2008/263/EC: Commission Decision of 27 June 2007 State aid C 50/2006 (ex NN 68/2006, CP 102/2006) implemented by Austria for BAWAG-PSK (notified under document number C(2007) 3038) (Text with EEA relevance)
Date: 2007-06-27
Institutions: European Commission
Subjects: Austria, State aid, bank, control of State aid, exchange of information

26.3.2008

EN

Official Journal of the European Union

L 83/7

COMMISSION

COMMISSION DECISION

of 27 June 2007

State aid C 50/2006 (ex NN 68/2006, CP 102/2006) implemented by Austria for BAWAG-PSK

(notified under document number C(2007) 3038)

(Only the German version is authentic)

(Text with EEA relevance)

(2008/263/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty
Community,
and in particular
Article 88(2) thereof,

establishing the European
subparagraph of
the

first

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

Having regard to the Council Regulation (EC) No 659/1999 of
22 March 1999 laying down detailed rules for the application
of Article 93 of the EC Treaty (1),

Having called on interested parties to submit their comments
pursuant to the provision cited above (2),

Whereas:

I. PROCEDURE

(1)

By letter dated 5 May 2006,
following press articles
relating to the difficult financial situation of Bank für
Arbeit und Wirtschaft und Österreichische Postsparkasse

(1) OJ L 83, 27.3.1999, p. 1. Regulation as amended by the 2003 Act

of Accession.

(2) OJ C 232, 30.12.2006, p. 11.

Aktiengesellschaft (hereafter BAWAG-PSK, or the Bank),
the Commission sent a request
information to
Austria. On the same day, the Commission received a
letter from Austria providing information on a State
guarantee granted to BAWAG-PSK.

for

By letter dated 30 May 2006,
the Commission sent
Austria a further request. Austria replied by letter dated
16 June 2006.

On 27 June and 4 December 2006, meetings with the
Austrian authorities and representatives of BAWAG-PSK
took place. Following the meetings Austria submitted
additional
information by letter dated 18 July and
21 September 2006.

By letter dated 22 November 2006, the Commission
informed Austria that
it had decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty
in respect of the aid.

The Commission invited interested parties to submit their
comments on the aid by a publication of the decision to
initiate the procedure in the Official Journal of the European
Union (3). No comments were received following this
publication.

In response to Commission requests, Austria supplied
further information by letter dated 31 December 2006
and 31 January 2007.

On 28 February, 30 March, 25 April and 8 May 2007
meetings with the Austrian authorities and represen-
took place.
tatives of BAWAG-PSK and Cerberus
Following the meetings, Austria submitted additional
information by letter dated 28 March, 19 April, 4 May,
21 May, 31 May, and 13 June 2007.

(2)

(3)

(4)

(5)

(6)

(7)

(3) See footnote 2.

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Official Journal of the European Union

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II. BACKGROUND

BAWAG-PSK

(8)

it

BAWAG-PSK is the fourth largest bank in Austria. As an
is
unlisted banking and financing corporate group,
active in all areas of financial services in Austria and
abroad. It operates the largest centrally managed distri-
bution network in the country (about 157 BAWAG and
1 300 post office PSK outlets), has 1,2 million private
and more
customers. On
31 December 2005, the balance sheet total was EUR
57,9 billions with savings deposits of around EUR 18
billion.

than 60 000 business

(9)

The following Table 1 gives an overview of the key
figures of the BAWAG-PSK group in the period 2004-06:

Table 1

BAWAG-
PSK

2004

2005

2006

Total
assets
(billion
EUR)

56,3

57,9

50,8

Number
of
employees

Savings
deposits
(billion
EUR)

Operating
result
(million
EUR)

Net profit
(million
EUR)

6 275

6 632

6 670

18,7

18,2

14,6

280

217

140

160,3

6,2

40,4

(10) Until 2006, BAWAG-PSK was indirectly wholly owned
by the Austrian federation of
trade unions (Österrei-
chischer Gewerkschaftsbund — ÖGB) (4). The bank's
history goes back to 1922 when an ‘Arbeiterbank’
founded for managing the
(bank for workers) was
financial
and Konsumgenos-
the unions
senschaften (i.e. worker-organised non-profit firms). The
bank was re-opened by the Austrian Unions after World
War II.

assets of

(11)

The ownership structure of BAWAG-PSK in December
2005 was the following:

(4) ÖGB directly owned 51 % and indirectly through its private foun-
dation Österreichische Gewerkschaftliche Solidarität Privatstiftung
(ÖGSP) 49 %. ÖGB is the founder of ÖGSP.

(12) On 1 August 2005 BAWAG spun off its entire banking
operations
and passed them to a new company,
BAWAG-PSK. The transferring company, BAWAG, was
subsequently renamed AVB. The assets remaining in AVB
(previously BAWAG) are primarily the 100 % share-
holdings in BAWAG-PSK in addition to securities. On
the passive side of the AVB balance sheet some of the
BAWAG liabilities owed to credit
institutions in an
amount of EUR […] (*) billion as well as part of
BAWAG's equity remained.

(13) As of 31 December 2005 the claims of BAWAG-PSK
against the direct and indirect shareholders amounted
to EUR […] billion (5). The recoverability of
these
the
claims depended primarily on the amount of
purchase price achieved for
in
shares
BAWAG-PSK. In order to recover 100 % of the claims
the potential buyer would have had to make a minimum
total investment of about EUR […] billion (6).

the sale of

(14)

BAWAG-PSK divides the domestic market into five main
business segments:

(a)

the Private Customer Segment encompasses retail
branch business, sales through post offices, mobile
sales and eBanking. The relevant customers are
jobholders and small and medium-sized enterprises;

(b) the Corporate Customers Segment encompasses insti-
tutional clients and social insurance institutions and
domestic and foreign key accounts. Customers within
Austria are assigned to this segment if their annual
revenues amount to EUR 4 million or more;

(c)

the Public Sector Segment includes mainly credit and
payment services for the Federal Government, federal
states and local communities;

(*) Business secret.
(5) Consisting mainly of two unsecured loans granted to AVB in the
form of account overdraft lines in the amount totaling EUR 1,531
billion and two loans to ÖGSP in the form of account overdraft
lines in the total amount of EUR […] million.

(6) Sum of

the purchase price and required capital

injections into

BAWAG-PSK.

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Official Journal of the European Union

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(d) the Capital Markets Segment

the
Group's treasury activities, including in particular its
earnings from the banking book, asset and fund
management and its issuing activities;

encompasses

(e)

the Real Estate and Finance Leasing Segment encom-
passes the earnings of the Group members operating
in these fields and the credit financing of real estate
projects primary with corporate clients.

(15)

The market shares of BAWAG-PSK for certain products
and/or business segment in 2005 in Austria were the
following (Table 2):

(18)

than […] % when subsidiaries

The Bank has also expanded internationally. The share of
its foreign branch assets in total assets increased from
about […] % in 1995 to about […] % in 2004 and
slightly more
are
included. The bank has branches, subsidiaries or partici-
in the Czech Republic, Slovakia, Slovenia,
pations
Hungary, Malta and Libya. Nevertheless,
the market
shares held by BAWAG-PSK in the new Member States
remain rather small.

(19) On 30 December 2006, ÖGB sold BAWAG-PSK to a
equity group
consortium led by the U.S. private
the
(hereafter
Cerberus Capital Management
consortium) (8). The
the
after
granting of the suspensive formal administrative auth-
orisations on 15 May 2007. The purchase price
amounts to EUR […] billion. In addition the consortium
injection of EUR […]
agreed to implement a capital
million.

L.P.
took place

closing

Table 2

Products per business segment

Market share

Deposit business with
domestic clients

Private customers

Corporate customers

Credit business with
domestic clients

Private customers

Corporate customers

Public sector

Debit card

Credit card

Credit card business
(private customers)

Leasing business

Capital markets
business

12 %

8 %

6 %

8 %

25 %

13 %

11 %

7 %

5 %

(20)

(21)

(16)

In addition BAWAG-PSK holds a […] position as the
principal provider of banking services to the public
sector. […] governmental
transfers and wage payouts
to public employees are handled by the Bank.

(17)

BAWAG-PSK is also engaged in the insurance sector
through BAWAG Versicherung AG and P.S.K. Versi-
cherung AG (7) and in non-banking activities. The most
the latter are BAWAG-PSK real estate
important of
group, Stiefelkönig (shoe distribution chain) and ATV
Privat-TV Services (TV broadcaster).

(7) BAWAG Versicherung AG and P.S.K. Versicherung AG have […] %

market share in the Austrian life insurance segment.

BAWAG-PSK's financial difficulties

The
economic difficulties of BAWAG-PSK resulted
the ‘Caribbean
mainly from two specific transactions,
transactions’ and ‘Refco’, conducted by some members
of the previous management. These transactions were
insufficient risk controlling
made possible because of
instances by
and the circumvention of existing control
the participants.

‘Caribbean transactions’

registered offices

The Caribbean transactions were primarily conducted
between 1995 and 2001. From 1995 through 1998,
initially three tranches totalling USD 550 million were
initially transferred in the context of senior deposit
agreements via BAWAG International Finance, Dublin
to companies with their
in the
Cayman Islands. A further loan in the amount of USD
89 million was granted in the year 1998. In September
1998, the engagement was such that BAWAG-PSK via its
subsidiary in Dublin had loaned a total of USD 639
million to four companies for the purpose of diverse
investments. These amounts were used in order
to
speculate on the development of the currency exchange
rate of the Yen against the US dollar. The equity capital
tranche employed as coverage which had been raised
from a third party and the funds from the senior
exhausted as
deposit
successfully
margins for
the speculations because the anticipated
development in the exchange rates did not take place.
With regard to the financings made in 1998, a total loss
in the amount of USD […] million was incurred in this
manner.

agreements were

(8) The consortium consists of Cerberus European Investments,

the
Austrian Post, Generali Holding Vienna AG, Wüstenrot Verwaltung-
and Dienstleistungen GmbH, other financial institutions and private
persons.

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Official Journal of the European Union

26.3.2008

(22)

By the end of the year 1998, additional financings for a
total of USD […] million were made, and in 1999 loans
were granted in an amount of approximately EUR […]
million which also turned out to be losses. Again, an
the
anticipated development
Yen did not occur, options which over the course of
time had substantially fallen in value were sold at great
losses. The liabilities at the end of 1999 amounted to
EUR […] billion. The large expansion of the liabilities
was to a large part also the result of massive shifts
within the structure of exchange rates.

in the exchange rate of

(23) At the end of 1999/beginning of 2000, a further, final
attempt was made to compensate for the losses under
these transactions which had been incurred up to that
time. An additional EUR […] million together with the
USD […] million remaining from the previous options
were invested in funds. Investments were again made in
Yen swaps speculations which again resulted in a new
total loss of the invested funds. At the end of 2000, the
total
transactions
amounted to EUR […] billion. From 2001 onwards up
to October 2005, the losses were often restructured and
reduced by partial write-offs to approximately EUR […]
billion.

from these

liabilities

resulting

short-term loans allowing Refco to close its balance
sheet (Year-End Transactions).

(25)

the unsecured Refco creditors),

In April 2006, complaints were filed against BAWAG-
the creditors committee
PSK in the USA by Refco,
(committee of
the
Department of Justice and the Securities and Exchange
Commission. During the course of these proceedings, an
amount of approximately USD […] billion was frozen by
court order. Finally, a settlement was negotiated with the
authorities of
the United States and with the Refco
creditors.

(26)

The relationship with Refco resulted in total expenses of
EUR […] million for BAWAG-PSK as of
the end of
2005:

— EUR 350 million requirement for write-down from

granting of a loan,

— EUR […] million loss from gold swaps,

‘Refco’

(24)

The business relationship of BAWAG-PSK with Refco
Group Ltd. LLC (hereafter Refco) (9) began in the year
1998 and lasted until October 2005. The main aspects
of this business relationship consisted of:

— EUR […] million loss from the sale of senior secured

loans,

— EUR […] million write-downs of other engagements

as well as,

(a) a participation of BAWAG-PSK in Refco in the

period 1999 through 2004,

— corresponding legal costs.

(b) financings in the context of a proceeds participation

agreement,

(c) cooperation between BAWAG-PSK and Refco in
several areas in daily banking and the securities
business,

(d) granting

loans

from BAWAG-PSK to Refco,
beginning with a loan in the year 1998 which was
repaid in connection with the termination of
the
participation by BAWAG-PSK in Refco in the year
2004, and ending with a loan for EUR 350 million
in October 2005. In the interim period, there were
repeated grants of
to Refco or Refco
loans
including, among others, several very
companies,

(9) Refco was at the time the largest derivatives broker in the USA.

(27)

This amount had to be increased by the provision in the
amount of EUR […] million which was required to be
established with retroactive effect at the beginning of
May 2006 for the settlement with the Refco creditors.
This resulted in a shortfall from the Refco transactions in
the amount of EUR 1,0045 billion.

(28) On 5 June 2006 BAWAG-PSK signed an agreement with
the Refco creditors. BAWAG-PSK had to pay USD […]
million to the creditors and shareholders of Refco.
Furthermore BAWAG-PSK renounced to credit claims
in the amount of USD […] million. The parties also
agreed that […] % of
the sales price exceeding EUR
[…] billion had to be paid to the Refco creditors and
shareholders. This amount is limited to USD […] million.

Effects of ‘Caribbean transactions’ and ‘Refco’

(29)

In the year 2004,
from the Caribbean
receivables
situation in an amount of approximately EUR […]
million were written off.

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(30)

In order to clean up the losses of the Caribbean in-
volvement in 2005, liquid funds in the amount of EUR
[…] million, write-offs in the course of the re-estab-
lishment in the amount of EUR 534 million and addi-
tional write-downs at the end of 2005 in an amount of
EUR […] million were made.
[…]. The outstanding
amount of EUR […] million was fully written down.

(38)

In addition Austria and the then direct and indirect
owner of BAWAG-PSK (ÖGB, ÖGSP, ÖBG, ÖVV and
concluded a comprehensive agreement, dated
AVB)
6 June 2006.
this
agreement the use of the sales proceeds is determined.
If the shares in BAWAG-PSK are sold, the sales proceeds
are to be used in the following priority:

In Chapter 7 paragraph 3 of

(31)

In October 2005, BAWAG-PSK was hit by the insolvency
of Refco and at
the
‘Caribbean transactions’ came to light.

the same time the losses of

(a)

to satisfy any rights of third parties in order to secure
the sale,

(32)

These events lead to value adjustments requiring the
provisioning of EUR […] million in the […] balance
sheet (10). BAWAG-PSK could only cover EUR […]
million through reserve accruals and the annual net
income.

(33) Alerted by the press, depositors massively withdrew the
money on current and savings accounts in late April/
early May 2006. Globally, between September 2005
and June 2006, the current accounts held by the bank
were reduced by EUR […] million, while the savings
accounts were reduced by EUR […] billion.

III. THE MEASURE UNDER ASSESSMENT

(34)

The measure under assessment in the present decision is
the State guarantee of EUR 900 million granted to
BAWAG-PSK by a law, the BAWAG PSK Sicherungs-
gesetz, enacted on 8 May 2006 (hereafter the law). The
law also included the obligation of the owners to sell
BAWAG-PSK to a third party.

(35) Without a guarantee, BAWAG-PSK would not have been
able to comply with the solvency and equity capital
(BWG) and
the Austrian Banking Act
provisions of
therefore to close the 2005 annual accounts.

(36) On 31 May 2006 the then direct and indirect owners of
BAWAG-PSK (ÖGB, ÖGSP, ÖBG, ÖVV and AVB) signed
a sales agreement which obliged them to sell their shares
in BAWAG-PSK to an independent third party.

agreement which specified

(37) On 6 June 2006 Austria and BAWAG-PSK signed a
guarantee
It
included a description of the guarantee, the conditions,
the fee to be paid, the responsibilities of BAWAG-PSK
and the duration. The sales agreement was attached to
the guarantee agreement.

law.

the

(b) to satisfy claims against

the owners under

the

settlement in the Refco matter,

(c)

to pay all remaining liabilities existing at the time of
payment owed by AVB,

(d) to pay all

liabilities still remaining at the time of
indirect owners of

(former)

payment owed by all
BAWAG-PSK,

(e)

to reduce the guarantee of Austria by providing
BAWAG-PSK equity.

(39)

The guarantee was abolished on 15 May 2007, the day
of
the sale of BAWAG-PSK to the
consortium.

the closing of

The objectives of the guarantee

(40) According to Austria the guarantee aimed at:

(a) stabilisation and strengthening

the position of

BAWAG-PSK,

(b) enabling the balance sheet to be prepared for 2005,

(c) enabling the beginning or the continuation of the

sales measures,

(d) maintaining future-oriented functionality of BAWAG-

PSK,

(10) […]

(e) strengthening the trust of
Austrian financial market.

the investors

in the

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The conditions attached to the guarantee

(46)

(41) Under the original conditions the guarantee would end
in principle,
than 1 July 2007. However, an extension

60 days after BAWAG-PSK was sold but,
not
under certain conditions was possible.

later

under

guarantee

of Austria

the Guarantee
The
Agreement, except
for the claims which have already
been made, would expire upon transfer of ownership
(directly or indirectly) of the shares in BAWAG-PSK to
a third party within the meaning of paragraph 3(1)
BAWAG-PSK Act, but not later than on 1 July 2007.
BAWAG-PSK was obliged to inform Austria about such a
transfer of ownership without undue delay and had to
soon as
present corresponding proof
If
BAWAG-PSK obtained corresponding knowledge.
required for
the
the sale of
the implementation of
shares to third parties within the meaning of paragraph
3(1) BAWAG-PSK Act, Austria would extend the
guarantee for up to 60 days as of
the transfer of
ownership upon the reasoned request of BAWAG-PSK,
but for no longer than 30 June 2007.

in writing as

(47) Austria, acting through the Federal Minister of Finance
(with the consent of
the Federal Government) could
the Guarantee
extend the guarantee assumed under
Agreement if the conditions set forth in paragraph 1(2)
of the BAWAG-PSK Act would materialise. In particular,
Austria could consider such an extension if the expiration
of the guarantee would endanger the long-term recovery
of BAWAG-PSK or its sale. BAWAG-PSK would submit a
corresponding request to Austria as soon as it wished to
have an extension, but not later than 31 March 2007.
the
The request had to show and establish proof of
If a
existence of
claim under the liability had been based on insolvency
risks resulting from a future loss of the guarantee of
Austria, Austria could avoid such a claim by extending
In this event, the
the liability prior to its expiration.
the
claim under
consequences
guarantee would not occur.

the prerequisites for an extension.

from a

resulting

(48) Another condition attached to the guarantee imposed
that BAWAG-PSK and ÖGB had to sell their stakes in
the Austrian National bank (OeNB). Taking into account
the specificities of such operation, Austria stated that a
market price for these stakes would be within a range of
[…] to […] times the nominal value of the shares. This
estimate led to a ‘market price’ between EUR […] and
EUR […] million. The final selling price to the Austrian
authorities was EUR […] million ([…] million for
BAWAG-PSK). The sales proceeds corresponded to the
book value of the participation.

(42)

The fee to be paid by BAWAG-PSK was fixed at 0,2 %
per year for the period ending 30 June 2007 and 1,2 %
afterwards.

(43)

The guarantee of Austria could only be drawn if
cumulatively:

— BAWAG-PSK was not sold,

— BAWAG-PSK, its direct and indirect shareholders had
been requested to pay and to disclose their financial
situations and obliged to pay up to the limit of their
capacities for payment before the guarantee could be
called on,

— the economic threat to the bank (falling below the
statutory requirements for equity capital) continued
to exist,

— an insolvency of BAWAG-PSK (inability to meet
ongoing payment obligations as a result of over-
indebtedness) threatened or had already occurred.

(44)

The drawdown of the guarantee was also permitted if
insolvency threatened only because the guarantee would
expire on 1 July 2007; the Federal Government could
avoid the drawdown under the guarantee by extending
it. However, this required an additional decision by the
Federal Government.

(45)

The guarantee only covered claims which were part of
the calculation basis under paragraph 22(2) BWG and
which were classified under
the
the Regulation of
Financial Markets Supervisory Authority (FMA) (11).

(11) In the Annex to the Audit Report, BGBl. II No 305/2005, in Part IV

Z 14 point c and point d.

(49)

In addition to the State guarantee, two special-purpose
vehicles (hereafter SPVs) had been created by private
banks, on the one hand, and insurance companies, on
the other hand, in order to strengthen the capital ratios
of BAWAG-PSK. Under the deal agreed upon, the four

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Official Journal of the European Union

L 83/13

the

and

support

to provide

founded two SPVs

to one SPV, each of

credit institutions Bank Austria-Creditanstalt, Erste Bank,
Raiffeisen
Österreichische
Volksbanken-AG
Zentralbank Österreich AG and the four
insurance
corporations Allianz, Generali, Uniqa and Wiener Städ-
for
tische
BAWAG-PSK. While BA-CA, Erste Bank and RZB each
contributed EUR […] million and ÖVAG EUR […]
million in capital
four
insurance companies contributed EUR […] million to
the second corporation. BAWAG-PSK held a controlling
stake of […] % in both SPVs. This arrangement enabled
BAWAG-PSK to increase its eligible capital (tier 1 capital)
by EUR 450 million. As a group, BAWAG-PSK thus
again achieved an adequate capital ratio. To limit the
risk exposure for the participating banks and insurance
corporations as much as possible, the funds provided had
to be invested exclusively in top-rated euro government
bonds. Following the closing of the sale of BAWAG-PSK
to the consortium on 15 May 2007, each shareholder
was entitled to terminate the respective SPV. As a result
of the subsequent liquidation, each shareholder received
the corporate assets corresponding to that shareholder's
portion of the capital contribution by way of a distri-
bution in kind, i.e. by transferring the securities in which
investments were made.

(50)

(51)

IV. GROUNDS FOR INITIATING THE PROCEDURE

the

formal

investigation
In its decision initiating
procedure laid down in Article 88(2) of the EC Treaty,
the Commission provisionally classified the measure
under examination as State aid within the meaning of
Article 87(1) and Article 61(1) of the EEA Agreement
because they had been granted through State resources
and because, by improving the recipient's
financial
position, they had likely affected the economic position
of competitors from other Member States (12) and conse-
quently distorted or threatened to distort competition
and affected trade between Member States.

The Commission considered doubtful that BAWAG-PSK's
insolvency/bankruptcy would have had systemic impli-
cations on the Austrian financial system and, more
globally, on the whole Austrian economy. Therefore,
Article 87(3)(b) would not have been applicable in this
case. On the basis of
the
Commission concluded that the aid had to be assessed
in the light of the Community guidelines on State aid for
difficulty (13)
rescuing
(hereafter the guidelines) and there were no other com-
patibility provisions of the Treaty or other Community
guidelines that might render the aid compatible. It agreed
with Austria that BAWAG-PSK was a firm in difficulty

its provisional assessment,

restructuring

firms

and

in

(12) Judgment of the Court of Justice of 14 September 1994, Joined
Cases C-278/92, C-279/92 and C-280/92 Spain vs Commission
[1994] ECR I-4103.

(13) OJ C 244, 1.10.2004, p. 2.

within the meaning of Section 2.1 of the guidelines.
However, it seriously doubted whether the aid measures
were compatible with the common market.

Rescue aid

(52) According to the guidelines, a rescue aid is by nature
temporary and reversible assistance, and its primary
objective is to make it possible to keep an ailing firm
afloat for the time needed to work out a restructuring or
liquidation plan. According to point 15 of the guidelines,
such aid cannot be longer than six months.

(53) While the guarantee was implemented on 6 June 2006,
the Commission observed that it had effectively entered
into force retrospectively as from 31 December 2005. Its
duration thus already exceeded the six-month limit set by
the guidelines.

(54)

the
The Commission therefore seriously doubted that
guarantee could be considered as compatible as a
rescue aid.

Restoration of long-term viability

(55)

Paragraphs 34 to 37 of the guidelines state that, in the
case of all individual aid measures, the Commission must
endorse a restructuring plan by assessing whether the
plan is capable of restoring the long-term viability of
the firm within a reasonable timescale and on the basis
of realistic assumptions.

(56)

The Commission took the view that the restructuring
plan and the success of the reorganisation and the con-
tinuation of the bank depended decisively upon a high
sales price. The sales scenarios, as presented, showed that
the potential buyer would have had to make a minimum
total investment of about EUR […] billion in order to
the bank without
restore the long-term viability of
further State intervention. Following the restructuring
plan, a total investment below this threshold would not
allow ÖGB and its affiliated companies the reimbur-
sement of
the ability to
the loans, and the buyer
conduct the necessary capital injections.

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26.3.2008

The Commission did not exclude that BAWAG-PSK
might have been confronted with additional difficulties
due to the massive deposit withdrawals which occurred
in spring 2006, and to the downgrading of its rating (14),
which increased its re-financing costs. These aspects
would only appear in the 2006 accounts. Moreover,
promotion campaigns, based for instance on attractive
remuneration offered on savings books, could impact
the bank's profitability. Press articles
indicated that
BAWAG-PSK could still lose EUR 20 million in 2006.

(c)

the Court ruling on variable rate clauses (Zinsgleit-
financial
klauseln) mentioned in the 2005 annual
statements may
affected
adversely
also
BAWAG-PSK.

have

The Commission was of the view that an evaluation of
these risks would have to be done, in order to set up a
comprehensive restructuring plan.

(57)

(58)

The Commission also drew attention to the fact that the
guidelines require that
the restructuring plan contains
scenarios reflecting best case, worst case and intermediate
assumptions. The Austrian authorities submitted only a
base case scenario which corresponds to the disclosed
data in the Information Memorandum provided to the
interested parties. This business planning was established
with a view to selling the Bank. The Commission has
doubts that the underlying assumptions of the business
planning meet the conditions of the base case scenario in
a restructuring plan. The Commission expected the
submission of a best and worst case scenario to prove
the robustness and viability of the restructuring plan.

(60)

(59)

The Commission also doubted whether some specific
risks had been taken into account in the business plan,
in particular:

trial),

success.

In order

(a) complaints in the USA: it could not be excluded that
additionally threatened complaints
(with in part
substantial claims) would not be pursued by the
plaintiffs with chances
to
for
cover a certain risk (settlements in advance of a
taken in the
a precaution was
possible
context of
the provision for Refco in the annual
financial statements for 2005. It also could not be
excluded that individual harmed persons would not
want to receive payments from the funds available as
creditors
a
committee.
such harmed persons
could file a complaint against BAWAG-PSK, and
the creditors committee would have to refund the
proportionate share of the funds to BAWAG-PSK,
but
the payments
which would actually have to be made would
exceed the refunded amount;

it could not be excluded that

settlement with the

In this event,

result of

the

(b) non-performance of

the obligations of

the share-
holders in BAWAG-PSK towards the US creditors –
in this case, BAWAG-PSK would have had a subor-
dinate liability;

(14) BAWAG-PSK’s rating by Moody was reduced from A2 to A3 for all
short and long-term deposits and debt, while the financial strength
ratio became E+.

Avoidance of undue distortion of competition

state

competitors.

and reduction of

These measures may

that measures must be

The exception laid down in Article 87(3)(c) of the EC
Treaty is subject to the condition that the aid does not
adversely affect trading conditions to an extent contrary
to the common interest. Paragraphs 38 to 42 of the
guidelines
taken to
mitigate as far as possible any adverse effects of the aid
on
comprise
divestments of assets, reduction in capacity or market
presence
entry barriers on the
markets concerned. The measures must be in proportion
to the distortive effects of the aid and, in particular, to
the relative importance of the firm on its market or
markets and must go beyond those that are necessary
in any event
the restoration of viability. When
assessing whether the compensatory measures are appro-
priate the Commission will take account of the market
structure and the conditions of competition to ensure
that any such measure does not lead to a deterioration
in the structure of the market, for example by having the
indirect effect of creating a tight oligopolistic situation.

for

(61)

The compensatory measures initially proposed by Austria
consisted in the sale of Bank Frick & Co., BAWAG-PSK's
share in the Austrian central bank, the sale of the Polish
Kinomax Sp.z o.o. and the Vienna real property. Since
the description of the measures and the extent to which
they affect BAWAG-PSK business was rather vague the
Commission was not in a position to assess their overall
effect. The Commission therefore needed detailed infor-
mation on the effect of each measure on the assets and
the future market positions of BAWAG-PSK, as well as
an explicit quantification of those measures and their
reduction effects (e.g. in terms of the balance sheet total).

(62)

The Commission doubted that additional compensatory
measures would reduce the total value of BAWAG-PSK
and therefore reduce the possibility to obtain the sales
price necessary to service the liabilities. Additional
divestments of assets would rather reduce the necessary
sales price by the amount achieved for the asset.

26.3.2008

EN

Official Journal of the European Union

L 83/15

(63)

(64)

(65)

The Commission doubted that the severe liquidity crisis
of BAWAG-PSK would have lead to a stronger oligopoly
in the Austrian banking markets not least because the
activities of the bank could have been taken over by a
new player on these markets.

The Commission also drew attention to the fact that the
‘bank run’ in the period September 2005 until June 2006
may not be comparable to a mitigating measure, in the
meaning of the guidelines.

To summarise, the Commission lacked important infor-
mation needed for a proper and sufficiently thorough
assessment of the effects of the proposed compensatory
measures. On the basis of the available facts, therefore, it
the planned reduction
as
had doubts
measures were
the distortive
effects of the aid on competition.

to whether
sufficient

to mitigate

Aid limited to the minimum

(66) Under paragraphs 43 to 45 of the guidelines, aid must be
limited to the strict minimum needed to enable restruc-
turing to be undertaken and to avoid providing the
company with surplus cash which could be used for
aggressive, market-distorting
even for
expanding. The guidelines also state that aid beneficiaries
will be expected to make a significant contribution to the
restructuring plan from the sale of assets that are not
essential
from external
financing at market conditions. For a large undertaking
in
like BAWAG-PSK,
the
principle,
restructuring costs.

that,
guidelines
the contribution should reach 50 % of

activities or

survival, or

to the

impose

firm's

the

it

liquidity but

the State measure was not an
(67) Austria argued that
injection of
intervened solely by
that
granting a temporary guarantee. The Commission was
unable on the basis of
the available information to
determine precisely whether the aid was the absolute
minimum necessary and expressed doubts as whether
Austria adequately valued the aid element in the State
guarantee since, in practice, the guarantee has a similar
effect to that of a capital injection.

(68) Austria argued that the restructuring costs would amount
to EUR […] billion and would be borne 100 % by
BAWAG-PSK itself, and the present and future owners.
The Commission doubted and requested further infor-
mation to assess if
the contribution of BAWAG-PSK
effectively reached 50 % of the restructuring costs.

procedure
particular on the following points:

and has provided new information,

in

Existence of a serious disturbance in the Austrian economy

(70) Austria considered that the guarantee was notified as an
aid to remedy a serious disturbance in the economy of a
Member State. An insolvency of BAWAG-PSK would
have had unforeseeable negative wide-ranging effects on
the economy. The panic anticipated in the case of a
potential insolvency of BAWAG-PSK could have quickly
spread to other banks, especially because under
the
statutory model for securing deposits in Austria, other
banks could also be called upon in the case of an
insolvency of a credit
institution. This would have
massive consequences for the entire Austrian economy
and above all also for
the approximately 70 000
employees in the banking sector. The creation of two
special-purpose vehicles (see below) would also demon-
strate the clear support for BAWAG-PSK by the largest
participants in the Austrian financial market, willing to
secure the stability of the financial market in Austria.

(71)

In addition to the major direct impact on the owner
ÖGB, the insolvency of BAWAG-PSK would also have
affected Austria:

— as holder of
stability,

the public task for capital market

— because BAWAG-PSK is the bank which effects all
tax payments, pension
family

payments for Austria, e.g.
payments,
unemployment
assistance, etc., and

payments,

— as previous owner and guarantor for certain liabilities

of the Österreichische Postsparkasse.

(72) Moreover, Austria would have had the obligation to take
on the federal civil servants working at the Österrei-
chische Postsparkasse and their rights in the public admi-
nistration (total annual salaries of EUR […] million).
Because BAWAG-PSK also uses
the Austrian post
offices as branch offices, the reduced business volume
the Austrian post offices
of
would also necessitate closing additional post offices
and would therefore create structural problems in rural
areas.

the financial services at

V. COMMENTS FROM AUSTRIA

(69) On the basis of the available restructuring plan, Austria
submitted comments on the decision to initiate the

(73) Austria considered that it is hardly possible to provide a
quantitative estimate of the potential consequences of an
insolvency of the bank for the entire economy.

L 83/16

EN

Official Journal of the European Union

26.3.2008

The aid element in the State guarantee

(74) Austria explained that the State aid was necessary in
order to end the ‘run on the bank’ which started in
September 2005 and to assume the solvency situation
of BAWAG-PSK and the BAWAG-PSK group. Without
the public guarantee
for BAWAG-PSK no private
investor would have been willing to provide funds
which would be considered as equity capital in this case.

(75) According to Austria the aid element of the guarantee
must be determined on the basis of the notice on the
application of Articles 87 and 88 of the EC Treaty to
State aid in the form of guarantees (15) (hereinafter the
Notice). The Notice would grant the Commission a broad
discretion with regard to determining the amount of the
State aid. The only binding requirement would be that
the State aid element should be assessed by reference to
the details of the guarantee. In reference to paragraph 3.2
of the Notice, where it is mentioned that ‘where, at the
time the loan is granted, there is a strong probability that
the borrower will default, e.g. because he is in a financial
difficulty, the value of the guarantee may be as high as
the amount effectively covered by the guarantee’ Austria
commented that BAWAG-PSK is not a borrower for
whom the State is guaranteeing the credit in favour of
the credit grantor, but the credit grantor itself. Therefore
in order to evaluate the default risk of the claim, the
financial situation of BAWAG-PSK would be irrelevant.
Thus the Commission cannot draw a conclusion about
the default risk of the claim from the financial situation
of the BAWAG-PSK.

(78)

(76) Austria explained that Moody's Financial Strength Rating
(hereafter FSR) (16) would be an appropriate indicator of
the financial situation of BAWAG-PSK, because the FSR
is only based on the financial ability of the company to
perform without any external support.
It contains an
implicit statement regarding future development of the
Bank and thereby provides a significant picture of the
overall payment default risk. The FSR of BAWAG-PSK
of ‘E+’ would correspond to a baseline risk assessment
rated from B1 to B3. The latter ratings would indicate
payment default risk within one year of 3,2 % to 10,5 %.

(77) According to Austria, the fact that BAWAG-PSK was to
be classified as a company in financial difficulties at the
time the guarantee was granted does not mean that the

(15) OJ C 71, 11.3.2000, p. 14.
(16) The FSR represents Moody’s opinion of the bank intrinsic safety
and soundness and, as such, excludes certain external credit risks
and credit support elements that are addressed by Moody’s Bank
Deposit Ratings.

about

enable

any statement

to the nominal value of

the
aid element amounts
guarantee of EUR 900 million. Instead, the Commission
should exercise its discretion taking into account
the
specifics and the details of the Guarantee Agreement,
especially the identified risk factor. According to this,
the financial difficulties of a borrower would only be
an indication for the existence of State aid; however,
they would not
the
amount of the aid element involved. The Commission
has in several restructuring cases determined the aid
element in a guarantee granted in favour of a company
in difficulty to be lower than the nominal value. In the
case of Crédit Foncier de France (17) (hereafter CFF), the
Commission calculated the amount of aid based on the
market price the Bank would hypothetically have had to
In the case
pay for such a guarantee on the market.
Bankgesellschaft
the
BGB),
Commission determined the
aid in a
guarantee, the so-called risk shield, to be the ‘economic
value’ rather than the nominal value. Also in the case of
the restructuring aid granted by Germany to Chemische
Werke Piesteritz (19)
the Commission
estimated the amount of aid in a guarantee far below
the nominal value of the loan, although CWP was in
financial difficulty at the time.

(hereafter
amount of

(hereafter CWP),

Berlin (18)

the

discretion

Regarding the short-term character of
the guarantee,
Austria explained that according to paragraph 3(2) last
sentence of the law, the Federal Minister of Finance can
extend the guarantee. However, this would require the
consent of the Federal Government, which would have
to be unanimous. An extension is thus left
to the
Federal Government.
of
political
BAWAG-PSK could at best exert pressure on Austria
with regard to an extension,
if the requirements for a
drawdown prevail. This would require the threat of
insolvency of BAWAG-PSK.
In such a case BAWAG-
PSK would first have to request its owners to pay and
force them to disclose their
financial circumstances.
These would be high hurdles for a drawdown so that
‘de facto
the guarantee cannot be assumed to be of
endless duration’. Also from an economic point of
view the guarantee could not be regarded as unlimited.
BAWAG-PSK would avail
itself of a series of other
options to cover its capital requirements upon expiration
of the one-year guarantee term, even in case the Bank
cannot be sold. Firstly, the Bank's profits would lead to
an improved equity. Secondly, it could reduce its capital
requirement by reducing its risk assets. Thirdly, there
would always be the possibility to recourse to third
party equity. During the immediate ‘bank run’ crisis in
May 2006, these possibilities were not made use of due
to time pressure. Had the Bank not been sold, it would
have had the possibility to follow these approaches.

(17) Commission Decision of 23 June 1999, C(1999) 2035, Crédit
foncier de France (OJ L 34, 3.2.2001, p. 36), paragraph 49.
(18) Commission Decision of 18 February 2004, C(2004) 327, Bank-
gesellschaft Berlin (OJ L 116, 4.5.2005, p. 1), paragraph 27, fourth
indent.

(19) Commission Decision of 2 March 2005, C(2005) 427, Chemische
Werke Piesteritz (OJ L 296, 12.11.2005, p. 19), paragraph 107.

26.3.2008

EN

Official Journal of the European Union

L 83/17

(79) According to Austria the guarantee

could not be
economically considered as having been durably paid
into the assets of BAWAG-PSK (paid in). A new owner
would have to replace this amount by its own contri-
bution. There is no automatic mechanism concerning its
extension. A purchaser would not simply inject equity in
the same amount upon expiration of the guarantee but
would have a number of options to handle possible
financial straits of BAWAG-PSK. The probability of a
specific
drawdown would also be
modalities of the guarantee. In particular, the fact that
the guarantee is only a deficiency guarantee would
minimise the risk. The liability of Austria is only
conceivable in the event of
threatened insolvency of
BAWAG-PSK. Such insolvency would be very unlikely
as a result of and after the granting of the guarantee.

limited by the

(80)

i.e. the total

Regarding the likelihood of
the drawdown, Austria
argued that at the time of granting the State guarantee,
there was a high likelihood that BAWAG-PSK would be
sold within a year for a total buyer investment of more
than EUR 2,6 billion. A strong indicator of the effective
value of BAWAG-PSK in April 2006, thus before the
the State guarantee, would be the sales
granting of
price,
investment stated by the bidders in
their final offers of December 2006. Because of the basic
soundness of BAWAG-PSK in spring 2006 and the
limited character of
the problems having led to its
financial difficulties,
the value of BAWAG-PSK at the
moment of granting the guarantee was evaluated at
about EUR 2,6 billion. This high value is also reflected
in the tender, notably in the final offers made in
December 2006 and finally in the total
investment
made by Cerberus. The bids were made as part of an
international
tender, an open and non-discriminating
procedure that left bidders enough time to assess the
potential sales object before making a bid. Regarding
Austria's awareness of the effective value of BAWAG-
PSK, given the activity of the FMA, Austria was, at the
moment of granting the State guarantee, sufficiently
the economic situation of BAWAG-
informed about
PSK. Up to the granting of the State guarantee, Austria
saw BAWAG-PSK basically as an economically viable
company, which temporarily needed support until
its
sale.

(81)

Regarding comparability with other financial instruments,
Austria explained that the guarantee would not be similar
to a capital injection, provided no drawdown takes place.
The default likelihood at a FSR rating of E+ being as low
as 5,49 % would mean that there would not be any
payment to BAWAG-PSK with a probability of almost
95 %.

cost of

liabilities of

the Bank the

(82) Austria concluded that for the purpose of calculating the
aid element,
the State guarantee would be indirectly
comparable with a guarantee securing liabilities such as
it was granted in the case of CFF. With a guarantee
rating of
securing all
BAWAG-PSK would have considerably improved and
clearly achieved an A rating. This
improved rating
would have had an immediate positive effect on the
Bank's
in turn would have
improved the performance of the Bank. Together with
the rating, this would at least have clearly improved its
chances of obtaining fresh capital. A guarantee securing
liabilities could thus also indirectly ensure the necessary
Tier 1 capital ratio. The calculation of the aid element
should thus be based on the amount of economic benefit
the aid.
from the point of view of
Whether
to a State
guarantee or to different means than a private investor
must in no way influence the determining of the amount
of the aid element involved.

the government elects to recur

the recipient of

funds. This

(83) As a result of the grounds resulting in a lower risk and
the short duration due to the anticipated sale of the Bank
in the near future, the probability of default of B2 would
appear realistic and fair. The aid element in the guarantee
to EUR 49 million (20).
would therefore
Considering the guarantee fee of 0,2 % for the first
year, the net aid value would be EUR 47,2 million (21).
Austria explained that a plausibility check of this calcu-
lation would be that if Austria had granted the entire
amount not as a guarantee but rather as a genuine
loan, interest would have been owed for this in approxi-
mately the same range.

amount

(84) Austria added that the expected loss of the guarantee
does not only result from the probability of default but
also from the level of the losses in the default case. The
above calculation is based on a default rate in the default
case of 100 %. The consideration of an adequate default
rate in the default case of 50 % (22) would lead to a
significantly lower aid value of approximately EUR 25
In addition, a private investor would also
million.
EUR 10
consider
capital
million (23). Therefore
the
guarantee would amount
to approximately EUR 35
million minus the guarantee fee of EUR 1,8 million.

approximately
the

value of

costs of

in total

(20) EUR 900 million × 5,457 % = 49,1 million.
(21) EUR 49,1 – (900 × 0,2 %) = 47,3 million.
(22) Compare Moody’s Investor Service, ‘Default and Recovery Rates of

Corporate Bond Issuers: 2000’.

(23) Based on a standard solvency ratio of 8 %.

L 83/18

EN

Official Journal of the European Union

26.3.2008

(85) Austria alternatively evaluated the value of the guarantee
by determining the theoretical refinancing advantage for
BAWAG-PSK resulting from the guarantee. Due to the
guarantee the risk premium decreased by approximately
0,2 % (24). In taking into account the EUR 24,7 billion
liabilities affected by the rating the economic value of the
guarantee would amount to EUR 49,4 million.

(86) Austria argued that the aid element would in any case be
far from the nominal value of the guarantee. The capital
market has hybrid equity instruments with clear features
of liabilities, which the banking supervision regulations
accept as Tier 1 capital. These instruments, due to
banking supervision regulations, would have lengthy
minimum terms, which as a rule are at least 10 years.
Such instruments would be subject to a fixed rate of
return, which is of course higher than the rate to be
paid for a one-year instrument. Banks with a rating
to that of BAWAG-PSK issued hybrid
comparable

in spring/summer 2006 with

ten-year
capital
minimum term and bearing interest rates of approxi-
mately 5,1 %:

a

Table 3

Overview of hybrid capital emissions from banks with
comparable ratings

Issuer

Date of issue

Rating at the time of
issuing

Interest
rate

Banca Italease

6 June 2006 Moody's:

Baa2
BBB+

Fitch:
Composite: BBB

AIB UK

6 June 2006 Moody's:

A2
A–
A+

S&P:
Fitch:
Composite: A

5,159 %

5,142 %

Restoration of the firm's long-term viability

(87) Austria completed the restructuring plan by submitting an updated base case scenario and a sensi-

tivity analysis including an optimistic and pessimistic scenario.

(88)

The base case scenario is the following (Table 4):

Table 4

Statement of income pursuant to Handelsgesetzbuch

2006

2007

2008

2009

2010

2011

(in million EUR)

Net interest yield

Income from investment

Income from commissions

Financial result

Other operational income

Operational income

Personnel expenses

Material expenses

Write-offs

Other operational expenses

Operating result

Risk management and evaluation of
financial assets

Result of common business activities

Taxes

Annual net profit

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(24) Based on the change of Swap spreads before and after the imple-

mentation of the guarantee.

26.3.2008

EN

Official Journal of the European Union

L 83/19

(89) Austria explained that

In total

in the context of

the current
market conditions the planning for 2007 had to be
the annual net profit of EUR […]
updated.
[…] % of
million decreased to about
initial
expected value. Austria also explained the underlying
assumptions and key financial ratios of the base case
scenario. The plan for the years 2008 and following
was not changed.

the

(90)

The main reasons for the changes in the base case
scenario are:

— the shift in the slope of the interest curve in the long

term,

— the slower return than expected of the lost savings
deposits and clients accounts during the ‘bank run’,

— the bottleneck in liquidity and necessity to sell asset

positions in order to increase liquidity,

(93) According to Austria,

the specific risks in particular
related to the ‘Refco’ complaints in the USA, the non-
performance of the obligations of BAWAG-PSK share-
holders towards US creditors and the court ruling on
variable rate clauses (Zinsgleitklausel) have been suffici-
ently taken into account in the restructuring plan:

— the

risk

resulting

from complaints of

‘Refco’
complaints in the USA, would be marginal would
therefore not have to be considered individually in
the
covered by the general
provisions,

and are

accounts

— the risk of non-performance of the obligations of the
shareholders of BAWAG-PSK towards
the US
creditors would no longer exist. On 18 December
2006 BAWAG-PSK and its direct
and indirect
owners signed an agreement which clarifies the obli-
gation of each party. According to the agreement
BAWAG-PSK and its owners mutually renounce to
their right of recourse,

— the continuation of negative communication about

BAWAG-PSK in the media,

— the risk resulting from the Court ruling on variable
rate clauses (Zinsgleitklauseln) has been globally pro-
visioned in the BAWAG-PSK accounts.

— the stagnation of commercial credit business due to

the lack of liquidity.

(91) Austria expressed that the main assumptions which vary
in the optimistic and pessimistic scenario are the net
income from investment and provisions,
interest yield,
the growth of
the personal
the commercial business,
and material expenses and the risk margin. In the pessi-
mistic scenario the result of common business activities
will increase from EUR […] million in 2007 to EUR […]
million in 2011, being about […] % below the result of
common business activities in the base case. In the opti-
mistic scenario the result of common business activities
will achieve EUR […] million in 2011 based on EUR […]
million in 2007. Thus in the optimistic case in 2011 the
result of common business activities will be about […] %
above the result in the base case.

(92) Austria explained that the restructuring plan would be
appropriate to restore the long-term viability of BAWAG-
PSK. The successfully completed tender procedure on
14 December 2006 would be the best market test in
order to prove the plausibility of the restructuring plan.
investment of EUR […] billion for
In offering a total
BAWAG-PSK Cerberus clearly confirmed that it believes
in the long-term profitability of the Bank.

(94) Austria recalls that

two special-purpose vehicles have
been created by private banks on the one hand and
insurance companies on the other hand,
in order to
strengthen the capital ratios of BAWAG-PSK.

Avoidance of undue distortion of competition

(95) Austria explained that the creation of SPVs to strengthen
the equity base of BAWAG-PSK in conjunction with
various Austrian banks, on the one hand, and Austrian
insurers, on the other hand, would show that compe-
titors have in turn taken the financial difficulties of
BAWAG-PSK as an occasion to implement short-term
support measures in order to safeguard the reputation
of Austria as a financial centre. It would be illogical for
competitors of BAWAG-PSK to temporarily provide
financial support
if
they expect a noticeable distortion of competition from
the State guarantee. Indeed, the approach of banks and
insurers rather shows that the continued existence of
BAWAG-PSK, which the State guarantee secures, has
never been and will not be regarded as a distortion of
competition. Furthermore, no third party submitted
comments
opening
the
decision. The State guarantee thus would not lead to a
distortion of
view of other
competitors.

for the Bank through the SPVs,

competition in the

Commission's

regarding

L 83/20

EN

Official Journal of the European Union

26.3.2008

(96) Austria is of the view that an important compensation to
be considered is the sale of BAWAG-PSK by its former
owner ÖGB. The sale would underline the joint wish for
a durable restructuring of the Bank. According to Austria,
the sale of companies in difficulty constituted an essential
step toward their durable restructuring. It could generally
be assumed that a company will more likely be durably
viable under the control of a new, private owner and that
this ensures that the company will not have to rely on
State aid again (25). Although there is no privatisation in
this present case, the transfer of BAWAG-PSK as a whole
under the control of an experienced private investor is a
step toward overcoming the difficulties of the past and

enabling positive economic development. Furthermore,
the sale of the Bank would enable an extremely high
contribution within the meaning of the guidelines,
in
order to finance the restructuring of BAWAG-PSK at de
facto 100 %. The sale of BAWAG-PSK would secure the
viability of the Bank, since the BAWAG-PSK owners are
able to service their
toward the Bank by
liabilities
recurring to the sales price. This allows them to restore
the assured value of the present receivables of BAWAG-
PSK. The sale thus would prove to be a central element
of the restructuring of BAWAG-PSK. The associated costs
are eventually financed entirely from the sale of the Bank
rather than from the State guarantee.

(97) Austria informed the Commission that the following divestures had already taken place:

Table 5

Overview of already made divestures

Measure

Business field

Implementation date

Sale Bank Frick & Co.

Retail banking

19 July 2006

Sale Oesterreichische Nationalbank

Central bank

12 July 2006

Sale Kinomax Sp.z o.o.

Sale Vienna real property, 1010 Vienna

Sale HOBEX AG

Real property
services

Real property
services

Direct debiting
authorisation

14 December 2006

8 May 2006

29 March 2007

Sale Funk International Austria GmbH

Insurance broker

1 January 2007

Sale Cosmos Elektrohandels GmbH & Co KG ODER COSMOS
Geschäftsführungs- und Beteiligungs GmbH

Retail trade

14 September 2006

Voestalpine AG

Steel

9 November 2006
until 13 April 2007

(98) Austria also transmitted additional commitments from

BAWAG-PSK vis-à-vis the Commission:

(a) BAWAG-PSK AG will sell the following assets to a
third party that is independent of the BAWAG-PSK
group:

(25) Commission Decision of 12 October 1994 concerning the grant of
State aid by France to the Bull group in the form of a non-notified
capital
increase (OJ L 386, 31.12.2004, p. 1), paragraph 10;
Commission Decision of 26 July 1995 giving conditional
approval
to the aid granted by France to the bank Crédit
(OJ L 308, 21.12.1995, p. 92), paragraph 116;
Lyonnais
Commission Decision of 21 June 1995 on the aid granted by the
Italian State to the company Enichem Agricoltura SpA (OJ L 28,
6.2.1996, p. 18), paragraph 26; Commission Decision of 3 July
2001 on State aid which Spain has implemented and is planning
to implement for the restructuring of Babcock Wilcox España SA
(OJ L 67, 9.3.2002, p. 50), paragraph 40; Commission Decision of
16 September 1998 authorising subject to conditions, aid granted
by Italy to Società Italiana per Condotte d’Acqua SpA (OJ L 129,
22.5.1999, p. 30), paragraph 35; Commission Decision of
16 September 1998 authorising, subject to condition, aid granted
by Italy to Italstrade SpA (OJ L 109, 27.4.1999, p. 1), paragraph 2.

(i) sale, no later than […], of an interest of more
than 50 % in P.S.K. Versicherung AG and
BAWAG-Versicherung
as
reflected in the balance sheet, and the granting
of a call option for the acquirer for the rest of
the shares;

Aktiengesellschaft

(ii) completion, no later than […], of the sale of real
estate valued at approximately EUR […] million
in total as reflected in the balance sheet;

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Official Journal of the European Union

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(iii) sale, no later than […], of the […] % interest in

[…] as reflected in the balance sheet;

(iv) sale, no later than […], of the 42,56 % interest in
ATV Privat-TV Services AG as reflected in the
balance sheet;

(v) sale, no later than […], of […] as reflected in the

balance sheet.

(b) The BAWAG-PSK Group will reduce the volume of
its loans to the Federal Republic of Austria) from
EUR […] billion to EUR […] billion as of the end
of the […] business year, and it will maintain this
amount for a period of […] (i.e. until […]) as an
upper limit. Excluded there from are existing obli-
the BAWAG-PSK group
gations of companies of
instalments under previously
relating to future
transacted procurement processes.

(c) BAWAG-PSK AG will refrain, for a period of […]
beginning on […],
from participating in tender
procedures in which the Republic of Austria seeks
to commission Primary Dealers to issue bonds for
the Federal Republic (state bonds).

(100) Austria

further

and the

corporate

the private

explained why

reductions would
jeopardise the Bank's viability. Austria recalled that the
Austrian banking market is already highly concentrated.
It is dominated by the four banking groups, the Bank
the group consisting of
Austria Creditanstalt Group,
ERSTE Bank and the savings banks, the group of coop-
erative banks (Raiffeisen) and BAWAG-PSK, which would
dominate
customer
business with a total market share between 90 % and
100 %. Other credit institutions would only play a subor-
dinate role. Thus, the banking sector in Austria would
already be very close to an oligopolistic structure. In the
case of an insolvency of BAWAG-PSK, there would be a
high probability that
shares would have
its market
moved to the three large main competitors in the
banking market. This would then strengthen the
already existing strong market positions. The markets
for banking services would be subject to special
legal
and institutional parameters. Due to the existence of
considerable market entry barriers both in the private
client area as well as in the commercial client
field,
market shares of 30 % could already establish dominant
market positions (26). In the case of insolvency, therefore,
there is a risk that three banking groups would create or
strengthen a dominant market position in Austria which
considerably increases the risk of market dominance by
an oligopoly. Thus a situation would exist in which State
aid must be approved in order to avoid the creation or
strengthening of a market dominant oligopoly.

(101) According to Austria BAWAG-PSK would have moderate
market shares in private and corporate business areas,
which have again clearly fallen even in 2006. This
would become evident from the market shares (27) for
the year 2006 (Table 6):

Table 6

(d) BAWAG-PSK AG will close […] branches in Vienna

by […].

Products per business segment

Market
share 2005

Market
share 2006

(e) No aid other than that referred to in Article 87(2) of
the EC Treaty, or aid granted under research projects
jointly financed by the European Union, or aid to
general
training within approved schemes, or aid
for energy savings within approved schemes, shall
be granted to BAWAG-PSK until 31 December 2010.

Deposit business
with domestic
clients

Private
customers

Corporate
customers

Credit business with
domestic clients

Private
customers

Corporate
customers

12 %

8 %

6 %

8 %

[…]

[…]

[…]

[…]

The corresponding market shares of
the three largest
banking groups in all those areas would exceed 20 %.

(99) Austria provided details on the value and the reduction
effect of each compensatory measure. Notably,
the
compensation measures (including the ‘bank run’ — see
below) would lead to a reduction of the group balance
sheet total of […] % versus 2005.

(26) Decision Bank Austria/Creditanstalt, IV/M.873, dated 10 February

1997, paragraph 46 et seq.

(27) Regarding market shares, Austria refers to the merger control
decision of the Commission of 28 February, Cerberus/BAWAG-
PSK, COMP/M. 4565.

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(102) Austria argued that, with regard to compensations to
offset possible distortion effects already incurred market
share losses as a result of the ‘bank run’, the regulation
on the use of payment under the Guarantee Agreement
and the possible effect of compensation measures on the
banking sector in Austria would be of major importance.

(103) Concerning the loss of market share as a result of the
‘bank run’, Austria is of the view that the reduction of
sight deposits and savings deposits of around EUR […]
billion from the end of September 2005 until June 2006
already considerably weakened the market position of the
Bank. As the result of ‘mass hysteria’ triggered by media
reports, BAWAG-PSK had no chance to hinder
the
collapse of its savings deposit business. The State aid
had not, therefore, in any manner distorted the compe-
tition in favour of BAWAG-PSK. In itself, this ‘bank run’,
leading to reduced market shares for BAWAG-PSK,
is
regarded by Austria as a mitigating measure.

(104) According to Austria the success of the reorganisation
and the continuation of the Bank depended decisively
upon a high sales price. Any reduction of
the sales
price below EUR […] billion as the result of compen-
sation measures would have had a direct influence on the
Bank. A reduction of BAWAG-PSK's value caused by any
compensatory measures would have reduced the possi-
bility to obtain the sales price necessary to service the
liabilities.

(105) Austria claimed that compensatory measures would also
harm the market structure in the banking sector in
Austria. For example, the sale of the bank branches of
BAWAG-PSK in Austria to one of the three other large
Austrian credit
institutions would cause considerable
concerns under merger control. A sale of the branches
to a foreign institution would create the specific danger
that bank customers of BAWAG-PSK, especially the
private clients and mid-size corporate clients would
change to other Austrian banks and,
further
narrow the presently highly concentrated Austrian
banking market. According to the guidelines,
the
Commission must in this case construe compensatory
measures in such a way to avoid this situation.

thus,

Aid limited to the minimum

(106) Austria stressed that the aid in question was limited to
the minimum since it was not a permanent liquid capital
injection, but a granting of a temporary conditional
guarantee which was necessary to maintain a satisfactory
level of solvency.

(107) Austria explained that since the signing of the purchase
agreement on 30 December 2006,
that
BAWAG-PSK can completely fulfil the own contributions
requirement
indicated in the restructuring plan. The
financing of the restructuring would be 100 % secured
by BAWAG-PSK itself. Also the capital injection of EUR
600 million must be regarded as own contribution.

is clear

it

VI. COMMENTS FROM OTHER INTERESTED PARTIES

(108)

In response to the publication of the decision to initiate
proceedings in the Official Journal of the European Union,
the Commission did not receive comments from other
interested parties.

VII. ASSESSMENT OF THE AID MEASURE

BAWAG-PSK is a firm in difficulty at the time of the
granting of the guarantee

(109) According to paragraph 9 of the guidelines a firm is in
difficulty where it is unable, whether through its own
resources or with the funds it is able to obtain from
its owner/shareholders or
to stem losses
which, without outside intervention by the public auth-
orities, will almost certainly condemn it to going out of
business in the short or medium term.

creditors,

(110)

In its observations
following the opening decision,
Austria has not contested the opinion of the Commission
that BAWAG-PSK has been a firm in difficulty according
to the guidelines.

(111) The Commission is indeed of the view that, without the
guarantee, the bank would not have been able to cope
with a continued considerable withdrawal of deposits.
Notably, without
indicated in the
the guarantee, as
2005 annual accounts,
the auditors would not have
been in a position to certify the annual accounts of
BAWAG-PSK as a going concern.

(112) Consequently, without

the
would have become insolvent/bankrupt within weeks.

guarantee, BAWAG-PSK

(113) Besides, the Commission considers that ÖGB could not
have dealt alone with the difficulties of its subsidiary. The
fact that BAWAG-PSK already had to depreciate claims of
EUR […] million against
this
assessment.

its owner

confirms

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(114) As a conclusion of the above, BAWAG-PSK is a firm in
difficulty at the time of the granting of the guarantee
according to paragraph 9 of the guidelines. In addition
the difficulties of BAWAG-PSK are clearly imputable to
the Bank and are too serious to be dealt with by the
group to which it belongs. Indeed, neither ÖGB nor AVB
to restructure BAWAG-PSK
would have been able
without public
therefore
eligible to rescue and/or restructuring aid according to
paragraph 13 of the guidelines.

support. BAWAG-PSK is

(115) The investments by the private banks and insurance
companies in the two above mentioned SPV, with a
view to strengthening the capital ratios of BAWAG-
PSK, are not made on a similar basis as the State
guarantee. The risk exposure for the private investors is
considerably lower than the State's exposure in providing
the guarantee. Austria confirmed that without the public
guarantee for BAWAG-PSK no private investor would
have been willing to provide funds which would be
considered as equity capital. Therefore, the occurrence
of private investments does not contradict the fact that
BAWAG-PSK was in difficulty.

Existence of a State aid

(116)

In order to ascertain whether a measure constitutes aid
within the meaning of Article 87(1), the Commission has
to assess whether this measure:

Selectivity

(119) Article 87(1) prohibits aid which ‘favours certain under-
takings or the production of certain goods’, that is to say,
selective aid.

(120) The guarantee only benefits to BAWAG-PSK and is

therefore selective.

Effect on trade between Member States and distortion of
competition

(121) Article 87(1) prohibits aid which affects trade between
Member States and which distorts or threatens to distort
competition.

(122)

those

assessment of

two conditions,

to establish that

the
In its
Commission is required not
the aid
has a real effect on trade between Member States and
that competition is actually being distorted, but only to
examine whether that aid is liable to affect such trade
and distort competition (28). When aid granted by a
Member State strengthens the position of an undertaking
compared with other undertakings competing in intra-
Community trade,
regarded as
affected by that aid.

latter must be

the

— is granted by the State or through State resources,

— provides an economic advantage,

— is capable of distorting competition by selectively
favouring certain undertakings or the production of
certain goods,

— affects trade between Member States.

(123) The Commission recalls that the banking sector has been
open to competition for many years. Progressive liberal-
isation has enhanced the competition that may already
have resulted from the free movement of capital provided
for in the EC Treaty.

(124) Moreover, BAWAG-PSK has branches or subsidiaries in
several Member States, notably the Czech Republic,
Slovakia, Slovenia, Hungary and Malta. Conversely,
banks from different Member States operate in Austria,
either directly through branches or representative offices,
or indirectly by controlling Austrian-based banks and
financial institutions.

Use of State resources

(117)

In order to be qualified as State aid, financial resources
must be imputable to the State and granted directly or
indirectly by means of state resources.

(125) To conclude, there is trade between Member States in the
banking sector. The guarantee strengthens the position of
undertakings
BAWAG-PSK in
the
competing in intra-Community trade. Therefore,
guarantee is
such trade and distort
competition.

liable to affect

relation

banks

to

(118) The two above mentioned cumulative conditions are met
in the present case as the measure is a State guarantee
implemented on the basis of a law.

(28) See for instance Judgment of the Court in Case C-372/97, Italy vs

Commission [2004] ECR I-3679, paragraph 44.

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Existence of an economic advantage

Illegality of the State aid

(126) To constitute a State aid, a measure must confer on

recipients an advantage.

(132) The aid is illegal as it was granted by Austria on 8 May
2006, with retroactive effect from 31 December 2005,
before the Commission decided on its compatibility.

(127) According to paragraph 4.2 of

the notice on State
guarantees, a State guarantee is not an aid because
there
four
following conditions are met:

advantage when the

is no economic

(a)

the borrower is not in financial difficulty;

(b) the borrower would in principle be able to obtain a
loan on market conditions from the financial markets
without any intervention by the State;

Aid amount

(133) To determine the aid element

the
Commission has to examine whether and under which
terms and conditions, in similar circumstances, an inves-
tor/guarantor operating in normal conditions of a market
economy would have granted the guarantee.

in the guarantee,

(134) The attitude of a hypothetical

investor is that of a
prudent investor (29), whose goal of profit maximisation
is
risk
tempered with caution about
acceptable for a given rate of return. (30)

the level of

(c)

the guarantee is linked to a specific financial trans-
is for a fixed maximum amount, does not
action,
cover more than 80 % of the outstanding loan or
other financial obligation and is not open-ended;

(135)

(d) the market price for the guarantee is paid.

‘… 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
time of the transaction in question, having regard to the
available information and foreseeable developments at
that time’ (31). It follows that events subsequent to the
decision to invest are irrelevant (32) in the assessment of
the aid amount in the guarantee.

(128) The Commission considers that the condition under (a) is
not met
in the present case as BAWAG-PSK is in
financial difficulty at the time of the granting of the
guarantee.

The specific nature of the guarantee granted by Austria

(136) According to paragraph 3.1 of the Notice on guarantees,
the aid element should be assessed by reference to the
specific details of the guarantee.

(129) Moreover, no market operator would have granted the
guarantee for a fee of 0,2 % paid by BAWAG-PSK.
Austria confirmed that a ‘market fee’ would have been
between EUR 32 and EUR 49 million per year.
Therefore, the condition under (d) is not fulfilled.

(137)

(130) As a consequence,

the State guarantee confers an

advantage on BAWAG-PSK.

In the present case, the guarantee provided collateral for
specific non-performing loans of BAWAG-PSK in the
amount of EUR 900 million. The consequence was that
the assets remained valuable and no value adjustments,
generating additional losses of EUR 900 million in the
2005 accounts, had to be carried out. In this regard, the
effect and character of the guarantee is similar to that of
injection (33). BAWAG-PSK's core capital ratio
a capital
could thus be prevented from decreasing below the
minimum statutary requirements.

Conclusion

(131) The Commission concludes that

the State guarantee

granted to BAWAG-PSK is a State aid.

(29) Case C-482/99 France vs Commission [2002] ECR I-4397,

paragraph 71.

(30) Joined Cases T-228/99 and T-233/99, paragraph 255.
(31) Joined Cases T-228/99 and T-233/99, paragraph 246.
(32) Cases T-16/96, Cityflyer Express vs Commission, paragraph 76.
(33) Compare State aid Case C 44/03 which Austria is planning to
for Bank Burgenland (OJ L 263, 8.10.2005, p. 8),

implement
paragraph 36.

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Official Journal of the European Union

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the bank.

insolvency,

In the case of

(138) The Commission concludes that the present guarantee is
not comparable to guarantees securing all liabilities of a
bank (34). Such guarantees provide direct claims to the
creditors of
the
guarantor has to meet the liabilities, which cannot be
satisfied from its assets. Economically,
type of
guarantee reduces the cost of refinancing of the bank
via debt/bonds. The Commission recognises that in guar-
anteeing the recoverability of about 1,6 % of the total
assets of the Bank in the deficiency case, the guarantee
has also a limited indirect effect on the security of the
liabilities but the overall impact of the guarantee can not
be considered as comparable. Thus from the guarantee
granted by France in the CFF case (35), covering all CFF's
liabilities, no relevant conclusion can be drawn for the
present case.

this

that

to the Bank,

(139) Subject to the conditions set by the guarantee agreement,
in the case of the continuation of the existence of an
the guarantee can be
economic threat
drawn. BAWAG-PSK confirmed in its 2006 annual
accounts
the
insolvency
guarantee
expiration date of 1 July 2007 approaches. Austria can
avoid the drawdown in prolonging its duration.’ The
guarantor could then lose up to EUR 900 million
without keeping any stake in the Bank, which would
allow him to participate in a potential
later upward
trend.

‘the guarantee can be drawn if
because

threatens

only

the

guarantee, depends directly on the total investment of the
potential purchaser, consisting of the sales price and on
the willingness of the buyer to invest in additional equity.
In this context,
it is recalled that Austria writes in the
restructuring plan that ‘the success of the reorganisation
and the continuation of the Bank depend decisively upon
a high sales price. Any reduction of the sales price below
EUR […] billion as the result of compensation measures
has a direct influence on the Bank.’

(143) Any reduction of the total investment of the purchaser
below EUR […] billion would,
in the absence of ad-
ditional equity support or short-term reductions of the
risk assets, increase the risk that the guarantee has to be
triggered.

(144) The Commission has assessed the guarantee and the
attached conditions and concluded that at the time the
guarantee was granted, a private
investor/guarantor
would have considered three major scenarios in its risk
assessment:

The sale scenarios

(140) A key condition for the granting of the State guarantee is
the declaration of commitment by the shareholders to
the federal government to transfer all shareholdings in
BAWAG-PSK or AVB to third parties.

(a) First, the sale of the Bank before June 2007 at a total
investment (sale price + capital
investment) of the
purchaser above EUR […] billion with the conse-
quence that the guarantee can be abolished on the
day of the closing without being drawn.

(141) This

selling commitment

sets

the main scene

for

evaluating the aid amount in the State guarantee.

(b) Second, the sale of the Bank before June 2007 at a
investment below EUR […] billion with the
total
consequence that the guarantee is partially or fully
drawn.

(142) The Commission considers

the
guarantee, and as a consequence the aid element in the

claim of

that

the

(34) Compare State guarantees for the German public banks (Gewähr-
trägerhaftung) or the Austrian Sparkassen (Ausfallhaftung), which
have been abolished by Commission decisions.

(35) Commission Decision of 26 June 1999, C(1999) 2035, Crédit
Foncier de France (OJ L 34, 3.2.2001, p. 36), paragraph 49. The
decision on the CFF case was adopted before the Notice on
guarantee entered into force.

(c) Third, the sale of BAWAG-PSK is not achieved before
June 2007. In this scenario, the guarantee, even if
progressively reduced (by the annual positive results
of the Bank, the decreased risk assets, etc.), has to be
prolonged for an unknown period. Otherwise, the
guarantee is very likely to be drawn which would
imply heavy losses by the State.

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or

could

another,

establish

(145) While Austria asserted that BAWAG-PSK could generate
injection
the necessary capital reserves, through capital
by new investors (36) or
through successive annual
positive
less
results,
ambitious, restructuring plan, requiring less core capital,
thus giving more room to the bank to reduce further the
guarantee amount, the Commission is of the opinion that
such hypotheses, which cannot be excluded, would
however not have been taken into account by a private
investor/guarantor at the time the guarantee was granted
because the alternative scenarios would have been too
hypothetical.
less
ambitious restructuring plan than on which they are
based, a private guarantor would have considered that
Austria would prolong the guarantee in July 2007 if
share Austria's
need be. The Commission does not
view that
the guarantee in July
2007 would not be certain if the Bank were not sold
before. Actually, absent the prolongation, the guarantee
would be drawn close to its
full amount because
BAWAG-PSK had not yet rebuilt the necessary financial
resources
ratios. Therefore
to respect
insolvency would threaten again.

the prolongation of

the prudential

In particular,

case of

in the

a

(146) The Commission assessed the other options asserted by
Austria to cover the Bank's capital requirements upon
expiration of the one-year guarantee term in case the
Bank cannot be sold. The Commission is of
the
such hypotheses, which can not be
opinion that
excluded, would however not have been taken into
account by a private investor/guarantor at the time the
guarantee was granted because the alternative scenarios
on which they are based are hypothetical or have a
In the
negative impact on the Bank's business plan.
short and medium term, the planned profits would not
allow the Bank to improve its equity considerably (37).
The reduction of its capital requirement by reducing its
risk assets would have a negative impact on the Bank's
future profitability (38) and the recurrence to third party
equity can be regarded as similar to a partial sale of the
bank (39).

was granted. The aid amount could then be deducted.
However, on the basis of the available information the
Commission was unable to determine precisely the prob-
ability of each scenario. At the time the guarantee was
granted the future development of BAWAG-PSK was not
clearly predictable.

(148) Austria claimed that, in view of the activity of the FMA,
it was, at the moment of granting the State guarantee,
sufficiently informed about
the economic situation of
BAWAG-PSK, and that it made estimates on the three
above mentioned scenarios. Its conclusion would have
been that only the first scenario was relevant. However,
no supporting evidence was provided by Austria on this
issue. No
the
data was
Commission for instance on the valuation of the Bank,
which would have been made before the granting of the
guarantee by Austria.

transmitted

precise

to

(149) The value of BAWAG-PSK in April/May 2006, when the
Law was adopted, can only be estimated through rough
calculations:

(a) using available documents, a private guarantor may
have used a methodology based on discounted cash
flows (DCF). However, such an approach, based on
prospective figures over a reasonable timeframe, leads
to figures where the terminal value represents a very
high percentage of the total value. As an example,
using the net profit indicated in the business plan
submitted by Austria in September 2006 (as proxy
for the information available to the private guarantor
in April/May 2006), the DCF results in a value of
EUR […] billion (40), with the terminal value equal
to 85 % of
the
Commission considers that
the method does not
allow for sound conclusions in the present case as
it is too dependent on the terminal value;

amount. Therefore,

latter

the

(147)

Ideally, the Commission would grant a probability to
each of the three scenarios at the time the guarantee

(36) Capital

injections by minority shareholders are not likely in the
context of the selling commitment imposed on ÖGB by Austria.
(37) For instance, the forecasted annual results of BAWAG-PSK, sum up
to EUR […] million over an initial three-year period (2006-08),
which could constitute a reasonable time frame for the analysis
of a private guarantor. However, the Commission remarks that
these forecasted results do not include the real market fee for the
guarantee, while the payment of this market fee would reduce
the Bank to reach the forecasted
considerable the ability of
results over the restructuring period.

(38) Decreasing the total assets would considerably decrease the income
basis of BAWAG-PSK. In general, in the short term assets can only
be sold below market value.

(39) Capital

injections by minority shareholders are not likely in the
context of the selling commitment imposed on ÖGB by Austria.

(b) using the purchase price of BAWAG-PSK, of EUR
[…] billion (which was not known in spring 2006),
and the equity value as of 31 December 2005, of
EUR 1,7 billion, a goodwill, representing the value of
customers and branch network, can be computed. Its
value is around EUR […] billion. Then, the sum of
equity as of 31 December 2005 and of the goodwill,
minus the capital injection to be made by the new
owners of EUR […] million and the Refco payment
of EUR […] million linked to the purchase price, lead
to an estimated value of BAWAG-PSK in spring
2006 of around EUR […] billion (41).

(40) Based on a 10 % discount rate.
(41) EUR 1,7 + EUR […] – EUR […] – EUR […] billion = EUR […]

billion.

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(150) The Commission has also to consider that a severe time
constraint existed in April/May 2006, when the private
guarantor would have had to intervene. Only a few
weeks were available to assess in depth the Bank's
financial situation and make an offer. A run on the
bank had started, creating a major danger
the
liquidity of the bank. A continuation of the development
for even a short period of time would have had lethal
for BAWAG-PSK. The time constraint,
consequences
the required
associated to the significant amount of
guarantee, made any intervention by a private operator
extremely difficult, if not at all possible.

for

(151)

In addition, various uncertainties remained, for instance
in respect to the Refco case in the USA. Moreover, a
private guarantor would have had to assess whether its
intervention would have been sufficient, compared to a
State guarantee, to stop the run on the bank.

(152)

In view of
Commission concludes that:

the above described circumstances,

the

would have been willing to provide funds which would
be considered as equity capital (42).

(154) Finally, a guarantee would not have appeared technically
as a fully appropriate instrument for a market investor
also because the very high fee requested would have
hampered any prospect of profitability and therefore
counteracted the effect of the guarantee. Actually, the
granting of
interests of
Austria, which were mainly to re-establish the trust of
the investors and partners in the stability of the Bank and
the financial sector in Austria. In addition, Austria has
vast capacity and favourable conditions as a guarantor
(triple A rating).

the guarantee

reflects

the

(155) As a consequence, the Commission considers that the aid
amount
could only be
involved in the guarantee
estimated within a range. The upper value of this range
the
is EUR 898 million,
guarantee minus the guarantee fee of 0,2 % paid by the
Bank. Fixing the lower value is the most complex; the
Commission estimates that this lower value could be at
least two-third of the nominal value of the guarantee.

the nominal value of

i.e.

(a)

the timing of the sale and the level of the purchase
price of BAWAG-PSK were unknown variables,
bearing very important risks for a market oriented
guarantor;

(156) The Commission assessed the analyses conducted by
Austria regarding the aid element in the guarantee and
considers that these analyses are inadequate for different
reasons.

Analyses put forward by Austria

(b) the time constraints were increasing to a very
significant extent the difficulty for an operator to
intervene;

(c)

the intrinsic value of the Bank was not so low as to
fully exclude that a market guarantor would have
granted the EUR 900 million, however conditioned
on the high fees.

(153)

In fact, the Commission is of the view that a private
investor would have been more prone to intervene
injection, which would have given a
with a capital
stake in the Bank, and decision-making power
to
ensure success of the restructuring. However, according
to both the Commission and Austria, no private investor

FSR rating

in the second scenario,

(157) First, the Commission is of the view that BAWAG-PSK's
FSR and the corresponding payment default risk does not
reflect the risk of the guarantor in the three relevant
scenarios. Essentially, Moody's
remains
unchanged for each of the scenarios, because from an
investor point of view the guarantee of EUR 900 million
is similar to an already effected capital
increase of the
same amount. In fact,
in the first scenario, the capital
increase is fully executed by the future owner of the
bank;
increase is
partially executed by the future owner of the bank and
the remaining amount drawn on the guarantee; finally in
the third scenario, the guarantee remains in place (even
with a decreasing value) as long as no appropriate capital
injection has been made or as long as the bank has not
generated the necessary financial means. By contrast, the
risk of the guarantor depends strongly on the probability
of each scenario, because the duration of the guarantee
and the triggered amount of the guarantee vary consider-
ably as a consequence of the timing and price of the sale
of BAWAG-PSK.

the capital

(42) The setting up by private operators of the two above mentioned
SPVs does not invalidate this view as the SPVs would not have been
created in the absence of the guarantee.

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(158)

In its assessment of the risk of the drawdown of the
guarantee by means of the FSR, Austria only considered
the scenario under which the sale of BAWAG-PSK will be
the latest on 1 July 2007 at a total
completed at
least EUR […]
investment by the purchaser of at
billion. Consequently the guarantee would only be
triggered in the case of deficiency of BAWAG-PSK
before the sale. The Commission is of the view that, at
the time the guarantee was granted, the future devel-
opment of BAWAG-PSK was not predictable and all
major scenarios described above had to be evaluated in
the risk assessment.

(159) As a conclusion, the Commission considers that the FSR
and the corresponding payment default risk are inap-
aid
the
for
propriate
amount in the guarantee.

evaluation of

indicators

the

(160) The Commission considers that

the plausibility check
brought forward by Austria is irrelevant. A loan is not
qualified as equity capital under BWG and would not
ratio from falling below the
the
prevent
statutory requirements.

capital

refinancing

(161) The Commission is of the opinion that Austria's alter-
native evaluation of the guarantee by determining the
for BAWAG-PSK
theoretical
resulting from the guarantee is also inappropriate. The
indicated Asset Swap Spread is based on ratings which
take into account the potential support provided by the
state and thus do not reflect the intrinsic stability of
BAWAG-PSK.

advantage

(162) The Commission also notes that regarding the BGB case,
the Commission conducted an in-depth analysis on the
probability that the guaranteed risks would materialise.
Because some risks were very unlikely, the reasonable
scenario (economic value) assessed by the Commission
lead to an aid element
in the guarantee below the
nominal value of the latter. Regarding the CWP case,
the guarantees referred to by Austria enabled CWP to
obtain loans on better
than those
normally available on the financial markets. This is not
the situation encountered in the present case. However,
after having analysed the specific situation of CWP, the
Commission concluded that
the
stake would have been the reference
guarantees at
interest rate plus 400 basis points. In the BAWAG-PSK
case, the Commission has also conducted a specific in-
depth economic analysis of the occurrence of each aspect
of the three possible scenarios in order to figure out the
aid value in the State guarantee.

the market price of

financial

terms

(163) Therefore, the Commission does not consider that its
methodological approach in the present case departs
from the previous cases quoted by Austria.

Compatibility of the illegal aid

Article 87(3)(b)

(164) The Commission is of the view that Austria has not
demonstrated that BAWAG-PSK's insolvency/bankruptcy
would have had systemic implications on the Austrian
financial
system and, more globally, on the whole
Austrian economy.

(165) Austria acknowledged that it is hardly possible to provide
a quantitative estimate of the potential consequences of
an insolvency of the bank for the entire economy.

(166)

In this context, the Commission is of the view that at
least 95 % of the depositors' accounts would have had a
deposit of less than EUR 20 000 and would therefore
have been guaranteed against BAWAG-PSK insolvency
by means of the legally minimum guaranteed deposit
fund. The fact that other banks could have been called
upon for securing deposits in the case of insolvency is
not enough in itself to justify that all operators in the
Austrian banking sector would have been endangered.

(167)

In June 2006, the OeNB stated that, despite the problems
encountered by BAWAG-PSK and Hypo Alpe-Adria
Bank, the Austrian banking system had developed well
over 2005. The results of stress tests demonstrated the
high resistance to shocks of
In
general, the Austrian banking system was considered in
good shape.

the banking system.

(168) Furthermore,

in applying
the Commission practice
Article 87(3)(b) has been very restrictive. The last time
this article was applied was in the 80s, when the Greek
economy faced serious economic imbalances following
accession and when the Community itself had authorised
specific exceptional measures aiming at correcting the
situation (43).

(43) Commission Decision 88/167/EEC of 7 October 1987 concerning
Law 1386/1983 by which the Greek Government grants aid to
Greek industry (OJ L 76, 22.3.1988, p. 18).

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(169) The Commission considers in principle that an aid ben-
efiting one operator only could not address the kind of
situation targeted by the second part of Article 87(3)(b).
In the Crédit Lyonnais case (44), where the bail out
measures were worth around EUR 20 billion (45), the
Commission did not
aid was
consider
‘designed to remedy serious economic disruption, since
its purpose is to resolve the problems of a single
recipient, Crédit Lyonnais, as opposed to the acute
industry.’
problems
Therefore,
to
Article 87(3)(b) but on the basis of Article 87(3)(c) as
a compatible restructuring aid.

facing
the aid was not authorised pursuant

operators

that

the

the

all

in

(170) As a consequence,

the Commission considers

that

Article 87(3)(b) is not applicable in the present case.

Rescue aid

(171) According to paragraph 15 of the guidelines, a rescue aid
is by nature temporary and reversible assistance, whose
primary objective is to make it possible to keep an ailing
firm afloat for the time needed to work out a restruc-
turing or liquidation plan. According to the same point
15 of the guidelines, such aid cannot be longer than six
months.

(172) The guarantee was implemented on 6 June 2006 (and, in
principle, until the sale of BAWAG-PSK or July 2007). Its
duration exceeds
set by the
guidelines. In addition, it indeed entered effectively and
retroactively into force as from 31 December 2005.

six-month limit

the

(173)

In conclusion, the guarantee cannot be considered as
compatible as a rescue aid according to the guidelines.

Restructuring aid

(174) The guidelines set out criteria all of which must be met if

restructuring aid is to be authorised:

(a) a plan, that has to be fully implemented, will restore

long-term viability;

(45) In 1995,

(44) Commission Decision of 20 May 1998 concerning aid granted by
France to the Crédit Lyonnais group (OJ L 221, 8.8.1998, p. 28).
the Commission authorised a first package of aid
measures, estimated at a maximum amount of EUR 8 billion
(Commission Decision of 26 July 1995 giving conditional
to the aid granted by France to the bank Crédit
approval
In 1996, EUR 0,6
Lyonnais (OJ L 308, 21.12.1995, p. 92)).
billion of aids were authorised (Commission Decision State aid N
692/96 — C 47/96 (OJ C 390, 24.12.1996, p. 7). Finally, in 1998,
additional aids were authorised; amounting to a value between
EUR 8 and 15 billion (Commission Decision of 20 May 1998
concerning aid granted by France to the Crédit Lyonnais group
(OJ L 221, 8.8.1998, p. 28)).

(b) the aid has to be limited to the minimum;

(c) undue distortions of competition have to be avoided.

Restoration of long-term viability (paragraphs 34 to 37 of
the guidelines)

is

(175) The transfer of BAWAG-PSK as a whole under the
control of an private investor
regarded by the
Commission as a central element for solving the diffi-
culties of the past and enabling positive economic devel-
opment for the Bank. Indeed, as recalled by Austria, it
could be assumed that a company will more likely be
durably viable under the control of a new, private owner
and that this ensures that the company will not have to
rely on State aid again. The sale proves to be a key aspect
of the restructuring of BAWAG-PSK.

(176) An updated restructuring plan prepared by BAWAG-PSK
was communicated to the Commission in January 2007.
The Commission considers the changes (versus the initial
restructuring plan) in the hypotheses and assumptions as
relevant in order to accurately reflect the most recent
economic conditions and assessed the key financial
ratios as realistic and achievable.

(177) Overall, the Commission regards the market assumptions
on which the plan is based as appropriate and is of the
opinion that the expected return on capital is enough to
enable BAWAG-PSK to compete in the Austrian and
international financial market on its own merit.

that

led the bank to difficulties,

(178) Furthermore, as shown by the detailed description of the
the
circumstances
strengthening of
to avoid
repeating the severe mistakes of the past. This issue has
been comprehensively addressed by the bank's new
management in 2006; three main measures have been
implemented:

risk control

is essential

(a)

the introduction of a corporate governance code and
new rules of procedure for the managing directors,

(b) the changes in risk controlling and installation of a

chief risk officer, and

(c)

the improvement of
the processes for instructing
payment of invoices (46) from the point of view of
risk.

(46) Litigation resulting in the payment of invoices.

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(179) The Commission regards these measures as appropriate.

(180) Regarding the specific risk mentioned in the opening
decision, relating to Refco, the risk of non-performance
of the obligations of the shareholders in BAWAG-PSK
towards the US creditors, and variable rate clauses (Zins-
gleitklauseln), the Commission is of the view that they
are sufficiently reflected in the restructuring plan.

(181) The 2006 result

is

already slightly
(Bilanzgewinn)
positive at EUR 0,2 million, while the annual surplus
(Jahresüberschuss)
is
better than forecasted in the restructuring plan. These
figures show that the Bank is developing in line with
the restructuring plan.

is EUR […] million. The latter

the view that

(182) The Commission also assessed the sensitivity analyses,
including an optimistic and a pessimistic scenario,
submitted by Austria and is of
they
adequately reflect a potential worst and best case
scenario. On the one hand,
the pessimistic scenario
which leads to a result of common business activities
of EUR […] million in 2011 is sufficiently robust to
ensure the long-term viability of
the bank. On the
other hand, in the optimistic scenario, which leads to a
result of common business activities of EUR […] million
in 2011 BAWAG-PSK expected profitability remains in
the range of its competitors.

(183) Austria has

confirmed

the Consortium will
that
implement the updated restructuring plan prepared by
BAWAG-PSK and has therefore fully endorsed it.

(184)

investment of

the potential purchaser,

If the aid element in the guarantee depends directly on
the total
the
Commission considers that the success of the restruc-
the Bank also depends decisively upon the
turing of
increase to be achieved by the new owners (47).
capital
investments made by the Consortium, while
The total
ensuring that
the guarantee will not be drawn, also
allow for a proper base funding of the restructuring plan.

(185) The Commission acknowledges that the implementation
of major restructuring measures of the restructuring plan,
which includes a detailed plan of the Bank's future devel-
opment until 2011, is planned in the period […].

(186) To conclude, the improvement in viability of BAWAG-
PSK derives mainly from internal measures and the

(47) The sale price has an effect on the necessary capital increase.

doubts expressed in the opening decision have all
received a satisfactory answer. The Commission is
convinced
allow
BAWAG-PSK to restore its long-term viability.

restructuring plan will

that

the

(187) The Commission needs to be kept informed of progress
in implementing the plan in full in line with paragraph
44 and 50 of the guidelines.

Aid limited to the minimum (paragraphs 43 to 45 of the
guidelines)

(188) For a large undertaking like BAWAG-PSK, paragraph 44
of the guidelines imposes that, in principle, the contri-
bution of the aid beneficiary should reach 50 % of the
restructuring costs.

(189) The restructuring costs amount at

to EUR […]
billion. The State guarantee does not directly finance
these costs, which are 100 % borne by the Bank and
its owners. The divestments also contribute to the
financing of the restructuring programme.

least

(190) Even if

the full
the Commission were to consider
guarantee as an aid helping to finance the restructuring
costs,
free of aid,
would be higher than 50 %.

the contribution of BAWAG-PSK,

(191) The Commission is of

the view that

the form and
amount of the aid, a State guarantee on non-performing
loans allowing for the respect of prudential rules, avoid
providing BAWAG-PSK with surplus cash, which could
be used for aggressive, market-distorting activities not
linked to the restructuring process. Moreover, the upper
value of the aid range EUR 898 million, represents only
1,6 % of the balance sheet total of the bank. This amount
is very low in comparison with other cases in which the
Commission adopted a positive decision (48).

(192)

It should also be mentioned that no rescue aid has been
granted in the present case.

(193)

In view of the above, the Commission considers that the
aid is limited to the strict minimum needed to restore the
long-term viability of the Bank and notes that the contri-
bution by the beneficiary respects the provisions of the
guidelines.

p.

1; Commission Decision

(48) See for instance Commission Decision 1999/508/EC of 14 October
1998 conditionally approving aid granted by France to Société
Marseillaise de Crédit (Case C 42/96 ex NN 194/95), (OJ L 198,
2005/345/EC of
30.7.1999,
18 February 2004 on restructuring aid implemented by Germany
for Bankgesellschaft Berlin AG (Case C 28/2002 ex NN 5/2002) (OJ
L 116, 4.5.2005, p. 1); Commission Decision 2001/89/EC of
23 June 1999 conditionally approving aid granted by France to
Crédit Foncier de France (Case C 30/96 ex NN 44/96) (OJ L 34,
3.2.2001, p. 36).

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Avoidance of undue distortions of competition (paragraphs
38 to 42 of the guidelines)

position after
necessary to restore viability.

restructuring and go beyond anything

competitors.

These measures may

(194) The guidelines state that measures must be taken to
mitigate as far as possible any adverse effects of the aid
comprise
on
divestments of assets, reduction in capacity or market
presence
entry barriers on the
markets concerned. The measures must be in proportion
to the distortive effects of the aid and, in particular, to
the relative importance of the firm on its market or
markets.

and reduction of

(195) The undertakings of BAWAG-PSK submitted to the
the restructuring
Commission by Austria are part of
process.
In particular the divestments implemented or
to be implemented indeed help to finance the restruc-
turing costs and address competition concerns identified
by the Commission.

(196) First, several measures affect the Bank's core business.

(197)

In the credit business with public authorities, where
BAWAG-PSK has held its […] market share (25 % in
2005), a reduction by […] (EUR […] billion) of the
volume of its loans to the Republic of Austria will be
achieved in […], leading to a maximum value of EUR
[…] billion. Furthermore, the ceiling of EUR […] billion
will be maintained until […] (49).

(198)

In addition, the Bank, which is one important ‘Primary
Dealer’ of State bonds issued by the Republic of Austria,
has undertaken not to participate in tender proceedings
from […], for a period of […] ending on […]. This
measure prevents BAWAG-PSK from participating to
bids amounting to an estimated total of around EUR
[…] billion.

(199) The reputational effect of these measures towards public
clients could suffer and slow down future expansion of
the Bank in this business. The measure as regards State
bonds also limits the range of investment products that
the Bank can propose in particular to private customers.

(201) Furthermore, the Commission recalls that, as a condition
for the granting of the State guarantee, BAWAG-PSK had
to sell its shares in the OeNB. This participation was of
real significance for the Bank. Moreover, shares in Bank
Frick & Co. AG and Hobex AG were sold respectively in
July 2006 and March 2007. By selling its participation in
in debiting authorisation,
HOBEX, which is
active
BAWAG-PSK withdrew from an important
sector,
where the most important banks are present in Austria.

(202) As far as a closure of three branch offices in Vienna is
concerned, Austria indicated a preference not to consider
such a closure as effective compensatory measure. The
Commission does indeed not consider that the closure of
three branch offices in Vienna could be regarded as
effective compensatory measure in the present case
because it has not been demonstrated that the relevant
branches are not loss-making activities which would have
to be closed at any rate to restore viability.

(203)

In the insurance sector, close to its core business,
BAWAG-PSK will quickly sell an interest of more than
50 % in P.S.K. Versicherung AG and BAWAG-Versi-
cherung AG, and also grant a call option for the buyer
for the rest of the shares. The relating discounted value
amounts to more than EUR […] billion. In addition, the
insurance broker Funk International Austria GmbH was
sold in January 2007.

(204) The Commission notes that the bank has also undertaken
to sell the essential part of its non-core business activities
(notably Cosmos Elektrohandels GmbH & Co KG,
COSMOS Geschäftsführungs- und Beteiligungs GmbH,
[…], and the 42 % share in ATV Privat-TV Services
AG). This will lead BAWAG-PSK to refocus on its core
business.

the ongoing restructuring process,

(205) To allow for a smooth divestment process and the
completion of
the
Commission can accept that (50) the sale of […] only
takes place before […], and the sale of the 42 % share
in ATV Privat-TV Services AG only takes places before
[…].

(200) The two above mentioned measures

take place in
markets where the Bank will have significant market

(49) Excluded there from are existing obligations of companies of the
BAWAG-PSK group relating to future instalments under previously
transacted procurement processes.

(50) Because of unforeseeable circumstances, to be justified by Austria,
the Commission may decide to prolong the deadlines set for the
implementation of
In exceptional
cases, to be duly motivated by Austria, the Commission may also
decide that some obligations and conditions are amended or
replaced by equivalent measures.

the compensatory measures.

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(206)

In 2006, various real properties were sold for an amount
of EUR […] million. Other properties will be sold, before
the end of 2008 valued at approximately EUR […]
million in total as
reflected in the balance sheet.
Industrial participation in Voestalpine and […] will also
be sold in 2007.

(207) Besides,

the sight deposits held at BAWAG-PSK for
domestic and foreign clients were reduced from the
end of September 2005 until June 2006 by more than
EUR 560 million (market share sank by […] percentage
points to […] %). The savings deposits during the same
period were reduced by EUR 4 billion (market share sank
by almost […] percentage points to […] %). While this
‘bank run’ may not be fully comparable to a compen-
sation measure in the meaning of the guidelines, it con-
siderably reduced the most important refinancing source
for BAWAG-PSK.
the Commission
In this context,
considers that the ‘bank run’ has to be regarded as a
mitigating element
the
occurrence of undue distortion of competition.

in the global assessment of

(208) Globally,

the total balance sheet of

the Bank as of
31 December 2006 has diminished by 11 % in
comparison to 31 December 2005 (minus EUR 6
billion) (51) and by 9,3 % in comparison to 30 June
2006 (minus EUR 5 billion), after the granting of the
the
State guarantee. Further measures,
reduction by EUR […] billion of
the
loans to Austria will have an impact as of […] and
should roughly represent an additional decrease of […]
% (versus 2005 basis).

in particular
the volume of

(209) Finally, the guidelines note that the provision of rescue or
restructuring aid may be regarded as legitimate, excep-
tionally, by the desirability of maintaining a competitive
market structure when the demise of firms could lead to
a monopoly or to a tight oligopolistic situation. In this
context, the Commission remarks that the disappearance
of BAWAG-PSK in case of bankruptcy would probably
have mostly benefited to the major competitors of the
Bank, on a market which is already rather concen-
trated (52), with BA-CA, die Erste Bank/Sparkassengruppe
and the Raiffeisengruppe, having together more than
80 % market share in retail banking in Austria.

(51) For the group as a whole, the balance sheet has diminished by

12,2 % over the same period.

(52) See also Commission Decision of 11 June 2002 relating to a
the EC Treaty (Case COMP/36
L 56,

proceeding under Article 81 of
571/D-1: Austrian banks — Lombard Club),
24.2.2004, p.1), paragraph 8.

(OJ

(210) As a conclusion,

the Commission considers that

the
in proportion to the
compensatory measures
distortive effects of
the aid granted to BAWAG-PSK,
taking into account the range identified for the element
of aid involved in the guarantee.

are

(211) The

the

not

does

regard

Commission

the distortion of

selling
commitment imposed on ÖGB by Austria as compen-
sation for
competition because
the aid and
BAWAG-PSK is the direct beneficiary of
not ÖGB. The sale of the Bank to the Consortium is
however regarded as a positive element for the restruc-
turing process (see above).

(212) Besides, the fact that BAWAG-PSK competitors created
the SPVs to strengthen the equity base of the Bank does
not mean that the distortions of competition induced by
the State guarantee are not noticeable. Actually, it is of
relevance to note that the SPVs were only created after
the guarantee was granted to BAWAG-PSK.

(213) The Commission will need to be kept informed of the
progress in the implementation of the above mentioned
compensatory measures.

(214) Because of unforeseeable circumstances, to be justified by
Austria,
the Commission may decide to prolong the
the compen-
for the implementation of
deadlines set
satory measures. In exceptional cases, upon request to
be duly motivated by Austria,
the Commission may
also decide that some obligations and conditions are
amended and/or replaced by equivalent measures.

Specific conditions attached to the authorisation of aid
(paragraph 46 of the guidelines)

(215)

competition,

In addition to the measures adopted to avoid undue
the Commission may
distortions of
impose any conditions and obligations
it considers
the aid does not
necessary in order to ensure that
distort
contrary to the
competition to an extent
common interest.

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(216)

to

on

aid

restructuring

in any event,

In this respect, the Commission wishes to ensure that no
additional aid is provided that would alter the pro-
portionality of the aid measure as a whole which are
the subject of the present Decision. Thus although the
Commission has taken note of the commitments made
by BAWAG-PSK and transmitted by Austria as regards
the granting of other State aid until the end of 2010, the
there is a
Commission also notes that
general
the
prohibition
BAWAG-PSK group for 10 years hereafter in accordance
with Section 3.3 of
the guidelines. The Commission
considers this commitment appropriate and necessary
within the meaning of paragraph 46(c) of the guidelines.
The Commission also notes that the general prohibition
does not apply to aid covered by Article 87(2) of the
Treaty. Moreover, because the proportionality assessment
of the aid contained in the State guarantee would not be
affected to a material extent, and in view of
the
objectives pursued, the Commission can accept that aid
granted under research projects jointly financed by the
European Union, and aid to general training (53) within
approved schemes, and aid for energy saving (54) within
approved schemes could be granted to BAWAG-PSK.

(217) The Commission also considers that the commitments
(197) and (198) above also
mentioned under point
meet the requirements of paragraph 46(a) and (b) of
the guidelines.

VIII. CONCLUSION

(218) The Commission finds that Austria has unlawfully im-
plemented the aid in the form of the State guarantee of
an amount of EUR 900 million in breach of Article 88(3)
of
the aid can be declared
compatible with the common market provided that the
conditions imposed are fulfilled,

the Treaty. However,

HAS ADOPTED THIS DECISION:

Article 1

The State guarantee of EUR 900 million implemented by
Austria for the restructuring of BAWAG-PSK constitutes State

(53) According to Commission Regulation (EC) No 68/2001 of
12 January 2001 on the application of Articles 87 and 88 of the
EC Treaty to training aid (OJ L 10, 13.1.2001, p. 20), Regulation as
last amended by Decision 2007/72/EC (OJ L 32, 6.2.2007, p. 180)),
‘general
training’ means training involving tuition which is not
applicable only or principally to the employee’s present or future
position in the assisted firm, but which provides qualifications that
are largely transferable to other firms or fields of work and thereby
substantially improve the employability of the employee.

(54) According to the Community guidelines on State aid for environ-
mental protection (OJ C 37, 3.2.2001, p. 3), energy-saving
measures should be understood as meaning among other things
action which enables companies to reduce the amount of energy
used in their production cycle.

aid within the meaning of Article 87(1) EC that is compatible
with the common market
to the obligations and
conditions set out in Article 2.

subject

Article 2

The plan for restructuring BAWAG-PSK, as communicated
1.
to the Commission by Austria on 3 January 2007, shall be fully
implemented.

The following assets shall be sold to a third party that is

2.
independent of the BAWAG-PSK group:

(a) sale of an interest of more than 50 % in P.S.K. Versicherung
AG and BAWAG-Versicherung Aktiengesellschaft, reflected
in the balance sheet no later than […], and the granting of a
call option for the acquirer for the rest of the shares;

(b) completion of the sale of real estate, valued at EUR […]
million in total as reflected in the balance sheet, no later
than […];

(c) sale of the […] % interest in […], reflected in the balance

sheet no later than […];

(d) sale of the 42,56 % interest in ATV Privat-TV Services AG,

reflected in the balance sheet no later than […];

(e) sale of […], reflected in the balance sheet no later than […].

3.
The volume of BAWAG-PSK loans to Austria shall be
reduced to a maximum of EUR […] billion as of the end of
the 2007 business year. This amount shall not be exceeded for
a period ending on […]. Excluded there from are existing obli-
gations of companies of the BAWAG-PSK group relating to
future instalments under previously transacted procurement
processes.

BAWAG-PSK shall not be selected for the issuing of State

4.
bonds for a period of […] beginning on […].

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Official Journal of the European Union

26.3.2008

No aid other than that referred to in Article 87(2) of the
5.
EC Treaty, or aid granted under
jointly
financed by the European Union, or aid to general training
within approved schemes, or aid for energy savings within
approved schemes, shall be granted to BAWAG-PSK until
31 December 2010. No restructuring aid can be approved
within the next 10 years.

research projects

For

6.
the purpose of monitoring compliance with the
conditions set out in paragraphs 1 to 5, Austria shall provide
regular reports on the state of progress of BAWAG-PSK's
report shall be
restructuring until 2010. The first annual
submitted in January 2009. The following reports will cover
the years 2009 and 2010 and should respectively be
submitted by end of March 2010 and 2011.

Article 3

Austria shall
inform the Commission, within two months of
notification of this Decision, of the measures taken to comply
with it.

Article 4

This Decision is addressed to the Republic of Austria.

Done at Brussels, 27 June 2007.

For the Commission

Neelie KROES
Member of the Commission