asked for the first
time in the decision initiating the procedure to forward a
copy of the letter to the aid recipient, which it did on 9 July
2002, the limitation period was interrupted only as of that
date. Since the measure subject to state aid monitoring was
the resolution of 16 June 1992, it constituted, if it were aid
at all, existing aid pursuant to Article 15(3) of Regula-
tion (EC) No 659/1999.

V.

COMMENTS FROM OTHER INTERESTED PARTIES

(65) After

the decision initiating the procedure had been
published in the Official
the Commission
received comments from the Berliner Volksbank (‘BV’) and
the Bundesverband deutscher Banken (‘BdB’) in October
and November respectively.

Journal (19),

(66) The BV took the view that the transfer of WBK was aid
because the capital had been made available on terms which
a market-economy investor would not have accepted.
Payments were made by LBB to IBB, which was itself
managed as a division of LBB; moreover, the agreed interest
rate of 0,25 % lay well below the normal market rates, as
illustrated by Decisions 2000/392/EC (WestLB), 95/547/
EC (20) and 98/490/EC (21) (Crédit Lyonnais), where a likely
return on capital of at least 12 % was taken as a basis. This

(18) NN 53/2001; Commission decision of 25 July 2001.
(19) See footnote 1.
(20) OJ L 308, 21.12.1995, p. 92.
(21) OJ L 221, 8.8.1998, p. 28.

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aid led to a serious distortion of Community-wide
competition, but with particularly serious consequences
in Berlin, where BGB, including LBB (and Berliner Bank and
Berliner Sparkasse),
in personal and
led the market
corporate retail banking. By comparison, BV was a small
competitor with market shares of 5-7 % and was thus
particularly affected by the negative impact of the aid. It
closed its statement by calling on the Commission to order
recovery of the aid.

(67) The BdB began by stating that the proceedings at issue
formed part of a series of investigations by the Commission
involving the transfer of Land housing promotion institu-
tions to the Landesbanks, which carried on competitive
business. In LBB's case too, contrary to the statements by
Germany, the higher own funds requirements under the
Solvency Directive were decisive. Evidence that this was the
case were the timing of the transfer and the comments by
the relevant Member of the Land Government at the time,
who referred to the European own funds requirements,
which were expected to become stricter. In this respect,
there was no relevant difference in state aid terms between
the transfer of WBK to LBB at issue here and the transfer of
WfA to WestLB, which meant that the method used by the
Commission in Decision 2000/392/EC could be applied
here.

(68) The BdB went on to comment that it was not only the
special-purpose reserve which was at issue here but also the
transfer of WBK's capital of DEM 187,5 million, which was
assigned to LBB's subscribed capital; this constituted a
financial advantage as it influenced the rating and the terms
for raising external capital. However, of much greater
significance was the increase in core capital recognised for
supervisory purposes as a result of the transfer. As this had
been available in full as liable capital, despite the special-
purpose reserve's being used primarily for promotional
activities, its purpose was not the issue. The key factor was
expansion
the
function, especially since the core capital had powerful
leverage (lending capacity increased by 12,5 times for
100 % risk-weighted assets such as lending to companies
and by 25 times for 50 % risk-weighted assets such as loans
to public authorities). If additional capital were raised, with
a core capital of (hypothetically) €1 billion and a risk
weighting of 50 %,
loans amounting to as much as
€50 billion could be given.

economic advantage of

the business

(69) For the calculation of what constituted a normal market
remuneration,
the BdB referred to the tried-and-tested
method applied by the Commission in Decision 2000/392/
EC and the benchmark of 12 % for a normal market return,
to which, in a second stage, premiums and discounts had
been applied to take account of the particularities of the

transaction. In any event, neither the 0,25 % paid to IBB
nor the sale to BGB of the silent partnership and the claims
to profits in 1994 and 1998 could be regarded as normal
market remuneration.

(70) For one thing, it was not appropriate for payment to be
made only on the amount taken up and, for another, IBB
belonged to LBB, with the result that LBB had almost paid
itself, rather than the Land. Moreover, Germany's argument
that the guarantee function of the special-purpose reserve
had been properly remunerated by the establishment of an
atypical silent partnership holding in LBB for BGB in 1994
was not convincing, since important data on values were
not available and, in principle, it was erroneous to confine
the assessment
to the aid donor's point of view. Of
relevance to the state aid assessment was the transfer of
WBK to LBB on 31 December 1992,
the advantages
conferred thereby on LBB and the resulting distortions of
competition, and not whether the aid debt had been
discharged subsequently. Moreover, the transfer of LBB to
transaction since BGB was also
BGB was an internal
majority-owned by the Land. The same applied to the
transfer to BGB of the remaining claims to 24,99 % of
profits in 1998. In any event there had been no complete
abolishment of the aid element since 1998.

(71) Subsequently, and a long time after

the period for
submitting comments
laid down in Regulation (EC)
No 659/1999 had expired, the BdB supplemented these
remarks, stating in particular that the sales value calculated
for LBB and for the silent partnership in LBB for the
purpose of setting up BGB had not included IBB, with the
result that the guarantee function of IBB's special-purpose
reserve could not, in the BdB's view, have been taken into
account in the sales value of the silent partnership in LBB.

(72) On the limitation period of ten years pursuant to Article 15
(1) of Regulation (EC) No 659/1999, the BdB stated that it
had begun only with the Act establishing IBB on
31 December 1992 and could have come to an end at
the earliest on 31 December 2002. However, the period had
been interrupted pursuant
to Article 15(2) of Regula-
tion (EC) No 659/1999 by action taken by the Commission.
This provision was broad in scope and covered any action
taken by the Commission in connection with its investiga-
tions, including requests for information. A basis for the
further interpretation of this provision was Regulation (EEC)
No 2988/74 of
the Council of 26 November 1974
concerning limitation periods in proceedings and the
enforcement of sanctions under the rules of the European
Economic Community relating to transport and competi-
tion (22), pursuant to which interruption is linked to ‘action
taken … for the purpose of the preliminary investigation or

(22) OJ L 319, 29.11.1974, p. 1. Regulation as amended by Regulation

(EC) No 1/2003 (OJ L 1, 4.1.2003, p. 1).

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proceedings in respect of an infringement’. For the rest,
Germany had itself asked the Commission to wait for
clarification of the issues in WestLB and, for that reason
alone, could not invoke the limitation period.

(77)

VI.

GERMANY'S RESPONSE TO THE COMMENTS OF

OTHER INTERESTED PARTIES

(73)

In its comments dated 16 December 2002, Germany
essentially referred to its own comments on the decision
initiating the procedure and its argument that no state aid
was involved in this case. Otherwise, it restricted itself to a
brief response to the individual points made in the two sets
of comments.

(74) Regarding the BV's and the BdB's classification of WBK's
transfer as aid, Germany stated that it was not enough to
look only at the monthly remuneration. Rather, reference
values such as — depending on the capital injection —
return (on a loan), including collateralisation, dividends or
capital growth should be considered. However,
in the
relevant period (1992/93) LBB was an institution with high
earning capacity, and the transfer of WBK's assets to LBB's
liable equity capital was
therefore a sound business
decision. WestLB and LBB, contrary to what was claimed
by the BdB and the BV, were therefore in no way
comparable with one another. Apart from this,
it was
inappropriate for the BdB to speak of the method used in
WestLB as tried and tested in view of the (at the time)
pending court proceedings in that case.

(75) Contrary to what was argued by the BdB, it was undisputed
and clearly stated in the decision initiating the procedure
the special-purpose reserve's
that, besides the use of
guarantee function by LBB,
the transfer of WBK also
increased LBB's equity capital shown in the balance sheet by
this amount had been
DEM 187,5 million and that
recognised as liable equity capital for supervisory purposes.
The question of the extent to which equity capital shown in
the balance sheet conferred a financial advantage did not
arise here, unlike in WestLB, since it was not necessary to
distinguish between recognised and unrecognised parts of
the capital. No aid was involved in the increase in equity
capital shown in the balance sheet or the transferred
reserves (see paragraphs 40 to 64).

(76) Moreover,

special-purpose

to assume that, with a
it was erroneous
loans totalling
hypothetical core capital of €1 billion,
€50 billion could be made. Whereas it was undisputed that
IBB's
reserve performed a guarantee
function and a business expansion function on account
of its recognition for supervisory purposes, the advantage
was confined to the amount actually taken up by LBB. The
hypothetical leverage of 1:50 was also groundless.

should be geared to an investor

In applying the principle of the market-economy investor,
the analysis
in a
comparable situation. In the case at issue, the Land as
investor decided to tie the special-purpose reserve's liquidity
into IBB's operations and not to make it available to LBB in
its financing capacity. The Land’s objective with respect to
this capital was its own return (see paragraphs 40 to 64).
Moreover, only the Land continued to have a claim on IBB's
special assets, even after LBB's transfer to BGB. It was
therefore also wrong to claim that the remuneration which
LBB paid to IBB was paid to itself. Moreover, it was usual for
a market-economy investor to assign remuneration claims
to third parties, especially when the third party was a
company or an asset wholly owned by that investor.

(78) Lastly, with respect to the BV's comments on its market
share relative to that of BGB, Germany stated that BV had a
larger market share in Berlin than it had indicated. It was
the second-largest credit institution and its market shares
had to be 60-70 % of those of BGB; as regards deposits by
private customers alone, it had some 1/3 of BGB's market
share.

VII.

UNDERSTANDING BETWEEN THE BDB, THE

LAND OF BERLIN AND LBB

(the BdB),

the outcome of

(79) On 7 October 2004, Germany informed the Commission
of
an understanding between the
the Land of Berlin and LBB.
complainant
Notwithstanding their remaining fundamental legal posi-
tions, the parties had agreed on what they themselves
regarded as
for determining an
appropriate remuneration for WBK's assets. The parties
asked the Commission to take account of
this under-
standing in its decision.

suitable parameters

(80) First, the parties determined, on the basis of the approach
detailed in Decision 2000/392/EC, a minimum remunera-
tion for WBK's special-purpose reserve of 10,19 %. As the
Land of Berlin was the sole owner, no further premium,
such as to allow for the lack of voting rights, was agreed. A
discount of 3,62 % was then applied on account of the
capital's lack of
liquidity (on the basis of the risk-free
interest rate taken as gross refinancing costs, with some
50 % in corporation tax plus a solidarity surcharge
deducted to determine net refinancing costs). This produced
an appropriate remuneration of 6,57 %.

(81) The understanding makes no mention of any remuneration
the part of WBK's assets not available for LBB's

for
competitive business.

(82) For IBB's nominal capital of DEM 187,5 million transferred
to LBB's nominal capital no discount on the basis of
refinancing costs was calculated as this capital constituted
liquid funds. As the nominal capital had been transferred to

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BGB in two stages in 1994 and 1998, the parties agreed that
remuneration should be paid for it only up to these two
points in time (proportionally in each case).

(83) The parties were unable to agree on whether any increase in
LBB's value as a result of the transfer should be taken into
account. In the Landesbank's view, an increase in value had
been achieved by the transfer of LBB in 1994 and 1998.

VIII.

ASSESSMENT OF THE MEASURES

1.

ON THE GENERAL QUESTION OF THE LIMITATION

PERIOD

(84) Germany stated that the relevant date with respect to any
limitation period applicable to recovery was 16 June 1992
when the Berlin Land Government adopted a resolution
establishing a Berlin bank holding company. However, this
resolution, which is in the Commission's possession, laid
down only that ‘Berlin's bank holdings will be restructured’.
It provided for the ‘establishment of the Berliner Banken-
Holding AG, which would bring together under its roof the
Landesbank Berlin-Girozentrale, Berliner Bank AG and the
… Berliner Pfandbrief-Bank’.
It did not bring about a
transfer of assets.

(85) The measure at issue, namely the transfer of WBK's assets to
LBB, was completed only at the close of 31 December
1992. The economic effect of the measure, i.e. the increase
in LBB's equity capital and the resulting increase in its
lending capacity, therefore kicked in only on 1 January
1993. In the present case, no state aid can have been
granted before that date.

subject

(86) Even if the date on which the measure was awarded were
none the less fixed as 16 June 1992, several months before
the date of the transfer, it cannot be assumed, as argued by
Germany, that the Commission's powers to recover the aid
are
limitation period laid down in
Article 15(1) of Regulation (EC) No 659/1999. Germany
takes the view that the decision of 4 July 2002 initiating the
procedure was the first Commission action to interrupt the
limitation period, among other reasons because in that
decision Germany was asked for the first time to forward a
copy of the letter to the aid recipient.

to the

(87) The Commission rejects

this view. Article 15(2) of
Regulation (EC) No 659/1999 refers to ‘any action’ taken
by the Commission and not merely to a formal decision
initiating the procedure. In the present case, the various
steps taken by the Commission, in particular its various
requests for information referring to LBB, and at any rate its
the
request of September 1999,
limitation period. It is not necessary for LBB to have been
aware of
In its
judgment of 10 April 2003 in Case T-366/00 Scott SA v
Commission (23), the Court of First Instance ruled that the

the steps taken by the Commission.

suffice to interrupt

(23) [2003] ECR II-1763.

mere fact that the aid recipient was not aware of the
existence of the Commission's requests for information
does not have the effect of depriving them of legal effect
vis-à-vis the aid recipient. The Commission is not obliged to
warn potentially interested persons,
including the bene-
ficiary of the aid, of the measures which it is taking in
respect of unlawful aid before it initiates the administrative
procedure. The Court accordingly found that the relevant
requests for information constituted, under Article 15 of
Regulation (EC) No 659/1999, a measure interrupting the
limitation period before that period expired, even though
the aid recipient was not at the time aware of the existence
of such correspondence (24). Moreover,
it seems unlikely
that LBB was unaware of the Commission's request for
information when Germany replied to it in December 1999.

(88)

In conclusion, the Commission has the power in this case
to order recovery of any aid.

2.

STATE AID WITHIN THE MEANING OF ARTICLE 87(1)

OF THE EC TREATY

(89) Article 87(1) of the EC Treaty states that, save as otherwise
provided in that Treaty, any aid granted by a Member State
or through state resources which distorts or threatens to
distort competition by favouring certain undertakings or
the production of certain goods is incompatible with the
common market,
trade between
Member States.

insofar as

it affects

2a.

STATE RESOURCES

(90) The transfer was decided on by the Land of Berlin in order
to increase LBB's capital by transferring to it the public-
service institutions WBK/IBB, whose guarantor and owner
the Land was. The transfer increased LBB's liable equity
capital recognised for supervisory purposes by letter of
24 February 1993 by some DEM 1,9 billion. DEM 187,5 mil-
lion of that amount corresponded to an increase in LBB's
the former
nominal capital by the nominal capital of
WBK (25) and some DEM 1,715 billion to WBK's revenue
reserves (without the net profit for 1992 of just under
DEM 200 million), which from that point on were shown
as a special-purpose
reserve belonging to IBB and
continued to grow each year.

(91) The transfer of some DEM 1,9 billion and its recognition as
core capital for supervisory purposes significantly increased
LBB's lending capacity and thus its scope for expanding its
competitive business. With a risk weighting of 100 % for all
claims (e.g.
from loans to non-banks) and without any
further raising of additional capital, the business expansion
potential theoretically lies at 12,5 times the additional liable
equity capital (in this case just under DEM 24 billion). It is
not possible to give a precise figure for this potential in

(24) Ibid paragraph 60.
(25) This amount has since no longer been attributed to IBB's assets.

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individual cases, as it depends on customer structure,
strategic planning and unforeseeable external
influences.
However,
the question of whether and how a credit
institution employs new own funds is not a matter for this
investigation.

transfer represented the commercially most sensible use of
those assets. Germany therefore argues that any remunera-
tion for the transfer, i.e. any additional return on WBK's
capital, is sufficient to justify the transfer in the light of the
market-economy investor principle.

(92)

Irrespective of the fact that IBB still needed part of the
funds to underpin its promotion activities, the transferred
assets were recognised by the supervisory authority and
could thus be used by LBB, which was competing with
other credit institutions, to cover its liabilities. There is
therefore no doubt that this case involves the transfer to
LBB of state resources which were such as to give it an
economic advantage over its competitors to the extent that
the resources concerned were not obtained on market
terms.

2b.

FAVOURING OF A PARTICULAR UNDERTAKING

(93)

In order to verify whether the transfer of state resources to
a publicly-owned undertaking favours the latter and is
therefore liable to constitute state aid within the meaning of
Article 87(1) of the EC Treaty, the Commission applies the
‘market-economy investor principle’. The Court of First
Instance has accepted and developed this principle in a
number of cases, most recently in its judgment of 6 March
2003 regarding a similar transfer to WestLB (26).

(1) Market-economy investor principle

(94) According to the market-economy investor principle, no
state aid is involved where funds are made available on
‘terms which a private investor would find acceptable in
providing funds to a comparable private undertaking when
the private investor is operating under normal market-
economy conditions’ (27). In contrast, the undertaking is
being favoured within the meaning of Article 87(1) of the
EC Treaty if the proposed remuneration arrangement and/
or the financial position of the undertaking is such that a
normal return on investment cannot be expected within a
reasonable period of time.

(2) Article 295 of the EC Treaty

(95) Article 295 of the EC Treaty lays down that the system of
property ownership in the various Member States must not
be affected. However, this cannot justify any infringement
of the Treaty's competition rules.

(96) Germany claims that, because of the constraints imposed
by the special purpose assigned to the WBK assets, the only
possible profitable use of these resources was to transfer
them to a similar public-law institution. Consequently, the

(26) See footnote 3.
(27) Commission communication to the Member States on the
application of Articles 92 and 93 of the EEC 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, point 11). While
this communication deals explicitly with the manufacturing sector,
the principle can undoubtedly be applied in the same way to all
other sectors. As regards financial services, this has been confirmed
by a number of Commission decisions, e.g. Crédit Lyonnais (OJ
L 221, 8.8.1998, p. 28) and GAN (OJ L 78, 16.3.1998, p. 1).

(97) This line of argument cannot be accepted. It may be true
that WBK's transfer to LBB, which subsequently allowed
LBB to use part of WBK's capital for underpinning its
competitive business, was the commercially most sensible
use. However, as soon as public funds and other assets are
used for commercial, competitive activities, the normal
market rules must be applied. This means that the State,
once it decides to assign public-purpose assets to a
commercial use, must demand a remuneration in line with
normal market conditions.

(3) Ownership structure

(98) The key question, as formulated by the Court of First
Instance in its judgment in WestLB with reference to the
previous case law, is whether, in similar circumstances, a
private investor operating in normal conditions of a market
economy and of a comparable size to that of the bodies
operating in the public sector could have been prompted to
make the capital contribution in question (28). Lastly, as the
Court also points out with reference to other case law, ‘the
comparison between the conduct of public and private
investors must be made by reference to the attitude which a
private investor would have had at
the
transaction in question, having regard to the available
information and foreseeable developments at that time’ (29).
This makes it clear that the assessment must focus on the
time of the investment and on the expectations which an
investor might reasonably, i.e. on the basis of the available
information, have had at that time. These expectations
essentially relate to the likely return.

the time of

(99) The Land of Berlin was the sole shareholder of LBB (and of
WBK). Even if this circumstance should make it possible to
depart from an approach which takes account only of the
fixed, agreed rate of remuneration (on average 0,25 % on
the part of the special-purpose reserve used by LBB as of
December 1995), in the present case ownership by the Land
of Berlin cannot be used to justify the low direct
remuneration.

(100) To cite the Land’s ownership as justification, there would
have to be an adequate business plan, expert valuation or
assessment of the likely return from the investment at issue.
None was produced at the time. The Commission therefore
has no means of verifying the Land's statements.

(28) Paragraph 245 of the judgment, see footnote 3.
(29) Paragraph 246 of the judgment, see footnote 3.

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Official Journal of the European Union

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(101) The Commission accordingly takes the view that, in this
case, the appropriate return must be established on the
basis of the direct market return.

purposes of their understanding, the BdB, the Land and LBB
assume that
it can be compared to a share capital
investment.

(4) Remuneration and elements of remuneration

Capital basis for calculating the remuneration

(102) In principle, remuneration is payable on the entire value of
the transferred assets. This approach was applied in
Decision 2000/392/EC and upheld by the Court of First
Instance. As BAKred directly recognised the full amount as
core capital, the funds were available to LBB to cover
liabilities from 1 January 1993 onwards, except for the
amount required each year
the promotion-related
business
itself. The capital needed to underpin the
promotion-related business and which LBB could not use
has to be deducted from the amounts which grew each year
from then on.

for

(103) The values for the WBK/IBB special-purpose reserve and for
the capital needed for IBB's promotion-related business
varied, or continually increased, as of early 1993. They are
shown in the table at paragraph 142.

(104) The nominal capital of WBK/IBB worth DEM 187,5 million
and transferred to LBB's nominal capital was liquid capital.
75,01 % of LBB's shares were sold to BGB in 1994, and the
remaining 24,99 % in 1998 at a price of DEM 1,5 billion.
The nominal capital was therefore attributed to BGB as of
1998.

the

liquid

remuneration:

(105) There are therefore three bases for calculating an appro-
priate
of
first,
DEM 187,5 million for 1993, with a value of DEM 46,9 mil-
lion (corresponding to 24,99 % of shares) for the years
1994 to 1997; second, the special-purpose reserve and
third, the funds needed for the promotion-related business.
As the same minimum return applies to the first two
elements, they can initially be considered together in what
follows.

capital

Appropriate remuneration for the nominal capital and
the special-purpose reserve

(106) Investments of differing economic quality require differing
returns. In analysing an investment's acceptability to an
investor acting under normal market conditions,
is
important therefore to bear in mind the special economic
nature of the financial measure in question and the value of
the capital provided for LBB.

it

Comparison with other equity instruments

(107) In establishing an appropriate remuneration, it is important
to determine to which other equity instruments the transfer
of WBK's assets may be compared since market remunera-
to another. For the
tion differs from one instrument

(108) The Commission likewise takes the view that the transfer
most closely resembles a share capital investment. For the
nominal capital, this can undisputedly be assumed to be the
case and does not require any further discussion here.
it also applies to the special-purpose reserve,
However,
which was equally recognised by BAKred as core capital.

(109) In this connection, it should be noted that the relatively
broad range of innovative equity instruments now available
to credit institutions in several countries did not exist in
Germany back in 1993 when it was decided to transfer
WBK to LBB. Some of
these instruments have been
developed in the meantime, while others already existed but
were not accepted in Germany.
It would therefore be
inappropriate to compare the special-purpose reserve to
such innovative instruments, most of which have devel-
oped in the meantime and some of which are available only
in other countries.

it
special-purpose

(110) The Commission also takes the view that
to compare

is not
appropriate
reserve
the
recognised as core capital to a silent partnership contribu-
tion when determining the appropriate remuneration,
precisely because the transfer did not take the form of a
silent partnership contribution but of a special-purpose
reserve. BAKred too recognised the transfer as a reserve and
not as a silent partnership contribution pursuant
to
Section 10 of the German Banking Act. The fact that the
German supervisory authority treated the capital made
available as a reserve suggests that it resembles share capital
rather than a silent partnership.

(111) Moreover, the risk that the transferred capital might at least
partially be lost in the event of insolvency or liquidation is
no less than the risk associated with a share capital
investment since WBK's assets make up a considerable part
of LBB's equity capital and LBB used it extensively for many
years to cover risk-bearing assets.

Liquidity costs of the special-purpose reserve

(112) A ‘normal’ capital injection into a bank supplies it both
with liquidity and with an own funds base which it requires
for supervisory reasons to expand its activities. In order to
use the capital in full, i.e. to expand its 100 % risk-adjusted
assets by a factor of 12,5 (i.e. 100 divided by a solvency
ratio of 8), the bank must refinance itself on the financial
markets 11,5 times over. Put simply, the difference between
12,5 times the interest received and 11,5 times the interest
paid minus other costs of the bank (e.g. administration)
gives the profit on the equity (30).

(30) Of course, in reality the situation is much more complex because of
off-balance-sheet items, different risk weightings of assets or zero-
risk items, etc. However, the principal reasoning holds.

L 307/14

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Official Journal of the European Union

7.11.2006

(113) Apart from the nominal capital of DEM 187,5 million, the
transfer of WBK's assets did not provide LBB with initial
liquidity. LBB therefore faced additional funding costs equal
to the amount of the capital if it was to raise the necessary
funds on the financial markets to take full advantage of the
business opened up by the additional capital, i.e. to expand
risk-adjusted assets by 12,5 times the capital amount (or to
maintain existing assets at that level) (31).

(114) Because of these extra costs, which do not arise in the case
of other forms of injected equity capital, the appropriate
remuneration must be reduced accordingly. A market-
economy investor could not expect to be remunerated in
the same way as for a cash injection.

(115) The Commission does not believe that the entire refinan-
cing interest rate has to be taken into account. Refinancing
costs constitute operating expenses and therefore reduce
taxable income. This means that the bank's net result is not
reduced by the amount of additional
interest expenses
incurred. These expenses are offset in part by reduced
corporation tax. Only the net costs should be taken into
account as an additional burden on LBB because of the
special nature of
the
Commission accepts that LBB incurs additional
‘liquidity
costs’ to the extent of ‘refinancing costs minus corporation
tax’.

transferred. Overall,

the capital

(116) In the negotiations on their understanding, the parties, as in
the Hamburgische Landesbank case, in which the transfer
took place at the same point in time, took as a basis the
long-term risk-free rate of 7,23 %. They also agreed to
assume a flat 50 % tax rate (32). This produces a net
refinancing rate of 3,62 % and thus a corresponding
liquidity discount. This discount applies only to the special-
purpose reserve.

Determination of a likely minimum remuneration for
the special-purpose reserve and the nominal capital

(117) A market-economy investor bases his return expectations
on historical average returns, which generally also give him
an idea of what the company's future performance is likely
to be, as well as on the conclusions he draws from an
analysis of the company's business model for the period of
the investment, the strategy and quality of its management
and the prospects for the economic sector concerned.
Companies in need of capital have to convince potential
investors that, over the long term, they will be able to earn
at least the average rate of return that can be expected of
companies with a comparable level of risk and operating in
the same economic sector. If a company cannot fulfil these

(31) The situation does not change if one takes into account

the
possibility of raising additional own funds up to the same amount of
original own funds (a factor of 25 instead of 12,5 for original own
funds).

(32) According to documents provided by the German Government, the
corporation tax rate was 46 % in 1992, plus a solidarity surcharge of
3,75 %, i.e. 49,75 % in total. The overall tax rate fell to 46 % in 1993
and stood at 49,5 % from 1994 to 2000. From 2001 the overall tax
rate was 30 %.

expectations of an at least average return, the investor will
refrain from investing in it and will consider investing in
another company which offers better prospects for the
same risk.

it

is helpful

(118) There are various methods of determining an appropriate
minimum return. They range from differing variants of the
financing approach to the Capital Asset Pricing Model
(CAPM) method. For the purposes of describing the various
approaches,
to distinguish between two
components, namely the risk-free return and a project-
specific risk premium: the appropriate minimum return for
a high-risk investment = the risk-free base rate + a risk
premium for the high-risk investment. The appropriate
minimum return on a high-risk investment can therefore be
described as the sum of the risk-free rate of return and the
additional risk premium for assuming the specific invest-
ment risk.

(119) Accordingly, the basis for any return determination is the
existence of a default-risk-free form of investment with an
assumed risk-free return. The expected return on fixed-rate
securities issued by state issuers (or an index based on such
securities) is usually taken to determine the risk-free base
rate since such securities represent a form of investment
with comparatively little risk. The various methods differ,
however, when it comes to determining the risk premium:

the historic capital costs

— Financing approach: an investor's expected return on
capital represents, from the point of view of the bank
using the capital, future financing costs. Under this
approach,
incurred by
comparable banks are first of all determined. The
arithmetic average of the historical capital costs is
then compared with the future expected equity capital
costs and hence with the investor's expected return
requirement.

— Financing approach with Compound Annual Growth Rate:
at the heart of this approach stands the use of the
geometric rather than the arithmetic mean value.

— CAPM:

the CAPM is the best-known and most
frequently tested model of modern financial econom-
ics, by which the return expected by an investor can
be determined using the following formula: expected
return = risk-free interest rate + (market risk premium
x beta). The beta factor is used to quantify the risk of a
company relative to the overall risk of all companies.
is
The risk premium for
the
obtained by multiplying the risk premium of
market by the beta factor.

the specific investment

7.11.2006

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Official Journal of the European Union

L 307/15

(120) The CAPM is the predominant method of calculating
investment returns in the case of large listed companies.
However, since LBB is not a listed company,
it is not
possible directly to infer its beta value. The CAPM can be
used only on the basis of an estimate of the beta factor.

(121) Germany generally takes a critical view of the use of the
CAPM. In the end, the parties none the less used it as a basis
in their understanding, obtaining an appropriate rate of
remuneration for the transfer of the nominal capital and
the special-purpose reserve to LBB of 10,19 %.

(122) Using the CAPM, the parties applied a risk-free base rate of
7,23 % at 31 December 1992 for LBB, on the assumption
that WBK's assets were to be made available to LBB on a
permanent basis. The parties thus decided not to use a risk-
free rate obtaining on the market on a given reference date
for a fixed investment period at the time of the transfer (e.g.
10-year
return on government bonds) since such an
approach would disregard the reinvestment risk, i.e. the
risk that it would not be possible to invest again at the level
of the risk-free rate once the investment period had expired.
In the view of the parties, a total return index was the best
way of taking the investment risk into account. They opted,
therefore, for the REX10 Performance Index of Deutsche
Börse AG, which tracks the performance of an investment
in 10-year Federal bonds. The index series used in the
present case contains the relevant year-end levels of the
REX10 Performance Index after 1970. The parties then
calculated the rate of return per annum, which reflects the
trend tracked by the REX10 Performance Index in the
period 1970 to 1992 and, in this way, arrived at the risk-
free base rate of 7,23 % (at 31 December 1992).

(123) Since the contribution was to be made available to LBB on
a permanent basis, the method of determining the risk-free
base rate seems appropriate in this specific case. Moreover,
the REX10 Performance Index is a generally recognised data
source. The risk-free base rate calculated by the parties thus
appears appropriate here.

(124) The beta factor of 0,74 was estimated on the basis of a
KPMG report, of which the Commission has a copy, on
adjusted beta factors for all
listed credit institutions in
Germany. In the light of the report and of LBB's business
profile, this beta factor may be regarded as appropriate.

i.e.

(125) The Commission also regards the market-risk premium of
long-term
4,0 % as acceptable. The so-called general
the difference between the
market-risk premium,
long-term average return on a normal share portfolio and
the return on government bonds, was applied on several
occasions in the proceedings leading to Decision 2000/
392/EC. The expert reports relating to that case applied
margins of around 3 % to 5 %, depending on the method
used, the reference period and the underlying data. For

example, one report commissioned by the BdB calculated
alternative figures of 3,16 % and 5 %, while another,
commissioned by WestLB in the same case, arrived at
calculations of 4,5 % and 5 %, and Lehman Brothers, which
was also working for WestLB, calculated a rate of 4 %.
Against this background, the Commission here sees no
reason to depart from the market-risk premium used in the
understanding. On the basis of the CAPM, the Commission
has no doubt that the minimum remuneration determined
by the parties can be regarded as appropriate.

(126) Accordingly, it sets the minimum remuneration at 10,19 %
per annum (after corporation tax and before investor tax).

No return premium on account of the 100 %
ownership

(127) It must be examined whether

there are grounds for
adjusting the minimum remuneration calculated. Based on
the approach used in the other Landesbank cases, the
following three particularities of the transaction may justify
such a premium: first, the non-issuance of new shares in
the company with the associated voting rights; second, the
exceptional volume of the asset transfer; and third, the lack
of fungibility of the assets.

(128) As in the other proceedings, the Commission does not
consider a premium to be justified in relation to the last
two aspects. Nor is it possible to apply a premium in
relation to the failure to issue new shares with voting rights
given that the Land of Berlin owned 100 % of the voting
shares.

No reduction in the remuneration to take account of
the agreement of a fixed amount

(129) In the case of shares, the remuneration depends directly on
the performance of the company and is expressed mainly
in the form of dividends and a share in the increased value
of the company (e.g. expressed in share price increases).
The Land receives a fixed remuneration the level of which
should reflect
these two aspects of remuneration for
‘normal’ equity injections. It could be argued that the fact
that the Land receives a fixed remuneration instead of one
constitutes an
directly linked to LBB's performance
advantage which justifies a reduction in the rate of the
remuneration. Whether such a fixed rate actually constitu-
tes an advantage as compared with a variable, profit-linked
rate depends on the company's performance in the future.
the performance declines, a fixed rate benefits the
If
investor, but if it improves it places him at a disadvantage.
However, actual performance cannot be used retrospec-
tively to assess the investment decision. Taking all these
factors into consideration, the Commission believes that
the rate of remuneration should not be reduced for this
reason.

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7.11.2006

Overall remuneration for the nominal capital and the
special-purpose reserve

(5) Aid element

(130) In view of all of the above observations, the Commission
comes to the conclusion that a normal market minimum
remuneration for
the capital and the special-purpose
reserve would have been 10,19 % per annum. On account
of
liquidity in the special-purpose reserve,
3,62 % should be deducted from this figure for net
refinancing costs.

the lack of

(136) The Commission accordingly regards 10,19 % per annum
after tax as an appropriate market remuneration for the
nominal capital, 6,57 % per annum after tax for the part of
the special-purpose reserve which could be used by LBB to
underpin its commercial activities and 0,15 % after tax for
the amounts needed for the promotion-related business but
still shown as equity capital in the balance sheet.

Appropriate remuneration for the amounts needed for
the promotion-related business

(131) The amounts needed for the promotion-related business
were also of material value to LBB and their economic
function may be compared to that of a guarantee. A
market-economy investor would demand an appropriate
remuneration in return for exposing himself to a risk of this
sort. This question is not addressed in the understanding
between the BdB, the Land and LBB.

(132) In WestLB (33), Germany considered a rate of 0,3 % per
annum before tax to be an appropriate starting rate. Since
WestLB and LBB are fundamentally comparable and for
want of any other points of reference, the Commission
assumes that this rate corresponds to the remuneration
which LBB would have had to pay on the market in the
early 1990s for a bank guarantee in its favour.

(133) However, the grounds cited for increasing the starting rate
in Decision 2000/392/EC do not apply here.
In that
Decision, a premium of a further 0,3 % per annum was
added to the above-mentioned rate of 0,3 % per annum
(before tax) because first, bank guarantees are normally
associated with certain transactions and limited in time
(which was not the case in WestLB) and second, the amount
of DEM 3,4 billion made available to WestLB exceeded
what was normally covered by such bank guarantees.

the ‘guarantee’

(134) An increase in the rate of 0,3 % to take account of the
seems
particularly extensive scope of
unnecessary for an annual amount of some DEM 170 to
350 million. Raising the rate on account of the fact that
WBK's assets were in principle available to LBB without
restriction is also of doubtful value for the same reasons as
for which no premium was applied to the
those
remuneration for
the capital available for competitive
business since the Land was entitled to withdraw the assets
from LBB and indeed did so at the end of August 2004.

(137) On the basis of

the above assessment criteria and
remunerations for the various types of capital transferred,
the amounts shown in the table at paragraph 142 should be
paid as appropriate remuneration for
the individual
elements and years.

(138) Against

these amounts should be set

the elements of
remuneration agreed at the time of the investment, which,
in the Commission's view, consist only of
the agreed
remuneration in varying amounts (see table at para-
graph 142) on the take-up of the special-purpose reserve.
Other elements, such as the increases in value put forward
by Germany, or the dividend payout of DEM 238 million in
1993, cannot be offset against the appropriate remunera-
tion.

(139) Germany argued that the increases in value achieved by the
sales in 1994 and 1998 and the dividend payout of
DEM 238 million should be deducted from the remunera-
tion owed. However, payments made or increases in value
achieved after the investment cannot be taken into account
when applying the principle of
the market-economy
investor, who, on the basis of the information available
to him at the time of the investment, either expects an
appropriate return or agrees a direct
remuneration.
Dividends or increases in value which cannot be calculated
in advance are not relevant. Nor is it relevant whether
proceeds derive from an increase in value achieved through
a sale. Lastly, it is not clear why the dividend payout of
DEM 238 million should have been made on the basis of
the transferred special-purpose reserve; at most, propor-
tional account could be taken of the payment based on the
ratio of the special-purpose reserve to the rest of LBB's own
funds.

(135) The guarantee premium counts as an operating expense for
LBB and therefore reduces taxable profit. The remuneration
for WBK's assets is paid out of profits after tax. The rate of
0,3 % must therefore be adjusted for the tax rate. As in
relation to the refinancing costs, the Commission, here in
LBB's favour, assumes a uniform overall tax rate of 50 %.
Consequently, it sets a rate of 0,15 % per annum after tax.

(33) Paragraph 221, see footnote 2.

(140) Germany also claimed that one reason for the transfer was
the potential synergies to be achieved, rather than an
increase in equity capital for LBB. Since these synergies
neither reduce the usability of the transferred capital for
LBB nor increase LBB's costs from the transfer, they should
also not influence the level of remuneration for the equity
provided which a market-economy investor can demand
from the bank. Even if there were an actual benefit accruing
to the Land as a result of synergies, any competitor would
have been forced by competition to pay to the Land on top

7.11.2006

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Official Journal of the European Union

L 307/17

of the appropriate consideration for the equity provided, a
‘remuneration’ in the form of such benefits for the financial
instrument. The Commission therefore takes the view that
any synergy effects do not constitute remuneration paid by
LBB for the transfer of WBK.

(141) The difference between the agreed remuneration of about
0,25 % per annum and the appropriate remuneration of

6,57 % per annum (for the part of IBB's special-purpose
reserve which can be used for competitive business) or
10,19 % per annum (for WBK's nominal capital) and
0,15 % per annum (on the part of the capital which is
equivalent to a bank guarantee) accordingly constitutes state
aid within the meaning of Article 87(1) of the EC Treaty.

(142) The aid element is therefore made up as follows:

Values (DEM million at year end)

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004 (1)

Total

Total €

1.

IBB special-purpose reserve

1 715,-
2

2 005,-
8

2 105,-
8

2 206,-
0

2 306,-
0

2 356,-
0

2 406,-
0

2 456,-
5

2 600,-
0

2 623,-
8

2 625,-
4

2 625,-
4

Amount used for promotion busi-
ness

Special-purpose reserve remaining

Interest rate
Remuneration payable
2. WBK's nominal capital

Interest rate

Remuneration payable
Guarantee fee
Remuneration payable
Remuneration already paid

3.

4.

168,7

180,1

273,2

323,8

346,4

233,6

1 546,-
5
6,57 %
101,6
187,5
10,19%

19,1
0,15 %
0,253
0,0

1 825,-
7
6,57 %
119,9
46,9
10,19%

4,8
0,15 %
0,270
0,0

1 832,-
6
6,57 %
120,4
46,9
10,19%

4,8
0,15 %
0,410
0,0

1 882,-
2
6,57 %
123,7
46,9
10,19%

4,8
0,15 %
0,486
1,2

1 959,-
6
6,57 %
128,7
46,9
10,19%

4,8
0,15 %
0,520
3,4

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

6,57 %
[…]

6,57 %
[…]

6,57 %
[…]

6,57 %
[…]

6,57 %
[…]

6,57 %
[…]

[…]

[…]

2 122,-
4
6,57 %
139,4

0,15 %
0,350
3,6

0,15 %
[…]
[…]

0,15 %
[…]
[…]

0,15 %
[…]
[…]

0,15 %
[…]
[…]

0,15 %
[…]
[…]

0,15 %
[…]
[…]

38,2

19,5

[…]
[…]
1 584,-
5

[…]
[…]

810,14

Remuneration still owed

121,0

125,0

125,6

127,7

130,6

136,2

[…]

[…]

[…]

[…]

[…]

[…]

(1) 1.1.-31.8.2004. Afterwards €1,1 billion of IBB's special-purpose reserve converted into silent partnership contribution by Land to LBB with normal market remuneration

Since 1.1.1999 DEM converted to euro at 1,95583. Figures in DEM must be converted to euro accordingly.

L

3
0
7
/
1
8

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

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u
r
o
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e
a
n

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n
o
n

i

.

.

7
1
1
2
0
0
6

7.11.2006

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Official Journal of the European Union

L 307/19

(143) With IBB's hive-off from LBB on 1 September 2004, the
special-purpose reserve was transferred back to the Land of
Berlin, and €1,1 billion of it was transferred to two silent
partnerships held by the Land in LBB. This brought the
advantage at issue to an end as at 1 September 2004.

character and is not granted to individual consumers. Nor
does it make good the damage caused by natural disasters
or
the
economic disadvantages caused by the division of Ger-
many.

exceptional occurrences or

compensate

for

2c. DISTORTION OF COMPETITION AND EFFECT ON TRADE

BETWEEN MEMBER STATES

(144) As a result of the liberalisation of financial services and the
integration of
financial markets, banking within the
Community has become increasingly sensitive to distor-
tions of competition. This development is intensifying in
the wake of economic and monetary union, which is
dismantling the remaining obstacles to competition in the
financial services markets.

(151) Given that the aid has no regional objective — it is designed
neither to promote the economic development of areas
where the standard of living is abnormally low or where
there is serious underemployment nor to facilitate the
development of
areas — neither
certain economic
Article 87(3)(a) nor (c) of the EC Treaty, as regards the
latter's regional aspect,
is applicable. Nor does the aid
promote the execution of an important project of common
European interest. The aid is not aimed either at promoting
culture or heritage conservation.

(145) Landesbank Berlin carries on regional and international
banking business.
itself as an all-purpose
It defines
commercial bank, central bank for the savings banks and
the bank of the Land and its municipalities. Despite its
name, tradition and legally stipulated tasks, LBB is much
more than a mere local or regional bank.

(152) Since the economic survival of LBB was not at stake when
the measure took place, there is no need to consider
whether the collapse of a single large credit institution like
LBB could lead to a general banking crisis in Germany,
which might possibly justify aid to remedy a serious
disturbance in the German economy under Article 87(3)(b)
of the EC Treaty.

(146) These facts clearly show that LBB offers its banking services
in competition with other European banks outside
Germany and, since banks from other European countries
are active in Germany, inside Germany.

(147) It should also be recalled that there is a very close link
between the equity of a credit institution and its banking
activities. Only on the basis of sufficient accepted equity
capital can a bank operate and expand its commercial
operations. As the state measure provided LBB with such
equity capital for solvency purposes, it directly influenced
the bank's business possibilities.

(148) It

is clear,

therefore,

that aid given to LBB distorts

competition and affects trade between Member States.

3.

COMPATIBILITY OF THE MEASURE WITH THE EC

TREATY

(149) On the basis of all these considerations, it can be stated that
the transfer of WBK's capital is caught by all the criteria laid
down in Article 87(1) of the EC Treaty and therefore that it
involves state aid within the meaning of that Article. On
this basis, an assessment must be made as to whether that
aid can be considered compatible with the common
market. It should be pointed out that Germany did not
invoke any exemption clause with regard to possible state
aid elements in connection with the transfer of assets.

(150) None of the exemption clauses of Article 87(2) of the
EC Treaty are applicable. The aid does not have a social

(153) Under Article 87(3)(c) of the EC Treaty, aid may be found
compatible with the common market if it facilitates the
development of certain economic activities. This might, in
principle, also apply to restructuring aid in the banking
sector. However, in the case at hand the conditions for the
application of this exemption clause are not met. LBB is not
described as an undertaking in difficulty whose viability
must be restored with the support of state aid.

(154) Article 86(2) of the EC Treaty, which allows exemptions
from the Treaty's state aid rules under certain conditions, is
in principle also applicable to the financial services sector.
This has been confirmed by the Commission in its report
on Services of general economic interest in the banking
sector (34).

(155) Germany has not argued that any advantage conferred on
LBB by the
assets was merely
transfer of WBK's
the costs incurred by LBB in the
compensation for
performance of its public-service tasks. In the Commis-
sion's view, it is clear that the transfer was carried out in
order to enable LBB to meet the new capital requirements,
and not to compensate it for public-service tasks.

(156) Since no exemption from the principle of the ban on state
aid pursuant to Article 87(1) of the EC Treaty applies, the
aid in question cannot be found compatible with the Treaty.

(34) This report was presented to the Ecofin Council on 23 November
1998 but has not been published. It can be obtained from the
Competition Directorate-General of the Commission and can also be
found on the Commission's website.

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7.11.2006

4.

NO EXISTING AID

1 January 1993 to 31 August 2004 is incompatible with the
common market.

(157) The transfer of WBK's assets cannot be regarded as being
covered by the existing state aid scheme for ‘institutional
liability’ (Anstaltslast) and ‘guarantor liability’ (Gewährträger-
haftung).

(158) First, Gewährträgerhaftung is a default guarantee offered to
creditors in the event that the bank's assets are no longer
sufficient to satisfy their claims, and this is not the case
here. The capital injection is not intended to satisfy LBB's
creditors and the bank's assets have not been exhausted.

(159) Nor does Anstaltslast apply. Anstaltslast

requires

the
guarantor to provide LBB with the resources it needs to
function properly for as long as the former decides to
maintain it in existence. However, at the time of the capital
injection, LBB was far from being in a situation where it
was no longer able to operate properly. The capital
injection was not needed in order to keep LBB in business.
The conscious economic calculation by the Land as joint
owner also enabled LBB to seize future opportunities in its
competitive business. The ‘necessity requirement’
for
Anstaltslast does not apply to such a normal economic
decision by the Land. In the absence of another applicable
existing state aid scheme pursuant to Articles 87(1) and 88
(1) of the EC Treaty, the capital injection must be classed as
new aid within the meaning of Articles 87(1) and 88(3) of
the EC Treaty.

5.

CONCLUSION

(160) The aid resulting from the transfer of WBK/IBB on
1 January 1993 cannot be found compatible with the
common market under either Article 87(2) or (3) of the
EC Treaty or under any other provision of that Treaty. The
aid is therefore declared incompatible with the common
market and must be discontinued. The aid element must be
recovered by Germany,

Article 2

Germany shall take all necessary measures to recover from the
recipient the aid referred to in Article 1 and unlawfully made
available to the recipient.

Article 3

Recovery shall be effected without delay and in accordance with
law, provided that they allow the
the procedures of national
immediate and effective execution of this Decision.

The aid to be recovered shall include interest from the date on
which it was at the disposal of the recipient until the date of its
recovery.

Interest shall be calculated in accordance with the provisions of
Chapter V of Commission Regulation (EC) No 794/2004 (35).

Article 4

Germany shall inform the Commission, within two months of
notification of this Decision, of the measures taken to comply
with it, using the questionnaire attached in the Annex to this
Decision.

Article 5

This Decision is addressed to the Federal Republic of Germany.

HAS ADOPTED THIS DECISION:

Done at Brussels, 20 October 2004.

Article 1

The state aid amounting to €810,14 million which Germany
implemented for Landesbank Berlin — Girozentrale from

For the Commission

Mario MONTI

Member of the Commission

(35) OJ L 140, 30.4.2004, p. 1.

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Official Journal of the European Union

L 307/21

INFORMATION REGARDING THE IMPLEMENTATION OF THE COMMISSION DECISION

ANNEX

1.

Calculation of the amount to be recovered

1.1.

Please provide the following details regarding the amount of unlawful state aid that has been put at the disposal of the
recipient:

Date(s) of payment (°)

Amount of aid (*)

Currency

Identity of recipient

(°) Date or dates on which the aid or individual instalments of aid were put at the disposal of the recipient (if the measure consists of

several instalments and reimbursements, use separate rows).

(*) Amount of aid put at the disposal of the recipient, in gross grant equivalent.

Comments:

1.2. Please explain in detail how the interest payable on the amount to be recovered will be calculated.

2.

Recovery measures planned or already taken

2.1. Please describe in detail what measures have been taken and what measures are planned to bring about the immediate
and effective recovery of the aid. Please also explain what alternative measures exist in national law to bring about
recovery. Where relevant, please indicate the legal basis for the measures taken or planned.

2.2. By what date will the recovery of the aid be completed?

3.

Recovery already effected

3.1. Please provide the following details of aid that has been recovered from the recipient:

Date(s) (°)

Amount of aid repaid

Currency

Identity of recipient

(°) Date or dates on which the aid was repaid.

3.2. Please attach supporting documents for the repayments shown in the table at point 3.1.